TiE Talks Podcast 03 | Evaluating Startups with Hero Choudhary: Team, Timing, And Traction (TTT)

Join us in this episode of ‘TiE Talks‘ with Hero Choudhary as he takes us on a journey from trading billions in financial markets to investing in startups across Southeast Asia and India. Hero’s insights reveal the art of evaluating early-stage companies, focusing on team, timing, and traction (TTT). As a seasoned investor, Hero shares stories of backing founders who navigate challenges, build sustainable businesses, and thrive under pressure, proving that pressure is indeed a privilege. Tune in to uncover how investors are founders too, shaping businesses and empowering entrepreneurs to success.

Discussion Points: Evaluating Startups with Hero Choudhary

• Introducing Hero
• Hero’s Journey to Singapore
• How to Evaluate Companies?
• How to Support the Founders?
• What are Companies Focusing On Now?
• Has Hero Ever Invested Out of FOMO?
• How Much Emphasis Does Hero Place on the Cap Table?
• The Gap Around ESG
• Advice for Impact Ventures
• How Does Hero Keep Himself Relevant?
• Pressure is Privilege

Transcript: Evaluating Startups with Hero Choudhary

Anchor: Big welcome, Hero.

Amit Gupta: As Prantik mentioned, as a managing partner at Beenext, he has been building, I think he’s been involved in more than 70 startups at an early stage, taking them through growth in this part of the world, Southeast Asia, and India.

Hero has not always been an early-stage investor. He’s actually dealt with and he has played in financial markets where he is actually hedging risks to the tune of 3 or 4 billion dollars a day. So we will talk about this, we’d love to know about your journey, what got you into this, and why you’re an alum of IIT. I know you’re you’ve got some good stories from there. Tell us about how you got to Singapore ’cause you’re new to Singapore as well.

Hero’s Journey to Singapore

Hero Choudhary: Yeah. First of all, thanks for having me. My journey to Singapore has been interesting. I’m from India. I grew up in Rajasthan state. And many of you know that while growing up in India your parents always ask you to be either a doctor or engineer. And education is the only way usually to go up.

So my journey has been very similar. I was asked to prepare for the IT exam and I had to go there. So I went to IIT Bombay. I graduated in 2004 and right after that, I moved to the US and when I was in the US I realised I didn’t want to be an engineer. So I was a little bit late for that, but was very kind.

To get guidance from all the IIT seniors and figure out what kind of things I would like to do. For me, I always wanted to keep on learning new things. I always wanted to be involved in things where life doesn’t become routine and things keep on evolving and changing and challenging me.

So when I presented it this way, I got all sorts of advice. You should go to a consultancy, you should do data analytics. Finally, somehow through a different connection, it came that, You should go into finance and should focus on investing. If you do investing, you’ll never be bored, and things will always keep on changing.

You’ll always make mistakes, you’ll always keep on learning. I thought it was very brilliant. So that’s how my journey started to invest. I haven’t done anything else other than that. So I’ve been investing since 2006 and my first role was in Chicago directly with the first hedge fund, UBS O’Connor. $3 billion.

I was 22. And we were investing across countries writing complex algorithms. And it was just amazing. I was just blown away to see how different business models work in different countries and how those businesses are evaluated. And the more I did I got more keen to understand businesses and more so did my CFA and I realised I wanted to keep on that journey.

I moved to New York from Chicago. Because New York is the world’s capital, you have the best brain. People there learn investing from the best of the best. And was very lucky to be in one place for 10 years in a hedge fund where I focused on next-generation digital businesses.

So I noticed that every investor was investing in only US tech and internet businesses. But when I started evaluating similar businesses outside the US, I saw their fundamentals were very similar, but valuations were probably half or less so I started buying them very aggressively, very early on.

Mercado Libre in Latin America. Yandex in Russia has an amazing, lot of stories where we compounded not only earnings growth but multiple expansions. Then I started to see that digitization of countries and sectors is happening around the world at a different pace. So I thought, let me see which other SEC countries or regions will be next.

Clearly, India, Southeast Asia, Latam, and some parts of Europe. They were on an early journey. So started coming in 2013, and 2014, very early on startups. And I realised entrepreneurs who are building businesses, VCs who’re funding them. But every dollar of funding may result, maybe. 70 cents, 50 cents in revenue. And it looked like a sustainable business would still take time because all the elements were not there.

Sometime in 18 when I came I noticed that things were scaling now probably at a three, four times faster pace than what they were. Went back and analysed. A lot of things have changed. Reliance Jio came. Bharti Infratel was putting up all the towers. India became the cheapest data. The middle class was rising, and disposable income was there.

People have a propensity to spend, but there are no means to spend. And that means we’ll get created if entrepreneurs build these businesses, and VC fund them. I thought, how can I come to be part of this journey and build something big from this part of the world? In that process started to map out different funds, and different people.

Really liked the philosophy of BeeNext. My partner Teruhide Sato, who started it, is a Japanese entrepreneur. And His journey was very similar. He liked that whole process and he said, hero, can you, we would love to have you as a partner. The timing was just amazing. I moved to Singapore in early Feb 2020, and COVID happened. In 2020 I ended up doing New York, and Singapore for some time. Went back because my family was there. But now I’m here. Everybody made it.

After being in the region for four years, what I was thinking, how things will play out, how things will look, my conviction is higher. I see a lot of opportunities but I also see a lot of gaps. Those gaps are the ones that will make this journey more interesting so that I can work with the founders to build a business in a proper sustainable way. Some of the companies that seeded from very early on which you may be aware of before BeeNext, we seeded a tiny company, Tokopedia in 2011.

We gave them 2 million for a 20% stake. And from BeeNext seeded businesses like Shiprocket, NoBroker, Healthy Hands, and Andalin in Indonesia. Accelerant, Amartha, and so on.

Amit Gupta: So number-wise, we have a hundred-plus companies in India.

Hero Choudhary: 70 plus in Southeast Asia. And out of those Indonesia is the majority. So Indonesia is somewhere between approaching 50 or so.

Amit Gupta: So when you look at these companies, ’cause that’s a lot of companies to evaluate, And what are the three most critical attributes you, you look for and how long does it actually take you to evaluate these companies?

How to Evaluate Companies?

Hero Choudhary: Yes, there are a lot of companies, but we are building a really great team now on the ground. In India, we now have nine people. Now in Indonesia, three in Vietnam, one, we also have two people in Japan. We have a team in Singapore. We look at a lot of things while evaluating a business. But our process finally focuses on three key things in the early stage.

We call it TTT, Team timing. We want to figure out the best team that is building out in a big addressable market, and their timing has to be right to build that business. It can be a great team, but if they’re four years ahead of time, it won’t work. These are the three key things we look at and we spend a lot of time evaluating each one, and if they all come together we make the investment.

Amit Gupta: And specifically the founder.

Hero Choudhary: It’s not a cookie-cutter. Or a simple process. But what we do is that we spend a lot of time with them to learn about their journey, to learn about who they are, what they did when they were growing up, what they went to school, what was their first role, why they picked that role, what their, any challenges at that role.

If yes, what they did do, and how did they overcome those challenges? Through this kind of discussion, we learn a lot about them as a person, and what motivates them. Why are they building out this business? If things don’t go right, will they be there? If yes, what are some of these past characteristics that through this journey that they’re telling us that fit into that?

So we spend a lot of time on these things and based on that, it gives us an idea if this founder is the right person to build out this business and how well they are associated with that problem. And if that makes sense, then we go ahead. Clearly after making investments, we learn a lot more because we are deeply involved.

And then what we see is that if there is not a hundred percent match, if there are gaps, how we can help them fulfill those gaps by building out other leaders in the company over time as CXOs and then try to see if there is a complete slate and this business can scale.

How to Support the Founders?

Amit Gupta: How do you actually support them? Where do you get involved? Where are you back?

Hero Choudhary: Our approach is very different from a lot of other funds. Most of the time we let them run with the things and we observe how they’re going. When. When we think there is feedback needed, then we provide it. And then many times if organisations are growing pretty fast a lot of things break because some departments cannot keep up compared to the other departments.

And when we see those kinds of things happening, we try to advise them what’s happening. So for example, if a business is scaling in terms of people, we notice that by the time you reach a size of let’s say a hundred employees Your culture starts to shift. A founder and his team can keep track of 50, 60, and 70 people, but after that culture has to be cohesive.

So are they bringing in somebody in her? Is that HR person there? If not, we try to advise them that it’s time to build out the HR department. If a business is in, let’s say series B or 10 20 million revenue run rate, do they have anybody in the finance department? If not, it’s a problem. And that problem compounds at a pretty fast pace.

By the time they reach a half-a-billion valuation. It’ll be such a bigger problem than we are seeing in a lot of companies now, right?

So we try to advise. how they should think about the finance department. How, when should have a VP of finance, treasurer? When should they bring in a CFO and work with them in identifying those talents?

Many times they say, yes, I need it, but I don’t know how to hire it. We have a person on our team who helps with those kinds of things. So we identified these gaps. Many times problems are totally different. We have a founder building out a company called Meme Chat. It’s just about memes every day they build out these memes. Great guy in his early twenties and he was expecting a term sheet at the last minute. Got pulled out and he had very little runway left. So we did a bridge round for him, but I told him, Kyle, let’s work for six months and focus only on two things. If you do that, you’ll be totally fine.

You won’t need money and you can control your own destiny. And he asked me, what are those two things I said, first one, don’t lose a single customer. Make sure you keep all of them. It’s a B2B business. And second, every month I get one new customer. That’s it. You don’t need to do anything else.

What he didn’t realise in the backend to focus on those two things, actually he’ll end up building out everything else properly. And we did that. And this business is this year, cash flow positive for six months now, and growing on its own. And now he’s very confident and he wants to build out all sorts of different things one by one.

So then I gave him another piece of advice. Whatever you generate in cash flow, take trailing some of the last three months’ cash flow. Give 50% of that for you, the remaining 50%. Whatever you want to spend on growth, go and spend it. Just some ballpark numbers so that he understands how to manage the cash and so on so that he doesn’t run into trouble. It depends from company to company, founder to founder but that’s how we work with companies.

Amit Gupta: Oh, that’s amazing. That’s what’s needed today, right? Given the current investment landscape, especially over the last. 12 to 15 months.

Are you seeing more and more companies starting to focus on that rather than just trying to raise capital for growth?

What are Companies Focusing On Now?

Hero Choudhary: Yes It’s happening. It’s a good trend. But sometimes there are founders who still want to chase growth. So we have another extreme also where we think we have a founder. In this case, maybe I won’t share the company name. It’s still doing very well. But every month they are coming short on their revenue projection and they’re coming ahead on their cost projection.

My feedback to them is that they have close to 12 months left to reverse this equation. However, he thinks he wants to see another two, or three months, and after that, he will try to do it. It. And in the end, it’s their business. We identified the issue, and we told them but let’s see how it goes.

I’m still confident. I think he will pull through, but there are founders who still want to chase growth. So if they want to do it and they feel they’re confident, we think they should go for it.

Amit Gupta: Obviously as you build these investments, there’s always lots of hype right?

Whether it’s thematic hype cycles, whether it’s hype around founders. Sometimes there’s hype around founders as well. Have you ever caught, or got caught into investing based on FOMO?

Has Hero Ever Invested Out of FOMO?

Hero Choudhary: FOMO doesn’t work for me. I did the public market for so long, for 15 years. It has taught me a lot of things. I wait for my swing. I just wait. I don’t have to hit every single ball. If you play baseball you don’t have to hit every single ball.

A few more people are playing cricket here. So you could use that analogy. So if I had to, I haven’t watched cricket in a long time, but if I had to use a cricket analogy, I’ll say I’m more like a test match player. Yeah, slow and steady.

I’m not a T20 guy. If I put it correctly, hopefully. And a perfect example was 21. When a lot of founders came to us, Hero, this is how much I’m raising. It’s almost done. I have this much allocation left. You wanna come in And I have, and then founders drop these amazing names.

I have these people who came in. We just tell them, good luck. If we think this is a business not for us, no matter who is doing what, we won’t do it because it doesn’t fit into our process.

One of my mentors in New York told me investing is very even key, the lower, longer-term you win some, you lose some. However, you need to have a process. And if you’re a process and you stay true to the process throughout the vintage, you’ll be okay in the long run. So we just follow that. at BeeNext also we have a very disciplined way of looking at things and we just follow the cycle through the year.

Amit Gupta: Yeah, no, and you talked about founders bringing very credible people to the cap table. Obviously, there’s a lot of them here who get on founder’s cap tables because they’re credible and they bring the money. Sometimes it’s more about getting them on rather than the money. And of course, there are founders here who are keen to get these sorts of angel investors on. And so where do you see, how much emphasis do you actually place on that cap table?

How Much Emphasis Does the Hero Place on the Cap Table?

Hero Choudhary: Yeah, I think cap table construction is probably one of the most important things a founder can do. And angels actually are extremely important on Cap Table.

I think. One of my founders taught me a really amazing thing about how he looks at angels. Basically, when he was constructing his cap table, divided angels into three categories, which I thought was really brilliant.

One is the angels who will help him in bringing investor connections for future rounds. Very important, I think. Very good.

The second category was angels who are operators, who will or who are past operators, who build out the businesses and will be his advisors when he needs when he’s growing and he needs certain support. I thought that was brilliant.

And third is angels who are operators right now building out the business so that they can tell right now what’s happening, where are the gaps, and what they are doing. I thought dividing like this category and in each category picking up and asking them to be capable was really amazing.

So I think right angles can play a very important role.

Amit Gupta: This is clearly nice. Very meaningful construct session to have.

The Gap Around ESG

Amit Gupta: But I think one of the gaps that I see is in this whole space around ESG, right? Big hype there, big need, right?

Now I and I were both involved in the Singapore India Hackathon a couple of weeks ago. There were some amazing things, I think Prantik was judging the FinTech companies. I was judging the ESG companies. And the intent, the ideas that were coming out from these founders were exceptional.

But when I sat down and thought about, what did the four hours of pitches mean eventually, what was my takeaway? It was there, the companies were pretty, pretty much sitting on two ends of the spectrum, right? One end of the spectrum is, gotta start very quickly, but the entire business or the pitch is all based on grants, right?

And then there were those who had a bit more tenacity in trying to raise money from investors. But the business models just will not appeal to traditional investors, to VCs, because just VCs I have to go through a different set of processes and journeys to make money. How do you evaluate these companies and what advice would you have for impact ventures?

Advice for Impact Ventures

Hero Choudhary: Yeah. Even though we say we are not impact investors. Most of the things we have done are having a lot of impact. I just want to. I will clarify that part.

I think ESG and let’s say sustainability climate, some of these new areas are very new in the region and we think in venture portfolios there are outcomes that are sustainable, but they won’t be a big outcome. That’s what we are underwriting, considering the fact that we keep our funds very small. Those outcomes are okay for us. So if you build out a business that can have a hundred million to 250-300 million type outcome in valuation, I think It’s okay. And that’s what we are underwriting in some of these.

Clearly, if you are an underwriting desk, that type of outcome, yep. From day one, you have to work with the entrepreneur, to educate him that this is sustainable at the moment, at that scale. So raise capital accordingly. And build business that way. We have a biodegradable plastic company in Indonesia called Green Hope where I invested from B two years ago.

Phenomenal team, and a phenomenal business. We had to focus a lot on our cash conversion cycle and this business probably won’t trade like a tech business, meaning the outcome will be very different. So since the beginning when we were investing. We have to do all that learning, education, and setting the right expectations.

And clearly, you are right. There are businesses that will be at each spectrum and each investor has to do their own due diligence. But we have businesses in the education space, which we think even though right now. It may not look like a good area based on what’s happening, but we are very confident of the companies that we have selected and the type of impact those founders are having.

It’s really remarkable. So we will see how the end results happen, but if investors select carefully, they can find good pieces. They just have to set the right expectations. The outcome will be a big note. Yes. And then work with the founders accordingly. 

Amit Gupta: Obviously you’ve got a whole vast of varied experiences through your career, but the world’s moving so fast. How do you keep yourself relevant and current?

How Does Hero Keep Himself Relevant?

Hero Choudhary: I’m almost always carrying my backpack, which has two, or three notebooks. And go very far back till 2014 or even before. There I write down my learnings or my mistakes or what matters or what is important.

And actually, there are some good nuggets in those. And I share those with my founders if there is at some moment. You’ve shared some with me.

Those are one way to keep reminding you about things you learned and not miss them because they come back again.

And beyond that, I spend a lot of time reading and listening. I also try to spend time with regulators as an example or different stakeholders to see where things are going.

I also try to learn from our allocators and our LP partners, what they are seeing across the world. And where things are going, what they’re advising to their GP.

And then I learned clearly from our founders. So all that helps us in understanding what’s happening, where things are going, and how we can support our founders better.

Amit Gupta: And there’s one line that I wanna pick on, and by the way, that wasn’t part of a prep, but I’ve heard that line from you. Do you know which one I’m talking about? Pressure is a privilege. Can you unpack that for us?

Pressure is Privilege

Hero Choudhary: I think if somebody is under extreme pressure and they are thinking what to do first, I think clearly they’re at a phenomenal seat.

Whatever they’re doing, that’s why they’re feeling pressure, that’s the first point I. However, I think It’s a privilege actually because it tries to bring out the best in people. Your worst of the time is your best of the time. And that truly defines not only people, but it’s very relevant for entrepreneurs actually.

It’s very relevant for the founders. They’re under constant pressure all the time. And how they come out of that, how they build out their team. How they take care of their stakeholders, how they take care of their customers truly shows a lot of things about them and where this business will go, and how they’ll perform.

That’s why I think that’s why I think pressure is a privilege. We spend a lot of time with our founders When they’re under pressure just to see how they’re executing what they’re doing, and where they need support. 

Amit Gupta: Is there a business that you would build and how would you pitch to an investor?

Hero Choudhary: Actually, I’m building one. 

Amit Gupta: Yes, but so the one that didn’t involve giving money to people, it just involved taking money.

Hero Choudhary: It’s actually slightly more complicated. I think being an investor is a lot of pressure, I feel. Every single money we raise we treat it very personally like ours.

And when we want to, we always think about how we can do true justice. And when we partner with the founders. We are not into a push product business. We don’t push out, okay, let’s build out this, let’s build out this. No, we try to learn what they need. Wherever they need, we build out those products for them.

So we started with one product, and now we have three within BeeNext. We started with an investing team only. Over time we realised founders need support in recruiting.

So we build out a person who helps in recruiting. We realised founders need AWS credit, Microsoft Partners, and Azure Credit.

We had a person for the partnership community. We build out a full community, we manage it, and we do events. So if I think about all those things, this is like building a business.

I realise by the time some founders are in Series B, C, and D stages, they’re great in the building business, but sometimes they’re not good at pitching. So we feel they may need a little bit of investment banking-type support. So now we are doing, we go, we sit in their office sometimes for two weeks, sometimes three weeks. We study everything, we try to create a summary, and then we say, this is how you should present. So I feel it’s like building a business itself.

I’m really enjoying it and I don’t see myself doing anything else than this. It has a lot of learning actually from a lot of people. So I would love to hopefully I can keep on building this while supporting our founders for a very long time.

Amit Gupta: And clearly that’s a privilege you actually get to build a business. Across a whole spectrum of areas, right?

So we’ll end on this note that investors are founders too, right? So investors understand the pain and investors are people too. Remember that, right? So when you’re pitching to them, just remember that. Thank you. Hero. I think everyone needs a Hero.

Our Guest: Hero Choudhary

Hero Choudhary (CFA) is a managing partner at the venture capital firm BEENEXT and is responsible for all Emerging Asia investment-related activities. Leveraging his 15+ years of cross-border global investment experience, he is actively engaged in nurturing next-generation leaders. Hero is helping in building and scaling digital economy startups with big TAM (total addressable market) across sectors.

Hero holds a Master of Science in Electrical Engineering from Washington University in St. Louis and a B.Tech. from IIT Bombay. He is also an active mentor and leader in the Indian startup community.