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Photograph By Soumik Kar

Secret Diary Of An Entrepreneur

"The Glass Is Always Half Full Or Half Empty"
Secret Diary of Rashesh Shah Part-1

N Mahalakshmi

Rashesh Shah, co-founder, Edelweiss

My first day at Edelweiss wasn’t pleasant at all. After spending months to get 403, Dalamal Tower, Nariman Point up and running, it was just me and the office boy, sitting in that 500 square feet office, meant to seat 11. Speaking to Vidya and Venkat bought little solace. A few client calls and couple of faxes later, at the end of the day, packing my bag, all I could think of was the 5,000 that had gone down the drain. That was the rent we were paying per day.

Of course, it was a refreshing change from the dingy cubbyhole above Akbarallys that I was using for many months — I still shudder thinking about the walk all the way to the Taj to use the restroom, for there was only a dirty, common loo in the building. But getting to office every day, with no one to talk to or have lunch with, and then going back home with the feeling that you lost another 5,000 without accomplishing anything was worse than walking a kilometer for the loo. 

I had everyone and no one to blame really. It was all my choice. I never wanted to scrimp or start small. I wanted a South Mumbai office. And it had to be Nariman Point and nowhere else! I hated the idea of working out of suburbs or being a briefcase banker…I wanted to start out in style...wanted a classy office…

After seeing how grubby business is in India, having been a mute spectator to Dad’s business, I was determined not to go down that road, with excise inspectors and all that. I wanted to study, become a professional, wear a suit and tie, work in an air-conditioned office — that was my idea of a good life! Everyone was upset. Words like “you are the only son, how can you say no to managing your Dad’s business? Who else will?” flew thick and fast. But I chose higher studies at IIFT and IIM Ahmedabad. Eventually, Dad came around to accepting my decision. 

Being placed at ICICI was great. I admired that bank. Having experienced the lavish culture at Prime Securities, the last thing I wanted to do was sit in a dingy office that forced me to think of “business” the way I hated it. I wanted to build a new-age financial services company — not just go about “business” the conventional way.

My fantasy was to build a diversified financial services company like JP Morgan and Goldman Sachs. That’s what drew me to Prime. But stock market trading was going so well, the original idea was never pursued. There was a feeling that there was enough scope to grow by repeatedly doing what we were already successful at. That’s when I met NRN for counsel. He put it bluntly: if you believe in an idea, you have to start your own company; you can’t expect to mould someone else’s company in the manner you want.

Initially, it was six of us, including Venkat, Shridhar and me, when we decided to build our dream company. Just like NRN and his five co-founders. NRN was my biggest inspiration those days. I can’t forget meeting him at the ICICI lobby when I had to escort him to my boss. We were sitting together, waiting for the boss’ secretary to call us upstairs. NRN was talking passionately about his business, and I, arguing about how murky it is to be an entrepreneur in India. I recall NRN saying that I had not come across true entrepreneurs. I argued, again, but we agreed to disagree. 

When I quit in May 1995, announcing our intent to branch out on our own, how excited my friends were — many wanted to tag along. Aparna from Ventura happily said she would join us to head the back office and another guy tagged along to take care of accounts. But not all co-pilots had mustered enough courage to give up their jobs and jump in! All of them wanted to straddle two boats before taking the plunge altogether. 

I was the only one in a hurry. First things first, I wanted to set up the office. But it was a nightmare, finding a place within our budget. Between May-October, in mere five months, five people already had a change of heart. Aparna and the accounts guy got jittery about where our venture was headed. Five months out, I still did not have that office. I had nothing to show. They wanted to see the fax machine, the phone, the chairs and the table, not just my face. They gave me some lame excuses on why they were not coming on board. 

At least they were employees. Of my five co-founders, three decided to stick to their jobs. Shridhar did not commit to a timeline and Venkat was waiting to take his bonus due in March 96. Things were unravelling, I was extremely anxious. Seeing people drop out made me realise how important physical space is. Very few people will bank on you based on the ideas in your head. I was stupid, really, to think they would follow me blindly. That’s when I decided I wouldn’t hire anybody until the office was done. But when the office was done, there was no one but me, the walls and the office boy.

I didn’t realise how lonely it would be, until I moved in. I was setting up the phone line, fax connection, furniture while running around to close deals and trading in stocks. There was just no time to think. The first day at the new office was full of mixed feelings — I had the coveted office, but was all alone…the second day was depressing. Third, even more so. I chugged on for a week, battling the emotions, the emptiness. Then, one day, I just called Venkat and told him to quit there and then, bonus or no bonus. He quit within a week and came to Bombay from Chennai. That put me at ease; little did I know that the real struggle was yet to begin.

Personally, things were not as challenging for me as for Venkat. I feel bad about it now, but then I insisted that we take home only 25,000 a month — 3,00,000 per annum. It wasn’t easy. The previous year, I took home 28 lakh as salary plus bonus; Venkat took home over 10 lakh. I was comfortable because Vidya was working. So was Venkat’s wife, but of the 25,000, he would spend 15,000 on his house rent alone! It was hard.

But the harder thing for me was to convince Mom to mortgage the house to shore up the capital. I was clear right from the start we had to start with a capital 1 crore. That was the networth requirement for a category-1 merchant banker. I put in 20 lakh, everyone else pitched in, but we still managed only about 50 lakh. When Mom agreed finally, we capitalised the company, and I thought we were all set. Far from it! 

Irony of ironies, the day we were ready with the application, there was a Sebi notification that increased the networth requirement to 5 crore. I can’t put down the feeling, it felt like it was the end of the world. I was devastated. Our whole business model had collapsed. 

Right from the beginning, my only worry was capital. We spent several days simply agonising over the next steps. In our own dream world, we had gone ahead and hired two MBAs from Symbiosis too. We had no income, the deals were not getting closed, the market was bad - Asian crisis, LTCM, Peregrine closing down…. it was scary…. 

But now, I think, it was the best thing to have happened. Such a big jolt, early on, taught us that we needed to be ready to take it on the chin. I loved deal making, so we decided to pursue M&As. As we started meeting companies — don’t know how — we invariably ended up meeting up a lot of start-ups. That’s how we realised the need was to raise capital, but not from the public markets. We started focusing on that and never thought we would become leaders in the game so quickly. 

Several entrepreneurs would talk to us those days because they knew we were from ICICI and we could connect them with ICICI, rather their private equity arm TDICI at the time. We made those connections. But we knew nothing about private equity deals ourselves! It’s laughable really, but the realisation hit me only after meeting a private equity fund manager.

What a meeting that was! I waited three hours to meet a lady fund manager at the 20th Century Finance office, which was par for the course. But what came up in the meeting was even worse — it was like she pulled out an AK47 and started firing at me — what’s the business model? roll out plan? capitalisation plan? Pre-money valuation? Post-money valuation? …. I knew some answers but for many others, I said to myself, why don’t I jump off the Air India building. 

I decided that day I have to know inside out of any company I take on as a banker.

I wasn’t really fretting why IIM Ahmedabad did not equip us with all that because what I got out of Ahmedabad was far more valuable than anything else in life. Vidya has been my pillar of strength at every step. Those IIM days, when we decided to do a project together, was real fun — that’s when we stated enjoying each other’s company, fell in love, started dreaming about being together. Life looked beautiful then, it’s looked beautiful ever since. 

When we were teething at Edelweiss, Vidya was going great guns at Peregrine, a coveted place to work in those days. She put me in touch with her colleague in the Hong Kong office. During one of my visits, he showed me what he called an info memo — essentially, a document outlining all the relevant points required to present a company to private equity investors. It had the barrage of questions that the fund manager from 20th Century had asked me and more. I glanced through it only for a few minutes. But I was so excited that the first thing I did when I got back was to create a similar template. 

I thought we will be well prepared to present our clients to investors, but who could have thought that it would become our unique selling proposition! We would go to entrepreneurs, show them the info memo, tell them we could make a similar report for their company…we could literally see the promoters’ eye pop out…deal signed! Thankfully, Internet was just taking off, so copy-paste was still not that easy…our competitive advantage lasted until 1998, after which every one in the business picked it up. 

But thankfully, investment banking is more about what you say than what your papers say. And what to say and — what not to say — was something I learnt through Vidya. Her boss at Peregrine, Tim Chang was a great banker. Vidya used to talk about his client meetings — that he never looked at the watch during the meeting, would keep asking questions, would focus on understanding what’s the pain point rather than making a pitch to the client. I met him a couple of times but never had the opportunity to see him address a client meeting. But by that time, Vidya had perfected the art of making me see things through her eyes anyway! 

I remember writing an internal memo about what made a good investment banker. Those days — and even now — we used to just bracket people as good and bad without actually knowing why they were good or bad. That served us well, but our approach to banking then on has been to understand the pain point of the client first…be a good listener. I started making an effort to listen to clients — it was never easy to shut up and listen. It isn’t easy for me even now! 

While we were walking through the maze, trying to find the right answers, Shridhar came on board. It had been three years! Of course, he had put in his share of capital, but he wasn’t there during our most difficult times. It was amusing that he wanted to be called a co-founder. Venkat and I thought it wasn’t fair. So, four months later, we bought back his shares at four times the value and he decided to move on. It wasn’t a bad deal for him. We were not counting on him anyway. 

But thereon, little did we imagine how the business would take off. 

Venkat and I made a business plan — true MBA style. First year (1996), we thought we would make revenues of about 30 lakh; 1997 — 50 lakh, 1998 — 1 crore, 1999 — 1.5 crore, 2000 — 2 crore. We fell short the very first year — 28 lakh. Second year was even worse — 25 lakh. Next year, we were stunned ourselves — 70 lakh. The market was buoyant and we were oblivious to the fact that the climb had only begun. But we were happily riding the upswing. 1999 was when we hit the magical number — 1 crore. We were still gasping for breath, trying hard to digest the numbers. Then came 2000 — 11 crore. Who could have imagined?

The biggest jolts though come when you least expect it — the markets turned bad. The business was disappearing quickly. 2001 — 5 crore. It felt like we had landed back on planet earth.

Business was tough but it was tougher to deal with expectations, to deal with oneself. The 2002 board meeting was not easy. I was on a different plane — thinking about the future of Edelweiss, how to bring back growth, how to take the next big leap…. I hadn’t stopped dreaming yet. As I articulated my long-term path once again, the board wasn’t pleased — 9/11 had just happened. Nobody wanted to hear about my dream or vision. It was time to regroup and protect what you had. I thought that was routine and understood. With that disconnect, came some harsh feedback, and the realisation that the Board is not something I just needed to update but report to. 

Navtej was always a dear friend — being my senior from IIM days, the association was strong and that’s why he could speak his mind. But it hurt — his remark that Edelweiss was all about me and the Board could see nothing more. Emotionally, it was draining. Business-wise, it was a lean patch. 

The fund-raising rounds were painful — people didn’t believe in our growth, they thought it was probably a flash in the pan…unsustainable…and most of all, like Navtej, several investors thought it was still centered around me. That’s not how I intended to build Edelweiss; that’s not how JP Morgan or Goldman were built.  

That was a turning point — the point where I started focusing on institution building. I was sure Edelweiss needed not just more hands and legs but heads and faces — apart from money. Finally, we signed up Great Pacific Capital at $100 million in 2005. Our sporadic growth frenzy continued — 10 crore in 2003, 40 crore in 2004, 70 crore in 2005! We had peaked! It felt like we had climbed Mount Everest. We had, actually.

This is the first of a three-part series. You can read the second part here and the third part here.

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