How Private Equity Investing Works, with Raj Dugar, Managing Partner, Eight Roads Ventures India

Episode summary

Raj Dugar shares the hallmarks of a promising company in private equity.


Episode transcript

Philipp: Welcome to another episode of In Your Best Interest, your personal finance podcast. I'm your host Philipp Muedder, and today I’m chatting with Raj Dugar. Raj joined Eight Roads ventures in 2007 and has nearly 20 years of private equity leadership experience in investing in the Indian and Southeast Asian markets. He’s participated in multiple rounds of  fundraising across several industries while working at Carlyle Group’s Asia buyout fund, and as a technology investment banker at Goldman Sachs in Hong Kong. Raj earned dual degrees in engineering and economics from Dartmouth College and an MBA degree from MIT Sloan School of management. He's now based in Singapore. Hey Raj, it's great to have you on the show today; we really appreciate it.

Raj: It's my pleasure Phillip, look forward to this conversation.

Philipp: Yes, we really do as well. And there's so much to talk about just in your bio earlier already. 

But what we want to do first, which we do with all guests, is we ask a couple of personal questions. So we bring you a little bit closer to the audience, get the audience to know you a little bit better outside of your bio. 

And for that, we look back a little further down, when Raj was a little bit younger. And maybe you can share a little bit with us about your first experience with money, or a particular [02:00] money story that you have, that you still remember to this day.

Raj: Wonderful. Well, so I grew up in India, and it was a very comfortable childhood. And there wasn't much of a concept for young students or children taking daytime jobs, or creating some of those entrepreneurship, entrepreneurial setup like a lemonade stand, or doing a newspaper run. 

And so, up until I finished high school, trying to evaluate sources where I could make some money wasn't even an option; it was not a thing. It all started when I first got onto a plane to leave India and went to the US to do my undergraduate degree. 

And part of what everyone did there, which I ended up doing from my freshman fall, which was my first quarter in the US, was taking on an on-campus job. And over the 4 years, I held a series of jobs on campus while holding a full-time course load. 

And then, obviously, over the summer, I had an opportunity to do summer internships. That's the first time that I started earning some money, I opened my own bank account, and that's where it all started. 

The initial part of my life, I must say up until even after a year or two after graduation, my approach to money was very much a cash flow approach. What was I earning, and how could I spend it? And it's only a couple of years after graduation where I said, look, I need to take a little bit more of a balance sheet approach to life. Think about saving, think about making some longer-term investments. And that's when I started thinking about my personal finances more systematically.

Philipp: Very good. So do you remember - and I want to get back to this balance sheet approach in a little bit - but do you remember what your first paycheck [04:00] went to? Was it bills, or what did you buy from it?

Raj: It happened when I was 18; I got my first paycheck from my on-campus job in a library at Dartmouth. And I remember winter was fast approaching, and coming from Bangalore, I thought I'd bought myself a winter jacket, and gosh, I just wasn't ready for it.

Dartmouth is in New Hampshire in the US - winters can get really cold. So I actually used my first paycheck to go and buy myself a half-decent winter jacket, which served me well.

Philipp: Very well…

Raj: So a very utilitarian answer, nothing very exciting, but something that I absolutely need at that point in time.

Philipp: This is good. Everyone that answered this question has a personal answer, right? So I think this is great. And I can feel a little bit with you because I went to the University of Toronto; I know I came from Europe, which is also not warm, but a lot warmer than Toronto in the winter, so I was shocked.

Raj: Absolutely.

Philipp: I was completely shocked. And so was every one of the other exchange students. I had two friends or exchange students living there with me, and they were both from Mumbai, and they were also, this is crazy, right?

Raj: There you go, so you know what I'm talking about.

Philipp: Absolutely, good one. From your bio, right? We do understand that you have, now that you're working in venture capital, but before, you have vast experience in the private equity space, right? 

We already had some other entrepreneurs on and some people from other venture capital firms that went kind of deep on how VCs work. But we've never really done this for the private equity space. 

Would you be able to explain a little bit the difference to our audience, because they're usually very interested in these different investment vehicles, and potentially how they can use them for themselves, for their personal finances? The difference between P and VC?

Raj: Sure. So, if you think [06:00] about private investing, which is as opposed to public market investing, the space itself has grown dramatically by orders of magnitude. Both in terms of scale but also in terms of specialisation and nuances to the business. And each of the geographies, including Southeast Asia, where I am now, or in India or parts of Europe or the US, you have seen the evolution of the industry happen in many different ways. 

So, the way to think about it is if you think of the overall industry under the private equity umbrella, where it is managing money from either high-net-worth individuals or institutions, which could be pension funds or endowments. 

The question always is, what stage of investment do the investors, your limited partners, want to invest in? And also, what sectors and industries. And what that's led to is this level of specialisation. 

Where if you think of the spectrum as very early angel seed-stage investing in companies, all the way to taking the company public and taking control and buyouts. The way I think about it is they all fall under the broader private equity umbrella. 

But you give them different names so that you can understand the stage of investing. The early-stage investing, of course, most people who are listening here might be more familiar with angel investing or venture capital. Or what you would call your Series A, Series B. The first one or two institutional cheques that a company raises. 

But later on, as companies grow, sometimes it makes more sense for them to raise a large amount of capital and even give up control. So private equity, which is something that comes in that spectrum after growth capital investing, is really where you see more buyouts happen, [08:00] where you see more control type transactions happen. 

These are situations where typically; the investor writes very large cheques. They are equities into the company. They might use leverage to write that check. So, if I'm investing $100 into a company, it might be actually just $40 of the fund capital that I'm using, but I'm raising $60 of debt to invest at $100 to juice up my return on equity and to juice up my returns. 

And eventually, what that does is private equity gives a lot more control over the underlying assets to the investors. A lot more control over the operating activities, a lot more control about the type of management that wanted to run this company, and eventually a lot more control at that exit. 

So that's private equity which is the later-stage investing; you also have something called crossover investing that now, there are dedicated funds that invest in companies just before they can go public. 

These are also very later-stage investing, but they tend to be more passive investments in companies that are about to go public. Private equity, by contrast, tends to be deeply involved; they tend to have many operating partners, people who roll up their sleeves and get involved in building the businesses. So, the size of cheque and the stage of investing typically differentiates private equity from venture capital.

Philipp: That's a great summary, Raj. Thank you for explaining this a bit better. And you see obviously with interest rates being so low, right? I know this is more a different topic than what I want to get into later on. 

With the interest rate being so low; there's so much money in the system, right? I feel like talking to some other entrepreneurs and people running startups; they're even getting approached now by private equity firms, right? Because I think they're trying to see what else they can do in order to get returns, find different investment spaces. So, is that something you are seeing as well? [10:00]

Raj: So private equity as an asset class, of course, has more capital than ever that's sitting on the sideline. I've been doing this for 20 years, and every single year, you heard the narrative that there was too much dry powder and too much capital chasing too few good deals. But it feels like that's truer today than ever across asset classes.

You are starting to see larger and larger funds being raised, more and more investors being interested in this asset class and investing in them. So, you've gone beyond your traditional pension funds and endowments, and large family offices and multi-family offices to today various other sources, including crowdsource funds, or you would have private banks that become a vehicle for pooling capital, that are then able to become limited partners into these entities. 

And all of that has resulted in quite a bit of capital that is waiting to get deployed. Remember when you're raising in private equity - when you're raising $1 to invest, you also have the ability to use leverage. 

And so, if you look at a number saying if there are $100 billion dollars of dry powder that's sitting on the sidelines of private equity, that's capable of investing north of $200 billion dollars because, typically, they would use leverage to make those investments as well. 

And when interest rates are so low, they certainly make the debt component very attractive. You also have investors at banks that are looking for yield. And so you are having a set of covenants that they typically seek when they're investing in these high-yield companies that are getting lighter and lighter. 

And all of that makes really an attractive financing environment for private equity investors to make bigger and bigger bets. So, you've seen sizes of transactions going larger and larger – fund raising larger and larger funds, and my sense is this is [12:00] going to continue for a while. It's also been backed by spectacular performance. 

As an asset class, certainly, the top funds have absolutely shown the power of compounding and returning double-digit returns, net of fees and expenses year-after-year for the last 20 years. And in an era of low-interest rates, where you are looking for better returns, this becomes an incredibly attractive asset class for investors.

Philipp: Yes, all of those things combined make a lot of sense, right? And also, the diversification component as well for the bigger institutional investors as well.

Raj: Absolutely.

Philipp: So Raj, if we take a step back and go back into your personal journey, right? You've done a wide breadth of things. So, from management consultant to investment banker, to private equity, to now for many years already, being in the venture capital space. Was that a natural evolution? Anything you planned for when you got out of university?

Raj: You know, hindsight's always 20/20, and I wish I could tell that when I was 22 years old, I had exactly planned my life. But the reality is a lot of these were a set of happy coincidences that culminated in me doing what I'm doing today. 

When I was graduating college, in fact, when I was at college, I'd gone there to study engineering, like every good Indian boy, trying to live up to the dreams of parents. You want to become a doctor, a lawyer, an engineer, and I enjoyed Math and Science; I said I want to be an engineer. But I had the good fortune of doing my undergrad degree in the US, where you have the flexibility to explore other avenues, other majors, and other areas. 

I took a course in Economics out of interest, really enjoyed it, and I ended up getting a second major in Economics. And coming out, I felt consulting was a good place [14:00] where I could actually put both of these to work. 

Consulting is all about creative problem solving; it is some analytical horsepower that consulting firms look for. But also they teach you a way of structured thinking. And I think a lot of my education set a good foundation for me to continue to learn and strengthen my skills in consulting. 

But I was always very intrigued by the field of finance, which is why I decided to go to business school. I went to MIT and actually did a lot of quantitative finance type courses. I then eventually made a move to investment banking, where I started my career with Goldman Sachs. 

And eventually, all of that led me to getting into the venture capital business. Because part of the reason I wanted to move into venture capital is I wanted to move from an agency type role, which typically is investment banking consulting. To more of a principle type role, where you're investing, and you have some skin in the game. 

And they're less transaction-based, where you're done with the study, or you're done with the deal, and you move on to the next one. You're making an investment in these cases, and you're sticking on with these companies for a while. 

But in a lot of ways, I think these things also brought together a bunch of skills that I thought I'd learned over time. In investment banking, it was things around deal-making, around evaluation, and understanding the financial aspects of things. 

And consulting really taught me about working with the companies, helping them grow after you make an investment, which is when a lot of the heavy lifting starts. And both of those foundations were incredibly important to my career as a venture capitalist and as a private equity investor. 

Philipp: Oh great, and that's a good segue into the venture capital space. I do want to ask you, [16:00] we kind of already went to why VC and why you like it, right? But when you look at founders, right? 

And especially when you look at companies now to invest in, obviously a big part is always the founding team, right? Do you believe that if you work in that space to make a decision to invest into a startup, it is good to have some background in having started your own business first or grown something from? 

You can even do it in a bigger business, but grow something by yourself so that you can understand and feel what founders feel, right? Maybe it's spare cash flow, right? At the beginning, or like life stages that they go through. 

I know that we didn't mention it in your bio, but I know from experience that you've had your own company as well, right? Before you got into VCs - so I was just trying to understand how you can play that to your strength or if you feel that it's necessary.

Raj: I think being an entrepreneur or going through that journey is incredibly helpful. 

A: it builds credibility with the entrepreneurs and the young management teams that you're speaking to. Because you have lived through that somewhat. 

I had the good fortune when I was leaving Goldman Sachs to start a venture capital fund; literally, it was me and my co-founder starting from a blank sheet of paper, and putting a team together, and raising capital. 

And that was my little foray into the entrepreneurial side. But if I had an option or if I were advising a youngster today who had an interest eventually either in venture capital or in entrepreneurship over time, my view is nothing like learning from taking a job in one of the young startups and learning from the school of hard knocks. 

The amount of learning that happens when you are working in a resource-constrained environment, be it capital, be it number of people where you're multitasking, and every day [18:00] is a new high and a new low, and you're living through all of those emotions, you're working with teams. There is really no substitute for that in a lot of ways. 

I think a lot of us who have come in from a much more traditional investment banking or consulting or legal background over the years have spent enough time with companies that we've picked up those skills. 

But I certainly think if I were to go back and do this again, I would have loved to have worked in a technology startup for a couple of years and having seen some of this action close up. That would have been incredibly additive to me being a good investor.

Philipp: Yes, absolutely. I think that's for people listening, right? When you come out of school, it sounds interesting to go into the finance space, or maybe the startup space. 

Especially if you're younger, you can also take that risk early on, right? Go to a tech startup or go to a startup, try it out; you can still go back into the VC space afterwards. And it's a valuable, like you said, super valuable learning that you can gather there. Even if the startup fails, right? The failing might even be the better learning out of it, right? In the end.

Raj: I think that's absolutely right. I have two college-going kids, now and often, when we have a conversation around what they want to do, you obviously want to be careful about not being too prescriptive, and kids often make up their own mind these days anyways. 

But I would be incredibly happy if they did do something on the startup side. Where they have the ability to work in a somewhat resource-constrained environment but work with incredibly smart people who are trying to solve a genuine problem. 

And seeing that passion of trying to disrupt something or trying to build something is, again, something that you cannot easily get in a [20:00] larger company environment. 

Again, nothing wrong taking your first job in an investment bank or a consulting firm. But if the eventual goal of people is that they might want to become entrepreneurs, or they want to have a much better sense of how the technology universe works. 

My advice to a lot of the younger folks is look if you can do this for a couple of years, and if your personal circumstances allow you to do this for a couple of years, it's an opportunity you should grasp with both hands.

Philipp: Absolutely. So, Raj, fast forward, you're now at Eight Roads - venture capital firm, doing mostly tech investments, I assume at this point?

Raj: Tech and healthcare, those are the 2 big sectors that we focus on, yes.

Philipp: So, tech and healthcare. And what do you look for normally in different stages of funding rounds? Do you just do Series A, B, C? Are you limited to certain rounds, and then what do you look for in each of them that you invested normally when the company comes?

Raj: So, our focus by design is we are more what you would call early growth investors. So typically, we are not the first institutional investor into a company. There might be a Series A investor or sometimes a seed investor in a company. And then we would come in and write the first meaningful cheque into these companies. And so we have often done Series B and Series C as our first investment. 

And these are companies; if you look at a software company, these might be companies that have high single-digit million dollars or low double-digit million dollars in revenues. Which is when we would come in, and we would become a part of their cap table. 

But increasingly, because our world is changing so much, and you do want to get into some of the best companies early on. We are finding ourselves getting more and more excited about at least having part of our portfolio be somewhat more early-stage investing, which is what you [22:00] would call a traditional Series A. 

And if you look at our portfolio mix today, it is a good mix of some earlier stage companies and a reasonable number of later-stage growth companies. And this applies again, both in our healthcare portfolio, as well as our technology portfolio.

Philipp: Okay. And then is there any industry that you prefer more over the other? Or what interests you, especially in the tech and healthcare/health-tech space right now?

Raj: So, when we look at companies to invest in, one of the questions we ask ourselves is look, what is the right for that company to win in that sector that they are playing in? And we often ask ourselves the same question, is when we are making an investment or we are going after a particular sector or a particular theme. What is our right to make that investment? And make it a successful investment? 

And the world is certainly awash with capital; there's no shortage of people who have the ability to write money. But what we always look for is can we do something - that bit extra for this company, for those entrepreneurs. Either based on a network. 

And because we are a global platform, our ability to observe and learn from patterns that we see in different geographies, it could be in Japan or China, Europe, US, and applied to this part of the world and similarly, in other geographies, I think is an incredibly powerful tool that we use very frequently. 

And beyond that, we look at within the sectors - technology is a very broad sector - but there are a few sectors like enterprise tech, with software as a service. What you would generically call Fintech, which includes things like digital finance and things of that nature. And a little bit of consumer tech is where we focus on. 

In healthcare, we do therapeutics, [24:00] we've invested in health care services. And we have invested in pharmaceutical manufacturing companies. 

And then we are very theme-driven. Within these, we will find a particular theme, explore it very deeply. We would do what we call short sprints, where we spent 4 weeks doing an intense study of a particular theme to say look, let's just try to meet as many companies, and build a viewpoint around that theme that do we think this is a theme that is a very large market, that's ready to get disrupted, and there's an opportunity for a young company to grow. 

And if you're able to check most of those boxes, and if you feel there's a management team that can execute against that vision, those are the ones that we end up backing.

Philipp: Yes, well, that's a great overview. And to go a little deeper there, Raj. You mentioned that you look; what can we do for the founders, right? Through our network. Or what resource? How can we help enable the company that you invest in even more, right? 

To grow more, to enhance their business. With that being said, how involved do you like to be as a company in the companies that you invest in? Obviously, most likely, if you invest as a venture capital firm, you will get some form of board seats, right? So, you'll be taking part in the board meetings. 

But beyond that or even throughout the board sessions, yes, how involved are you still on a day-to-day basis within these companies? While looking for new deals already, right? At the same time.

Raj: Absolutely. So, we like to get quite involved. I think, in fact, if there are sometimes, once in a while, you would meet a company that says, look, all we want is a check at the highest valuation. We know how to run a business; we don't need any involvement or engagement; that's typically not an investment for us. 

We’re also very careful that we are not intrusive [26:00] in a company or in a management team. The reason we back founders is we feel they know how to run their business and industry the best. But we also feel that we can be hugely complementary and additive to what they're trying to build. Partly because of the global nature of our operations, where we typically have seen similar companies in other parts of the world. 

We have seen regulations evolve a certain way; we have seen the competitive landscape evolve a certain way. And those are all strategic discussions that we have often with the founding team. 

We help them build the management teams, we learn from the mistakes that we have made across companies, and hopefully try to dissipate best practices across our companies in terms of how they should hire, how they should build the management team and culture, especially for the younger companies. 

And eventually, we absolutely use our Rolodexes to help them continue building the management team, helping them in front of customers, and strategic partnerships as they get ready for future rounds of financing. 

Making sure that they're raising the right type of capital that can again be complementary to the investors that they have on the cap table. And those are all areas that founders feel that we have been helpful in. 

Again, my view on this is just as we do quite a bit of diligence, due diligence on our companies. We actually encourage the entrepreneurs and founders to do due diligence on the investors that they're going to raise capital from. 

Speak to the other portfolio companies, speak to the other CEOs and feel whether what was promised and what was delivered, and how involved they've been if all of them land up in a comfort zone for the management team. 

Like I said, the last thing we want to do in a company is be intrusive and try to add value when we think all we are doing is creating nuisance. But at the same time, we found that most entrepreneurs love the level of engagement we have because they feel that it's additive and complementary. [28:00]

Philipp: Yes, I think that's great advice also for entrepreneurs, right? Before they get, so to speak, in bed with a venture capital firm to do their own due diligence as well. Because it is a relationship that will be there for quite some time, right? And it needs to be mutual; it needs to be also beneficial for both sides and helping each other on this long journey of entrepreneurship. 

OK, Raj, so we talked about kind of involvement and how entrepreneurs and venture capitals almost have a marriage, right? You said you allow the founders to do due diligence on yourselves; you do due diligence on the founders, right? Of course. 

What are the most important traits you look for? Especially when you said you do some Series A, B - it's still very early on, right? So, the product might still pivot. So, founders become very important, I assume.

Raj: You know it's absolutely the most important aspect. One of the things is one of the sayings we have in our industry, is you would any day back an A team with a B plan, than a B team with an A plan. 

Because the A team is going to figure out a way out of what they're doing, and if they need to pivot, they'll make the pivot. So, we spent quite a bit of time understanding what is driving the management team, both as individuals but also collectively as a group. 

Because sometimes, the founder dynamics etc., become incredibly important. The first thing we look for is why the founders started that business? What was the passion around it? Now one of the things, these days, unfortunately, it's become somewhat fashionable to start up a company, and there's a lot of capital that's available. 

And the downside of that is we once in a while, we'll meet entrepreneurs whose only interest is to just get the valuation very [30:00] quickly as possible, the meeting is all about when they grow to this size, this is going to be the valuation, and they'll sell the company. 

And if it's all around flipping and thinking of this as a get-rich-quick scheme, that is not something we're interested in at all. The best founders we feel are really passionate about a problem. They're trying to solve; they might have experienced it as users, as customers. And they feel that there is a large enough market that's willing to get disrupted, that's waiting to get disrupted. 

And therefore, there's an opportunity for them to work on a startup that can address that situation. And when you see that passion around building something that can address a genuine problem that exists in the market. 

Those are the companies that, to my mind, end up becoming the best companies over time because the founders have a single-minded focus in solving the issues for the customers. 

And so, this is probably one of the downsides from my perspective of COVID, and having to do a lot of this over Zoom. In the pre-COVID era, we would absolutely spend not just time in the conference room with the founders, but quite a bit of time with them in the evenings over meals and drinks, just to get to know the individuals. 

And understanding what the true drivers are and how they would generally behave in different situations. Because again, every startup is going to be a journey which is going to have its ups and downs. 

We're trying to now do a lot of that with Zoom calls, but to me, that has been one of the biggest losses of trying to do our diligence and trying to get to know our founders in sort of two-dimension as I call it, in a screen. And that's always much harder than the way that we have done it. But hopefully, this thing changes soon, and we're able to meet in person and flesh, [32:00] and there's no substitute for that in my mind.

Philipp: And you hear all kinds of different views on this on what's going to happen with business travel. But I think this is exactly the part that will still be there, right?

Raj: Absolutely.

Philipp: That in-person meeting, it's the same for myself. There's just a different feel about it, right? I know you can do much more meetings on Zoom, but doesn't mean they're actually better, right? 

Instead of spending time - like you said that time over lunch or at a coffee - and actually seeing also, I'm a big fan of body language as well. You can tell so much that you just cannot do with you if you just see the head of a person in front of the screen.

Raj: You're absolutely right, Philipp, and I think it'll be interesting to see this cohort of investments that our entire industry has made in 2020 and 2021. How would they have worked out? 

Because one of the key things that I think all of us do when I speak to my peers in the industry, they feel that the part of working in this era that they get most uncomfortable with is just not being able to meet the management team and individuals and entrepreneurs in person. And like you said, reading the body language, get a better understanding of their motivations and what's exciting and what's driving them.

Philipp: Yes. And talking about exciting, I wanted to ask you because this is always interesting to people looking at companies and sectors. And you also obviously have a longer-term view in certain regards. 

And being specialised in the India, Southeast Asia market, right? What are you excited about? Maybe the next year, 5 years, 10 years down the line for this region, and industries or maybe something you see that you're even personally super excited about.

Raj: So, we continue to be very excited about software as a service, everything moving to the cloud. We think we are still in somewhat early innings or, at best, [34:00] not even close to middle innings in that whole game. 

And as you see more and more pieces of software that are starting to get offered as a service, that momentum is going to continue. We haven't seen that many SaaS companies emerge from this part of the world from Southeast Asia; you see quite a bit of them happening in Israel, in India, and certainly China, but not that many in southeast Asia. 

Where a lot of the entrepreneurship and startup is still around consumer tech. I'm hoping that we start seeing some of that as the businesses here start using more and more cloud software across be it human capital management, or ERP, or CRM, or any of those things, or cybersecurity. 

So that's a sector that we continue to track and feel very excited about. And also, because those businesses can become truly global businesses. If you have a good product offering, which is offered via the cloud, your customers can be anywhere in the world and that works really well. 

And so, these are businesses that can scale really well. We are also quite excited about the various elements of digital finance. We feel that areas like digital wealth management, where StashAway plays in. 

Other areas, including newer models of digital lending etc., will continue to evolve, and we'll see just a much more efficient way of getting business done. In healthcare, we continue to play a couple of themes, particularly in this part of the world, with the ageing of the population. 

Certainly, in markets like Japan and in China, but very likely to happen in this part of the world also very quickly. What are the set of services and products that you can come up with that caters to that market? And we are starting to see some activity that's starting to happen in those areas. So, these are just a glimpse of some of the themes that we're excited about at this point in time. [36:00]

Philipp: Yes, cool. Thank you for those insights, very interesting. I'll do my own digging on some of those as well. But Raj, before we wrap it up, I did say at the beginning when I heard you mention your personal finance balance sheet, after a couple of years into your first job, that you started focusing a little bit more on your personal finances. This being a personal finance podcast, right? 

Can you elaborate a little bit on how maybe your personal financial planning strategy has evolved? From when you started in college to what it is now? No details need to be given on each investment, but just roughly. 

Because I think a lot of people, especially myself, also do some financial planning with some of our clients at StashAway. And a lot of times, when people don't go into finance directly, right? Like myself or yourself. They're even further removed from starting to think about. 

It's always on everyone's mind, but if you work, especially in your 20’s, you work long hours, most likely in engineering or wherever you might be in software development. So, you don't spend that time or don't have that time to spend on personal finances. So, it's always interesting to hear someone else's point of view on how you structure it, how did you get started, what are some of the tips and advice that you would give to people in that regard?

Raj: Well, that's an important question. And it's the type of conversations that I'm starting to have with my kids as well. 

I think one of them really well, I’ve got two very interesting pieces of advice early on when I made the move, as I mentioned from my cash flow approach to my earning and spending, towards a little bit more of a balance sheet approach. 

One was, and this was a conversation with a wise gentleman, at that point was a mentor of sorts. One was to look at your personal finance as a marathon, as a really long-term marathon, and think of it in a multi-five year or decades term. [38:00] This is not a sprint. 

And there'll always be opportunities where you think that you can make a quick buck very quickly, but always be aware of that. 

And the second piece of advice he gave me is look, make the money work for you when you sleep at night. So generally, be invested in asset classes that you are interested in. Don't leave a lot of your money lying around in cash. 

And those are both pieces of advice that I've tried to follow, even when I look at the current set of areas that you have the younger population, many of whom are listening right now. 

It's very easy to get distracted by either meme stocks or things like the next meme cryptocurrency because somebody has tweeted something, and you feel you’ve just miss a 30% growth overnight, and that sounds a lot more exciting than investing in something that they think is telling you that it will compound 20% a year. 

The first advice that I would give, and this is something that I try to share with certainly my kids, and certainly, I try to follow, is the power of compounding is actually very magical. If you think about just compounding your assets, even if it happens at a 12% or 15% year-on-year increase. And you do the math, you can do it in a calculator, and you realise that in 15 or 20 years, that is a very powerful thing. 

Second, I certainly don't have the time on a daily basis to look at the NAVs, and how my stocks are doing. You want to put your money in assets that you know you want to take a long-term duration on. 

And eventually, as I keep thinking, and again to paraphrase. I think Charlie Munger who said it, the markets are much more of a weighing machine [40:00] than a voting machine. There might be something that are very popular now that you might get enticed to invest in today. 

But do your research, read up as much as you can. Get very knowledgeable about the asset classes that you're investing in. And then, when you invest, don't worry about looking at it on a daily basis. 

Market fluctuations can, unless you're a day trader and that's your profession, and that's your job, most of us have a different day job, but you want to just invest in a set of asset classes that is doing the right set of things in the background. And then, over time, it's going to compound for you.

Philipp: Yes, this is great advice. I really also like what you said at the beginning. The advice that you receive from a mentor is that don't hold too much cash. I think this is more important than ever now, and it's something I've been seeing actually quite a bit coming over now; I've been here now for six and a half years between India and Singapore. 

There's so much more cash from people in bank accounts just sitting, compared to when I was for 12 years working at companies in wealth management over in the US, right?

People invest more, and I always try to tell people, hey, just keep buying assets that you own part of a business, you own part of this REIT that pays you. 

But it's like you said, make money work while you sleep, right? It's such an important concept to grasp. 

And it doesn't have to be thousands of dollars every month, right? You can start small, even after college - the compound interest; as you mentioned, is just so great, and there are so many calculators online where you can plug in the numbers, and that should motivate most people to actually get started right, and make that money work for them, because it took you such a long time to earn that money and hard work every month. 

So now it's pay yourself first, as also Warren Buffett says all the time, pay yourself for, put it in an investment account. And then do the rest. [42:00]

Raj: You're absolutely right. I think those are all absolutely good advice. I was fortunate to get some good advice early in my career, but to any of the listeners listening to this, thinking about this as a really long-term endeavour that you get better with over time, that you start recognising patterns and making your own decisions. 

Versus looking at the flavour of the day, which could be a meme stock today. It could be another cryptocurrency that started out as a joke. And while they might show spectacular returns in the short term, even if you're investing in them, make sure that you have a viewpoint, and you're not doing it just because you're following the crowd, or you're doing it because of the fear of missing out.

Philipp: Yes. It's big, because now I'm in finance, so friends ask me all the time. Oh, have you invested in this? I just put money into this coin or this coin, right? I always ask them those questions, just like you just mentioned, right?

Because it's fine, but when do you sell, when do you buy? When you buy, right? At what points then you miss it, and then it's down and now what, right? So, there are all these questions, and they all have their normal day job, so they don't have time for this anyway, right?

Raj: Absolutely.

Philipp: So, it's a very slippery slope there. But great advice there, Raj, very timely as well, being here in June of 2021.

Thank you so much for being with us, I really appreciate this chat. I think the audience will have learned a lot today and a lot to take away from it. So again, thank you for taking that time with us.

Raj: It was my pleasure, Philipp, and I really enjoyed the discussion. Thank you.

Episode notes

In this episode, Rag Dugar shares the ins and outs of private equity investing, his take on up-and-coming companies, and lessons learnt in his career and personal finances.

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