Mumbai: Manish Sharma, 43, likes his coffee black and his conversation clear and upfront. Entrepreneurs aren’t really a fraternity, he says.

“Mostly we have our head in the sand, trying to figure our own shit. It is one reason why I want to tell the Printo story. I think people can maybe learn from my experience. Because it is relevant today… when there are so many people trying to build companies.”

In Sharma’s version, he is the good guy. His former funder, venture capital firm Sequoia, the bad guy.

But that’s only one version.

There’s another.

In an emailed response to a detailed set of questions, a Sequoia Capital India spokesperson said: “Printo is one of those tough situations where everybody lost—the founder, the management team and all investors. This is never the desired outcome and nobody—least of all the founder and the investor—ever wants this to happen. However, this situation does happen.”

That may sound platitudinous, but it isn’t. And it is as much as you can expect to get out of the storied but close-mouthed venture capital firm. It also means that the story that follows may seem one-sided.

The beginning

The year was 2005.

Sharma, then in Mumbai, was searching for something to do with his life. Not that his life hadn’t been eventful enough already—a software engineer, Sharma was the sixth employee at Rediff, which he quit in five months. For the next seven years, he worked in start-ups, in India, the US and the UK, making websites, setting up an artificial intelligence firm (which eventually went bust) and selling business intelligence products.

In 2003, Sharma went to Oxford University to pursue an MBA. When this story starts he was back in India, thinking of what to do, contemplating various ideas—perhaps a chain of hair-cutting salons, maybe luxury loos.

As fate would have it, he found himself in the by-lanes of Fort (that’s where the BSE is), looking to get a business card made. It was an excruciating experience. First, because shops weren’t willing to accept his tiny order of 200 cards. Then, they weren’t very particular about pricing, time and delivery either. Sharma was angry. This got him thinking. Maybe there’s a business here. Couldn’t this be organized? Like a professional set-up? Like a Kinko’s? (US printing chain Kinko’s was acquired by FedEx Corp in December 2003 for $2.4 billion in cash.)

And that’s how the idea of Printo came about.

Sharma’s wife Lalana Zaveri, an executive at Xerox India, quit her job to come on board as co-founder. The two dumped all their stuff in an Opel Swing, a hatchback they owned, and drove down from Mumbai to Bengaluru to set up shop. Why Bengaluru? Because rents were cheap, it had a booming IT industry and boasted an open culture that was not averse to the idea of outsourcing anything.

Between Zaveri and Sharma, they had some savings, about Rs.50 lakh. They then did a round of friends and family; In all, 18 people invested. Among them was Pravin Gandhi, angel investor; Sridar A. Iyengar, former CEO and chairman of KPMG India; and Naresh Malhotra, former CEO of Café Coffee Day. Total money in: aboutRs.1.2 crore.

In April 2006, Printo opened its first shop in Koramangala.

“I was extremely nervous, the first day,” says Sharma. “It was an 1,100 sq. ft space and both Lalana and I were store managers. We did sales of around Rs.400. Then within a few months, we did sales of about Rs.12,000 a day. It was remarkable. I didn’t have to find people to go and sell. They found me. And I said, yes, this is what I want to do.”

“We had a hypothesis but no clue whether it would work. The hypothesis was to create branded shops for printing—no-nonsense stuff for small business. The model was to create a hub and spoke. Get to a few stores. And then create a hub. My Excel business plan said we should have 55-60% margin. So we were like, let’s put up a board and see if people will come. And, people came.”

Soon enough, another store came up—inside the Infosys campus. That was followed by an investment from Seedfund India. Fast forward, another store in Jayanagar and then another in Malleswaram.

Sharma started dreaming of growing bigger.

Retail was booming at the time. It was a time when Aditya Birla Group entered the retail business by acquiring Trinethra Super Retail, Kishore Biyani-led Pantaloons Group was opening one store after another, there was excitement about Subhiksha, multi-brand retail… everything retail… in fact, experts were pegging brick-and-mortar retail at a $300 billion industry and players were racing each other to get to the maximum number of stores. Maximum number of footfalls.

At Printo, Sharma wanted to open more stores and build the hub and spoke. But for that, he needed money. So, he started looking to raise some from a venture capital (VC) firm.

‘This is not what we had agreed on’

He reached out. A couple of term sheets came in. From Draper Fisher Jurvetson (DFJ). From Trident Capital. The terms were onerous. $10 million valuation, for about $6 million in funding. (At the time, $1 million was Rs.4 crore) But Sharma wasn’t done shopping. He reached out to more VCs. Sequoia and Sandeep Singhal (managing director at the fund then) in particular. Singhal said no.

That wasn’t the end of it. A month later, Sharma was pitching to Peter Wendell, founder and managing director of Sierra Ventures in the US. As Sharma tells the story, Wendell liked him and the idea but he didn’t want to lead the funding; he wanted a partner.

Wendell: Manish, I really like you. Let’s do this. But I can’t lead in India. I have to find a partner.

Manish: Sure.

Have you spoken to Sequoia?

Yeah. They said no.

Okay. Why don’t you speak to them the day after.

Okay.

Sequoia reached out to Sharma the very next day. He was thrilled.

“Sequoia is a big, fancy brand. I was enamoured by it,” says Sharma. The two started negotiating. Going back and forth on a few points. Valuation to begin with. Sequoia wanted $8 million, Sharma, $10 million. They finally agreed on $9 million. Then liquidation preference—it is a term used in venture capital contracts to specify which investors get paid first and how much they get paid in the event of a liquidation event. Sequoia wanted 3x liquidation preference. Sharma, 1x. They finally agreed on 1x. The last sticky point was on tranches. Sequoia wanted to tranche the investment based on store revenue—so $3 million first and then another $3 million after 12 months, after the 3 stores crossed a certain revenue number. Sharma didn’t want the tranche.

On 26 August 2007, a final meeting was arranged between Sharma, Zaveri and Singhal at Sequoia’s office.

“So we were supposed to sign that day,” says Sharma. “My big thing was no tranches. It was a long meeting. I remember Sandeep saying that Sequoia had a lot of experience (in this kind of retail) and could add value. He mentioned Dr. Lal PathLabs, which has physical samples going in, into a hub and spoke, and digital reports coming out. Ours was digital going in and physical coming out. He mentioned their investment in Café Coffee Day and Cotton County and how they understood retail. I genuinely found them to be very nice guys to speak to.”

Tranches, though, was still a sticky point. “I remember Sandeep saying, “Why don’t you suggest the store values?”, and I said I don’t want it. I was quite tired of negotiating. So Sandeep said “Okay, no tranche. Screw it, let’s do this”. And we shook hands. I told Sandeep I was calling off talks with the other guys. He was like, sure.”

As Sharma tells the story, the revised term sheet from Sequoia arrived by fax, later in the day. With the tranches clause.

“I called Sandeep, “What the hell man? What’s this? This is not what we had agreed on”. And he was like, “No we could not. I spoke to my partners and we could not change this”. I was like, “We shook hands last night, then you shouldn’t have told me that this is the final thing”. He was like, “No Manish, why don’t you put in the numbers?”. I’m like, “It is not about the number”.

“Frankly, I was feeling quite stupid and helpless; why did I call the others off? I think you are tired when you are doing all this because it is the culmination of negotiating with a lot of people and you give in to a lot of terms. Sometimes you feel, “Let’s just get on with it. What’s the big deal.” And you start questioning your own belief system. I did make sure that there was no ambiguity about the tranche. So there was to be an auto transfer on a date 12 months down the line, provided three stores crossed the revenue number—Koramangala, Jayanagar and Malleswaram.”

On 28 August 2007, the deal was signed. Early October, the money came in.

‘Our growth plan was called 30 in 3’

With the $3 million in the bank, Printo changed course. It started with the kick-off meeting with investors. While Sequoia got two board seats, it didn’t appoint anyone but was informally part of the decision-making body. Sometime in December 2007, the team met. It agreed on a strategy, but that while Printo’s hub-and-spoke model seemed to be working, instead of staying in Bengaluru, the company should try to expand to other cities. Fast-track the growth. The hub could come later.

The plan was called 30 in 3. 30 stores in three months.

“I bought the story as well and I am to be blamed for it,” says Sharma. “I was equally willing to dump my hub-and-spoke model with very little resistance. I wanted to conquer. You think the same economics will play out in every city; open a store and customers will come. Make money, awareness goes up and boom. I also had the feeling that these guys had done so much retail so they would know. The economics was that Rs.24 crore ($6 million) would take me to 50 stores. So we came out of the meeting with this crazy idea. And then I sold the idea to my team as well.”

Starting January 2008, Printo started hiring aggressively. All of a sudden there were more people in office, people taking flights to several parts of the country scouting for locations. In five months, Printo opened two stores in Mumbai, two in Hyderabad, two in Pune, one more in Bengaluru and was getting ready to open two more, in Delhi and Gurgaon.

“I remember I was on a flight to Delhi,” says Sharma. “My retail head was in Gurgaon. He had looked at some properties and wanted to close it fast. Real estate prices were going through the roof at the time. I saw the places, they were completely in the dumps, going at Rs.1.2 lakh per month and I was like, “Who the hell is selling me this shit? Who the hell is going to come here? There is no way I’m going to make money with this kind of rental”.”

Ironically, the sentiment was, if real estate is expensive, it was only going to get worse. “I think what happened to me was, I became stupid,” says Sharma. “I take complete responsibility for it. When you have the pressure to grow, you lose sight of unit economics. You question it and investors say, “Of course you have to pay that much. That’s the price of growth. Trust me, in the long run, this is going to be nothing”.”

Still, Sharma didn’t go through with Delhi. Investors wanted it, but he kept pushing back asking for more time. He increasingly started feeling that something wasn’t right. Plus, the money had run out. In eight months, Printo had grown from 40 to 170 employees. The company was burning Rs.50 lakh every month.

“By August-September, I had burnt through Rs.10 crore,” says Sharma. “Setting up each store takes Rs.60 lakh. In putting up the interior and the equipment. Plus people. In Hyderabad, we built a training centre with a fancy office. It was crazy. The people we hired came in at crazy salaries.”

Mid-September 2008, it all came to a head when Lehman Brothers Holdings Inc. went down.

‘Sorry, we can’t make the next tranche’

A few weeks after Lehman, Michael Moritz, chairman of Sequoia Capital, flew down to India for the Sequoia CEO off-site in Mumbai at the Trident hotel, which overlooks Marine Drive. Sharma was one of the attendees.

Moritz took the 50-odd people in the room through a presentation he had made just a week ago to Sequoia portfolio CEOs in Silicon Valley. The presentation—RIP Good Times.

Moritz spoke of what happens in downturns—people don’t pay up, nobody gives you money, an entrepreneur must hunker down, conserve cash, cut costs by 50% and the big one, this crisis is really bad, it will last a long time.

Sharma left the room inspired. Good talk.

Another matter altogether that two weeks later Sequoia reached out to Sharma. G.V. Ravishankar, (advisor to Printo then) managing director and partner at Sequoia, made the call. “Sorry, we can’t make the next tranche.”

“I was shocked,” says Sharma. “But I also realized that maybe it was really bad. Shit happens in business. I said, “okay, no problem”. But then he said, “…unless of course, you want to revalue the company. That we go up to 50% stake (at the time, Sequoia had a 30% stake). And that’s when it struck me, “What the f***? You are saying, things are shitty, your company is shitty, so we can’t put in more money but if you give us more of your shitty company, we will put in the money”.”

“I was like, “This is a sham. Now you are being dishonest”. But I was screwed anyway.”

For Sharma, there were just two choices. 1. Negotiate with Sequoia and lower the valuation for the remaining $3 million. 2. Take Sequoia to court.

“I wanted to save my company so I renegotiated,” says Sharma. “I postured saying I would take them to court. Go to the press. On revaluation, I put my foot down. I eventually got $1 million. Rs.4 crore. I knew that of that money, Rs.1.5 crore would go away in paying salaries. I would be left with Rs.2 crore or thereabouts in the bank.”

Starting December 2008, Sharma got down to rescuing the company. All stores outside Bengaluru were shut down; 80 people, almost half the company were laid off; and those who were left took massive pay cuts. “We wrote off everything,” says Sharma. “Deals at the time were very poorly done and I am responsible for it. So we had signed lease lock-in periods for two years and made deposits. For a few places, people didn’t pay back deposits.”

The massively shrunken Printo survived. Two years went by.

‘The thinking in the team is, we don’t want to sell’

In late 2010, Sharma says he approached Sequoia again. “Guys, looks like the storm has passed. Why don’t you part with the other $2 million and let’s grow the company again. Real estate prices are almost 50% down. This is the best time to grow. Let’s do this.”

Sequoia wasn’t interested. The fund had moved to the theme of investing only in consumer technology start-ups and wasn’t signing any other deals.

“Then they said, let’s go together and raise money outside. Let’s appoint a banker. I was like, “What’s the need? It is just $2 million. We can raise money outside after that”. They said no. At the time, they had 31% of the company. Anyway, what option did I have? So I said “Okay, let me go out and raise money”.”

It was a huge mistake.

Click here for enlarge

“I had an investor who owned 30% and wasn’t ready to put in money,” says Sharma. “It struck me later, when people said “Why don’t you take it from Sequoia? If they are not putting in money and if they are not leading the round, then there must be something wrong.” Printo couldn’t raise any money.Even as all this was happening, in February 2011, Singhal and three other partners at Sequoia left the firm, to start out on their own. For Sharma, Ravishankar continued to be the contact person.

Around the time, Printo was approached by a strategic investor—Ballarpur Industries Ltd (BILT). The company wanted to come in with a 30% stake first and more later. As Sharma tells the story, he thought it was a good opportunity for the angels to exit plus dilute some of his own equity. Everyone was on agreement on this including the angels and Seedfund and Sequoia—in fact, Ravishankar and Sharma travelled together to Delhi to conclude negotiations. At the very last stage, Sequoia sprang a surprise.

“Sequoia said the angels couldn’t exit,” says Sharma. “They said “If angels exit, we should exit pro rata”. I couldn’t convince them otherwise. So I wrote to BILT, saying Sequoia wanted an exit as well. And BILT freaked out. Its M&A (mergers and acquisitions) team lost faith. And that was the last of that deal.”

As this deal fizzled out and with nowhere left to go, Sharma decided that he had had enough. He was angry and tired.

“I was at my wits’ end,” says Sharma. “I asked for a meeting (with Sequoia) and I said goodbye. “Keep the company, run it yourself. I am done with this. You can’t just be sitting here with 30% of the company doing nothing. I would like to move on”. This was dead-end conversation. Then they offered me some money personally so that I would stay. Just to relieve the financial pressure on me. That is when I realized that these guys didn’t have any clue of what I was going through. They didn’t and couldn’t think beyond money. It was like (they were) bribing me to stay on in my company. So I said, “No man, I have to go”.

On 21 November 2011, a day after his birthday, Sharma wrote to Sequoia saying that he wanted to buy back its shares or quit.

The gamble worked. Sequoia agreed.

“On 21 January I signed the buy-back agreement with them. I took a personal loan of Rs.50 lakh to pay them upfront and said I will tranche the remaining money, to be paid after a year. They were fine with it. I don’t want to get into the numbers of this. But what I paid to buy them back was far lower compared with their investment. That’s how it went down.”

It is mid-afternoon. A slightly warm afternoon in Bengaluru. Sharma and I have been chatting for more than four hours now. Over black coffee. Seated outdoors at Printo’s hub (office).

Sharma is clear why Sequoia gave in.

“Because I put a gun to their head. See, I had already spent seven years of my life in this. I was worried about only one thing—I had turned the company around, and the business was working. I didn’t want the company to go down. When I threatened to leave I was desperate. I didn’t actually mean it. See, the way I thought about this is, “There is a paucity of talent to find managers who can work for sub-Rs.10-15 crore companies. Where will you get them? So you do depend on the entrepreneur”. It worked.”

And then, when it came time to pay up the rest, Sharma got lucky.

“Yeah. So that happened when Blume Ventures invested in Printo. They came in and bought the remaining chunk. Everything was transparent. So I think I got lucky.

I reached out to Blume. They came here for a meeting. I told them exactly what I told you. I told Karthik, “Trust me man”. (Karthik Reddy is the MD of Blume Ventures). “We will do better numbers”. And he trusted me. He didn’t argue about any valuation, nothing. See, entrepreneurs don’t start businesses for pennies. It is for the larger stuff. And that’s what happened. We closed March 2015 with Rs.22 crore in revenue. We are at 20 stores now. With a hub and spoke.”

His biggest lesson, Sharma believes, is about belief.

“Immediately after funding, I moved to a borrowed belief. The smart people said, “Grow this super fast”. I did. And then they said, “Maybe not”. At the end of it, I was left with no belief. I had to go in and rebuild my belief. That was the hardest part. People are looking at you right. My wife and co-founder, Lalana, was shocked. As a partner, you trust his/her judgment. And she was like, “Does he really know what he is doing?” Lastly, I think that sometimes investors can be dangerously incompetent. And when that happens, it is like sleeping with a complete maniac.”

Sequoia doesn’t see the Printo story that way. In its emailed response, the firm said: “Sometimes as an investor, we find the market is too tough to make the business work or market developments make the business unviable, market timing may be wrong or executional challenges crop up. And the business fails in spite of all efforts. When such situations occur, all parties involved won’t always be happy and many times both sides feel the other could have done things differently. The simple truth is that the market to build an organised retail print shop chain was much harder than we all expected—in fact, this market hasn’t produced any large company even today so many years later.”

That is indeed the case. India still doesn’t have a Kinko’s.

“The only thing everybody can do is learn from their mistakes. It is always a costly lesson for us when we learn after losing money. Building a new company is difficult and risky. Failures and lessons learned are part of the process for both entrepreneurs and investors,” Sequoia added in the e-mail.

[“source-Livemint”]