VG Siddhartha: The death of an entrepreneur
The death of the Café Coffee Day founder has thrown up many inconvenient questions.
If corporate India and everyman alike felt the tragic death of VG Siddhartha last week more viscerally than as just another name in the news, it was partly because nearly everyone could identify with the inner tumult of his parting note — who among us hasn’t known the dreadful lows that persistent adversity brings — and in parts because the cheery ambience of his ubiquitous Café Coffee Day chain has been the backdrop to memorable moments in our own lives — long-anticipated reunions, gossip sessions, nervous dates and warm breaks during rainy highway drives. Judging by the uncommon outpouring of emotion on social media, people felt proud of the low-profile entrepreneur whose creation set early benchmarks for public spaces in Indian towns, with civility, cleanliness and hot coffee.
VG Siddhartha: Web of relationships
Though he personally kept a low-profile, Siddhartha’s connections were nevertheless high-profile. His political, social and business ties often intersected.
Inconvenient questions swirled about after the chairman of India’s largest coffee chain jumped to his death in the Netravati river near Mangalore, leaving behind a note apologising for apparent business troubles and pointing to an income tax officer and a private equity player as sources of stress.
Is the ease of doing business in India an empty slogan? Are tax authorities going too far in “the interest of revenue”?
Was Karnataka politics at play in his troubles with the tax authorities? Is there inadequate focus on the stress and mental health issues faced by entrepreneurs? Are private equity players adopting sharp practices with their investee companies?
To the outside observer, the episode does not add up.
How did a savvy, experienced entrepreneur who reveled in deal-making and built a globe-spanning coffee business trip up late in his career? Especially when, according to his own note, there was no severe asset-liability mismatch?
Definitive answers likely won’t be available for a long time, but the focus on Siddhartha’s personal and business affairs subsequent to his death has thrown up the picture of a rooted, ambitious and generous man with a sense of honour and commitment towards his family and community, who liked to run diverse businesses, accomplished a great deal and then got caught in a vortex of debt that he came to judge to be far too onerous to manage.
Born to a landed family in Chikkamagaluru, Siddhartha decided to pursue business after getting disillusioned with Marxism, to which he was drawn in early years in college. “I wanted to be Robin Hood—rob the rich and give to the poor! But then I realised, India was a really poor country. There was nothing to rob, really. It was better to make your own money – to get into business,” he told Outlook magazine in a 2016 interview — a rare detailed one for the media-shy entrepreneur.
He walked into the offices of JM Financial’s Mahendra Kampani, who he had read about in a magazine, and requested a job. Kampani agreed by the end of the day and would go on to teach the young man valuable lessons in stock markets, business and life over two years.
In 1985, he set up a securities trading firm in Bengaluru with Rs 7.5 lakh in capital his father had given him. He helped underwrite the Infosys IPO in 1993, along with Vallabh Bhansali of Enam and Nimesh Kampani, but didn’t hold on to the stock for too long, a decision he would rue later. But he would make several investments in tech subsequently and also remain keenly interested in the sector.
It was in 1993 that he started taking the family business of coffee plantations seriously after realising the mismatch between prices Indian farmers were getting and the prices in the international market. Through a delegation he helped put together, the planters convinced the then finance minister Manmohan Singh to remove the restrictions on who coffee farmers could sell to. He set up a coffee trading business that would soon become India’s largest coffee exporter.
Over time as he sought to extract more value from the coffee retail business, the idea for coffee shops was born. Café Coffee Day today runs upwards of 1,700 outlets across India. Along the way, he acquired and started businesses in logistics and real estate, and together with the plantations, coffee retail, tech holdings and wealth management business, went public in 2015 as a diversified conglomerate.
For the coffee-growers community in the picturesque Malnad (land of hills), where he was born, Siddhartha was a symbol of pride. They saw him as one among them who had really made it big and yet never lost touch with his roots. “For coffee planters, he was their ATM. If a planter facing any trouble approached him, they could be assured of his help,” says BL Shankar, former Congress MP from Chikkamagaluru and an old associate of the family. By giving employment to youngsters from Malnad at his coffee chain, he earned further goodwill. “If anybody needed a job there, they could ask him and he would help. That was widely appreciated,” says Ramesh Rajah, president of the Coffee Exporters’ Association, who knew Siddhartha since the early 1990s.
He saw himself in terms of the jobs he was able to generate and harboured deep concern for his employees. He would frequently drop in at his Cafe Coffee Day (CCD) outlets to see how things were being run and address operational issues. He would also turn barista occasionally and serve customers.
These occasions helped him understand his team’s daily realities closely. “I couldn’t believe how indifferent customers could be. Many customers ordered coffee but didn’t even greet back and once they were done, there was no ‘Thank You’, no tip, and no ‘Happy New Year’.
It felt miserable. That made me realise how hard it is to be a team member at a store,” he said in the Outlook interview.
K Ramakrishnan, former president of marketing for CCD, remembers how Siddhartha’s evaluation of any idea or strategy had one simple filter: “Will my front-line team members (staff at CCD outlets) understand this? Will this make their life easier or better?” If it wouldn’t, the idea was rejected. “Also, before you make any point, his question would be, ‘How many cafes have you been to this week?’”
He understood that the success of a coffee chain hinged on the staff at the outlet, and his concern for their well-being was real and came to be appreciated.
“What you’ve ordered was one of sir’s favourites.
Every Cafe Coffee Day would have to stock at least two of these drinks, in case he dropped in,” Ranveer Singh, the manager at a Cafe Coffee Day outlet in central Bengaluru, told an ET Magazine reporter last week, pointing to the Belgian hot chocolate on the table. Like his colleagues across the country, Singh is sporting a black arm-band as a tribute to Siddhartha. “He used to drop in at stores, mostly unannounced. I’ve seen him at least 4-5 times since I joined five years ago. But it was never a big deal.” A native of Bihar, the 26-year-old was recruited as a management trainee from SRM College in Chennai, where he was doing his degree in hotel management.
As the news of his employer’s death broke, Singh says he felt more upset than when his father had passed away, when he was a child.
“I had tears in my eyes. He has done so much for all of us.”
If his time in Mumbai taught him the nuances of the financial markets and laid the foundation for his connections to private equity players, it was marriage that helped him break into political and bureaucratic circles. In 1989, Siddhartha the knot with Malavika Krishna, the elder daughter of veteran Congressman SM Krishna, and a fellow-Vokkaliga, a powerful caste in Karnataka.
SM Krishna’s wife, Prema, is related to Siddartha’s father, which was how the alliance came about. The couple have two sons — Amartya and Ishaan. Amartya was being groomed to help his father, while Ishaan is still in college in the US. His wife was involved in the hospitality arm which manages three high-end resorts in Karnataka and one in the Andamans.
Siddhartha was careful never to flaunt his political ties publicly and was hardly seen by his father-in-law’s side when he was chief minister or, later, India’s external affairs minister.
“He was involved in mobilising funds for Krishna and the party, but never in day-to-day administration,” says a senior Congress leader, requesting not to be named. “But his father-in-law could always rely on him.”
While he might not have made a public display of his connections, they nevertheless intersected with his business interests. SV Ranganath, a 1975-batch IAS officer and former Karnataka chief secretary, was made an independent director on the board of Coffee Day. On Wednesday, he was named interim chairman of Coffee Day Enterprises.
Another powerful bureaucrat’s wife, Poornima Jairaj (married to K Jairaj, Karnataka’s former additional chief secretary), was the head of Siddhartha’s venture capital arm Global Technology Ventures (GTV) that invested in IT companies.
With his first priority being his business and being an introvert, to boot, Siddhartha was never a regular on Bengaluru’s cocktail circuit, though he made time for functions of those close to him. “He had a singleminded focus on business. But he was always there for functions of his close-knit Malnad coffee community,” says Congress politician Rajeev Gowda.
“They are a very private family who stayed within the orbit of their close friends and family,” adds designer Prasad Bidapa, who has worked with Malavika Hegde when she was involved in jewellery designing. Malavika’s sister, Shaambhavi, is married to Umesh Hingorani, former liquor baron Vijay Mallya’s step-brother.
But ultimately, Siddhartha’s political ties could not aid him, and, quite likely, contributed to his troubles. Particularly his proximity to former power minister DK Shivakumar, also a Vokkaliga and a protégé of his father-in-law. Income tax raids on Shivakumar’s properties in August 2017 were followed by raids on Siddhartha’s properties, which taxmen say were based on evidence of transactions between the two. His father-inlaw’s switch to the BJP earlier the same year, after having spent a lifetime in the Congress, proved to afford no protection for Siddhartha from central agencies. The Income Tax Department has claimed that Siddhartha had admitted to undeclared income in a sworn affidavit.
A shaken town
In Bengaluru, where he was well-known and had deep links with the social, business and political elite, the development has left the established business community as well as small entrepreneurs shaken.
We need a culture that separates the businessman from business failure, Nandan Nilekani, a long-time friend and minority shareholder in Coffee Day Enterprises, said at an event on Friday, without mentioning Siddhartha’s death.
“I think everybody is shattered because Siddhartha was the quintessential entrepreneur,” Kiran Mazumdar-Shaw, chairperson and MD of Biocon, told ET Magazine.
“He had many successful businesses and investments — he was a risk-taker, he experimented.
And in many ways, the system failed him. When entrepreneurs see something like this happen to someone so successful, it does send shockwaves through the community.
There are many lessons to be learned from this. The PE players need to learn a lesson from this, as do the income tax authorities.
His life has been snuffed out in a very unfair way.”
Sometime in early January 2019, VG Siddhartha was conspicuous by his absence at a party thrown in Mumbai by a leading private equity player. It may have passed unnoticed then, but subsequent to his death, it has become subject of conversation. Sources in the PE fund claim he was invited.
VG Siddhartha has had a long association with PE funds—the prominent ones being KKR, New Silk Route and Stanchart PE. A senior PE professional, who did not want to be identified, told ET Magazine that it is time to take a clear look at how some PE players are operating, and how some of their operations are entirely an operation in structured debt, instead of equity.
An instrument often used in structured debt is a compulsorily convertible debenture (CCD), a debt instrument that converts into an equity instrument at a certain date. Around the time Siddhartha had taken money from PE players, it was a common practice to sign a pact with the promoter so that the PE funds gets an exit at a certain date with a certain amount of guaranteed return. If the price of the stocks appreciate, this is usually not a problem. Trouble occurs when the stock price does not appreciate well, and provides the PE fund a natural exit.
At Coffee Day Enterprises, the holding company of VGS’s coffee empire, the stock price did not appreciate at all since listing in November 2015. The shares were sold at `328 a piece in the IPO and listed at Rs 313 on November 2, 2015, but closed at Rs 270.15 that day. For a brief period in the first half of 2018, the share price had crossed the IPO price touching a high of Rs 374.60 on January 22, 2018.
The PE professional said: “Any agreement between the promoter and the PE fund for a specific return on exit is not on very strong legal wicket. As a result, the PE often tries to use other tactics to make the promoter cough up the money.”
The conglomerate structure of the company was one impediment to the stock’s buoyancy.
Half the revenues come from coffee plantations, retailing and exports. The other half is a mix of holdings in logistics, commercial realty, financial services and IT. Investors came to view parts of this agglomeration as having political exposure.
A July 2019 valuation of the company by the research arm of Maybank said it ascribed zero value to Coffee Day Enterprises’ smaller investments.
The coffee business is valued at Rs 4,800 crore, while the total value comes to Rs 7,200 crore. (Tanglin: Rs 1,290 crore, Sical Rs 610 crore and Way2Wealth Rs 470 crore).
Sriram Subramanian, managing director of shareholder advisory firm InGovern, says this is the reason there has been very little institutional interest in the company and barely any mutual funds hold any shares of Coffee Day Enterprises.
“VGS had a reputation of being a do-gooder.
He had apparently helped rescue the Infosys IPO and then helped Mindtree promoters by infusing cash into it. He also helped Sical when it was facing a cash crunch with FCCB redemptions coming up. But in the process his own balance sheet got stretched,” Subramanian added.
In the balance-sheet of life, however, it feels ironic that the person who created a space for millions of Indians to meet in pursuit of counsel, help or love, in the end felt like he had no one to turn to, before he took the distressed plunge into Netravati.
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(With inputs from G Seetharaman in Mumbai and Rahul Sachitanand in Bengaluru)