How Shaadi.com’s Anupam Mittal grows his money

You said in a LinkedIn post that concentration, rather than diversification, is the key to building wealth. How does that apply to your personal portfolio?

In my case, I have tried public investing. I also tried investing in creative assets a long time ago. I have invested in real estate as well, and none of those actually worked for me and for various reasons. Perhaps, I got the wrong cycle on real estate. One thing I found about real estate was that it is highly illiquid, particularly if you are buying land. It is like buying a lottery ticket. You don’t know what will happen, when it will become liquid, etc. I found that in public markets, I spent a lot of time tracking the market, looking at the price of stocks, and whether mine were up or down. So, for my type of mindset, that doesn’t work either.

I prefer something where I can invest money and not look at it for a very long time. And for me, that turned out to be very early stage investing, and what I found is that initially, it is very illiquid. But, over time, if you are consistently into early stage investing and build a large enough portfolio, then there are liquidity events that happen on a regular basis. If you are choosing wisely or have access to the best deals, then generating abnormal returns is not as hard as it might look to be.

So, how much time does it take to exit from your investments?

Five years is what I hope for but exiting from investments in India generally takes more than 10 years, particularly if you are waiting to exit through an initial public offering (IPO). I have had about 20 exits in about 4-5 years— some less years and some more. On an average, it is about 4 -5 years but the big alpha contributors generally take 10 years. If you are looking for 1,000x returns, then you have to let the company play out.

If you were to divide your portfolio between start-up investment, public equity, debt, etc., how would it be split?

I have invested in start-up companies and my own operating companies (including in shaadi.com). I haven’t invested much in debt because I started from scratch. I also have a couple of properties that would may be take up 5-6% of my portfolio. The rest is about 2% in debt and 93% in private companies’ investment. This makes my portfolio highly concentrated.

How many start-ups have you invested in so far?

More than 200, and now with the shark tank season, it’s more than 220.

But are the returns skewed in favour of a few?

Returns are always skewed. Sixty of the companies have already failed, while 20 have seen good exits. Sixty more will probably fail. Another 40 will give me returns, out of which 10 are going to be super abnormal returns. I may get 7-8 unicorns in my portfolio.

What would be a good return in terms of CAGR (compound annual growth rate)?

I have been doing this for 15 years. My realized IRR (internal rate of return)—over 15 years because I started with such little money— is about 40%. Given the companies in my portfolio, I think I should be able to maintain an IRR of 40%.

You mentioned that were tracking prices of stocks daily. With private equity, how often do you track your investments?

So, we have a system. Most of the companies that are worth tracking send us monthly or quarterly MIS, and broadly, we look at it whether we need to do a deep dive or not. If it’s on track and everything is ok, we don’t really bother. If it is doing very badly also, we don’t bother because there is nothing we can do. It’s too late. If any founder has written seeking help in certain areas, we jump in and help. So, we talk with them about financing, help them raise series A or series B funding, connect them with angel investors, and with customers.

Name two start-ups that you think are your best investments ever?

In the case of realized investments, it was Interactive Avenues, which became India’s largest digital ad agency, and Makaan.com, which gave me the best returns. In the case of unrealized, there are a few like Ola, Rupeek, and Jupiter, the neobank. There is also Animall, an animal husbandry platform where I own a significant stake.

In percentage terms, what would the top 10 outperforming companies account for in your portfolio?

The top 10 will account for two-thirds, or about 60-70%, of the portfolio. That’s also because many investments were made very recently and haven’t really grown their valuations.

Now, given that most of your portfolio is in illiquid companies, how do you manage your emergency funds ?

I have a pretty good line of credit with my banks and wealth managers based on my assets. I pay interest of 9-10%. The returns I am generating is around 40-48% so far. So, I don’t block my funds there. However, there are times when I use my line of credit and times when I don’t.

Do you have life or health insurance?

I have both, but the health insurance is through the company. We have a corporate plan. And life insurance is not something which I bought on my own. It is something that my dad subscribed for me when I was very young. So, I didn’t buy any life insurance policy. And yes, it was a LIC policy.

How do you protect yourself from inflation?

Do I need to protect myself if I am generating more than 40% returns. Sure, with inflation even at 7-8%, my real return comes down but I am not trying to optimise a 2% increase. I am playing for abnormal returns. That is why I said I don’t understand quantitative and optimising —instead of 8%, how do I increase my returns to 9%? Mera dimaag nahi chalta, (I don’t think that way), that is not my personality. Mere ko hisaab me maza nai ata hai (I take no pleasure in keeping accounts). My goal is to become so wealthy that you don’t have to keep accounts or budgets. That is the whole objective. I am trying to find alpha returns.

So, inflation doesn’t trouble me as such. What troubles me is the lack of liquidity and lack of funding; when markets become tight, money becomes expensive and a lot of companies start struggling to raise money. So, my adjustments are more around my investment strategies. Basically, in such scenarios, you stop doing momentum plays and capital-intensive businesses, and you reorient your strategy.

How much time do you get to study a pitch by a startup before it is brought to you in the shark tank?

I don’t get any time to study the pitch. There is no pre-research. You do not even know the name of the company or the sector. The first time we see the picture of the founder is when the door opens. So, it’s all real-time.

So, do you have some window to look at the documents after the show is over?

No, we don’t have any window per se. Ideally, we want to do it as quickly as possible, but the truth of the matter is that many of the founders who come on a show like that are in very early stages and, in many cases, they have not even formed a company, a lot of compliances are not in place. So, they can sometimes take a couple of months to get those in place. For the companies that are slightly more mature, it happens more quickly. With such companies, you can finish the action within a couple of weeks after shark tank season is over.

What about the claims made by startups in the show?

I think there are cases where 20% of the time a deal doesn’t happen. Most of the deals go through because the guys who come on the platform are informed that there will be a diligence process to check their claims. So generally, most people stick to the truth.