What Peak XV's partner exodus says about VC economics

Okay, one more very quick disclaimer. This was one of the few episodes that was recorded entirely remote, meaning every guest, every host was sitting in a separate location, which is why audio quality might not be as good as it usually is. Please bear with us. Earlier this month, she'll ingress in the managing director of one of India's biggest and most storied venture capital firms, peak 15. Did something you don't really see very often? He sat down with a newspaper to publicly explain what was going wrong inside his own firm. For context, news had just broken that three of peak 15 senior partners were walking out to launch their own fund. But that is not why we are talking about peak 15 today. You see, the reason we are doing a whole two by two episode on this is actually why they left. In that same interview, Shelley and the said that their departures came down to just one thing. And that's why we are talking about the fact that the company has been working on this project for years. Except, what if I told you, it's not? So if somebody would have invested in 100 rupees, I mean, I'm taking a really simplistic assumption, right? 100 rupees in 2014. You're saying it's worth, they've got paid back 110 rupees and 40 rupees is still residual. So the total value of their investments today in 2026 is 150 rupees. I say that, yes, that is absolutely the right way to think about it. Just to put things in perspective, the value of an FD would be 187 rupees, from outstanding. So people don't realize that, you know, this is and comparing to the safest instrument possible you know, I'm not comparing to the index funds, which will be far, far higher. Now that was a little snippet from the longer conversation you are about to hear. It was my co-host Rohin Thadma Kumar speaking to Mayank Bansal. He is a UAE-based hedge fund manager and a return guest on this podcast. Now, if you couldn't tell, Mayank has some very strong opinions on Kari, almost specifically on the classic two and 20 model, where fund managers charge around 2% a year in management fees and then take 20% of the upside when the fund makes money. Now remember, these are mighty million, sometimes billion dollar funds we're talking about. And they're usually locked in for a decade or so. So I'll let you do the math. Let's be clear here, our concern isn't that VCs are getting paid. It's that in India, the returns on many funds simply don't justify the kind of money a small set of partners can still walk away with in fees and carry a loan. What is happening in the VC industry currently is, they're charging the profit shares of the fund. You know, that went down in fund while returning less than it takes once, which is blasphemous. Sorry. Yeah. That is entirely. Before we dive into this very interesting episode of 2x2, I have a quick disclaimer to make. This one is a little number heavy. Early on in our conversation, Mayank starts to read aloud from Chris's AIF benchmarks report. So to really get the full experience, I would strongly recommend opening some of these reports yourself and following along. Our wonderful producer, Udantika will link everything in the show notes. If you have ever wondered how VC partners actually make money or you've only heard about VC fundraisers from the founder side of the table, this episode is your chance to see the other side. So without further delay, let's get right into it. Something happened at peak 15 over the last week. What exactly happened? So peak 15 since 2024 has been the center of a lot of headlines, not just for the returns that it has been making thanks to many of its companies I've been doing, but because of a lot of its partner exits too. It's a duetip fund which manages close to almost $9 billion in India and to manage such a large fund, it had close to 12 general partners who run the fund. How many partners do they have now? And now they're down to six. So since 2024, there's been a steady stream of exits of partners and the reasons that they didn't. Which culminated in, yeah, you could say that, as their startup portfolio companies write size, why not the VC partners themselves too? This culminated in a big event last week when three of its partners at once quit. This came as a shock because one of the partners who left was one of its best performing GPs. He was not just the best performing GPs of peak 15, but almost of all of Indian venture capital. So GPs, sorry, so GPs are general partners. So these are the people who work at VC companies who typically manage funds that are given to them by investors and they deploy them into companies and startups. So I'm going to read out the names of the three people who quit. Ashish Agarwal, Ishan Mithal and Tejaswish Sharma and Ashish Agarwal was the partner who was responsible for companies such as investing in companies such as Grow and Preston. Ishan Mithal has made investments into companies like Mama Earth which has already gone public Razope which is expected to go public. Tejaswish Sharma has gone into companies such as what fix, charge, be and create. As you said Arun Nathi, this is of course just three people who had quit. There is a much longer list of partners who have quit peak 15 over the last few years and these are some of the other names. We have Harshit Sethi who had invested in companies like Bharat Pay, Daven Box, Sarvam, Shalesh Lakhani who had invested in companies like True Color, Minimalist, Xego. Xego is also gone public recently. Abhi Kanand who also invested in Slice, Blinkit, Shrejan Stalker who invested in Misho, Zetwork, Cast 24. These are not people who are leaving because they missed the ball. These are people who basically did exactly what they were supposed to do. They went and invested in startups and as they say with all companies and VCs, the goal is essentially to make sure that these companies get more and more investments and eventually go public and do an ITN. All of them have had at least one company in their portfolio that has gone public. It seems like they must have had a great time. It must be a successful time for all of these people. Why are they leaving? Kadi is a share of profits that we are going to be hearing this term a lot today. But Kadi is a share of profits that a fund will ultimately give its investors. The very public statement from peak 15 made it clear that that's the knob of the issue here that Ashish wanted more carry in future funds that peak 15 was raising but peak 15 did not want to play ball. That's fundamentally what it's coming down to. Okay. The heart of the episode today is why aren't we paying VCs enough for these wonderful outside successors that they are making? Clearly everything seems to be working out and yet they are leaving. So should we be paying VCs more, much, much more? Do they deserve much more? It's really going on here. To answer some of these questions, of course I have Rohit, Arun Dati and Rahil but I also have a returning guest, Mike Bunsen, who is a manager of a hedge fund based in the UAE, joins us back. Hello, Mike. Hi. I have probably good to be back. Listers will remember Mike from an earlier episode that we did which was one of our top episodes. It was an episode about do you remember Rohit? No. Okay. It was all right. Of course I remember fine. Nobody's taking by Qs today. Okay. Fine. Listers will remember Mike from an earlier episode that we did about Jane Street which was basically in the Indian stock market that can broke that story and I recommend going and listening to that episode. We had him along with our finance editor Anand Kalyan Raman. So I'll link it in the show notes. And today the reason I have Mike in this episode is because Mike has some surprisingly really strong views about VCs and how much money they make. So tell us Mike. Are VCs getting paid less? Surely we should be paying them more. Firstly, I would like to mention that Ishaan is a batch made from my day Dati. Okay. We have played tennis together a couple of times and went to cat coaching together. But they are regarding your question. So what I did was what I did was I compiled a list of 30 small. fund in India. You know, VCs will typically be investing in small cap funds. They're not these like small cap funds is, I mean, even please small cap rather is the universe. Small cap is the most stable universe. So I compiled a list of 30, you know, index, link funds and saw their average return. And their average return over the last 10 years, which is the typical life cycle of a VC fund was in dollar terms. Okay. I'm saying everything in dollar term because VCs also report in dollar terms was 13.32 percent. This is the average return in the last 10 years. Sorry, man, these are index funds. So basically they're not doing any fancy strategy. Most of them are just like, you know, buy and like, like they will make some, I guess everybody will have some. Like, you know, I mean way to kind of like, you know, adds their own flavor to it. But this, they're buying large their index funds in the sense that they are aligned to the index and. If they're buying large index funds, which operate in the small cap, their benchmark index should be the small cap in 50. Okay. Now these index funds over the last 10 years have returned. And I'm not cherry picking up on here. Like I'm not going at the best or the lowest or whatever. I'm taking the average of all of these just to eliminate any biases. They've returned in dollar terms 13, 13.35 percent, 13.35 percent. And their total expense ratio in case one goes to invest into them directly is around 80, 0.8 percent. So 13.32 percent is what they've generated for the investor. And, you know, they've charged 80, so I did. Now if I come, if I compare this to what I also did was I opened a personal website, which list of the returns of category one AIFs, which is where, you know, all the VCs fall by semi-devilization. And they've actually classified the returns by vintage, you know, 2014, 15, 16, 17, 18, 19, I've taken from 2014 to 2019 since those funds would buy large have invested and would have started getting the outcomes. We want 2019. I have the page open in front of you. We'll share it in the show notes. So please don't worry about what my ink is talking about right now. For 2000, they've actually reported pre-cadi returns, you know, just for the viewers who actually go to the page, they've reported pre-cadi returns. We'll have to deduct the carry assuming at 20 percent carry. Whoa, whoa, whoa, whoa, whoa. My ink. I think it's, this is the time where most people don't realize what the VC fee model is. How? And the 220 model. So perhaps you can just tell us what, 2 and 20 is. Okay, let me just explain. So here is how VCs. This is a very standard model. How VCs make money. So what happens is you have fund managers who work inside of VCs. These are typically like, as we mentioned earlier, they're called GPs or general partners. Remember, this, they're called GPs because you're going to hear that again and again. And once again, they take the money that their investors give them, which in this case are called LPs. So what they do is that they take this money and they invested by putting it into start-ups, putting it into companies, etc. Now what these GPs do is you really want to incentivize them to maximize returns and to generate long-term wealth. So what they do is they do this charge which they call 220, which is stands for 2% management fee and 20% carry. So what this means is that there is a fixed amount that they always take, which is 2%, which is what they call management fee regardless of the performance of the fund. Whether it makes 10%, 20%, 30%, 40%, they take that. But they also take a variable amount, which is 20%, which is what they call carry, which is based on the share of profits that they create as a result of performance. Can I just simplifying the additional experience? The average listener who's in mess in let's say the stock market or like with their investor. If you go and hand over 1000 rupees to your investor to invest on behalf of you and you say, here take my 1000 rupees and I'll come back to you and expect some kind of returns at the end of 7 years, 8 years, 10 years. Then you're in, you know the person that you're handing the money over to will say fine, you know what? Every year I'm going to take 2% of your money, right? So in the first year I'll take 2%, second year I'll take 2%, third year I'll take 2%, doesn't matter what I'm doing, you can't ask me about it, I'll just take 2% and then whenever I return your final money to you, I'll take 20% out of that as well. That's the purpose of the profit. I'll take that 20% as well. So that's really quite simple, right? I think this LPGP just distracts us from the fact that at the end of the day people are giving someone money to invest and generate returns and that someone is just taking an annual fee of 2% and then 20% of the final profits that are generated at the end of it. It's really quite simple actually. That's 2 and 12. Raheel Ojim, now tell us right. Now for my final money. How did we get here? Just to take a step back and tell you my fun story. So, 2 and 20 actually traces back to the 1940s to the emergence of the modern hedge fund. So there was this guy called Alfred Winslow Jones. So he set up the first hedge fund in 1949 and as a manager he said I'm going to take 20% of the profits as incentive and then later on he introduced 2% as management fee and that is the original story of 2020. Later on PE co-opted it and then VCs did 2. Eventually got it. Oh, it was stricled on economics. And no fun story. From hedge funds to PEs to VCs. Exactly. What about you? 2 VCs. Yeah, I will just sort of you know lucidate what 2 and 20 effectively is doing for a fund which is returning 10%. For a fund which is returning 10%, firstly they will just you know 10% gross before any deductions. Okay, they've generated 10% in their investments. Now they will firstly take 2% away because that is their asset management fees like the management fees. Right. So that takes it down to 8 and then on the 8, they will charge 20% of that which is 1.6. That total deduction from the returns they've generated becomes 3.6. That's a 36% profit share. Like I'll also introduce a term called profit share which is very common in hedge funds. Wherein you can combine you can have multiple combinations of management fee and carry percentage. But it all boils down to the cumulative profit sharing that you are you are taking. So at a 10% rate, 2 and 20, the model of 2% management fees and 20% profit share or 20% carry. Translates were 36% profit share. So if someone is generating 10%, the investor only the investor who's given the money only gets 6.4%. It's that big a draw. I have index ones for index. I have a question. Sorry. I have a question for you mine because you're a hedge fund manager. If you look at if you say forget this entire LPGP, I'm taking the queue from bro. And I'm saying okay, this is just a person you're giving money to. Think of them as a fund manager. Broadly speaking. And umbrella. Is there any kind of a fund manager across any kind of an hedge fund, whether it's P, whether it's a thing, any kind of an asset class that takes this much of a share. No, so you can get this much of a share. But your returns have to be gross. It all has to be much higher for that. Like for example, I'll just take an outlier. Renaissance, Renaissance technologies, Mendelian fund grossed 66% 66% over some 25 years. Like huge huge time 25 years 30 years. It was a private, it became a private, it wasn't open to subscriptions ultimately. So it just became a private investment vehicle ultimately. But they were getting they were getting 66%. On that, they were charging 40% profit share. Okay, which would which would mean that the fund kept 26% and 40% was passed onto the investors. So such high profit shares can exist, but your returns, gross returns. When I say gross returns to the listener, I mean returns before deducting any management fees or or cadding. The gross returns have to be as as 66%. What is happening in the VC industry currently is they're charging the profit shares of you know that Mendelian fund while returning less than it takes once which is blast coming. Sorry. Yeah, that is the entire idea. We got sidetracked when you were talking about crystal reported numbers on what the fund returns were, right? Could you take us through this? Maybe you pick let's pick either fi 15 or fi 16, which is roughly let's say nine years ago or 10 years ago from today for the fund vintage. Take us through the numbers. What do you see? Yeah, so yeah, so to the audience, I'll just sort of illustrate the time cycle of a typical you know VC fund. It typically starts off as a 10 year fund, which is extendable by the typically half to extended because they don't get exist. So they typically extended by a couple of years. Now in the first five years of the fund, they're sort of investing the money that you've given. And in the last two, three years, I would say majorly towards right towards the end of the exit while I use wires, tails, you know, acquisition, etc. So the entire cycle on average the investment duration is around eight years. 8, 8 and a half years, you know, because you've not started from day one you've started from your 2.5, effectively that is the average deployment time of the investment and your average exit time of the investment is somewhere around 10 and a half 11 years. So, just, so why I was sort of mentioning this is because in the crystal report it now makes sense to see funds which have had ample time to invest. So I have taken returns of funds till 2019, you know, because they've got ample, 2026 weeks now they've got ample time to invest and see the IRRs of those funds. The USDIRs it's also essential to demarcate between IRRs and USDIRs we are concerned with USDIRs and it is also important to, you know, be very mindful of the fact that these are pre-cadi returns. So, carrying has definitely not been subtracted from them, you know, by explicit. This is the report they've segregated it by vintage 2014, 2016 and so on. Majority of these now CAD 1 has 23 categories but, you know, I think some social funds, etc. also but there's no takeoff for those funds. So, practically all these funds are VC funds. Now, if I go to, you know, just sort of take the average fund IRR, you know, which is 5 into 7.3 for F5, 15 plus 9 into 3.8 plus 20 into 16.3 plus 12 into 26.1 plus 10 into 16. So, we have the number of funds and we have the IRR. If I were to just wait the IRR with the funds in a given year, we arrive at a weighted average return from F5, 14 to F5, 19 of only 12.35 percent, 12.65 percent, 12.65 percent. And just to be clear, you have still not picked up funds. You have just been accepted and aggregate. So, this is for the entire cohort. Like, entire cohort of VC's because all VC's have to buy regulation, Paul in CAD 1, AI S, all VC's are registered as caponeas, that is by regulation. And this is the return rate of all caponeas. I think the likes of peak 15 though would be Mauritius registered so they may not feature in this list, but that's possible. That is possible. But we have a different year. My cashier and different list, which has all many of the peak 15 funds. Yes. You know, just in addition to the crystal report, do note that, you know, when one calculates the IRR themselves, you have to multiply by 0.8 because these are pre-cadi returns. You know, so you have to subtract 20 percent of the returns. Sorry, but sorry. Before we move on from this sheet, I'm, Mike, I'm not still sure that I've understood this sheet. Can you, for instance, pick any one of the windages, right? FI 14, FI 15, 16 and just take us through the numbers that are there on the crystal. So, I didn't explain to us what they mean. Yeah. Yeah. Okay. So, I'll take the first group. So, FI 15 is the first group. It says that there are five funds launched in FI 15. Okay. So, five people launched mostly VC funds, launched their funds. Now, the 7.3 is the IRR of those funds till now. FI 14 funds would have expired. Like expired, meaning they would have brought, they should have broadly shut by now. But we will see that some part of them is, you know, some part of those funds is still still there. I will just explain what DPI is. DPI is what, you know, what has been returned to the investors. So, this is the distribution. So, in case you've invested one unit, 1.1 has been paid back to the investors. And the value of the remaining investments is 0.4. So, the total, TDPI, the last sort of column in this table is the total value of the total market value of the investments as of today is 1.5 against an investment of 1. So, if somebody would have invested, I mean, I'm taking a really simplistic assumption, right? 100 rupees in 2014. So, people don't realize that, you know, this is, I'm comparing to the safest instrument possible here now. You know, I'm not comparing to the index funds, which will be far, far higher. If I go to compound, by the way, you know, add the error of index funds, we are just mentioned. Because, you know, 13.000, dollar, error of 13.35%. Then this, I'll just sort of tell you, this would be an own, just the index funds, would be around 275 to 80. And I've taken a 8-year horizon, you know, even for this fund, because again, they would have invested for the first four, five years, which would load this deployment duration. So index, what they've beaten them by roughly 100%. You know, 100% of the original investment. And just for listeners, I mean, just so you know that you're not, we're not cherry picking number, there are other advantages which are higher. For example, if you look at FY16 on FY17, you know, the total TVPI stands at 2.5 and 2.8 respectively. Those are the highest years, right? Actually, yeah, actually, just one correction here. So this TVPI is based on, you know, without deducting carry. So you'll have to deduct carry from them. So if I see FY16, so one, you know, this is effectively one and a half units of profit in the TVPI. So 0.2 or 1.5, which is 0.3, would need to be deducted and this would be sitting at 2.2. Once again, you know, for the 2016 vintage, the index return would have been 80%, I mean, 280%, as opposed to 2.20%. Got it. 2016, one would have mostly, mostly exited or even the values, even the investments would be pretty much your money. You know, because they would have to start exiting those now. I wanted to bring it out in the TV because I mean, we started by talking about peak 15 and it's partners leaving. But this is also not new. It's not the only VC that is like losing partners left right and center. So before we get into the specific numbers of either peak 15 and we also have the numbers of a couple of others as well. We'll talk about that. But I think the question that I have for you are in the these, what are you hearing? When you go and when you report and when you talk to people, what's their reasoning for leaving? Like how can they even justify? I mean, if they're saying it's because of we're not seeing the upside, but if this is the kind of numbers, what possible upside is there? How can you even justify it? No, just I just sort of, you know, add my short view here. So the people who are leaving, you know, the partners who are leaving might be right in thinking that the upside, which is attributable to them is low. While the fund has a whole maybe heavily overcharging still, just, yes. Absolutely, right? I think what's unfolding is partly a peak 15 problem, but partly a problem of how venture capital works by itself. And I was going through this. There's this tweet by this former Warburg because executive who speaks about the fundamental problems in, I mean, he was talking about the being industry, but this is applicable for venture capital itself. And fundamentally, the problem of the business model problem, right? Because you have a partnership where there are these older senior partners who have a share of the carry in every fund and they have a higher share of carry while the junior partners don't have that much of carry in a fund. But it's these junior partners who are out there sourcing deals, clued into the ecosystem and they feel like they are hungrier, they bring more value to the fund, right? So it fundamentally feels like a very unequal partnership. And this is true of what's unfolding in peak, but this is why you see so many partners also exiting out of VC firms and trying to go at it by themselves, right? And I feel like there is, I mean, when I report on this, my personal view or my takeaway has been that there is a bit of unfairness in the way things play out. Because in this business, yeah, the partners, right, especially the junior ones, right? Why? Why is it unfair? I don't understand. No, unfair, as I let me explain, right? Like because you, let's think of a huge example in peak 15, right? So he invested in grow in 2019 when he was a VP. He was not partner yet. He was not even principal yet. He identified the steel. He made this investment, right? And yes, you probably didn't know that it'll have such a crazy outcome. But at that point, he was low in the pecking order and he would have got a X percent share in the carry in the 2019 vintage of fund or which, I mean, I'm forgetting the exact vintage in which the grow investment happened, but from that fund, he'd have gotten a certain carry, right? Now, when you look back, now that is what it is, you can't go back to whatever carry was negotiated. But now when you look at it, he's now, he's been that one person who's returned that entire fund for peak 15, right? So in a way, performance, right? comes much later than the bets that you're making in advance. So I think that really spins off this conflict between partners with them. Can I bring another perspective? I think largely still talking about deals and super hits and mega hits. But the reality is that most venture capital investments do not make money or return money. So the venture capital model is largely based on the fact that you make a bunch of investments and some of them will be spectacularly successful. The large majority will barely return the money that you made it and a significant percentage will actually lose. You'll have to write them off. So the real super hits essentially carry your entire fund. But what this means is you have no way of knowing nobody can know which the super hits will be. So in order to generate the super hits, you're going to take a bunch of investments. So now if I flip this and this goes in two particular directions. One is of course, my own direction, which is look, this is just inherently inefficient. If you're making so many investments and you're sort of kind of counting on these super hits to generate returns. And even with that, you're generating less returns than what you could just generate by investing in the stock market in an index fund, then there's something inherently wrong with your model. Or in the FD. I mean, the FD is actually, I mean, I'm not in FD. Either we just know an FD compounding at 10% for 10 years is 2.6% if you're doing all of this is the VC and saying, oh my god, this is so dangerous. We got to do all of this. Lemon's like, you know, mature faster, Jacob, all of those fancy, like, you know, we've got to listen to all their thought leadership just to generate FD returns. There's something inherently wrong with that model. That's one. Second is the point that you made about it's unfair because then you got to flip it to the other side and say, what about all the deals that people made that turned out to not go anywhere? Should they be penalized for those as well? Because when you sign up to a particular business model as an associate, as an analyst, as an investor, as a partner, you know how the model is played. You can't take the benefit of hindsight to suddenly say that because my investment was successful, I deserve a greater share, right? Like, you know, I mean, because I mean, how do you do this without essentially questioning the entire model, which is actually the point that my uncle is saying, right? So, uh, crime me or a revolve? I'm actually simply saying that the VC industry is firstly, you have to lock in your capital for 10 years. So, you know, there's more liquidity. The bets are super, you know, I would say, in the sense that corporate governance sector is not in place as opposed to listed companies where corporate governance is in place, which are far more trackable because they have to disclose their, you know, penal statements, courtroom, quarter, quarter, and quarter. So, the lock in is there for 10 years, then there is the liquid, you know, which is the same, which is basically liquid, lack of liquidity. You can't take out your money, you know, for 10 years, as opposed to listed equities where you can sort of take out at any point in time. The index, the small gap index is far more diversified, you know, which means that you have far lesser of the ions on one, you know, one deal, get outlier hit, you know, generating the fund, if should that fund, should that company not have been there, you're portfolio, then you're bussed. So, very less, so small gap index 250 has 250 companies now. A typical VC fund, I don't know, but I think investing 20, 25 typical bets, something in this range. A small gap index will have 250 companies, your exposure to single companies, part won't then, then what a VC firm would have. Then, you know, in addition to this, you know, you don't even know the volatility that, you know, is there because it's not reported. Unlike a portfolio and a listed company which you can track day on day, you don't know what is going on at the back end, you know. I got that man. But then the question is, why do LPs, especially some of the most sophisticated LPs in the world like endowment funds, etc. Why did they continue to invest in venture capital as an asset class? Surely they're aware of this. No, I mean, I think they are aware, but I think their data is getting created in the sense that as VC is under firm, and this clarity needs to be sort of dug into the heads as well. I mean, in the sense that it needs to be spoken more, more than I'm glad this podcast is happening. You can't be charging, you know, 36% profit share for generating less than index returns. Just to, you know, continue with the earlier chain of thought that I had, they were generating 12 points, the the crystal report, you know, which list of all the VCs which have been incorporated in India at least. That average hour of 12.35%, their gross return, you know, pre-deduction was 17.35. They're charging 5% of that, and bringing the return to less than index funds. I mean, it's almost as if they feel that it is their own capital, but it's not their capital. It should. So we seem to have established that VCs are not exactly underpaid. The initial premise that we started with that, oh my god. So A, we seem to have very quickly demolished two of the assumptions that, oh my god, they're generating outsized returns, which has been demolished because yes, there may be individual outsized returns within a fund, but most funds are actually generating middle middleing returns. And second, we also said that look, VCs are essentially going to a wealth manager and this and data you that look, this is my wealth management fund. I'll charge you 2% and I'll charge you 20% and then inside they've got this bunch of people working for them and they run very inefficiently. Right. And some of them may be underpaid and some of them are really talented and like, you know, working their ass off, but they're not getting paid enough. That's not your job to figure it out. Right. You're still saying boss, that's your problem. I'm paying you 2% every year, year after year and then you're taking 20% of my profits. If you can't retain your people, if you want figure out how to incentivize your best deal makers, that's your problem. If I was a VC listening to this episode, right, or someone who is sympathetic to VCs, right, I'm going to bat on behalf of them and I'm going to say the argument I imagine would be two things. Number one, okay, fine. All of this is very good, but you're looking at it on an aggregate level. Right. And anything when you look at an aggregate level, sort of like pushes all the medium performers, low performers, everyone together and averages everyone out and so as a whole, it looks really bad. Within the set of, you know, all of these things that you pointed out within Crystal, there are that be some VCs who would say, you know what, we don't know who these are. All right. That's a great point. We are giving an example. No, no, no, no, no, my, I actually have exactly this point to refute. Mind, please allow me to come. PGK, you know what? You're absolutely right. The top 10% of BC like in generally most cases, the top 10% of like, you know, investors in any sector or funds in any sector, VCs in sector are responsible for outsized profits that end returns that are generated. But so VCs also essentially fundamentally operate on what's called a power low, right? Like, you know, the distribution, right? Like, you know, now the top 10% really do a great job of multiplying wealth and they probably definitely deserve their 2 and 20, right? The bottom 50% actually barely just about managed to return capital to their investors, right? And the rest maybe 40% do about 2.5x over the life of the fund, which like my own said is barely enough like, you know, even if you take like an FD. Now here's the catch, right? The top 10% because they are so good. They actually are typically like, you know, not accepting capital from anyone and everyone because they've got enough and more. They've got relationships going back years and decades and their funds are closed. You just can't get in even if you want to get it, right? So the top 10% are we've got enough money. What happens to people who still want to, it spills over to the others who want to ride on the, by selling the hope of the top 10% right? So you want everyone to buy this thing up. Look, you're not investing. I mean, imagine if you're investing in a mutual fund, right? You'll typically a mutual fund manager will point out and say, look at these returns that these funds are making, right? They'll sell you the image of the 10% but since you can't get into that, they'll take your money and you'll essentially fall into the, either the middle 30, 40% or the bottom, right? That's one. So this, you're, so your point about, don't go by the average is right. Most people get into the asset class thinking, I will not be the average, but surprise, surprise, you end up being the average, right? Because the top 10% are not actually taking money from everyone. So here's and also the top funds, by the way, they, they don't charge to end 20, uh, Sequoia, for instance, used to charge and peak to until very recently used to charge two and a half and 30. So, so they charge like the top. This is absolutely by the way for, you know, this kind of carry, you need to have gross returns in excess of 40%. So I will just lay down. Okay. Let's say, let's say, before you get in, let me just bring in few tangible examples. I wanted to bring in tangible examples. And I know you're going to bring it in, but just for our list, like for instance, I'm going to give two tangible examples because we have been talking about top 10% itself. Let's talk about these specific examples. Here's one. Let's. Let's talk about Axel. Axel is one of, you know, as people know, some of, one of India's earliest and probably one could say, oldest VCs, very, they were basically involved in a lot of investments in e-commerce, etc. In fact, one of a reporter Sri Ramani, he basically published the returns that they basically disclosed to LPs, he published it at Newcommer. I'll, it's paywall, but I'll publish the link at the show notes. But here is the returns. I'm just going to read out the returns very quickly. Axel India too, which was launched in 2008. It was a 64 million committed capital. Got a net IRR of somewhere close to like 37 percent. You said 40 percent mine, that is 37 percent. This is good. This is excellent. Yeah. But I would agree that I would agree with you. At that, just, you're clarifying from this point on, it kind of becomes a little, just go into the subsequent TV, you realize, you know, what's happening. Fine. Okay. Fine. Just for our listeners, Axel India 3 in 2011, 157 million. This is the, what they invested in with that fund was companies like, say, charge B, fresh works, blue stone, net IRR of somewhere between 17 to 21 percent. And I think this is before carry. Axel India 4 in 2014, which invested in Swiggy, Zenoty, Urban Company, net IRR of around 15 to 22 percent. Axel India 5 2017, which invested in Infra.market and Z work. Again, it's, it's a very broad ring 17 to 23 percent. I imagine that's also because the fund is not over yet. So Axel India 6 2019 right now stands at around 3 to 10 percent, which are invested in Amagi, Mensa, Captain, Fresh, etc. So I get the argument. So I think that at some level, because there were a lot of these early funds that generated such outsize returns, it gave them the confidence and the ability to go and say, look, we are going to continue to do this. We are the top 10 percent. So let us get our 2.530 as I think what's happening here is also the conflict between fees and getting. Axel fund one, the first fund that you speak about, also return that much because the fund size was so small, the subsequent funds all got larger and then therefore the DPI and the IRR just gets skewed out. But if it is fundamentally have to, they're somehow unable to return as much money, why should that matter? Then why they're raising more money? It's over the share. I read that. That's what I was saying. That the fees and the kind of conflict. You see that this does not scale. Don't do it. No, guys, I haven't finished my point. They need to raise bigger funds because that's how that's when they get to go saying that. That's fundamentally they conflict with each other. Point because the only way you can have a larger set of people working, fans here offices bigger salaries, all of that is to increase the 2% that you can charge. The only way to increase the 2% is to raise a larger fund. But Arun Dutthi you seem to be saying, but you know what, if you raise larger funds then you can't generate enough returns at scale. Exactly. Doesn't that seem sort of off? Yeah, that's the fundamental business model challenge for me. That's okay. My point, let me come in. I'll just very quickly for the record say Axel's fund sizes because Arun Dutthi made that point. The fund sizes as over the years, over the multiple funds has been your right. Arun Dutthi the first one was 64 million. Then it went up to 157 million, then 325, 451. The latest one that they rolled out into 2022 is at 651 million. So your point is well made. Your right that the fund size is increasing with every fund. There's no doubt about that. Mine jump. Yeah, I was just adding on to Arun Dutthi's point that the larger funds size does not only imply additional 2% carry, but let's say there's a 100 million fund which is the sorry, 2% management fees, but let's say there's a 100 million fund which is generating 50%. Okay. Now you will get the carry of 20% on 500, you know, basically 50 million basically. Right. As opposed to a one within fund which is returning 20%. There you will get a carry of 200, 200 million. So 50 versus 200. So it's not basically even after a far superior performance of the lower sized fund, you're incentivized by the very structure of payouts. You know, see people will know what insent, you know, you show people the incentive and they will head in that direction. The incentive is aligned that. So 100 million fund generating 50%. And it's lesser for the fund is compared to a 1 billion fund yielding 20%. And people will do that because that's where the incentive is up to the edge. Can I just put this in simple terms? Let's say a fund, let's call it fund X says, oh, you know what, we just raised this 100 million dollar India fund. What's going to happen is they get $2 million out of that in year one. To spend on like hiring people their own salaries, offices, meetings, blah, blah, blah, all of that stuff, right? They get 2 million year to. Yes, yes. What cost appearances? 2 million year to 2 million in year three, 2 million in year four, 2 million year, right? So just like that without doing anything, assuming you just didn't do anything, it's getting drawn down by 2 million every year. No, of course, that's not, it's not getting drawn down because they're actually going at an domestic. So I think most people don't realize this. Can you imagine because at the end of the day, we have to realize that venture capital is fundamentally an investment asset class. It is a way for people to give someone money to invest and generate returns for it. Now, ask yourself as lay people, if you had a lack of rupees to invest and you went to someone who said, you know what, I'm going to invest in the stock, but I'm going to generate brilliant returns for you. But you know what, out of that lack, I'm going to take 2% in the first year and you'll be like, what, that's my fees. No matter what happens, I'm going to take that fees and you know what, I'll take it in the second year also and you know what, you can't take your money back from me till 10 years, right? For 10 years, I'll continue to take 2%. And what do you give me back at the end of 10 years? Well, I don't know. It's going to be very good. It's going to be about two times, 2.5 times, three times or something like that. Now think about how ridiculous the notion of this is of locking your capital for 10 years and having someone pay themselves out of it without committing returns. And even then at the end of it, they'll say, I'll take 20% of your profits as well. You'd get laughed out of any like, you know, customers like, you know, conversation, if you try to charge like that. And yet, when check out the continuous to operate as this asset class, we've done a story where I think there's been notable efforts, especially from Sidby, if I'm not mistaken in India, to force venture capital to accept a lower rate of both management fee as well as carry. If they take money from Sidby or India, we should link to it in the show notes. If I'm not mistaking, it was what 1.8 and something else? 1.5. 1.5 from 2%. It was only fees that, that's how those efforts to say, look, this is ridiculous. You can't be charging me so much when I'm logged in because there's an opportunity cost to locking in your capital for 10 years. Imagine, right? You can't take it out. But I also will answer partly a question that I asked earlier, which is and yet why do LPs continue to invest? One particular reason is especially for many of these, let's say large investors in venture capital funds like endowment fund. diversification like a large or a Stanford or a California pension fund, etc. When they manage large pools of money over large horizons of time. So they have this mandate that we need to diversify investments across a bunch of asset classes. And many of them have this thing off, you know what? We are setting aside 2% of our capital to invest in venture capital as an asset class. And they're not doing it to generate the maximum returns from those 2%, they're just saying we need to diversify because we can't be all in on any one thing because we need to safeguard this money. Once they've made that decision for the 2%, then I think then they end up allocating it to particular VC, etc. They're not really optimizing for returns. I think the mistake that I made was that I thought that look, I mean, why would they anyone do this, but really when you think about it, if it's 2% of the overall money that you're investing across decades and decades, and then you're like, I just have to invest it because it's one of the asset class. And that sort of makes sense that their investors are not optimizing. Perhaps to answer my question, that's what emboldens VCs as well. Because in some sense, if you know that the money is coming to your asset class without any effort from you, right? No, I do. I think it's a really one second. Even if that is true, then why put so much effort on this side? Then I say VC, I said, VC, you might as well put money. As an allocation, the purpose of asset allocation diversification is that when one segment fails, the other picks up. In this case, this is entirely linked to the economy, much like equities. So it is not any unique asset class like gold or something, which is, you know, which has a negative correlation with the, if there's a recession, you know, you think like if they, if they're, if they're all half the start is shutting down, right? So it is directly correlated to diversification should happen in non correlated sort of asset class. If the asset class is correlated, then then you know, you know, that goes into an asset class, which has lower discadjusted returns makes no sense. As a portfolio manager, the asset class is correlated. Why am I going to, you know, not only is there a lock-in of ten years, not only are the funds, you know, the forms which are going to be invested in less regulated. They are also giving lesser return than the small cap index. Like, so they should give higher, they should give it is 3% higher. So, small cap, that's the only thing that I don't think the LPs are actually interested in optimizing for returns. Thinking like the retail investor. So, then I think, I think, much more about that. My question, I want to name names. Okay, we spoke about Axel. I know Mayanky have done an analysis. So, here is my, again, I'm trying to bat for sympathetic VCs who are basically listening to this and saying, not all VCs. I'm the exception. Are there exceptions? Are there? Because you've done the analysis for one second. Sorry, one second. Yeah, I've seen it on the best forms. Axel is one of the best forms in terms of returns. So, exactly, which you've given is one of the best. Let's look at peak 15. But, we have this table in front of us. Yeah, let's look at peak 15. Because the story started with peak 15. We have this table, which is the University of California's, which is one of the largest LPs in the world. And there's private equity investments as of June 30th, 2025. And it has a bunch of peak 15 funds. No, it has peak 15, six, one, three, eight. Some of them, they still don't have the data for it. The earliest vintage I could find in that was 2018 vintage. So, the peak 15 partners, India fund six, the total, the DVP at total value multiple, is 2.86 for a 2018 fund. Then there's a 2019 fund, which is peak 15, seed one, seed fund one. It's 2.14. Then, of course, subsequent ones, the 2020 fund, India growth three, the multiple is 1.3. And that's fair, because there is also this concept in, when you capital of a J shape curve for returns, which is, you know, I mean, there is this dip that takes place once funds start investing. And typically like my hands, as said earlier, the returns, the only start happening towards the end of the cycle around your eight, nine, ten, etc. So there is a dip in the middle. So you can't just look at that fund six. So you invested five years ago and just judged them on the basis of someone who may have invested eight or nine years ago. But that said, these are not fantastic numbers. Like if you look at, let's say, peak 15, 2018 fund, right? It's, yeah, it's okay. It's 2.86, the 2009. That's by the way, the fund from which the grow investment was made. Yeah. So it may look better. But you know what, I'm with my own con this, because like the goal tends to be, if you are an investor and you are going to invest your money and the person you are going to invest your money with said, come back to me in 10 years and in 10 years, I would have taken 20% of your capital because I'm essentially taking 2% every year. And then I'm going to take another 20% of whatever I return. So this question is actually directed at my friend, Praveen, who's been saying that like, would you give a person like this your money for 10 years? I can see again, I'm saying the same thing. It depends on who you're saying, okay, great. Let's break that down. You're saying, venture capital has an asset class makes sense if it's only the top 5, 10%. So we should burn down the remaining 90% of the venture asset class. Is it? You can't do that, right? I think he makes the investment. No, no, no, no. If the returns are the ones that make sense, I agree with it. But we also know far low the top 10% generate the returns and the remaining 90% ride on their co-tails. And since we're talking about venture capital, I'm saying that there are people. I'm saying asset class, I agree. I'm saying, but there are people within this asset class. Like there are people who give money to Warren Buffet, but not to others, right? And is there, there are Warren Buffet equivalent? I'm assuming. Are there, at least I'm being mine, there are. It looks like there are, is it? Because other than one asset fund that came out like it, I'm sure there are. Like you're really saying it out loud. Like I'm literally saying, let's assume 10% of venture capital funds are actually great at returning money and generating returns. What about the remaining 90%? I think they should shut down. Like I think, no, you have to. No, why not? Why is that? Why is that? If you were running, if you were a money manager, if you're a wealth manager, if you're investing the stock market and you're unable to generate returns, what would be your only option? Shut it down. Why is it so hard for us to believe the same with venture capital as in asset class? Why do we think? At least, not investing. You know, you can't be generating less than index returns for a far higher risk. It just makes absolutely no sense. It's bonkers. You can't be taking 2X, the risk and generating lesser than index returns. On a risk and just to basically say, this is, now when people are saying, you know what? Index fund is the best strategy. Minimize the fees. I mean, we've gone to the extent that right now, like not just sophisticated, right? Even average common investors in the stock market understand that the biggest way to lose money is to pay it off as fees. So they know that like, you know, get into schemes, mutual funds also on a direct basis, minimize the fees that you pay, even lay investors understand this, right? And compound over yours, right? Because fees is the one that drags away most of your. Now, here there is no returns and there is fees and then there is carry and there is a 10-year lock-in. So how do it does this makes sense? Like I said, unless you had LPs who were like, look, we've allocated it so might as well give it. In a efficient world. Maybe we should just call. Yeah, we should just call it philanthropy and. It's not philanthropy. I'll explain what the alternate is. The alternate or what's really happening is, VCs are taking money from LPs, giving them back, well, FD returns, while doing this entire song and dance of like, oh, we are going to reply to emails, we're going to come on podcasts, we're going to do networking events, those are what the management fees are going for. Are you switching sides, PGK? No, no, no. So essentially, I'm just coming back. So I'm just saying that so VCs have essentially become media companies. And reason, Horowitz very famously said that every company is a media company without realizing that VCs have always been media companies only. They've just been taking money from rich people in order to become media companies and give them back returns like you would get from an FD. That's really cool. It's a different business altogether. Why are we like positioning LPs as these like, hapless power folks who have absolutely no idea that there's. I'm saying that they're hapless. I'm saying I explain to you why? Because the scale of funds that many of these LPs manage is mind boggling, pension funds and nowman funds, etc. It's in the hundreds of billions of dollars. But would it be fair to say it is with this hope and belief and whatever that I'm taking this risk, maybe I am investing in the next P6. Right. Rahiz, that's a very valid point. But the point is that even the best. Now, typically if you make such risky investments, like betting that the next ball is going to be hit for a six, something like that. Even the best investments, which is actually in this case, is generating returns which is identical to a small cap fund. So it's generating 21% on average from the figures that Praveen mentioned, waited for, waited for AUM. And if I take a good small cap fund, Nippon small cap fund, then it does the same. So they're not even hitting it all the way. Even the best ones. So there is no. So essentially. So the real money gaming is the venture capital. I want to take another example. If you look at, say, Bloom, Bloom actually to their credit, published it. The public is the same problem. The public is? It is because they know that they're better than the other VCs. And the funds are also small. Let's see when they're fun sizes grow. Let's see what that'll look like. Be that as it may. It's correct. But be that as it may. I just want to say that they've published it and they published it with a very strange title called the Omega Files. But okay. But in that, they had their numbers. And here is their numbers. Fund one and one A performance, which is approximately from the first axle that we said. Roughly the same time period, 2011, on verse 22, 2024, which gets a, they report a five X gross returns. It's really good. And of course, they compare it to public market indices, etc. Which is pretty decent. And they think that by the end of 2024, it'll probably get to 6X. So I'm just saying that that was something that they did. But I do consider the point. It was the first one that they did with sort of like came with the same time as the initial. And I say compared to nippon's as cap in the same slides, if you notice, and they've also admitted themselves while being the best one, which is why they're publishing because they know that within the VC circle, they are among the, then the top decide. The reason for them making this public, you know, for them and cake, capital is because they are aware actually making it public is because they're aware, you know, the, the medium will not publish because they have not, they only have to lose. The top will publish because they only have to gain the medium is going to look and say that, you know, the top is going to be a performance. And why would you also not know that the top decides stays at the top decide across yours. They may mean, I mean, we have no proof. It's just that one English, I mean, since it is such a law of side it, where in one instant investment sort of, you know, makes for the entire fund and more and a lot more. That could just be, I mean, there could be some value, but it could just be through. The next in the next sort of funds, it might be possible that whichever fund is in the top decide right now might not. continue to sustain in the top beside. So even for a single VC firm, the returns for the longest period cannot just be seen as taking the returns off one of their funds where they were in the top beside. You have to see the returns across multiple fund raises. - Okay, I think I understood. - Mayank actually had a question for you. If you look at the fees and the carry component, we've discussed how fees kind of erode because it's an annual component. And then we've discussed how there's been some push from LPs on reducing fees. And since we're discussing about whether carry, I mean, how carry is detrimental to IRR, would it make more sense to reduce the, you know, for LPs to focus on the fees part than the carry part? - They should have a hold you rate. Firstly, they should be at 10%. - They do, right? - No, they would have. - What is the hold it rate? - Sorry. - I mean, the VC fund starts making money, the hedge fund, whichever investment firm, whether it is a VC or a PE or whichever firm, they start making returns only after they made 10% for the investor. And only after that, you know, does their carry start? And the carry should be linked to the returns that they ultimately generated. You know, this, this, what I don't know, I think the scale of, you know, overcharging is not being appreciated enough, you know, when you're charging 2% and 20%, for a net return of 12%, it's effectively 17, going to 12. You know, you kept one third of the returns where I said, this is, this, this kind of profit sharing is applicable. When you generate 25%, 30%, you know, net returns goes post-caring. Not at these developed returns, because when you're generating, let's say 30% or 35, hypothetically, I just, you know, taken example of 40% just for simplicity. At 40%, or 2% and 20% carry would mean that, you know, 2% is deducted. So 38 into 0.2, which is 7.6. So 7.6 plus 2, which is 9.6, the investor still gets 30.4, you know, percent IRA. So these kind of carry structures is unheard of. And it's ridiculous. I mean, I don't know from what traditional they can ask for these carry structures, the ethys should really take a long, take them, sit with them and show them their return. And ask them that, you know, what sense of entitlement they have to be charging, you know, to be asking for these carry. And they can actually also figure it out. Sorry. Keep adding that, you know, we are adding a lot of value to this country. That can do all of that is nonsense, bollocks. Like, generate returns for the investor period. That is what your job is. Don't give me a start. I also. Sorry, sorry. I just figured out that the, this entire structure of this fixed fee, management fee and carry this 2 and 20 model is essentially what is also the reason and the big trigger for all of these people leaving VC firms. Because everyone knows now that this 2 and 20 is not going to be touched. Nobody can touch this. There is no way to agree. So what you do is, yeah, what do you mean? No, I'm talking from the perspective of people who are like, you know, GPs inside Sequoia or all these other, sorry, P 15 or all these other. Ravi Shaka. P 15 Ravi Shaka all this does not matter. It has to come from the LPs. Obviously, if I have to come from the LPs. Yeah, I'm talking about the calculation made by these people running the firm. It isn't my best interest to charge as much as possible. Like, no, my uncle, I think the point is that, you know, the reason why over the last, let's say 18 to 24 months, we've seen a wave of exits across multiple venture capital funds in India, where younger partners leave to form their own funds is because they know they take for granted the math of a new fund, which is I'll go into the market. I'll raise a whatever $50 million, $100 million or $100 million fund. And off that, I will take 2% why 2% because everybody takes 2% I think that's the point that PGK is making that 2 and 20. So it's common. I don't need to convince new investors why they should be paying me to and 20 that correct. I think the LPs are being foolhardy. So it has to come from the investor. I mean, for the investment firm, it has a interest to charge as much as possible. You know, supposing a mutual fund says I charge 100% of the returns. Then no one will invest and that is the mutual fund corrects, right? I mean, the mutual funds say that, okay, if I have to do business, I have to charge the reasonable net, carry and management fees, which is commensurate to the returns and tend to it. So, NP should not invest. Now, obviously, you know, it is entirely possible as Arun Nathi was earlier mentioning that within the 20, the split of the 20 might be unfair between the junior partners and the senior partners. All the high performers were the older folks. Yes, yes, yes. I think this legacy show that, you know, we we state and the fund, and therefore, we want to charge a carry of every investment that is made is well, very naturally, you know, very, very nicely in any setup, lead to exits of the good performers, which is what you're seeing in the VCs of. So, within the Arun, within the 20, the artificial might be wrong, as to the split between the general, you know, between the senior partners and the younger partners. But the 20, 20, 20 is very, very good. Okay. We haven't also talked about what AI is doing to all of this. I just want to kind of bring that in and say, correct, since 2023 when Chan GPD came onto the scene and now of course, accelerating in the last, let's say three months or so, AI has is disrupting everything, right? Of course, like it's a cliche now, right? Software business, starting up, etc. One of the things actually, the impact that it's having is that it's becoming cheaper and easier to start startups and scale them. You don't need to raise so much of, at a seed level, so much at a series A level, so much at a series B level, etc. to scale because now the mythical one person startup, five percent startup, 10 percent startup, that is actually all operating at whatever 10X, 100X efficiency. It's actually true. So, therefore, there is data that shows that the amount of venture capital, which is needed for startups to start and scale is coming down significantly. So, now you have this, like, you know, clash between large of funds that were raised in the earlier, like, you know, era to deploy 25, 50, 100, 100, $ this thing. And the new set of startups, AI enabled startups that are coming up, which are very lean and generally many of them are even generating revenue right from scratch and don't need so much of capital, right? So, this disruption is happening. I see you and I raise you where you're correct that's happening with startup, but I argue that something very similar. No, I was for VCs. I was saying that AI is saying that as this is happening, the people investing into this asset class, especially within these VC firms are saying, look, this is a reset moment. There is no point sticking on within these firms with their ossified profit sharing structures. I might as well get out, start a younger fund, have a larger share or most of the share of the profits myself and be my own boss. That's the point that I was making. No, I'm agreeing with that. I'm agreeing with the larger share, but the monetary incentives we're spoken about. I'm saying what AI is doing to VC firms specifically is that it is allowing VC firms to become smaller and smaller as well. There is a larger number of you know VC firms which are like solo GPs like how are they running this? How many emails will you reply to? How many term sheets can you send? Now, because AI does all of these things, you can now source these, you can now publish content, you can now do all of these things. Yeah, because now how hard is it like think about agents, etc. I can imagine a future where VC is also hard facing exactly the same thing with startups of VC. So I know now that well, I don't need to have five general partners or four general partners. I mean, go out and scout the market and find out all these stuff. They've been shedding partners strategically. They're replacing them with agents. Agents are now sourcing deals. I have a question for mine. Okay, I think one of the things that I am reading between the line zero. Okay, I'm not sure because especially in the light of what happened with P-15. We started with P-15 so we'll end with probably a little bit of P-15. So if you read the stories around it, one of the stories around it essentially was about how Sharon's a saying who's, can I say he's a managing director of the P-15? All of summer MDs but he's literally fine. Let's say he's the face in the MD. I start it's not attributed to him but I remember reading a story where they said that look when all of these GPs left what a P-15, it was they went back to their LPs and said look all of these GPs are leaving which is letting you know etc. And the sort of there was a soft quote in the story that said that the LPs sort of are okay with it they understand it. So I think the thing that I was interpreting from it was that essentially the thing that LPs care about we talked about returns and we agree your point is well made that. I don't know. I don't know. Yes. That was when the first one of the exits happened. When the second one of the exits happened even the LPs were concerned. You know when Eshan, Ashish and even the LPs were concerned as to why you know how will you generate a task with such few partners and why is this such high partner adaptation. So my question being what I read between the lines was that if it is not say we spoke about LPs, it's not clearly about returns. We agree that it's an asset class that is not complementary or runs basically it correlates with the rest of equity etc. It has locked in it does not have liquidity. All of these things points well made. Then fundamentally does it then just come down to relationships where LPs just give money to you know venture firms that they have a prior relationship with and say okay take my money. It's also the driving system. I don't know if it's first done. a fund endowment fund when your annual review comes up. There are a ton of fund managers. There are a ton of fund managers who take money. No, no, but that's true. The relationship is one of the way to give. But at the end of the year, relationship can't be put on your returns table to your own like board, right? Where you say that here is my returns. It's on column relationship. Right? The person who gets fired, I've asked it. I've really cut you get straws now. But okay. No, there's no point like the entire VC asset class itself is very questionable. And that's when the questions are being solved, like, in any way, law, just I just sort of, I'm a public market guy. So I'll just put things in perspective here. The next part is stating at some 80,000 crore valuations. You know, the way to value a company is to discount its earnings of the future and bring it to the present. That is the current value of the company, dividend discounting, moderate, all it's the basic framework of value in any company. Now for being valued at 80,000 crores, when you discount a future cash flow of let's say 25 years, assuming in 25 years things will get disrupted, which is a very safe option. Okay. Over 25 years, it has to generate profits of 1.6 lakh crores around. You know, because after the discounting, it has to be 80,000 crores today. 1.6 lakh crores in profit. It's roughly a profit of 8,000 per year, 8,000 crores. That is not even it's revenue today. At these positive valuations, they are able to generate every returns. So the entire asset class is a mishmash. It's nonsense. It's basically a scheme wherein the VC firms have found out a way that, you know, because the SIPs are there, because the public at large is investing in SIPs. Therefore, you cannot any, you know, non-sensical valuation and they will fill their pockets and then at least we get some returns. Some returns which they are incorrectly okay. So this is just for the lack of a better, what a currency scheme kind of thing. You know, Lens card at 80,000 crores makes zero cents. It's revenue is not 80,000 crores there. Aspiring for 8,000 crores you've been new. Okay. Now, basically it has to generate 8,000 crores in profit, I know one of them, which is then discounted by the cost 20 years, 1.6 lakh crores, which discounting to today will, you know, get this valuation of 80, this is why, why, why valuations might, by the way, if I was to 10,000 VC, the VC's don't believe in this, like the VC's don't, by the way, you know, really believe that those profits will have to be, if I was to high-put it, he asked any VC firm that, you know, you will not get the except IQ, you can up to all the profits. There is no chance they will invest because they don't actually believe that the profits will come. You know, that is what is happening. They don't believe the profits will come. They, they know that the market is, you know, they raise at random valuations in terms of me. And then they listed at the market because it is so heavily funded, by the way, the entire Indian public if it is market space itself is, you know, very expensive. Compared to let's say Brazil or South Korea. And because SIPs are just coming to the system, therefore it becomes a very easy exit for any promoter or a VC firm or a founder, you know, to sort of exit a loss making company, but otherwise, never have the value that at such price it, they should not exist basically. So if I go to 5 to 30, pose a question to any VC listening to this episode and ask them that, you know, instead of the exit at IPO, you would get a stream of profits, stream of future profits from the company, that was your investment. Would you still invest? And I bet you that the answer in their hearts to 99% of the investment will be no because they don't really believe the gas moves are coming. The question. What about nurturing India's vibrant start of ecosystem? - And what about that? - No, no. - That is tabitain. - Yeah. - Yeah. - It's totally different from now. Last question and we can wind this. How does this, like clearly we spoke about this very, this tension point and it's only going to get stronger and stronger and stronger. And obviously you're seeing it get to a point. How does it crack? How does it break? Does it come from the LP side? Does it come from a bunch of VCs or solo GPs coming in saying, you know what, I'm going to just like, I'm going to disrupt this whole thing by basically saying, I will not take care of you. I will only do fixed management fee. And it's like, it's a classic case, right? Like how zero that does zero commission and they disrupted brokers. So you can just continue to draw a line down that path and say, some VCs might just come and say, we're not going to do this. And then suddenly everything corrects itself. - The last question is, how does this end? How does this break? - It looks not end. How does it break? - Ultimate heat is, it's obviously undercutting can happen. But even after the end of cutting, you have to generate returns. You know, you have to generate post, let's say there was zero cut. Do you think that returns is still okay compared to what an index fund is generating? Even with zero carry, the returns are adjusted for this. You know, given that they should be at least three percent, at least three percent, you know, kega higher than index fund because of the inherent riskiness, the lock and et cetera. Even with zero, the issue is off. You know, the investment's not making money. The valuations have to come down. And the valuations have to be in both companies, like profitable companies, rather than looking at schemes, which can, you know, you know, show us spike in valuation. You see all the IPOs, no PTM, PUNASA, you know, Swiggy, Ola Electric, they're all below their IPO price. Should an investor or a retail investor have put in money simply nifty at the time of their IPO and shorted them, you would have made a killing because those of them go down and nifty is going to go up. So, like, even with zero carry, you have to generate returns to begin with. Some reason of what returns adjusted for this. And then you become entitled to some carry. By all these charge, good carry in case your returns are suspect that will less than 40% 50% gross returns. Pre-carrie. But you can't charge them at 12%. That is the issue. And LPs have to put their foot down. And this is not like in case any IP, which I don't think of with the case, but in case any LPs listening to this, then there is no diagnostication happening here. Okay, it is directly linked to the economy. When a large world of their portfolio would be in equities, when the equities equities goes down, these two will, okay, it's proper equity. Like it's proper equity in that too. And you know when the market corrects, the maximum, the companies that correct the most are these firms. So, how can one say that it's, in fact, it in fact is a beta on top of, you know, not only correlation does a beta, it corrects more than the market because these are random firms. And people know it in the market also. I like how we started with why are these three people leaving P50 and now we have ended with the whole thing. This is a scam. We should be shut down. Sebi come, take action. No, no, no. Your point is well made, my young one. Again, I want to throw it away. And say that have good companies, invest in good companies. Basically, that ecosystem of VC, right? That will invest in laws, making companies, and the bigger the laws, the greater the valuation. All of this needs to change. And this is coming from the VC, is it sir? And the way to change this is ultimately LPs, because LPs have to say that this is non-channel. So here's the hypothetical scenario, right? Say you're a VC since Praveen, since in this, you've been cosplaying VC. Say you're a VC and you're a really successful VC, highly visible, attending fireside charts, part of podcasts, writing op-eds, writing on LinkedIn, et cetera, et cetera, possibly even awarded by the government, et cetera, right? And, I don't know, Midasthach, Midasthach of all of this stuff. You're a successful VC, period, right? And you've got, let's say, there are 100 companies that have raised money from you over the time, right? And 10 of them are doing fantastic. They're growing like gangbusters, right? Like they're doing a great job, right? About 40 of them are, you know, I mean, it's been 10 years since you made your investment in them, and they're just barely like, you know, moving in. And the remaining 40, 50 are just like, you know, I mean, they've gone through layoffs, they haven't achieved product market fate, you know, you go to their offices and there's nobody in the office and like, you know, just don't know what's happening there, and like many of them even chart shop, right? What would you do with the 90% since you are a highly successful VC? What would you tell them when they come to you for more money? Saying that, obviously you'd say no, and then what? Survival of the fittest bro, get rid of it. Shut down. If you can't like, you know, hit it out of the park. If you can't go big, go home. Wouldn't you say that? Well, I guess that's the same logic that should apply then to the venture capital space as well, right? I mean, I don't want to reduce today's discussion to saying that venture capital shouldn't exist, venture capital firm shouldn't exist, right? But I'm saying shouldn't the same medicine go around for everyone? All right, fantastic, fantastic episode. Thank you so much, Mayank, Rohan, Arundati, Raya. Yeah, this was fun, very, very strident and very strong points of view. Thanks, Mayank. Always fun having you around, man. Yeah, thank you, partner. (upbeat music)