Battle-scars FY21 : Lessons and dreams from the first full year of GSN Invest 🐺

Didier once told me, in a rambling midnight dissertation, that a dream is a place where a wish and a fear meet. - Shantaram, Gregory David Roberts

The context What could possibly go wrong in your first year of doing business? For us, the answer to that question was a global pandemic that brought the world to a grinding halt - a black swan event if there ever was one!

Luckily, we had quite a few things going for us that allowed us to survive- (i)The nature of our business allowed us to work online from the safety of our homes. (ii) As more investors began investing themselves - our addressable market expanded. (iii) Bagging an institutional client early in our journey helped us to secure steady cash flows. (iv) We had a fairly lean cost structure that helped us stay afloat.

In the course of this letter to our stakeholders (current and potential users, retail customers, institutional clients, and employees) I'll try to provide a birds eye view of how I think about the sector, prospects for the firm, and my 60 year vision for GSN Invest, as well as give you a low down on the executional challenges we faced during the first year, dilemmas and problems we encountered, and where we stumbled.

While the hope is in 60 years people read these notes like they read Buffet's letters (long shot, but that's what we live for!), even if it helps a few aspiring entrepreneurs along the way avoid the mistakes we made, and a few more prospective customers or employees discover us, I'll consider this a break-even on the effort!

The Business

In the long run (10 years+) we plan to run a fund house and a equity research business. Both of these business require capital - for licenses, customer trust and reach - for acquiring investors, and research expertise - for performance. We are spending the next few years accumulating those three.

We currently have two key business lines, with the third one likely to launch in early FY22.

(a) Institutional Research Support - This business brings in more than 30% of our revenue - and involves us providing research support to international hedge funds. While there is limited scalability in the business, it provides a stable source of cash for the business as compared to our education services where the money flow is a lot more volatile.

(b) Education Services - We do this in two ways - free education in terms of blogs, reels, and Youtube videos and paid education in terms of GSN Invest Edu100 (Previously GSN Invest++). The free content serves as an effective acquisition channel for our GSN Invest Edu100 program. We had scaled down our free content business as we worked on stabilizing our Edu100 and Institutional service businesses. With a much better team composition and work load situation, we will resume and accelerate the free education and content services.

(c) Research & Recommendations - I cleared the NISM Research Analyst certification with a 99%ile+ score earlier this year, and have completed by application for becoming a SEBI Registered Research Analyst. Upon acceptance of the application by SEBI, I shall begin my research & recommendation services for retail investors. This is expected to begin by May-June 2021 based on the normal time taken by the regulator to process applications.

The Growth

We grew revenues 11.5x this year, off a small base (partial year, partial business lines in FY20) while maintaining our margins. We also made our first full time hire this year, a MBA + CFA with an unbridled passion for research, adding greatly to the strength of our research team.

For the next full year, we plan (and hope and pray!) to grow our business 3.5x-4.0x - driven by improved retail volumes, better pricing, and new business lines - maintaining margins and increasing our team size by 3-4 people (1 in growth, 3 in research) as we do.

The Moats

The financial advisory space in India is extremely competitive and fragmented. There are hundreds of analysts, advisors, and managers - all vying for two precious resources - people who trust them with managing their money and an enduring edge to beat the market.

There are two primary ways folks have attacked the problem trying to get an edge in one of those factors - (a) Breadth - distribution plays: Most low/no cost mutual fund investment platforms fall into this bucket. They have created a platform that is extremely simple to use, and used it to gain retail customers at scale. The customers are attracted by what works best in the Indian context - low/no direct fees. Two primary downsides of this model - in most cases it is a race to the bottom - there will always be a better funded player (attractive end market) out there wooing customers at a lower rate, and there will always be non investment players with a wider distribution network (wallets, telcos, etc) who could pivot one fine morning and beat you at your game.

(b) Depth - research plays: Most full service firms fall into this category - working extensively on building high-quality research for a wide range of firms. A few firms have been able to build a substantial distance between themselves and competition based on just this factor. The largest institutional research player for example has a coverage of 307 stocks, 30% above their nearest competitor. The best institutional player by quality has won 9 of the 20 Asia Money awards (the second closest competitor has won only 2). I believe the moat here is a lot more enduring - you can poach the people, but the process stays. And while there are natural constraints around growth for this model, they are easily solvable, for someone starting without the constraints of a legacy system.

At GSN Invest, we are taking a research first approach to the problem. Two primary reasons - (i) This is more aligned with my skill-set: I have built a decent skill-set in core finance and research over the years (profile here). This not only lets we do the research and analysis well, but also allows me to hire top talent in research more easily as I can offer both a strong learning curve and mentorship to new recruits vs a tech hire where all I bring to the table is the compensation. (ii) I am more confident in the durability of the high-quality research moat.

We will actively work on building the following moats over the next few years -

(1) Brand & Distribution [Target(2yr): 10 lakh MAUs by FY 23 end]- Trust - both in the quality of work you do, and your integrity as a firm and promoter is paramount in India, more so in the financial services space. We reached 100K+ people in FY21 driven primarily by our IPO analysis and related content. We intend to increase both the number of people we reach, and the frequency with which they have a positive experience with our product - by combining the right content with the right platform to reach our users. [if you're wondering how you can join one, here you go -]

We have also actively started working on the wolf pack persona (🐺) for GSN Invest communities to foster a greater sense of camaraderie amongst our users.

(2) Research Coverage & Quality [Target(4yr): #1 in India by coverage by FY25 end, Target (10yr) #1 in India by quality* by FY30] - We will reach a coverage of 100 companies by the end of FY22. We intend to be #1 in India by research coverage (450-500 companies) by FY25. While I build the coverage for the first 50 odd firms, we are now a team of two. We will continue to deploy our surplus cash flows into hiring more analysts - targeting a core research team of 10+ by 2025. Quality is the tougher of the two research challenges, and will therefore, in my opinion take more time. More colour on how we plan on getting and stay there in future editions of this letter. [If you're interested in being a part of the team (either directly as an employee or indirectly as a subject matter/sector expert- please drop a mail with your profile and a one pager on your favourite stock (for prospective employees only) at and I'll get in touch! ] *Asia Money rankings as a proxy for quality.

The Capital

GSN Invest is a private bootstrapped company. If all goes well, I would like to keep it that way. Over the next few segments I'll try to explain my aversion to raising external capital and how I plan to deploy our internal accruals.

The aversion to external capital - Over the last one year I've been extremely fortunate to have numerous marquee venture capital funds reach out to me to discuss an investment in the firm - and I have had to politely turned them down for three broad reasons - two economically driven and the last one a bit more personal.

(i) Capital light, profitable, free cash generating business - My largest costs are salaries of my employees - who we plan to keep hiring as we grow. Other than rent, utilities, and nominal compliance costs, there is no major need of capital in the business. The only major capital inflows needed will be regulatory driven to achieve various licenses - I am currently confident on providing for these using firm accruals or my personal funds. We have been profitable since inception and also enjoy a negative working capital cycle, that further strengthens the cash inflows into the firm.

(ii) Discipline & obligation to deliver returns - Having the money come in directly from the customers ensures we are always on our toes to deliver a superior value proposition them - to acquire more customers and retain the ones we already have. It also induces a discipline in every rupee we spend - knowing how hard we've had to work to earn it. We are also cognizant of the return expectations of venture capital firms - and the firm trajectory we might have to take to keep delivering a better next round for the investors - something which I believe is not be in the best interest of building the kind of moated business I'm attempting to build.

(iii) Freedom - When you plan to run a business for the rest of your life, how it goes also has a profound impact on the quality of your life - both material and mental. The business in its current form generates sufficient capital to help me, my family, and my employees maintain a decent standard of living, while also allowing me the scope to redeploy excess capital into the business to grow it. More importantly - I wake up every morning with no one to report to & go to bed every night the same way - no monthly statements to provide other than the ones I create for my own analysis, no targets to hit another than the ones I set for myself, no up/down rounds to worry about - just freedom to work on something I love every day of my life. In a market as large and as fragmented as India - the path to victory in the financial services markets will be a marathon, not a sprint - and I'm comfortable taking my time getting to the top.

How we plan to deploy the capital - Since we are in our early growth years - an overwhelming amount of money we make goes into maintaining the existing business - paying for rent, utilities, and salaries of existing employees - the remaining goes to growth - getting new employees onboard, running marketing campaigns, building long term assets. In FY21 that split was roughly 80-20. As we scale, we will move to using 50% of our cash to maintain the business, 20% of the cash to create a war-chest for our licenses and down months, and 30% of the cash to drive growth via marketing, new hires, and

The Risks

Concentration - A single institutional client drives more than 30% of our total revenue. While we are confident both in the financial health of the client and our relationship with them (I've worked directly with the client for two years while at Goldman), the dependence on a single source for a large chunk of your revenue is never ideal. We will attempt to gradually reduce our concentration risk - via on-boarding other institutional clients and focusing more aggressively on growing our retail client base.

Ability to attract and retain talent - The financial services market is extremely competitive with top domestic and international players competing for the same talent. We are currently at a stage where we cannot compete with large international players on compensation. Our ability to attract and retain top talent therefore relies on the quality of work, mentorship, and professional growth we are able to provide. Our employees have the best in class growth vs maintenance work ratios in the industry, have opportunities to participate in (and win) marquee competitions (our analyst stood second in the CFA Research Note writing competition this year), and will continue to be personally mentored by me. We intend to retain this focus on employees even as we growth and scale.

The Mistakes

We have made a fair share of mistakes along the way. As we continue to explore new ground, we will , undoubtedly make more. So here's us, documenting the mistakes we made this year, and things we did/plan to do, to fix them.

Discontinued free retail offerings: This is perhaps the biggest factor we got wrong. Around 5 months into the fiscal we drastically cut down on the free content we gave out. By this point word about our brand had gotten out, and we were getting good traction from direct visits and hit articles (IPO analysis et al), and it was also becoming extremely taxing for me to manage everything by myself - so I cut back on the free content we gave out. In retrospect this shrank the people we could get into our conversion funnel, and had an impact on growth during the fag end of this year. Going into FY22 we will accelerate our free offerings to our customers - growing our potential customer universe, while also working on ways to drive free to paid conversion more aggressively.

Pricing: The pricing on our flagship Edu100 program was extremely low when we started. While this worked out well for us in terms of getting people on board quickly and getting the word out, we were late to increase the prices despite strong demand existing at higher experimented price points. It took us 9 months after the launch of the first batch - and a lot of lost revenue in the process- to reach the pricing where we are now. While pricing for a new business launching a new product is always tough - given that we did not have a track record to demonstrate value and there were no direct comparable firm to match pricing with, what we could have done differently is being a lot faster in our iterations to arrive at the fair price for the product.

Pure organic growth focus: We had a strong focus on pure organic growth during our first year of operations - driven primarily b a cash crunch, but also a reluctance to 'fall back' on marketing spend to drive growth. We experimented with digital ads during the latter half of the fiscal and earned attractive returns on the spend - with complementary visibility to all the folks who saw but didn't convert. We will continue to hone our digital marketing skills, hopefully with a full time professional on board to drive profitable inorganic growth for the firm.

That's it from our end for this year! Here's to a healthier, happier, more prosperous FY22!

Ganesh S. Nagarsekar Founder, GSN Invest 🐺

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