investor

Subrata Pal on the Changing World of Investing

Introduction

Subrata Pal is a passionate investor with extensive experience in the pharmaceutical industry. He is currently the project director of strategic initiatives at Johnson & Johnson. He has lived in India, Singapore and China.  

For Subrata, investing is a passion. He’s been doing it for 20 to 25 years and has invested in a wide variety of markets. And he’s eager to share everything he’s learned over the years with KingsCrowd readers.

Note: The following interview was conducted via phone and email. It has been lightly edited for clarity and length.

Inez Sanjaya
How did you get into startup investing? How long have you been investing?
Subrata Pal

In 1999 I came to China and I started investing in the Hong Kong market, mainly secondary markets. For nearly a decade I only invested in Chinese markets and from 2005 on I started investing in Indian markets. It was very late that I started investing in U.S. markets, sometime in 2011. And then I went into US markets very seriously in 2014. Right now, the majority of my investments are in US markets. 

I am still in Hong Kong markets, but it’s very small in comparison. Those markets have some very good companies, so I have a little bit of interest there. But the breadth of offerings is much wider in the US. And I am still in the Indian market, but there is an issue with inflation there.

I shifted more to the US because I began understanding the trends in the markets. I found that if you look at the Singapore market, it is very connected to the US market. The Hong Kong market is still pretty independent. And the Indian market is still very independent — it goes in its own direction. Overall, in the long run, if you look at US indexes, within two decades or so, you see that it keeps going up once you’re invested. So if I am looking at things long term, it doesn’t matter what will happen in the markets of the world. 

Second thing is the offerings in the US market. On one side, you can get very stable dividend companies — even the good real estate investment trusts (REITs), etc. And then you have the tech companies. Every major tech company is listed there. So when you think about building a big portfolio with good diversification, you can design it in a very structured way with lots of support portfolios in different categories. With other markets, they are really biased. Singapore has REITs and banks. The Hong Kong market is now all Chinese companies, very innovative companies, high yield financial companies, and energy companies. So there are fewer offerings and there are some systemic issues there too. India has very good offerings, but the problem there is inflation. So you’re safer if you look at longer time horizon opportunities.   

Way back in 2008, my first taste of private equity was when I invested in my friend’s online retail business. There wasn’t much competition, and the company was in China. Then I invested in a private equity fund. With the first company, I lost all my money. And for the second fund I invested in, I lost almost 50% of what I invested. So for 12 years I didn’t touch the private equity market because I was so scared. In 2018 or 2019, I came across Wefunder and made an account, but I was still too scared to start. In 2020 though, when COVID hit, I started researching a lot and in mid-2020 I started investing with Wefunder. 

I only invested small amounts initially and started learning about what other platforms did. I finally came across KingsCrowd and found that there were so many different platforms and types of companies. I dug deeper and made accounts on six different platforms, and now I’m invested in six different companies. I think your platform is very good. I’m a Merlin member, and I refer to the platform often. It is always good to have some type of unbiased opinion. These are very difficult to understand companies, as every company has some type of innovative idea. Investors don’t have access to all the information, so KingsCrowd is kind of a compass giving me a little direction.

Inez Sanjaya
How many companies have you invested in so far? What is your strategy?
Subrata Pal

As I am growing older, my whole idea is that by the time I retire, I should have a good portfolio that has growth and a significant amount of dividends because there has to be cash flow. At this point, my objective is to capture growth. A majority of my money is in growth options and then also to build the dividend portfolio. As I get the growth, I slowly transfer into dividend stocks. Of course, the expectation for each is different. With growth stocks you are expecting strong appreciation, and with dividend stocks you are expecting good safe dividends. Then both the graphs will intersect where you are growing both portfolios and you will have a good cash flow too. 

I have a base portfolio with stocks that anyone would invest in: Amazon, Apple, etc. I know these stocks will keep growing as they are robust, established, and very innovative. I used to have investments in Google, Microsoft, etc. but those companies have been replaced with more innovative companies like Square, Roku, etc. To me, the base has changed a little, but that is mainly it. 

And then my growth portfolio includes the companies that are being listed but have a long way to go, like Etsy, Robinhood, and Coin. I expect to see hyper-growth from them in the future. They are more mature than other small companies. 

And then I go into actively managed ETFs, not just ETFs. And then of course I have the dividend portfolio, with small amounts of money but many stocks because I want it to be safe. I am just looking for the total dividend that comes out from that. This is my secondary market in the U.S. Other than that I continue investing in Hong Kong and Singapore with a regular saving plan to build a dividend portfolio. When you go into retirement savings plans, you don’t pay any transaction fees, you invest in multiple stocks and you build a portfolio, but only dividends. And in India I invested once many years back and it continues to grow. 

I have directed a portion of my overall investments toward the private market for about a year now. Since the risks in the private markets are very high, I have a two-pronged approach. 50% is early stage — what you find on the common platforms like StartEngine and Wefunder. And the other 50% is in the late stage that are in secondary markets — for example, in MicroVentures. I will keep the balance at 50/50 just to decrease the risk. Of course, the late stage investments are much larger than the early stage investments where you could just invest $100. I have to be careful about where and how to invest in the late-stage options, though. 

Where to invest is the big question. I am very biased towards technology. I feel that these companies don’t require a huge amount of capital, and the potential for growth is very high. So low capital-intensive companies, tech or innovative healthcare companies or any company with a social impact is what I am looking for. Most of these private equity companies are problem-solving companies. They are very unique and focused in one area so there is a reason the risks are high because they might not be successful. I’ve invested in 106 companies. I keep the numbers high to reduce my overall risk.

Inez Sanjaya
What is your take on traditional investing tools compared to private equity?
Subrata Pal

The world of investing and the tools used is changing rapidly. 25 years back you would buy really large companies like GE. Then suddenly Apple and Starbucks came on the scene, then the dot-com boom and bust and the 9/11 boom and bust. It was scary to see the shift in tech companies initially, but then fast forward to 2010. Tech companies and growth have become a norm. The availability of good, growing, safe, innovative companies is much greater. Companies IPO after lots of growth. These companies have already proven everything. When you are investing in tech companies now, you are investing in very established companies. These companies represent the stock market now. 

I have tried investing in consumer companies and pharmaceutical companies, as I am a pharmaceutical type of person. But you can’t get the same type of return that you get from tech companies. The availability of companies in the US market where you can leverage the growth of tech companies is huge. With age, I now have to transition from growth to dividend, but the bulk of money should always be kept in growth. 

When it comes to private equity companies, investing there is a risk just like investing in crypto. I am also investing in crypto now though, and that is an area where people don’t know anything. It is more a psychological trend than a financial one. In the short term there is value, but long term who knows. Private equity investing is better than crypto in that way, as you know what companies are trying to solve, if there is a market, what the product is, and who is backing them. Those are all pretty good data points. It is not that you are investing blindly, but you don’t know their future because of the possible competitors, and they have such a long way to go. Even if the company is good, it may not survive because survival of the company is not a product of the customer, it is much more of a financial question, compliance issue, etc. There are many factors that go into determining the success and survival of a company. Risks are high so I would recommend never putting more than 10% of your portfolio into private equity. If you are really brave, you invest 10%. Otherwise, I would not invest more than 5% to 6%. Now the area of crypto is changing too. It is good to see what is there and explore the possible opportunities. We should always be a part of an evolving asset class.

Inez Sanjaya
Is there any criteria that you always focus on when you’re picking a company to invest in?
Subrata Pal

Believe it or not, I look at your website for the early stage companies. I wait for your ratings to come out and that becomes my starting point. Then I consider if it is a revenue-generating company or not, what is the revenue growth, and does it make a profit or not. Profit is not a huge factor for me — it just tells me if the company has a plan or not, which can be helpful. I then want to see if there are other investors invested in the company and then the short-term debt amount. If the company’s short-term debt is high and it is not revenue positive, then it has a very short runway and its future is likely not very bright.

Inez Sanjaya
What do you think of the online private market and its future?
Subrata Pal

I think this is a phenomenal marketplace. I have always been a fan of private equity, but my experience in the past wasn’t very good because of the high minimums. When you try to invest directly, the amount of money needed is huge, so if you are not a full-time private equity fund manager or venture capitalist, it is very difficult to have that large amount of money. Retail investors can’t put all of their money in one private equity investment. These companies are democratizing the entire private equity space, allowing a lot of people to invest a small amount of money. 

I think it is good for some companies as well. Take Gumroad for example. The founder could have easily gone to a venture fund to get the money, but he didn’t. The founder went to Republic and put a cap of 1,000 per person, and within a few hours a handful of investors put in $5 million. So, what is the lesson there? It’s that it isn’t just the money that founders are looking at. Founders are also looking at awareness of the product and engagement with the product. 

I have seen many examples of founders coming to these platforms, not because they want money from lots of people or because they can’t raise capital from traditional investors. Instead, it is about making the customer your stakeholder and investor. It changes the dynamic. Your customer becomes serious about your product and gives feedback. He becomes your mouthpiece and influencer. I think this relationship will evolve further too. Moreover, it gives a retail investor more room to come into this space and work as a small venture capitalist.

Inez Sanjaya
What advice would you give to those who just got into crowdinvesting?
Subrata Pal

I think the first piece of advice is don’t just jump into something. Take your time, as it is a very high-risk area. Study properly and look at unbiased ratings like those on KingsCrowd. You should read reviews about the companies and understand the space. Invest small and diversify your investments. If you can create a portfolio approach, you will never go wrong. If you try to put a lot of money in one company with the hope of becoming a millionaire later on, that will never happen. Go for a portfolio approach and have patience. Invest your money in the companies and don’t look at it. You can’t look at that money because it isn’t listed yet. So, there are long wait times, but in five to 10 years the reward will be great. 

My advice for young people is that whatever you save monthly, try to invest a small amount of it. Make a regular savings plan and you will be surprised what it makes you over time. Nothing will go wrong if you do it every month. 

Many thanks to Subrata Pal for his time and thoughtful answers. Subrata’s LinkedIn profile can be viewed here.

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About: Inez Sanjaya

Inez's background is in the startup ecosystem, which she is very passionate about. Inez has experience working in a startup, a Google-backed accelerator, and lastly in Plug and Play Tech Center. Prior to this, she was a part of VU Venture Partners doing deal sourcing and conducting due diligence. Inez graduated from the University of California Berkeley with an Economics degree.

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