Secret Diary Of An Entrepreneur

"If I Can See It, Then I Can Do It. If I Just Believe It, There's Nothing To It"

Secret Diary of V Vaidyanathan

  • My sounding board My wife...she knows me best!
  • Divine connect I never pray to God for anything...a call I took about 25-30 years ago. Never broke the rule...even when my father was in hospital following a heart attack
  • What money means Dad says we all die as paupers, so I don’t believe in inheritance of wealth. But when to give it all away, is still my $100 million question
  • Biggest mistake Leaving ICICI Bank without a financial backing from a biggie
  • Most admired personality N Vaghul. Very humane and positive...incredibly evolved in his thinking and has a great sense of humour
  • My closest friend Harjot Singh during my school days, at Kendriya Vidyalaya
  • Childhood fantasy Dreamt of being a pilot with the Indian Air Force, eventually failed to make it on medical grounds
  • Most touching moment When my wife organised a Havan at home during my struggling phase...I sat through the oblation but didn’t pray to God
  • The day I cried the most When my mother passed away. I was 32, and she was 59
  • Toughest thing for an entrepreneur Is to believe things will work out, even when empirically, the probability of success is low
  • Success means... Creating something of relevance to society


“Failure is the stepping stone to success!”

“Failure is a part of life!”

For long, entrepreneurial success stories have been spun around these clichés. I can’t comprehend stories that glorify failure. I believe once having stepped out, entrepreneurs play to win, to beat the odds. They dream of creating a business or institution that will outlive their own mortality. I am not saying failure won’t happen, but if entrepreneurs condition themselves that it’s okay to fail, they are inadvertently increasing the probability of failing. Whether the chips are up or down, you have to be an eternal optimist…

In some sense, every entrepreneur has a trip in life, so do I. My career began with Citibank, where I spent a decade from 1990 to 2000. At Citi, it was all about discovering retail banking through dust and grime…it was the foundation stone that set me up later in my life. I was running the auto loan business, when I got a call from Shikha Sharma, the-then MD of ICICI Personal Financial Services (PFS). ICICI was then a domestic financial institution (DFI) which under the leadership of KV Kamath was diversifying into retail in 1999, led by Shikha. I declined her offer initially. But six months later, in November 1999, I again got a call, and met her at the Delhi Airport when she came to speak at a conference. This time around I decided to make the switch.

ICICI was a start-up in retail with few employees, and I thought I could build the retail business ground up, and the possibility of writing your own rules, greatly excited me. I wasn’t nervous though my seniors at Citi felt leaving a multinational bank was not a great idea – not to deny that I was also getting a rather generous stock option package!

Meeting KV Kamath was an enriching episode as I found him almost regal in approach, and large-hearted in his comments as he spoke positively about the future of consumer finance in the country. He asked me how I plan to take on Citi where I was coming from. I told him, “That’s not a problem, I am raring to go and can build a large consumer finance business”. Maybe, it struck a chord with him, I don’t know.

But my boss at Citi was not giving up easily. He holed me up one night till 3 AM at the Taj Palace Hotel explaining how an MNC bank, given the possibility of a global career, was better than ICICI! He even advised me, genuinely though, that if ICICI were to shut down retail in a year or so, I’ll have to come back to Citi. And that I would have to pay a career price for returning just like in the Indian Airlines case, where the pilots had to come back at lower perks than before! But I thought I’m only 32, I’ll deal with whatever comes my way...

March 6, 2000 I was on-board ICICI which then had a loan book of around Rs 300 crore. It was a great phase as I went about building the team as the auto, commercial vehicles and personal credit businesses took off. Just four months into my joining, Shikha took over as the MD of ICICI Prudential, and I became the MD of ICICI PFS. Though I don’t know whether it was planned that way…she had essentially hired her successor and moved on to life insurance. Over the next few years, I replicated the core concept of retail lending learnt at Citi, at ICICI. By 2002, post-merger of the DFI with the subsidiary bank, I was head of all retail assets and liabilities of the new entity. It was an inflection point for me…now I had a much bigger landscape and retail banking, with thousands of branches became highly successful in the country. In October 2006 I joined the board of ICICI Bank and felt really good that I had achieved so much within six years of joining the group…I still hold that ICICI is the greatest place ever to work.

The earliest memory of dreaming to be on my own manifested sometime in 2005…we were to have an offsite meeting in Shimla and our flight from Delhi to Chandigarh was cancelled due to inclement weather. We took a train to Chandigarh and then drove to Shimla. In the car that late evening, my friend and colleague Vishakha Mulye saw me flipping a book on retail banking and said that I should write my own book instead, considering the success we were having in retail banking. I assume she said it in jest. I laughed and said I have bigger plans, “I’ll make my own bank.”

Many years later, the opportunity arose in early 2010. The economy was fast recouping from the crisis of 2008 and GDP growth rate touched 9% plus in a particular quarter. Economists were again talking about India’s potential to become a $10 trillion economy and all that. The optimism around the country’s prospects and the helicopter view of the economy gave me the feeling that I can pull off venturing on my own.

My idea was to create an institution which would lend exclusively to small enterprises and lower and middle class consumers, as I could not think of any value-add that I could bring to large corporates, which were anyway being served by big banks. But I was not sure how to begin my journey. I initially thought of proposing to a private equity firm to back me with Rs 1,000 crore and offer me 10% sweat equity. There was no such deal on hand…it was just a fantasy in my head that such deals were possible. I chose the benchmark of Rs 1,000 crore networth because I felt anything below that would be too small to be relevant…a smaller stake in a larger firm was better than a big stake in a small firm. But my personal worth was not enough to start a company of that size.

While such a thought was crossing my head, I bumped into Kishore Biyani on a flight to Hyderabad and we got talking. He told me about his group finance company Future Capital Holdings(FCH), whose co-promoter had recently parted, and was headless for a year now. After a brief talk, he popped the question whether I would take over the leadership there. I said I want an ownership stake and can’t take a job anywhere after being at an institution. He said you are the owner, I am only an investor! It was a rather quick talk but he lived up to this theme till the end. We agreed on a 10% equity sweat stake.

FCH had a networth of Rs 690 crore and was largely into wholesale lending with subsidiaries in forex, broking, asset management and a subsidiary NBFC. The stock price had come off from a steep 10X book value in January 2008 at the time of listing (rose to Rs 1,100 after IPO at Rs 765), and was quoting at around 1.1x (around Rs 100) in wake of the global crisis. I also thought this was a fair valuation, as I would have fetched the same valuation if I had started a new NBFC from scratch. Senior ICICI colleagues to whom I spoke of my idea of leaving ICICI for this opportunity told me that many corporate restructurings were going on in the group and there was a possibility that FCH could be on the block. I thanked them for the input but told them if I stepped out and re-position this as a retail NBFC, I could raise Rs 300 crore equity from the market or a PE investor and ramp up the networth to Rs 1,000 crore as a first step.

But the decision to cross over to a new path is an exceptionally difficult one. I had another 20 odd years ahead of me in a board position of a large group by my estimate, as I had become the CEO of ICICI Prudential Life Insurance. The fear of losing it all and becoming irrelevant, losing one’s voice, or becoming nobody is the biggest fear to surmount when you leave a successful organisation. To put the move in perspective, I was moving away from a retail book of over Rs 130,000 crore and getting associated with a Rs 94 crore retail book! I said to myself if I pull this off, it will be the biggest of my lifetime.

Also I believe that it takes less than a year for your personal and professional brand equity to vanish once you leave an organisation. How long will the people I meet say “he built the retail banking business at ICICI Bank”? Not very long. They will shake hands but their next question will be “So, what are you doing now?” I feel that is the challenge a professional donning the role of an entrepreneur and starting small again, faces – that once you are off the circuit, it doesn’t matter where you came from, what you built, what you achieved, or what post you held. It’s soon history. No one has time for you, Yeh Hai Mumbai Meri Jaan.

But it was a choice I had to make. I thought it’s going to happen now or never. I also knew that before the winds in my sails go off, I had to latch on to something – an equity backing for my venture. I had already thought through and practiced my line: “Financing the underserved, with benefit of technology”. I had experience and age on my side – it was a great combo. If you are in the late ’50s, I’m not sure you will have the zeal to go through all the uncertainties and troubles, plus the issue of being a senior but having to start small. You are used to people milling around you, you don’t want to go back to running around seeking appointments! Also, you have to go down the curve, before you can pull it off, that is, if you do. Also, going down the curve at that age can dampen your ego.

When I broke the news to my father, he didn’t quite understand what I was trying to do. “First you were with a large foreign bank, then with a large private bank, and now you are saying you’ll take a stake in a small company.” I think he didn’t quite understand the context of what I was doing. But I found encouragement in my wife, who better understood my predicament.

In 2010, I was on board FCH. But the script was far from perfect.

The ensuing two years were the toughest of my life because unexpected things happened. In the first board meeting, the auditors insisted we consolidate the results of the loss-making 50:50 forex and retail broking JVs. We told them it was a non-strategic JV and would resolve it soon. Fortunately, since we had a common partner in both the JVs, we sold the stake in the forex venture back to the partner and, in turn, bought them out from the retail broking business, which we later shut down. In due course, the asset advisory business, too, was wound down. A subsidiary NBFC, which was not a capital efficient structure, was merged in Feb 2011.

Even while working on the structural issues and complex JV counter-party negotiations, I had started thinking of which new businesses need to be launched and was hiring accordingly. The idea was to mute wholesale lending and use the NBFC to build new retail businesses. This way the proportion of the book would change. Every Saturday, I would meet and interview people at the Four Seasons Club. I would rigorously scribble plans on pieces of paper and excite the candidates. I hired some great professionals in Apul Nayyar and Pradeep Natarajan among the many I met. Some other candidates from established institutions felt it was too risky, no matter how many stock options I offered! At that point in time we were borrowing at high rates of interest, and figuring out ways to get lines of credit to keep growing.

While the transformation was still in progress, the promoter expressed his intent to exit. Though not unexpected, it was much harder to deal with the development than what I thought – we had to scout for a private equity investor willing to pay Rs 800 crore-1,000 crore! Raising such an amount even in a bull market would be difficult. But in our case, after a brief lift in GDP in 2010, growth started precipitously falling between 2010 and 2013 and it turned out to be the worst time to approach the market. I tried a Rs 300 crore QIP for equity but it failed as investors felt I had to build something tangible to raise capital and merely plans weren’t enough.

Though a pretty big sum to ask for, I believed my experience, background, and the positioning of the business in an under-served area would carry me through. While Morgan Stanley had the mandate for the deal, I, too, met a lot of investors through reference and contacts. But it turned out to be a beauty pageant where we had strut ourselves and our strategy and, in some instances, even our newly formed teams, over and over again to new investors.

While there was never a clear ‘no’ from any of the funds, they weren’t saying ‘yes’ either. Bain made an offer that was reasonable by their reckoning but not acceptable to the existing promoter. (As it turned out eventually, they were not very much off on the price). Some discussions would end up with “the idea sounds good. You can come down and meet our global head when he comes in a couple of months”. I wasn’t getting the feeling it was heading well. A calm “couple of months” for them sounded like a tense “couple of years” to me.

Even while I was pitching to investors, news started popping up at regular intervals in the media that FCH was up for sale. That threatened to move us off the rails. We had lines of credit from lenders and once the news came out that FCH was on the block, the lenders turned wary. One foreign bank, which had promised a cheque of Rs 300 crore backed out after a story in a leading publication in early July 2011. They said it was difficult to proceed after the report.

Our credit rating was only A+. We were firefighting for a year with news flying thick and fast. If a CNBC or ET Now anchor or coordinator called early morning for a “byte”, I knew some article had appeared! I didn’t duck them because that was the only way to speak to many stakeholders at large- bankers, employees and shareholders. New hires were having second thoughts, and it was a herculean task convincing them to join in these circumstances. But I told a lot of probables that this was the moment to join as we were just starting out and we did hire enterprising people from Citi, Barclays, Stanchart, HDFC Bank, and also some ex-ICICI Bank employees.

But raising money was proving to be tough. Our NCD issue failed to garner enough interest. We even tried a QIP and I went on a roadshow to London to test the waters, but as no one committed, buried the plan.

The turn of events began taking their toll on me. At home, I would pace around the room in the dead of the night, go off to sleep, wake up again and walk around, mentally constructing scenarios. All talk was leading to nowhere, but I had to face the day. I read in a case study at Harvard many years ago that President Kennedy went for a swim during the Cuban war to calm himself, I thought so should I! So I tried coming home for lunch for a few days, and even played the guitar in the afternoon to calm down. Soon I realised that all these theories were rubbish…maybe it worked for Kennedy, but it wasn’t working for me. I had to face it. By switching off, the problem would not go away. I had to deal with it by thinking about it 24x7, and by meeting people and keeping my antennae on. I have to admit that even my zeal for running the marathon (I had completed seven 42-km marathons before 2011) suffered as late night dinners and frequent travel became the norm.

I did what I could to keep the momentum going, I had a new team and loyalties weren’t built yet. So I never shared my struggles with my colleagues at work. In hindsight, I don’t know if it was a good or a bad decision. I had to find ways to keep the business ticking...I had to show proof of concept to investors. Meanwhile we had built a unique statistical model of lending small ticket loans combining scorecards, bureau and fraud predictors. Some prospective investors were curious but not sure. We needed a growing loan book, and increasing profitability. For this, we needed funds!

With the media reporting “up for sale” to the hilt, even getting meetings with lenders started becoming tough. I knew the chairman of a bank very well but was finding it difficult to get an appointment as he was genuinely busy. His secretary told me he is not available. I knew I had to get him somehow. It was around 7 in the evening, I went to his office and instead of approaching his secretary, I went and sat in his car. Since I knew the driver, he couldn’t say “no” to me. When the chairman got in the car he was surprised to see me. He blurted in Tamil, “Vaidya, inga enna pannara nee? (What are you doing?)” I replied, “Sir, please sit. I want to talk.” From his office to his home, I explained to him the context of why I needed funds for growth and disbursals. He said it would be difficult to lend me such a huge sum as it would need the managing committee’s (MC) approval. The MC was to meet in six days and I had to log in a proposal before the meeting. Luckily, I knew the bank’s DGM, so I called him up, and also put our guy on the job that very night to get the proposal ready. We managed to log our proposal in the system and on the 25th day we had the money!

A large private sector bank (not the one I was associated with) sanctioned a loan of Rs 50 crore, when our application was for Rs 300 crore! That too at 13.5% for one year and only if we gave priority sector loans as lien! That was too bitter a pill to swallow, we declined it. Another bank sanctioned Rs 300 crore, but for only a year. Our lending though was for a longer tenure. I thought to myself who knows what the funding lines and liquidity will look a year from now if we did not get an investor. I was clear that I won’t take an asset-liability mismatch risk because I know what kills an organisation is not lack of profitability, it is drying up of liquidity! So, I asked the treasury team not to go ahead. They were devastated for they had worked hard on the deal. We didn’t grow that quarter, had to cut disbursals and even withdrew line of credit to wholesale borrowers. But this discipline of not taking asset-liability mismatches was key to our success at a later date when things got tough. “Never run out of cash” is a line I have kept close to my chest.

But I knew I had to find a more sustainable way of sourcing funds and that adventurism wouldn’t work all the time. That’s when we created a “business model” when we first sealed a deal with a public sector bank. I knew we had the capability to originate, collect, and manage a loan, so I approached the bank and told them you have a problem lending to our company but you shouldn’t have a problem lending to a genuine borrower. So, we would originate the loan and pass it on to the bank…it was a refinancing model. The bank saw merit in the approach and we ended up selling a Rs 300 crore loan book to the bank. In hindsight, it was one of the best decisions that we had taken in the business as we managed to raise Rs 2,000 crore in cash through such an arrangement by March 2012.

But the bigger problem of arranging a buyer and to conclude a buyout was still to be fixed.

I knew I had to find a permanent solution to this quandary. I had already held multiple rounds of talks (many rejections) with about 15 PE investors. It was sometime in January 2012, I woke up at 4 AM, and was pacing around, I called my secretary early morning and asked her to book a flight ticket to Delhi despite having no meetings there. I just wanted to get out of Mumbai that day. I was hoping to make some headway with a PE player in Delhi, whom I had met earlier and talks had been positive. On reaching Delhi, I texted him, but he replied that he was unavailable as he was attending a conference. Through the day, I tried to see if I could get a foot in his door. It was nearing 5 pm and realising that I wouldn’t be able to meet him, I got to the airport. I had checked-in and even cleared security, when I took a last chance and texted him again. He texted me back that we could meet at 7.30 pm in Gurgaon. I was more than delighted, I tore my boarding card in happiness. Now the security wouldn’t let me out of the airport! I cajoled and made my way out, and rushed to Gurgaon. He was a warm host and served me sandwiches for dinner at his office. We had a lengthy discussion and I told him of a similar securitisation deal with another bank. He was interested and was looking close to doing the deal. We had begun to talk what valuation might work for them or the sellers and whether I will co-invest. I flew back hoping things would now work out.

A few days later, I was on another trip to Delhi, looking to seal a similar securitisation deal with a Delhi-based bank on 7th March 2012. Call it serendipity or luck, the person sitting next to me on my return flight turned out to be a gentleman by the name of Narendra Ostawal from Warburg Pincus. In two hours we went over the model, I told him what I was looking for and that I had held discussions with many firms. As things turned out, Ostawal and the India co-head Vishal Mahadevia came and met me a few days later. I told the Warburg team that the existing promoter was seeking a higher price, a premium to-the-then traded price of Rs 100-120. I assured them that the model we are building is so unique, they will get their desired return and more even if they pay a big premium. Thankfully, they thought the same way and were not finicky, and believed in the numbers. We had developed a unique algorithm-based lending model between 2010 and 2012, and we were super bullish that we could build a Rs 25,000-crore loan book in five to six years from scratch if only they could spare the money that I needed!

With them, I felt there was a real chance of a deal. So I trusted them and told them the issue facing FCH. “There is this one big issue we have,” I revealed. I was accounting for sell-down income upfront, which should ideally be booked over the life of the loan. Basically, when we were originating and selling loans, we were booking the interest rate differential as profit. Secondly, there were businesses, which I accepted were loss making, but said these would turn around over time. The outcome could have been different and the deal could have fallen through but that was not to be.

I also assured the Warburg team that there could be ups and downs in the business, but they would not see our company slipping an inch on corporate governance. I knew for an investor sitting in London and the US, this would always be a worry. What I liked about the deal was WP’s trust is us… they agreed on a tentative price first even before doing the due diligence. They agreed to pay Rs 162 a share, a significant premium over the-then prevailing market price.

The way Kishore Biyani conducted himself during the buyout was exemplary. He never interfered or asked me which PEs I was meeting. Our understanding was that if I could bring anyone to the table, he would seal the deal. He’s a man of few words. He moved in an uncomplicated and graceful way to close the deal.

It was a big moment for me. It was much later after the deal that Deepak Parekh revealed that they had called him for a reference check and he had told them: “See what he has built at ICICI. If you want to back one person in the country, back him.” What also made the moment special was KV Kamath’s touching gesture when we met. I told him that I had finally managed to emerge from the shadows by getting the backing of PE giant Warburg Pincus. That’s when Mr Kamath did the unexpected – he got up, removed the blue tie that he was wearing, folded it, gave it me and gave me a light hug and a pat on the back. Since then, till date, I sparingly wear it…lest it fade…it means a lot to me.

They say the last mile is the longest…in our case we had to get approvals from FIPB for FDI, RBI Forex department, RBI inspection department, the Forward Markets Commission, and each had dependencies on each other. We had a deadline of September 30 under some approval conditions, and the funds were received on 29th September 2012! It was that close.

It was a new beginning as Capital First was born… in less than two years we had a new brand, new set of shareholders, new board, and new retail businesses. A moment that I will cherish as the team had a great time picking and choosing the final look and feel of what was to be their institution…

Amidst all the chaos, we had hired over 800 people! We had super leaders Apul Nayyar, Pankaj Sanklecha, Adrian Andrade, Ashok Shinkar, Shailesh Shirali and others in the top 25, many of whom had left jobs with cushy multinationals to join us. They did a great job. Other wonderful and talented teammates such as Nihal Desai joined a few months later. It was a tricky situation – you don’t get backing if you don’t have a team or proof of concept, and you can’t hire a team if you don’t get a good backing, for what do you do with people without a financial backing. Somehow, we made the two meet by taking our chances because we believed it was possible.

All my senior people are entrepreneurs in their own way, and it is not a cliché to say that. Because they have stock and stock option ownership, they act entrepreneurial, take decisions, and face the impact of their decisions in the form of performance of the company and their personal worth. That’s entrepreneurship. In my mind, the ability to take decisions and face the impact of those decisions is entrepreneurship. People can have large stakes and have no authority, or little stake and high authority.

I don’t claim I have built a great institution yet. But what we have built cannot be stopped now. There are no pressing challenges now …there’s equity backing, a long list of investors, credit quality is great, and funds are flowing. Capital First just crossed the Rs 5,000 crore m-cap mark -- from just Rs 790 crore on March 31, 2012, the financial year prior to the deal. We are 1,400 employees strong…we have a loan book of Rs 16,000 crore of which retail is over Rs 13,000 crore, which was just Rs 90 crore five years back…we have 2.2 million customers. What was a seed concept is now a reality. It’s a joy that’s difficult to express.

I believe entrepreneurship is all in the mind. People can have a small stake and feel completely committed and some can have a majority stake and still feel aloof. Entrepreneurs have no choice, they can’t quit. Hence, I feel failure can’t be a part of an entrepreneur’s DNA. A lot of people are dependent on you - your employees, your investors, your family and, more importantly, your own hopes and aspirations, and the next generation of aspiring entrepreneurs.

I am not chasing money, and as a family we don’t believe in inheritance. I want to build a unique institution in a unique space. It’s not one man’s job for sure and the whole team, which believes in the vision, builds it. And as Stevie Wonder’s beautiful song goes so does mine:

Like a long lonely stream
I keep runnin’ towards a dream
Movin’ on, movin’ on.