Summary
Highlights
Saurya recounts the unexpected email from Patrick Collison, founder of Stripe, which initiated the acquisition process. Initially confused, Recko's founders responded, leading to rapid conversations and an offer from Stripe to lead their Series B round. Eventually, Stripe expressed interest in acquiring the entire company, recognizing the value Recko brought to their payments business by addressing financial operations needs.
Recko started from Saurya's observations at fast-growing B2C companies like Flipkart and Blinkit. He noticed the immense complexity and manual effort (using Excel sheets) involved in financial reconciliation. These experiences, coupled with similar challenges faced by his co-founder Prashant at Jio, solidified their intuition that a solution was desperately needed, even if investors and customers initially dismissed their idea as 'stupid'.
Despite initial skepticism and being almost out of cash, Recko received an inbound request from Myntra in December 2017. Myntra had exhausted all other options and gave Recko a chance to solve their complex reconciliation problems. Working intensely for four months, Recko successfully solved the problem, enabling them to earn their right to build the product for finance teams. This engagement led to a usage-based contract that scaled significantly with Myntra's growth, handling hundreds of millions of row-item transactions.
Saurya explains that Stripe's acquisition was a combination of product, team, and business. Stripe, being a large payments business, received constant feedback from finance users about their operational needs. Recko's expertise and product fit perfectly in this adjacent financial operations space, offering a product acceleration opportunity for Stripe to complete its product suite. The maturity of Recko's product, their approach to building, and strong customer testimonials were key factors.
Fundraising was difficult for Recko because B2B investments were less common in India in 2017-2018. The 'back office' nature of financial reconciliation was perceived as 'unsexy' and hard for investors to visualize. Furthermore, investors often looked for quick, hockey-stick growth, which is not typical for enterprise software with longer gestation periods. The lack of existing benchmarks for a new category also made it challenging to convince VCs, who preferred to replicate successful playbooks.
Saurya highlights the intensity and complexity of the acquisition process, which can take up to six months. He emphasizes the need for 'maturity' from founders, managing expectations of investors and employees, and maintaining limited communication due to confidentiality. A crucial lesson learned is the importance of sometimes trading a small amount of money for strong relationships, as it's not the last time one works with stakeholders.
Acquisition offers typically start at 3x-4x the last valuation. However, the final price depends heavily on the acquired company's unique value. If the product is highly specific, unique, and condensed with strong conceptual models, reflected in hiring and customer feedback, the valuation can go much higher. Saurya differentiates this from companies with less proprietary products, which may only receive a 3x-4x multiple.
US tech companies view product acquisitions as 'product acceleration' – acquiring a company that has already achieved product-market fit to avoid the time, expertise, and risk of building it in-house. This strategy is driven by the need to complete product suites and compete effectively. Key evaluation factors include valuation, founder profile (technical and product-oriented preferred), and cultural alignment to facilitate absorption of human capital.
Saurya argues against over-indexing on ARR for early-stage B2B companies. He believes ARR is a lagging metric and instead emphasizes product shape and product usage as stronger signals of potential. High usage, criticality within business workflows, and customer love indicate a product's value. The 'hair on fire' problem at Myntra, where their team worked late alongside Recko, was a strong indication of the product's necessity. This strong product foundation provides pricing leverage and reduces reliance on price arbitrage models.
Saurya notes that a potential reason for fewer large acquisitions in India compared to, for example, Israeli companies, is the Indian ecosystem's historical over-indexing on price arbitrage in existing categories. This often leads to thinner product layers and less specific domain knowledge, limiting leverage in acquisition talks. Building truly new products that create value and have deep domain expertise is crucial for higher valuations and global competitiveness.