Transcript

Akshara Menon: Hi everyone, this is Akshara Menon, and I warmly welcome you to the Fund Manager Interview Series with PMS Bazaar. Today, we are going to have a very interesting and insightful conversation on investing in US venture capital and startups. Typically, when investors allocate to US-based funds or US equities, the primary motivation tends to be portfolio diversification. However, in today’s discussion, we aim to go beyond that conventional understanding and explore what lies beneath the surface when it comes to investing in US venture capital—what truly drives value, where the real opportunities lie, and how investors can think differently about this asset class.

To help us understand this in depth, we have with us Mr. Pavan Sarawad from Globridge Capital. Welcome to the show, Pavan.

Pavan Sarawad: Hello, Akshara. Thank you for inviting me. It’s a pleasure to be here and to share my thoughts with your audience.

Akshara Menon: Before we get into the specifics of your fund and the broader US venture capital ecosystem, I would like to begin by understanding your personal journey. You started your career as a stockbroker at Motilal Oswal, and today you are a co-founder and fund manager at Globridge Capital. That’s quite a transformation. Could you walk us through what motivated you over the years and what led you to where you are today?

Pavan Sarawad: Certainly. My journey began with exposure to the financial markets, particularly the stock markets, at a very early stage in my career. Working as a stockbroker gave me a front-row view of how public markets operate, how investors behave, how valuations fluctuate, and how companies are perceived once they are listed.

Over time, I developed a deeper curiosity about businesses themselves. I began to question what happens before a company reaches the stage of listing. Public markets, in many ways, reflect the later stages of a company’s journey, but the real story of value creation begins much earlier. That curiosity gradually led me toward private markets, where the focus is not just on price movements but on the underlying business, innovation, and long-term growth potential.

As I explored this space further, I realized that private equity and venture capital offered an opportunity to participate in value creation at a much earlier stage. This realization became the foundation of my transition into private markets. Eventually, I chose to build a platform where we could serve limited partners by identifying and investing in high-potential opportunities at the early stages of their lifecycle.

Akshara Menon: That’s a very interesting perspective, especially the idea of moving upstream in the value chain to understand where real value is created. Today, we are trying to educate people about US venture capital, which is still not widely understood among many investors. When we talk about US venture capital, I think it’s important to also bring India into the conversation.

India today has a very vibrant and rapidly growing venture capital ecosystem. It’s often described as dynamic and even glamorous in certain segments. Given that backdrop, what made you choose to focus on US venture capital instead of staying within the Indian ecosystem?

Pavan Sarawad: That’s a very relevant question. If we look at the Indian venture capital ecosystem, one of its defining characteristics is scalability. India is fundamentally a consumption-driven economy, and many successful business models are built around scaling products and services to a very large population base. This creates tremendous opportunities for growth, particularly in sectors that cater directly to consumer demand.

However, when we look at the US ecosystem, the emphasis shifts significantly toward innovation, technological depth, and intellectual property. In the US, a large portion of venture capital activity is centered around building strong technological moats—developing proprietary technologies, securing patents, and creating durable intellectual property that can sustain long-term competitive advantage.

This level of technological validation, especially in areas like deep tech, advanced biotech, and frontier innovation, is something that the US ecosystem has been able to develop over decades. In a way, the US acts as a global innovation hub, where ideas are not only conceived but rigorously tested and validated.

From our perspective, this creates an interesting opportunity. We can participate in innovation at its source in the US and then identify ways in which these innovations can be applied to markets like India, where scalability is a key strength. So, we are essentially bridging two complementary ecosystems innovation in the US and scale in India.

Akshara Menon: That’s a very clear way of putting it. So, if I understand correctly, India offers scale and rapid adoption, while the US offers deep technological innovation and validation. Your strategy seems to connect these two worlds.

Pavan Sarawad: Exactly. We see it as a bridge between innovation and scalability. By combining the strengths of both ecosystems, we believe we can unlock unique opportunities for value creation.

Akshara Menon: That makes a lot of sense. Let’s now move to another important aspect of your fund structure, which is GIFT City. Your fund operates through the GIFT City route, and while it is widely talked about, I think it is still not fully understood by many investors.

For someone who is considering investing in an outbound fund, what should they expect when investing through GIFT City? How does it actually benefit them?

Pavan Sarawad: GIFT City plays a crucial role in enabling cross-border investment opportunities for Indian investors. Traditionally, investing outside India involved multiple layers of complexity regulatory constraints, operational hurdles, and limited access to global investment platforms.

GIFT City simplifies this process by creating a regulated ecosystem that allows investors to access global markets more seamlessly. It provides a structured framework where funds can operate with greater flexibility while still adhering to regulatory standards.

To put this into perspective, consider an investor who is comfortably settled in a Tier 2 or Tier 3 city in India. At first glance, global diversification may not seem like a priority. However, the moment they start planning for international expenses such as their child’s education in the United States, they are directly exposed to currency dynamics. They may find themselves paying significantly higher exchange rates to access dollars.

At that point, diversification is no longer just a theoretical concept—it becomes a practical necessity. Investors begin to think about how they can allocate their capital in a way that aligns with global opportunities and currency exposure.

GIFT City provides the infrastructure to facilitate this. It allows investors to diversify across geographies and asset classes without unnecessary friction. In a broader sense, as the global economy becomes increasingly interconnected, cross-border capital allocation is becoming more important. GIFT City is a step in that direction, and it has created meaningful opportunities for both investors and fund managers.

Akshara Menon: That’s a very practical way of explaining it. It connects global investing to real-life financial goals, which makes it much easier to understand.

I also believe that as more funds operate through such structures, investors will become more comfortable with global diversification, not just Indian investors, but investors across different markets.

Let’s now move to your investment process. The US venture capital ecosystem is known for its depth and the sheer number of opportunities available. There are thousands of startups across sectors, and deal flow is constantly evolving.

Given this abundance of opportunities, how do you source your deals, and more importantly, how do you filter them?

Pavan Sarawad: Our approach to deal sourcing begins at the very foundation of innovation, which is the university ecosystem in the United States. We focus particularly on Ivy League institutions and other top-tier universities that have strong research and incubation capabilities.

These universities act as powerful innovation hubs. At the ideation stage, there can be a very large number of startups potentially close to one lakh that are working on early-stage concepts or minimum viable products. However, not all of these ideas progress beyond the initial stage.

As these ideas move through university incubation programs, they undergo rigorous validation. Research labs, faculty expertise, and structured incubation frameworks help refine these concepts. By the time these startups reach a stage where they have a viable go-to-market strategy, the number reduces significantly from one lakh to roughly one thousand.

What this means is that a substantial amount of filtering has already taken place before we even begin our evaluation. We are effectively looking at the top 1% of ideas emerging from some of the most advanced innovation ecosystems in the world.

From this refined pool, we then categorize opportunities based on sectors and themes that align with our investment philosophy. This is where our LEADER framework comes into play.

Akshara Menon: That’s a strong filtering mechanism right at the source. And yes, let’s talk about the LEADER framework, because that’s something you’ve emphasized quite a bit. Could you walk us through it in detail?

Pavan Sarawad: Certainly. The LEADER framework is essentially a structured way for us to identify and categorize high-potential sectors that we believe will define the next phase of global innovation and economic growth. Each letter in LEADER represents a sector where we see strong long-term opportunities.

Starting with L, which stands for logistics and mobility. As global supply chains evolve and the world becomes more interconnected, efficient logistics and mobility solutions become critical. This includes everything from last-mile delivery innovations to autonomous transportation systems and supply chain optimization technologies.

The first E represents energy, particularly green and renewable energy. With the global push toward sustainability and carbon neutrality, there is significant investment and innovation happening in this space. From clean energy generation to energy storage and distribution, this sector is undergoing a major transformation.

A stands for advanced biotech. This includes cutting-edge developments in healthcare, pharmaceuticals, and life sciences. Areas such as gene editing, personalized medicine, and advanced drug discovery are creating entirely new possibilities in how we approach healthcare.

D represents deep tech. This is a broad category that includes technologies such as artificial intelligence, quantum computing, and advanced materials. These are not just incremental innovations; they are foundational technologies that can reshape entire industries.

The second E stands for EnviroTech. This is an emerging field that focuses on understanding and interacting with the human brain. It has applications in healthcare, mental wellness, and even human-computer interaction.

Finally, R stands for robotics and Industry 4.0. This includes automation, intelligent manufacturing systems, and the integration of advanced technologies into industrial processes.

Together, these six sectors form the backbone of our investment strategy. We believe that companies operating within these areas have the potential to create significant long-term value.

Akshara Menon: That’s quite comprehensive. You’ve essentially covered sectors that are not only relevant today but are also likely to define the future.

Another concept you spoke about earlier, which I found particularly interesting, is the 80/20 framework. You mentioned that 80% of value creation happens in private markets, while only 20% happens after a company is listed. Could you elaborate on this idea in more detail?

Pavan Sarawad: Yes, this is a fundamental concept in how we approach investing. The idea is that the majority of value creation in a company’s lifecycle happens before it becomes publicly listed. During the early stages when a company is still private ,it is building its product, refining its business model, and establishing its market presence.

This is where the most significant growth occurs. Valuations can increase exponentially during this phase as the company moves from an idea to a scalable business.

Once the company becomes publicly listed, a large portion of that value has already been realized. The remaining growth is often more incremental and influenced by broader market factors, such as investor sentiment and macroeconomic conditions.

In public markets, prices can be driven by speculation, liquidity, and short-term factors. While there is still growth potential, it is generally less dramatic compared to the early stages.

In contrast, private markets allow you to invest at a stage where you are directly participating in the company’s growth journey. You are not just trading a stock; you are investing in the business itself.

Akshara Menon: So, in a way, private markets allow you to capture the core value creation phase, whereas public markets reflect a more mature stage of the business.

Pavan Sarawad: Exactly. In private markets, you are closer to the intrinsic value of the business. You are investing based on fundamentals and long-term potential, rather than short-term price movements.

Akshara Menon: Let’s connect this to the lifecycle of a company. A typical company goes through several stages starting with angel and venture capital funding, then moving to private equity, followed by pre-IPO, IPO, and finally listing.

Given this progression, would you say that investors should aim to diversify within the earlier stages of this lifecycle to capture maximum value?

Pavan Sarawad: Yes, that’s a very important point. When you invest at later stages closer to IPO or after listing you are entering at higher valuations. This increases your exposure to market corrections and valuation adjustments.

On the other hand, when you invest in the earlier stages, you are entering at a lower valuation and have the opportunity to benefit from the company’s growth over time. This is where the majority of value creation happens.

Therefore, having exposure to the early 80% of the lifecycle can be a strategic way to enhance returns while diversifying risk across multiple opportunities.

Akshara Menon: Within that early 80%, where would you say the maximum value is created? Is it at the VC and angel stage, or does it happen later during private equity?

Pavan Sarawad: Value creation is closely linked to ownership. In the early stages, even a relatively small investment can give you a significant stake in the company. As the company grows and valuations increase, your ability to acquire a meaningful stake reduces.

So, while value is created throughout the lifecycle, the early stages offer the highest potential for ownership-driven returns. It’s less about the absolute price and more about the percentage of the business you own.

For example, in a very early-stage company, you might be able to acquire a substantial stake with a modest investment. In contrast, in a large, publicly listed company, even a significant investment may only give you a very small ownership percentage.

Akshara Menon: That’s a very practical way of looking at it focusing on ownership rather than just valuation.

Now, let’s talk about investor suitability. For someone who has a relatively lower risk appetite but is still interested in gaining exposure to US venture capital, what would you recommend in terms of allocation?

Pavan Sarawad: Risk is often misunderstood. It is not just about whether an asset class is labeled as high risk or low risk. It is more about understanding what you are investing in.

In private markets, you are investing in actual businesses. The risk comes from selecting the right opportunities. If you invest in the wrong business, you can incur losses just as you can in public markets.

However, private markets a lT offer certain structural advantages. For example, investments are often made through preferential shares, which can provide some level of downside protection. In certain cases, even if a company does not perform as expected, investors may still recover a portion of their capital.

We also look at risk from the perspective of asymmetry. In venture capital, one successful investment can generate returns that significantly outweigh losses from other investments. This creates an asymmetric risk-reward profile, where the upside potential is much larger than the downside.

Akshara Menon: That sounds similar to the concept of multibaggers in equity investing.

Pavan Sarawad: Yes, it is very similar. In venture capital, we often refer to these high-growth successes as unicorns. We also use the term “soonicorns” for companies that are on the path to becoming unicorns.

The idea is to identify these opportunities early and participate in their growth journey.

Akshara Menon: That’s a very interesting way to frame it.

Let’s now discuss liquidity, which is one of the key differences between public and private markets. Private investments are generally less liquid, and investors need to be comfortable with longer holding periods.

What would you say is the ideal investment horizon for your fund?

Pavan Sarawad: The ideal investment horizon for venture capital is typically around five to seven years. This allows sufficient time for the business to develop, validate its product, and scale its operations.

It’s important to understand that building a successful business takes time. Investors should not expect immediate liquidity or short-term returns in this asset class.

In fact, if you look at other asset classes such as real estate or even gold, investors often hold these assets for extended periods. The same principle applies here. Venture capital requires patience and a long-term perspective.

Akshara Menon: That’s a helpful comparison. It puts things into perspective for investors who may be more familiar with traditional asset classes.

Who would you say is the ideal investor for your fund?

Pavan Sarawad: The ideal investor is someone who is looking to diversify their portfolio and is open to exploring new asset classes. Cross-border investments can provide exposure to different economic cycles and innovation ecosystems.

With the accessibility provided by platforms like GIFT City, more investors can now participate in global opportunities. However, it is important that investors have a clear understanding of the asset class and are comfortable with the associated risks and timelines.

Akshara Menon: Let’s now talk in more detail about your reliance on US universities for deal sourcing. You mentioned earlier that this is where your pipeline begins. Could you elaborate on how strong this ecosystem really is and why it plays such a critical role in your investment strategy?

Pavan Sarawad: The US university ecosystem is one of the most well-established and robust innovation engines in the world. It has been built and refined over decades, supported by a combination of federal funding, private endowments, and strong industry collaboration.

One of the key differentiators is the level of support available for research and development. Universities in the US receive significant federal grants that are specifically aimed at encouraging innovation. In addition to this, university endowments provide another layer of financial backing, enabling long-term research projects that may not have immediate commercial applications but can lead to breakthrough innovations over time.

This ecosystem encourages experimentation and risk-taking, which are essential for innovation. Startups emerging from these environments are often backed by strong research, validated concepts, and in many cases, patented technologies. This gives them a significant advantage when it comes to building sustainable businesses.

Another important aspect is the structured incubation process. Universities provide mentorship, infrastructure, and access to networks that help founders refine their ideas and prepare them for the market. By the time these startups reach us, they have already undergone multiple stages of validation.

This is why we believe that innovation, particularly in deep technology and advanced sectors, is most effectively nurtured in such environments. It provides a strong foundation for building businesses that can scale globally.

Akshara Menon: That’s a very compelling case for why universities are such a strong source of deal flow.

Now, let’s bring the discussion back to India for a moment. While the US clearly has an edge in innovation and R&D, do you think India has any areas where it holds a comparative advantage?

Pavan Sarawad: Yes, absolutely. India has a significant advantage when it comes to scalability and adoption. One of the best examples of this is the digital payments ecosystem, particularly UPI. It has transformed the way transactions are conducted in the country and has scaled at an extraordinary pace.

India’s large population and increasing digital penetration create an environment where new technologies can be adopted quickly. This makes it an ideal market for scaling solutions that have already been validated elsewhere.

In contrast, the US tends to focus more on building foundational systems and world-class infrastructure, especially in areas like banking and financial systems. Once these systems are established, they can be scaled or adapted to other markets.

So, while the US excels in innovation and foundational development, India excels in scaling and mass adoption. These are complementary strengths, and when combined effectively, they can create significant opportunities.

Akshara Menon: That’s a very balanced perspective. It highlights how both ecosystems can work together rather than being seen as competitors.

Let’s revisit the LEADER sectors, specifically logistics and robotics. You mentioned earlier that these are key focus areas for you. How do you see these sectors evolving over the next three to five years?

Pavan Sarawad: Both logistics and robotics are poised for significant transformation over the next few years. At a fundamental level, we are witnessing a shift from human assisted processes to machine assisted systems.

In robotics, for example, advancements in precision engineering and artificial intelligence are enabling machines to perform highly complex tasks with a high degree of accuracy. In the healthcare sector, robotic systems are already being used in surgeries, where precision is critical. These technologies can reduce human error and improve outcomes.

At the same time, robotics is not limited to healthcare. It is being integrated into manufacturing, logistics, and even service industries. As these technologies become more accessible and cost-effective, their adoption is expected to increase significantly.

In logistics and mobility, the focus is on efficiency and optimization. With the growth of global trade and e-commerce, there is a need for faster, more reliable supply chains. Technologies such as automation, real-time tracking, and predictive analytics are transforming how goods are moved and delivered.

As the world continues to evolve into a more interconnected and manufacturing-driven ecosystem, logistics and mobility will play a critical role in supporting that growth. These sectors are not just enablers; they are foundational to the functioning of modern economies.

Akshara Menon: That gives a very clear picture of where these sectors are headed.

We’ve covered your investment philosophy, sectors, and sourcing strategy. Let’s now talk about exits, which is an important aspect for any investor.

What are the typical exit routes in the US venture capital ecosystem, and how do you approach them?

Pavan Sarawad: In the US, exits are often driven by secondary markets and mergers and acquisitions rather than traditional IPOs. While IPOs do happen, they are not always the primary exit route for venture capital investments.

Large corporations are constantly looking to acquire innovative startups that can complement their existing capabilities. This creates a strong market for mergers and acquisitions. In many cases, startups are acquired before they even reach the stage of going public.

There are also well-developed secondary markets where investors can sell their stakes to other investors. This adds an additional layer of liquidity to the ecosystem.

Our approach is to remain flexible and evaluate exit opportunities based on market conditions and the performance of the company. If a company reaches a stage where it can deliver strong returns through an acquisition or secondary sale, we consider that as a viable exit.

At the same time, if an investment does not perform as expected, we take a disciplined approach and exit early rather than holding on indefinitely. This allows us to reallocate capital to more promising opportunities.

Akshara Menon: That’s a very structured approach to managing exits.

If a company does not perform as expected, is that risk addressed during the early stages of selection, or does it become evident later?

Pavan Sarawad: A significant portion of risk management happens during the selection process itself. By focusing on validated opportunities and strong ecosystems, we aim to reduce the probability of failure.

However, it is important to acknowledge that not every investment will succeed. Venture capital inherently involves a degree of uncertainty. This is why portfolio diversification is critical.

If an investment does not perform as expected, we assess the situation objectively. If there is no clear path to value creation, we exit and move on to the next opportunity. The goal is to ensure that overall portfolio performance remains strong.

Akshara Menon: That aligns with the broader principle of disciplined investing.

Before we conclude, I would like to ask if you have any notable success stories or experiences that you would like to share.

Pavan Sarawad: Over the years, we have seen multiple successful investments, particularly through our earlier experience as a family office investing across different jurisdictions. Our focus has always been on maximizing multiple on invested capital rather than just looking at short-term returns.

One of the key advantages in private markets is the structure of investments. Preferential shares, for example, can provide certain protections, including priority in case of liquidation. This helps in managing downside risk to some extent.

At the same time, the real value comes from identifying high-growth opportunities early and staying invested through their growth phase. As I mentioned earlier, venture capital operates on an asymmetric risk model, where a few successful investments can drive overall returns.

Akshara Menon: That’s very insightful.

As we wrap up, what would be your final message to investors who are considering exploring US venture capital as an asset class?

Pavan Sarawad: I would suggest three key takeaways for investors.

First, consider allocating a portion of your portfolio to private markets. It provides access to a different stage of value creation that is not available in public markets.

Second, think about diversifying into US dollar-denominated assets. This not only provides geographic diversification but also helps in managing currency exposure over the long term.

Third, focus on investing in proven innovation ecosystems. Markets like the US have a long track record of fostering innovation and creating global leaders.

Looking ahead, we believe the next major wave of growth will come from what we call bio-digital convergence. This involves the intersection of artificial intelligence, biotechnology, and advanced computing.

For example, AI is evolving toward more autonomous and agent-based systems that can manage complex operations. In biotechnology, we are seeing advancements in personalized medicine and large-scale production of critical pharmaceutical components.

These developments have the potential to transform multiple industries. As investors, being positioned early in such trends can create significant opportunities.

Akshara Menon: That’s a strong and forward-looking perspective.

It was a pleasure speaking with you today. We covered a wide range of topics—from US venture capital and private market alpha to sectoral trends and global investment strategies. I’m sure our audience will find this conversation both informative and insightful.

Thank you for taking the time to share your thoughts and for helping us understand this space better.

Pavan Sarawad: Thank you, Akshara. It was a pleasure speaking with you. I appreciate the opportunity to share my perspective, and I also thank PMS Bazaar and the entire team for hosting this conversation.

Akshara Menon: Thank you.