The Difficult Topic: Equity in a Start-up [Sudhanshu-CEO of Rewardz]

Not to be a downer, but facts remain that 90% of the startup fail. The numbers are not on your side. So, the question is ‘when is the right time to talk about equity in a startup? How should equity in a startup be distributed ? In this blogpost, we have Sudhanshu to share with us his thoughts!

Sudhanshu is the CEO of Rewardz, a mobile-first technology company that provides digital incentives to help companies build strong relationships with their employees, clients, sales teams and more, while aligning behaviours with corporate values to drive a high-performance culture. He has been producing and managing large-scale applications across web and mobile platforms for over a decade now; and today, he is using his experience and skills with an aim to revamp the HR industry with innovative technologies.

1) Hi Sudhanshu, can you like to share more about yourself? How did you get to starting Rewardz?

NUS startups are very close to my heart- I myself graduated from NUS in 2004. It has helped me incubate Rewardz, and it was well received and got a lot of approval of NUS.

Just to share more about Rewardz, it has been close to 8 years since my wife and I started it in 2012. She comes from a HR background and I come from a Technological background, and both of us put our heads together to start Rewardz. Nicole faced a lot of problems in HR like employee initiatives, recognition and wellness challenges, which are automated now but were manual back in 2013, and being a dutiful husband I had to solve it :D

That was the initial idea and we started with something very basic and simple. If you join our platform, you can get a lot of benefits, such as coffee shop discounts, or can gym in your building at cheaper rates- something only previously available to large corporations such as JP Morgan, now made available to any company that joined us.

Since then, we have evolved and now we have a total Rewardz and technician platform where companies can reward employees for anything they want, for long service, birthdays, day to day rewarding and even organising wellness challenges (weight loss, steps challenges). We've also grown, starting from Singapore to offices in Malaysia, Dubai, Indonesia, and we can serve almost all of APAC- about 19 countries where we have multiplied to. From very humble beginnings that we started with, we've grown close to about 55 people spread across many countries.

2) Did the three of you start this while you were working, or did you quit your job to work on this full time?

All three of us were in corporate jobs and in banks: I was in JP Morgan, Nicole was in credit swiss and Jaya was in Bravo Bank. We had different forms of expertise- Nicole was in HR, I built technology trading platforms, and Jaya was doing financial consulting for private clients.

Jaya and Nicole quit first in order to start the ball rolling, looking for clients and partners. I was funding the company with a day job while building the platform- that was my first role in the company, to get that product built. During the day I had the job, and in the night I would work with a developer in Mexico (due to the time differences). As our night was his morning, I would be able to brief him for 1-2 hours about what we’re doing and what needs to get done, and then I could go to bed while he had a clear job scope of what he needed to do for that day.

After 2 years, we got grants from NUS and some angel investments, so in 2015 was when I quit and that's when things really started moving much faster.

3) From working in JP Morgan to being a founder and now a mentor and investor? What was it that sparked your interest in wanting to start mentoring and investing in startups ?

Back in 2013,I had no background with startups. For the first 3-4 years, I was learning. In 2016 once we had raised big amounts, that's when I thought about giving back to the society that has given me so much and to try to pay it forward.

2017 was when I started investing and mentoring in startups, and used some of the mistakes and learnings I've had to share with startups. In fact, in my early days, many people taught me how to pitch and approach investors, building products in a very linked fashion- and I feel it is my time to pay it forward to the society in the whole ecosystem. NUS is very close to my heart, we've received so much from NUS that when you all reached out to me, it was a no brainer that I said yes to be a part of it.

4) You mentioned starting Rewardz along with other co-founders, and now you're mentoring start-ups as well: what are the differences between starting a startup and mentoring one?

With your own startup, there is a lot of passion and emotion. It's your own baby and there's a lot of pride and heartbreak attached to it. I think now as a mentor, it is more of a professional relationship: I would love to share my experience and mistakes or wherever I have value to add, such as introducing contacts for business opportunities or funding which would be relevant for the startup, or even just looking at the business model and sharing my view.

But at the end of the day, mentoring is very much an external help, the founder remains the main driving force. We can do as much, but it ultimately depends on the co-founders for its success.

5) How about as an investor? When you start putting in money and you have some skin in the game, even both investing and mentoring a startup at the same time, wouldn't you have some attachment and emotions to the startup as well, really wanting the startup to grow?

I feel that both roles have similarities and differences- when it's from an angel investment perspective- the main goal is the co-founders, how well I can work with them and how well I align with their visions, how well do we gel together? If at some stage I don't gel with them, I feel that it won't work out very well. As an investor, the co-founding team and how well I work with them is something very important to me, but I try to maintain my distance- it could differ from person to person but my philosophy as an angel investor and mentor is that I do not interfere with the day to day operations of a business.

If a startup needs my help and I genuinely feel I can add value, then I will offer my advice, but the whole responsibility of leading the startup and making crucial decisions should lie with the co-founding team. I personally wouldn't like it if angel investors interfered with my decisions, hence I would not want to do the same to others.

6) You mentioned team as one of the most important factors that investors would look out for before putting in money, and that when mentors are looking to mentor a startup, the team is a very important factor. As Rewardz was expanding, what were the three most important things you did to share the passion of Rewardz with your other members? What contributes the most to team retention and motivation?

We personally take a lot of pride in that, like I was sharing about the mexican developer, he still works with us after 8 years and works in a different time zone. We have a lot of team members who have been with us for over a 5-8 year journey, and there are a lot of members who have stayed with us after an internship, which is very close to our heart.

Given that we do the business of building work culture, for us to have that in our own house is something very close to our heart. I learnt it a bit late, and a lot of co-founders do make that mistake in the first few years- they focus too much on the product and whether it works, and the users who like the product or not. In the first 2-3 years, I was very passionate about product handling, and when we got the first few clients, how to retain them for the long term. I personally ignored the team factor, I was lucky that in my case the other two gel very well with the team- that the team members didn't miss me and me not being able to ask once in a while how they are doing/feeling, and I think a lot of co-founders make that mistake.

I suggest that it should be something done earlier- The moment I realised my mistake, and i saw how well the other co-founders were gelling with their team members by creating the friendship bond of a rewardz family, I started working on it. I really appreciate that that foundation was laid very well by my co-founders, and honestly, it’s what brings a smile to your face: it’s what makes you enjoy the journey, hanging out and solving problems- after all if you're not enjoying working together, then solving problems becomes inefficient, as politics and work culture makes things slower. If you're focused on your team, enjoying working with them, I think everything else becomes a much lesser problem- and the clients and products will take care of themselves.

7) You and your co-founders started Rewardz, but as the team expands, when you talk about equity and how it should be split amongst the team, how should the CEO approach this question and what's your advice on splitting the equities in the co-founding team?

Equity is what a startup is all about. It's the reason why you are giving the best years of your life to a startup. The main returns for all of this hard work and sweat is that equity. Especially for startup founders, it's very easy, when you don't have that initial capital, to exchange equity for anything and everything.

However, you need to be very careful with your equity: it should only be given for cash or sweat- and if it's for sweat it should be very well defined what the sweat is for: what is the KPI and deliverables for that, what do you bring to the table, are you full-time, etc. If you're even hiring someone- someone has promised they're getting funds for you, getting a big contract or big lead, connecting you with a contact- it should be very KPI driven, and for contracts you should only offer the equity after you close the contract and the company has earned that much. It should definitely not be used for consulting. Maybe be stingy with equity in the first few years, because if you exchange it for anything and everything: it’ll seem like you reap its benefits in the short term, but the cost of it will come 5-7 years later when you don't have it- a very common mistake made by entrepreneurs.

For the co-founding team, if everybody is doing an equal job and bringing equal value to the table, the problems we see and happen with a lot of startups is motivation value: 6 months down the line, one person starts losing motivation, and things get complicated. Giving equity is very easy but taking it back is hard, you have to be good friends in order not to sour relationships. One intelligent way is that every year you will get a promised amount of equity, so that way you don't have to make the difficult decision: so that if someone decides to step away after 1 year then it won't be a challenge to spread it out: hence spread your equity out over a period of time.

8) Agreed, the conversation when speaking to your team about equity gets sensitive sometimes- to spread it out equally, yet everyone has a different definition of the amount of work they are doing. What others think the amount a person is doing may not be equal to what they themselves feel they’re contributing.

Yup, I think that transparency in decision making has to be done in the first place- if you're starting a team, how much equity you're dividing amongst the co-founders, whether it's spread across or whether you're going to do upfront if you really trust each other: but how much it is, that's the first level of trust between the co-founders, if you've given the equity then you have to live with the decision.

The sooner you have this discussion and not drag it, it'll help with better relationships with your co-founders.

9) Lastly, why did you come onboard for nus angel ventures?

NUS is indeed very close to my heart, I have been doing angel investments and nurturing for the past few years, but it was very ad-hoc: once I was approached by NUS angel ventures I agreed that that was the best way I could give back to my alma mater, I was completely switched on for the idea.

For this year, I would be able to look at it from the investment perspective, but next year I will be able to look at it from the mentoring perspective as well! I look forward to a long association with NUS Angel ventures :)

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Thank you Sudhanshu for taking time off to have this interview with us!

We are grateful to have you as an advisor and investor of NUS Angel Ventures.

If you have any other follow up questions, do email your questions to nusangelventures@gmail.com

Watch the full video interview here: https://lnkd.in/gCPgnuw

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