Thread by @kanika_agarrwal

Why My Startup Failed

It’s been nearly a year since we shut down @Upside_AI. Given that I’ve had enough time and space from it, the end of the year seems like a good time for reflection and closure. Its a long thread, bear with me :) (1/n)

We started Upside with the vision to build the next HDFC AMC. The next generation of mutual funds that will deliver returns using machine learning instead of humans. The inputs to pick good stocks was the same – company fundamentals and macro data.

We weren’t trying to build a trading shop but an investing firm without the biases of human investors. The thesis came from how investing in the US had evolved into more rules-based, quant driven products.

For the first couple of years, it was just the 3 of us building the product, testing it in live markets to build track record and selling. As markets took off in mid 2020, so did we. Our products were consistent top quartile performers and AUM follows returns.

We grew 10x in two quarters and very profitable. We were organically adding customers who would find us and invest. Therefore, we did very well in building an awesome, unique product that was our wedge into the market. We also did a good job building brand through PR and content.

However, we started hitting a ceiling on AUM growth as markets turned mid 2022. We troubleshooted plenty – offline sales team, digital marketing, more PR/ brand building, growing through distributors, etc. But none of these seemed enough to fight bad markets.

What we saw was that as soon as we had a few poor quarters of performance, AUM started leaving the platform. The products were high beta, but the AUM was even higher beta.

Therefore, our first realization was that our thesis on why most investors were onboarding was wrong. It was not the tech, but the great returns. Seems so obvious now.

But this was not true for other fund houses – investors did not leave other guys with bad performance. They stayed because they trusted the brand. Therefore, second realization was that this is a brand trust business. Investing brands are built across vectors of time and capital.

We tried to “borrow trust” over the years. Raising venture money, onboarding marquee distributors was one way we tried to move up in the circles of trust till investors could trust us directly. But brand trust does not flow as easily, and rightly so. It should not.

The other way to approach building a business in this space is distribution first. Build the pipes and then different products to push through this. When we started, we debated this a lot – should we first be manufacturers or distributors.

Guys who crack distribution first have a much better right to win than the folks who have a great product. This is true across industries and extra true for financial services. Therefore, in my view, an AMC by Zerodha and Groww have a much higher chance of success than a new AMC.

Another axis on which you can build an AMC business is solving the cold start AUM problem. If you start with an AUM of Rs 500-1,000 cr, money begets money. This was never an option for us or likely for any other middle-class kids that decide to build in this space.

There is an alternate wishful thinking universe in which we have that one better quarter, crack that one big distributor, do that one thing better.

In hindsight, I think we realized these things too late. We were growing so quickly that we didn’t see that there is a ceiling on where our product/ efforts would take us. We could have launched/ improved products faster, tried more distribution experiments and maybe even pivoted

In essence, we could have executed better. So, it’s not all market dynamic, it is much more our own execution failing.

Having said that above, we are very proud of all that we achieved. The three of us founders succeeded and failed together and had an awesome team that stuck with us through it all. We still believe there will be an Upside AI that will exist in the Indian markets in 5-10 years.

I am so glad we had this adventure that taught me a lot of grit, patience and most importantly, taught me how to sell.

I am taking all of these hard-won skills to @IndiaQuotient. I was an early-stage investor before I Upside. But the big difference in how I now evaluate companies is the deep empathy with which I can relate to a founder’s very tough journey. Hopefully makes me a better investor.

I always be thankful to my co-founders @aagarrw, Nikhil Hooda, our customers and the investors who trusted us (@sateesh_andra, @EndiyaVC, @ajaynanavati, @Gkatragadda and @VijayKedia1 for taking this ride together.

Happy New Year to all of the guys who read this whole thing!

I wish lots of objectivity and luck for you in 2024 :)
(n/n)