Citrus Founder Satyen Kothari On His Latest Startup Cube, And Why Indians Need To Start Investing As Soon As They Can

Satyen Kothari puts the serial in serial entrepreneur — he’s a battle-hardened veteran of as many of five startups, which have spanned across Silicon Valley and India. His last venture, Citrus Pay, had been acquired by PayU for Rs. 870 crore in 2016, following which its newly-minted crorepati employees had partied in Phuket, providing a bright spot in a year when India’s startup ecosystem was going through a bit of a rough patch. Now Kothari is back in the startup game — with Cube, he aims to make investments easier for the busy working professional. He spoke with OfficeChai about his latest venture, India’s fintech space, and why Indians need to start investing as soon as they can.

satyen kothari cube

OfficeChai: You’d tweeted recently that the Indian fintech space was “deep into the greater fool’s theory stage,” and said that some valuations were an absolute farce or scam. You added that this could lead to long-term damage to the ecosystem. What did you mean by that?

Satyen Kothari: There are positives and negatives of having done a few startups. The positives are that you’ve seen the cycles — my first startup was before the dot-com boom. Then in the first part of this decade, everyone in the e-commerce space was getting funded. Now we’re seeing the same thing in fintech. The negatives mean you’ve seen all the ups and downs as well. My constant challenge to multiple parties in the ecosystem is that are you doing the right thing for yourself and the ecosystem? If entrepreneurs get carried away and raise a lot of money, the exit potential for themselves and their team becomes that much harder. If you raise $100 million, you have to return at least $100 million, if not more, before your hard work pays off. Among VCs, there’s a fight and competition to deploy capital.

For the overall ecosystem, this creates a roulette effect. One wonders if it is going to work. If it does work, a few people will make money. If it doesn’t work, everyone suffers, because the whole market sentiment goes away. This can angle the game towards that of a very few people’s interest versus that of the whole ecosystem. But at the same time, people who’re raising a lot of money are very excited, and they want to use it to dominate the market. I can’t fault them.

OfficeChai: So why do you think the valuations are so high? Is it exuberance, or are people overestimating the opportunity?

Satyen Kothari: Some reasons for the excitement are valid. Even since Jio was launched, a lot of Indians have come online, and can be targeted by fintech companies. Bharat is now coming online, an SME boom is happening, and kirana shop guys are being approached with innovative technologies because hardware costs are going down. NPCI has done a stellar job with UPI and Bharat QR codes. A lot of generic stuff is now taken care of, which allows a lot of companies to go ahead an innovate, and that’s what’s happening. Companies are finding initial distribution very rapidly.

These companies are currently losing money at the unit economics level, but they feel that once they’ve acquired a customer, they’ll later figure how to make money off them. This playbook has been used in the past by companies like Google, Facebook and Amazon, but the problem now is that everyone has the same playbook. This will lead to even more competition when these companies are looking to monetize.

OfficeChai: You’d founded Citrus Pay many years ago, and now you’ve founded Cube, which is an investing app for customers. What was your motivation for your new startup?

Satyen Kothari: When I started Citrus, there was a clear market need in the enterprise space. Citrus was well-timed in that respect. We had some old-school players who hadn’t innovated much, and Citrus was able to solve a real problem.

With Cube, we’re looking to solve another problem — middle-class and upper middle class Indians, who’re busy professionals, are now earning a reasonable amount to money, and they can now save and invest. These people are currently not served well by investment firms. At the very top end you have HNIs (High Net worth Individuals), who’re served very well by top-notch wealth managers. At the bottom, you have a layer where people are struggling to make ends meet, and that’s a different category. In the middle are people who’ve worked hard, they get a paycheck every month, and have 10, 20, 50 thousand left to save every month.

What are their options? Their parents would tell them to invest money in gold or in an FD, but those options worked better pre-1991. Ever since liberalization, investing in old asset classes would’ve made you very little money compared to investing in new investment forms such as equities, alternative investments, and mutual funds. 

If a busy professional looks at the data and is convinced to invest in these new asset classes, who do they go to? You can go to your bank’s relationship manager, or your neighbourhood mutual fund Uncle. Neither one of them is trained well, or, for the most part, has your best interests at heart. Their job is to sell you stuff and make a commission. We wondered if we could change the entire dynamic here. One way is to educate people and guide them. So we have wealth coaches, who’re available on the phone and in person. They guide people on how to think about money. Not even about where to invest — that comes later.  We also have top-tier asset managers and advisers who were only available to HNIs in the past, and we’ve brought them together and made them available to the users of the app. Also, our DNA is based in tech, and we make everything very transparent, and we automate and simplify things.  That’s the problem statement — 10 million middle class Indians who aren’t being served by existing investment avenues, and we want to help make them really rich over the long term.

OfficeChai: How have you gone about acquiring your customers?

Satyen Kothari: We share our success stories and our mistakes through our blog and our social channels. Our niche is early adopters who’re into the fields of media, who’re doctors, and so on. These are people who know they’re making a reasonable amount of money, and they also know that they don’t have the time to pick their investments. Our growth has been very organic. When these people like our service, they refer their friends and family members. 

OfficeChai: How big is Cube now? How many people are investing on the app?

Satyen Kothari: We don’t disclose that because of several reasons, but we’re growing 40 percent quarter on quarter. We’re okay with that, because our customer acquisition cost is zero. It’s a nice solid proposition to have. Last quarter, we had a 70 percent repeat rate with customers, which is incredible. We’re doing the job right for our existing customers, and they’re being loyal and introducing us to newer customers. It’s a long-term play, as opposed to the regular tech company play of acquiring customers at any cost, as opposed to delighting them. I’d want to build an HDFC Bank sort of company over the next twenty years. HDFC Bank doesn’t do anything dramatic everyday, but everyday you get a little more reassurance about the fact that your money is safe with them. Nobody’s pushing things aggressively at you. 

OfficeChai: Which kind of asset classes do you let customers invest in?

Sayten Kothari: We have twelve asset classes, ranging from the short term to mid term to the long term. In each one there’s diversification of risk, and sometimes geography too. For emergency funds, instead of parking money in your bank, we have liquid funds which can return as much as 7 percent, with an instant withdrawal of Rs. 50,000 in your bank account within minutes if you want it. Then we have short-term investments, which are for between 0 and 3 years. Here we have all the traditional conservative mutual funds, and also alternative assets like peer to peer (P2P) settlement financing, which can return between 11 and 20 percent. 

With mutual funds, we have have a top tier adviser who manages Rs. 8000 crore for ultra-HNIs, who gives us updates around which mutual funds they’re recommending at any given time. The same thing applies within the 3-5 year time frame, where you can pick moderate risk and aggressive mutual funds, and you can pick between four different international mutual funds with strategies in China, Japan, Europe and the US. 

For long-term investments,  our fund managers have at least a 10-year track record of returns above 20 percent as a cumulative average per year. That’s insane wealth creation you can have — there are, of course, no guarantees around this, but you can look at the data and take a calculated bet based on it. 

Customers can invest in theses four buckets — emergency funds, short term funds, medium term funds, and long term funds. Even if the markets go up and down, as they have been these days, you might see your long term investments go down, but you can still sleep well at night because your emergency and short term investments are giving solid returns. 

OfficeChai: Your P2P lending product sounded interesting. How does that work?

Satyen Kothari: We have partners for each of these asset classes. For P2P lending we have two partners, both of which are RBI-registered. To invest in P2P lending, you connect via Cube, and allocate some of your money towards it from your 0-3 year bucket. P2P does have higher risk of default, but at Cube, whatever amount you invest will be split up among borrowers, so your chance of losing capital goes down dramatically. We also check the NPA rates of these partners to make sure that we’re comfortable with it as well. We do a lot of analysis and curation before introducing it at Cube. Also, before we introduce an asset class on Cube, the senior leadership team puts in their personal money in it. I have investments in every asset class in Cube. 

OfficeChai: How operations-intensive is this business? Do you have lots of wealth coaches, or is your product chiefly tech-enabled?

Satyen Kothari: Our wealth coaches only guide you. Once you’ve understood the construct of the product, you’re asked to do your transactions on the app. The bulk of the system is fully automated — half of the company is product and engineering. Every member joining the app gets a personal wealth coach, and they also get a personalized WhatsApp group which has the wealth coach, my COO, and my Head of Sales. I’m on every WhatsApp group as well. The reason for this is that any time there’s a query, one of the four of us can be on WhatsApp to answer it. It also creates a nice feedback loop for the top management. I haven’t heard of any company doing this.

OfficeChai: What do you think the competition is like in this space?

Satyen Kothari: My biggest competitor is user inertia. India has the lowest mutual fund retail penetration in the world at 5 percent. When digital competitors come along, I’m happy that more people are educating customers that they should start investing. Offline competitors are bank Relationship Managers and Mutual fund agents, and they too at least do the job of educating customers. When the customers become a little more mature, and realize their portfolios aren’t doing so well, and they aren’t getting the kind of service they expect, that’s when they potentially come to Cube. 

OfficeChai: What do you think of tech-enabled platforms such as Zerodha or Paytm Money?

Satyen Kothari: These are transaction platforms. If you know which mutual fund you want to buy you go to these platforms, and buy it. That’s just the final leg of the investing journey.  The average Joe doesn’t know what to buy; even if they know, they still need to be saving money for emergencies, and other kinds of investments. 

OfficeChai: Do you think these companies could start moving upstream and start providing education and investment services like you do?

Satyen Kothari: That’s definitely a business risk, but the way I look at it there’s no fintech space in the world where one company dominates the majority of all transactions. In India, this is the time to create the market together and then figure out how to split it up. It’s also a bit of a philosophical principle thing. We don’t want to build something where we’re being frivolous with people’s money — I don’t want that on my conscience. We have to do it the right way. It’s a long journey and we’d rather build our reputation at a steady pace. 

OfficeChai: How do you make money with Cube?

Satyen Kothari: The customers don’t pay anything. Based on their investing needs, they search for products on our app, and we show our matches to them. They then pick whichever products they want, and we get a standard commission from the asset managers based on what they pick. 

OfficeChai: So you’d started Citrus before this, which was a B2B product, and now you’re doing this consumer-facing startup. What’s the transition been like?

Satyen Kothari: It’s a very different dynamic. My first startup in the US was a B2B startup. The second was B2C. The third one was a consulting business with 10+ clients that was a mix of B2B and B2C. On a daily basis, the sales process is very different for B2B versus B2C. But that’s alright. That’s also the reason why doing startup number 5 is exciting for me. It’s not like I know everything — I’m challenging myself and I’m constantly leaning. That’s what arguably my friends tell me makes me look younger than my age. You have to stay curious. The moment you become complacent, inertia sets in, and that’s no fun.