#LetsTalkEquity | The ‘fearless’ CFO and his ‘do it’ attitude

Amit Agarwal, an alumnus of IIT Kanpur, started his journey as a consultant in 2007 and moved up the ladder to eventually become the CFO of Delhivery in 2019. 

In his initial professional years, Amit worked in mortgage lending and insurance and built a strong understanding of data analytics and how data can be leveraged to solve complex problems. He, however, always had a love for numbers and finance. So Amit went on to enrol in a CFA program and got familiar with several practical aspects of finance.  

A few years into the job, he wanted to do something impactful – become a business owner hitrica equitylf or work closely with the founders of a startup to scale finance. So Amit analysed the startup ecosystem and interestingly went on to join the operations team of Delhivery in 2012. His first run at Delhivery was actually to manage the backend operations – gather analytics from the frontlines and digitize processes – a lot of this contributed to building the right product.

As the business grew and hit the $0.5 M monthly run rate, a business finance team was built to focus on profitability. And Amit was chosen to run the team as he had a clear understanding of finance, operations and data analytics. Amit’s team focused on building the blocks of financial reporting, tracking, analytics, and eventually corporate finance. 

In this edition of #LetsTalkEquity with Amit, we discuss what it takes to build an efficient finance team, what systems should be put in place to interpret data for finance, and the importance of discovering unit economics in the early stages. We also explore equity and investor management, highlights of the ESOP policy at Delhivery, and the best practices for creating liquidity for employees.  

Syna: You initially managed operations and worked on the business side before getting into the finance team at Delhivery. As you reflect on your journey, do you think it is important for young professionals who move to senior levels to earn those stripes and work their way up? 

Amit: My ‘lack of fear’ and ‘do it’ attitude served me well. I was never afraid of picking up problems and solving them, and the C-Suite of Delhivery put their faith in me. 

I believe that founders should trust employees and groom them to be fearless leaders. Employees should be given cover to go bold. By doing so, founders will sow the seeds of risk-taking ability in employees, which is very important for any senior position. For me, the mantra of an ideal startup is to ‘move fast, make mistakes, learn from them, and move ahead’. 

Syna: What are some of the really good systems and processes that can be put in place to interpret data for finance? 

Amit: In any business journey, there are a few mature product lines – you understand them well. Also, there will be product lines whose path to profitability or core offering or value proposition may not have been discovered. 

I think the starting point is to define the business value you want to deliver. After that, think about the money-making perspectives. Our first business was parcel delivery, which basically meant picking up parcels from the warehouses or sellers and delivering them at the doorsteps of end consumers. Another important thing is discovering unit economics for the business – knowing all the elements of cost for driving value from that particular product line. Understanding the unit economics within the organization is the single most important thing that a CFO needs to do within the organization. Once you’ve discovered your unit economics, you have to figure out how you track it, how to report it, and the operating metrics to track on a day-to-day basis – this template needs to be created so that the entire organization can speak the same language. In the absence of unit economics, the conversations will always be conflicting with each other. The next step is to present that information to the team on a monthly or fortnightly, or real-time basis and decide the IT systems and processes that need to be put in place to make decision-making better and faster. 

Syna: Would you like to highlight a particular achievement for Delhivery as a whole resulting from the processes you put in? 

Amit: If you recall, e-commerce started by selling books, mobile phones, flash drives, mobile accessories, etc. And everybody wanted to ship everything at the speed of light. The processes were very weak back then, and everybody had an assumption that anything selling online is just around 500 grams. Also, the compliance on weight capture was low in general, leading to revenue leakage. Then, soon as you institutionalize processes around correcting weight and charging your clients around it, the client’s business economics went for a toss. I fixed this problem completely in 2014-15. A major part of the finance team got busy with operations to capture correct data from the field and update clients of the same. This came with a lot of complexities – especially convincing clients to pay the right price. But, this led to a substantial increase in revenues for us. 

I was also responsible for building the metrics/systems to track unit economics in 2014. The visibility of our unit economics has improved from a monthly basis to a daily one. Now everyone in the company can look into that “unit economy” and know which business fronts are not profitable. We continue to use the same structure as it was painstakingly and correctly designed at the start. 

Syna: How have you gone about selecting and creating your team? What are some of the hygiene factors that anyone who works in finance must have?

Amit: I built the ‘corporate finance’ team and sub-teams for a few finance support functions such as revenue & risk management and reconciliation. We wanted the finance team to be highly trustworthy and diligent. This was especially important because, in any fast-growing organization, processes continue to change rapidly. As you are scaling 3X or 5X every year, processes will keep requiring continuous updates or even replacements. From a financial reporting standpoint, you will not be in a perfect state. Therefore, it is advisable to choose your people wisely and trust them to do the right thing. 

One approach to build strong teams is to do it on the maker-checker policy – there would be people who build some process at level one, and a parallel team would check those processes for mistakes. That’s what we have been doing for the past few years besides the technology adoption we have done in implementing ERP and automating our payroll system and other large cost charts such as fleet costs. You may be surprised to know that our finance team hasn’t grown in headcount by more than 10% in a period when the business has more than tripled. And it is primarily because we have been able to automate important processes. 

Syna: What is the role that ESOPs play in any startup? What is your philosophy around ESOP grants? Also, highlight employees of Delhivery have been able to realise gains from ESOPs. 

Amit: I had a very comfortable job before joining Delhivery. Joining Delhivery, I wanted to take the risks of a business owner and reap benefits likewise. For me, equity was the first criteria to join. I always recommend people who join startups to think like business owners. They need to work hard and align their goals with that of the business owner. Rewards should be aligned accordingly, and this is where ESOPs come in. For me, the main role ESOPs play is to align employees’ objectives with that of founders. 

It is important that employees get a share of the company’s benefit and that the company has a sufficient ESOP pool. I assume that the valuation of every company doubles in around 3 years. This basically means that the IRR of the company surges by around 30 to 45% of its current value, and investors and founders make 2X to 3X returns. In such cases, granting ESOPs worth 3 to 4% is completely fine. 

Our ESOP policy is fairly standard if one is to read the document. Never in the history of Delhivery has any granted and vested ESOP lapsed. I will quote an example of this. In our early days, employees were promised some ESOPs, but there was some delay in the implementation for some reason. We had a few employees who were leaving. Those employees were, however, given a cash bonus equal to ESOP compensation. Another highlight of our ESOP scheme is that we allow employees to liquidate their ESOPs before any of the senior team members or founders. This is valid for both current and former employees. 

Syna: Shed some light on the different ESOP liquidity mechanisms presently available in India. What, according to you, is the best way for startups to facilitate ESOP liquidity, and why? 

Amit: Whether a company buys back stock or not is a capital decision. If a buyback is facilitated, the cap table might get seriously affected. For privately held companies with very few investors, buybacks are easy. But, if you are a company with 10 or 15 investors, buying back can be a complex process in terms of shareholder alignment – change in the threshold limits of certain shareholders on what rights they have. 

The most effective way for a company to exercise ESOP liquidity is to sell shares to an existing or incoming investor. However, if you want shareholders to buy shares from employees directly, the process is very cumbersome as you will need everyone to open a Demat account and use the same bank or securities firm, amongst other complications. 

If you can’t facilitate liquidity, employees will not be able to value their ESOPs and the company fairly. Creating exit programs at least once a year sends a strong message that ESOP has real value. Subsequently, a culture of trust and ownership is built in the company. I like to believe that employees who have ESOPs are more productive and aligned with the company’s long-term vision.

LetsVenture’s way of facilitating liquidity is really good. A trust of employee shares is created and used to transfer the rights of financial benefits to other shareholders. It also keeps the challenges around voting rights of employee shares in place, which can subsequently be aligned with employees’ voting rights.

Syna: Both employee equity management and investor management are directly linked to the CFO’s office. How can these management processes be streamlined?

Amit: Both employee equity management and investor management have two broad aspects: the expectation and the culmination or realization of gains. Having the right expectation is important, and it starts from day one. This should be built on the principle of transparency. The senior management is required to express the business in the form of valid metrics. They should neither exaggerate unit economics nor underplay the risks taken. Once both employees and investors understand unit economics and the risks, they are more likely to comprehend decisions taken. 

Syna: What advice do you have for young founders in the context of managing existing investors or onboarding new investors? 

Amit: It’s very hard to judge the value of a company at a Series A or B level as unit economics might not have been discovered. The starting point would be to accept that a fair third party is the right validator of equity, especially if the party is putting in money in the business. The most important thing for any young CXO is to identify high-quality investors who are aligned with the vision of the business. It would be sensible for the founders to focus on identifying the right set of investors rather than only discovering the value of the business.

It doesn’t matter if you end up diluting 25 – 35% while doing a fundraiser. My advice to founders is to be more sensible and realistic – let investors value your business. Then, in the early days, raise sufficient cash and execute what you want to execute.