20VC What Makes A Great marketplace Founder, The Key Metrics Marketplace Success Is Centred On & 3 Ways To Prove To Investors You Are A Domain Expert with Karthik Sridharan, Founder & CEO @ Kinnek

In this episode of 20 Minutes VC, host Harry Stebbings interviews Karthik Sriran, founder and CEO of Kinec, a company that helps small businesses manage their purchasing operations. Sriran, who previously worked at AQR and in finance at J.P. Morgan and Merrill Lynch, shares the origin story of Kinec, which stemmed from a curiosity about how small businesses handle purchasing without the resources of large corporations. The discussion delves into the nuances of marketplace dynamics, the importance of liquidity over gross merchandise value (GMV), and Kinec's differentiation from giants like Alibaba. Sriran emphasizes the need for marketplace founders to have a deep understanding of their industry and metrics, and the importance of selecting investors with relevant experience. The episode concludes with Sriran's outlook on Kinec's growth and the challenges of scaling a business.

• Kinec empowers small business owners in purchasing operations.
• Karthik Srinivasan is the founder and CEO of Kinec.
• Prior to Kinec, Karthik was the lead architect of research systems at AQR and had experience at J.P. Morgan and Merrill Lynch.
• Kinec has raised funding from leading investors including Matrix, Thrive, Version One, Naval Ravikant, and others.

"I'm delighted to be joined today by Karthik Sriran, founder and CEO at Kinec, which empowers small business owners to take control of their purchasing operations."

This quote introduces Karthik Srinivasan and his company Kinec, highlighting its role in aiding small business owners with purchasing.

• The idea for Kinec originated from Karthik Srinivasan and his co-founder Ruima's curiosity about small business purchasing.
• They met as interns at JPMorgan and maintained a friendship over ten years.
• Ruima worked at Oliver Wyman and Karthik at AQR after graduation.
• Ruima's work with Fortune 500 companies' purchasing operations sparked the curiosity about small businesses' purchasing challenges.
• Karthik and Ruima engaged in conversations with small business owners in New York to understand their pain points with purchasing.
• They discovered that small businesses struggled with finding suppliers, managing purchasing, and payments due to lack of resources.

"We used to always think about, okay, well, obviously Fortune 500 companies like IBM or Bank of America could kind of afford to spend money on fancy consultants like him to help them improve their purchasing. But I wonder what small businesses did."

This quote explains the thought process that led to the creation of Kinec, emphasizing the contrast in resources between large corporations and small businesses.

• Small businesses are in an awkward position as they cannot use consumer sites like Amazon or eBay for their custom and bulk purchasing needs.
• They lack the resources of large companies to have a dedicated procurement team.
• As a result, small businesses resort to outdated methods like paper trade directories and yellow pages.

"They end up kind of resorting to some pretty old school things. They're flipping through paper trade directories and using the yellow pages and God knows what else."

Karthik Srinivasan explains the outdated methods small businesses are forced to use due to the lack of appropriate tools for their purchasing needs.

• Market networks are a broader concept than marketplaces.
• Initially, Kinec was thought of as a marketplace, focusing on connecting demand and supply and facilitating transactions.
• As a market network, Kinec not only facilitates transactions but also other types of interactions between buyers and suppliers.
• The concept of market networks reflects an organic expansion from the idea of a marketplace to a platform with a larger scope of services.

"And I think when you're just thinking about your business as a marketplace, which I think we originally started thinking about our Kinect as simply a marketplace, a transactional marketplace, you're connecting demand side and supply side."

This quote from Karthik Srinivasan differentiates between the narrow view of a marketplace and the broader, more interactive concept of a market network, which Kinec identifies with.## Buyer-Supplier Communications

• The purchasing process involves multiple interactions between buyers and suppliers.
• These interactions include requests for quotes, negotiations, invoices, and payment requests.
• Discovery and research on purchases also occur before creating a request.
• It's important to consider all types of interactions to build a comprehensive B2B network.
• Owning both the nodes (participants) and the edges (interactions) in the network is crucial.

"Every transaction, there are lots of communications going on between the buyer and the supplier."

This quote emphasizes the complexity of the purchasing process and the numerous interactions that take place between buyers and suppliers.

• A B2B network is compared to a social graph, owning both participants and their interactions.
• Capturing all interactions is fundamental to building a strong market network.
• A market network starts with understanding simple interactions before expanding.

"What we think of just as like a b to b graph of you're owning the nodes in this network as well as the edges between the nodes, the edges being all the different ways that those nodes can interact with each other."

This quote explains the concept of a B2B network, where a company must manage both the participants and their interactions to strengthen the network.

• GMV is a high-level metric indicating the health of a marketplace.
• It reflects the scale of the marketplace and the successful facilitation of transactions.
• GMV growth and size suggest that a marketplace is doing something right.

"Gross merchandise value. I was having dinner with a friend of mine who's a marketplace founder the other day, and he said to me, all he thinks about is GMV, and it's the fundamental metric."

This quote introduces GMV as a key metric that marketplace founders often focus on to assess their platform's performance.

• Liquidity is considered more fundamental than GMV for assessing marketplace health.
• Liquidity measures the marketplace's ability to meet the service level agreement with buyers.
• Successful liquidity leads to GMV and other engagement metrics.

"The metric that I kind of think about as being a little bit more fundamental than just GMV for a marketplace is this concept of liquidity."

This quote suggests that liquidity is a more critical metric than GMV because it directly relates to the marketplace's ability to fulfill its core service promise to buyers.

• Alibaba's existence validates the potential for a B2B marketplace at scale.
• Structural impediments limit Alibaba's ability to engage deeply with interactions.
• Alibaba's focus on East Asian suppliers presents challenges like currency, tariffs, logistics, and language barriers.

"So I think the way I think about Alibaba and my cofounder and I have thought about this from the very beginning, when we were originally raising our seed round, this is back in 2012, was we love the fact that Alibaba exists."

This quote acknowledges Alibaba as an established player in the B2B marketplace and serves as a point of reference for assessing the competitive landscape.

• Alibaba's limitations provide an opportunity for Connect to handle deeper levels of interaction.
• Connect aims to handle more complex transactions beyond messaging.

"They make a lot of money off that, but it really makes it difficult for them to handle and really getting into."

This quote implies that while Alibaba is successful, its model has limitations that Connect aims to overcome by facilitating deeper levels of buyer-supplier interactions.## Expansion Plans for Kinec

• Kinec is considering international expansion, with a focus on small and medium-sized businesses (SMBs).
• Expansion is not imminent; North America remains a priority due to the vast market and opportunities within the US and Canada.
• The SMB market is more regionalized and localized, making international expansion more complex.
• Future international expansion would likely involve a localized strategy within each country.

"Eventually it will know. North American is so massive and I think the small business landscape here is so broken for the small businesses themselves that I think there's a lot of opportunity to expand even within the US and Canada."

This quote emphasizes the current focus on the North American market due to its size and the existing opportunities for small businesses, suggesting that international expansion is not an immediate concern.

"If and when we do expand internationally, whether it's to Asia or Europe or elsewhere, it would probably be more defined by kind of national local strategy in different countries rather than kind of just connecting buyers here in the US with."

The quote highlights that any future international expansion would be tailored to local markets rather than simply extending existing US connections globally.

• Understanding the business landscape and doing extensive homework is crucial for impressing investors.
• Team quality and the right team fit are often more important than current traction in early funding rounds.
• Having a deep understanding of business metrics is vital, especially in later funding rounds.
• Targeting the right investors who understand and have experience in your space can lead to better outcomes.
• Randomly seeking introductions to any investor is not an optimal strategy.

"We really understood our space. We really did our homework, just really understanding all the different aspects of our landscape, of our space, the history of our space, talking to founders and ceos of companies that had been in our space decades before, having thousands of calls with our customers, really understanding every single aspect of our space."

This quote underscores the importance of in-depth knowledge of one's business domain and the due diligence performed by the founders to understand their market comprehensively.

"It's more about is this team sitting in front of me the right team to make this happen? And do they have the knowledge and the kind of ability to iterate quickly and to handle all the different shit that's going to be thrown their way throughout this process?"

The quote reflects the investor's perspective, focusing on the founding team's capabilities and knowledge to adapt and succeed over time.

"We really had a deep, deep understanding of the numbers and just the metrics underpinning our business."

This emphasizes the importance of understanding and presenting detailed business metrics to investors, particularly in later funding stages.

"It's important to find out which investors are right for you, which partners at those funds are right for you, and then try to target those investors."

The quote suggests a strategic approach to fundraising by targeting investors with relevant experience and interest in the business's sector.

• Entrepreneurs need to understand how the venture capital (VC) industry operates.
• Seeking introductions to famous investors without relevance to the business's space can be futile and frustrating.
• Founders should consider whether taking money from a well-known investor is beneficial if they lack experience in the relevant space.

"If you don't understand how VC works and how the industry works, I think you could be forgiven for kind of asking for those intros early on."

This quote acknowledges that inexperienced entrepreneurs may initially seek high-profile investors without understanding the importance of relevant industry experience.

"Would you even want to take money from them? Not those three investors specifically, but just in general, would you want to take money from an investor just because they're famous, even though they don't know anything about your space and have no experience with your space."

The quote poses a rhetorical question about the wisdom of accepting investment from famous investors who may not have the relevant background or expertise to contribute meaningfully to the business.## Favorite Book

• Karthik Srinivasan's favorite book is "The Code Book" by Simon Singh.
• The book sparked his interest in computer science.
• It covers the history of cryptography and its impact on events like World War II and the development of RSA encryption.

"Favorite book ever I would say, is a book called the Code Book by Simon Singh. An awesome book has nothing to do with startups. It's about cryptography, the history of cryptography."

The explanation of this quote is that Karthik Srinivasan appreciates "The Code Book" for its exploration of cryptography's history, which is unrelated to startups but was pivotal in his personal interest in computer science.

• Growth of Kinect involves adapting through various phases of the company.
• Transitioning from a small team in a coffee shop to a larger organization requires management skills.
• The challenge lies in making the organization grow by enabling other people to work effectively.

"Think the biggest challenge in growing Kinect, or really any startup, is the different kind of phases that the company goes through and being able to adapt."

This quote summarizes the challenge of scaling a startup like Kinect, emphasizing the need to adapt as the company transitions through different growth phases.

• Investors should ensure marketplace founders understand marketplace dynamics thoroughly.
• Founders should be able to discuss the chicken and egg problem, liquidity, revenue models, and balance between demand and supply sides.

"Make sure that the founder can speak ad nauseam about marketplace dynamics. If they can't, then it's not worth it, because marketplaces are difficult enough as it is to execute."

Karthik Srinivasan advises investors to vet founders on their deep understanding of marketplace dynamics, as this knowledge is crucial for the success of marketplace businesses.

• Karthik enjoys "On Startups" by Dharmesh Shah at HubSpot.
• He also follows Tom Tunguz's data-centric blog from Redpoint.
• Reads the entrepreneurship blog at the Wharton School to keep track of startup scene and other alumni.

"I really like on startups, which is by Dharmesha at HubSpot, really admired what they've done in HubSpot over the years."

This quote reveals Karthik's admiration for the blog "On Startups" and the success of HubSpot, indicating the value he finds in learning from successful industry examples.

• The next five years are anticipated to be exciting as Kinect aims to become the dominant B2B platform.
• The focus will be on organizational growth and Karthik's development as a founder and entrepreneur.
• The company has proven foundational elements and is equipped with the right team and resources.

"The next five years are going to be honestly fucking awesome. I'm really excited."

Karthik expresses enthusiasm for Kinect's future, indicating a positive outlook for the company's growth and his personal development within the next five years.

• After speaking with many founders, a pattern recognition for truly special founders emerges.
• Karthik is recognized as one of these special founders based on his journey with Kinect.

"This pattern recognition for the truly special founders. And I really got that today with Karthik."

This quote suggests that the host, Harry Stebings, has identified Karthik as an exceptional founder through the pattern recognition developed from interviewing numerous founders.