Germ of an Idea | How three friends battled legacy players to turn Darwinbox into a unicorn

Every Darwinbox office has a quote hung outside its entrance. It’s a quote by Charles Darwin. ‘It’s not the strongest of the species that survives, nor the most intelligent. It is the one that is most adaptable to change’. It’s probably the story of Darwinbox itself.

In a nutshell, Darwinbox provides a tech suite that helps companies digitally manage their HR requirements - be it hiring, attendance, employee management, performance or on-boarding. It was an idea that was born in 2015, when one of the co-founders felt several organisations do not have the resources and bandwidth to manage all their HR information in a rapidly changing world, and we will soon go deep into that story.

Darwinbox became the first software as a service (SaaS) company to turn unicorn in 2022, when it closed a $72 million funding round led by Technology Crossover Ventures (TCV), along with participation from existing investors Salesforce Ventures, Sequoia Capital India, Lightspeed India, Endiya Partners, 3One4Capital and others.

Also read: Germ of an idea: How edtech firm Eruditus was founded

The Germ

Jayant Paleti, an investment banker with more than five years of experience at EY and Deloitte, was the entrepreneurial dreamer among the three co-founders.

Rohit Chennamaneni, one of his closest childhood friends, who was with McKinsey and Google, knew Jayant would launch a start-up one day, though they were clueless about when and how that would happen.

The third co-founder Chaitanya Peddi was the one with the human resource expertise, having worked with EY in its HR Consulting division.

While working on a M&A deal at EY, which involved an organisation heavily into R&D (research and development), the promoter was under the impression that attrition rate in his company was around 10-12%. When Jayant and his team looked closely at the numbers, it turned out that the attrition rate was in fact 22%. It looked like there was misrepresentation of facts, when in reality the promoter didn’t have the right numbers because the company didn’t have a good HR system in place.

This was the trigger that Jayant was waiting for all along. The next few weeks saw the three friends meeting up over several rounds of coffee and tea at this dosa restaurant in Hyderabad. Jayant and Chaitanya were already based in Hyderabad and Rohit flew in from Mumbai to meet them.

Jayant Paleti had always nursed ambitions of becoming an entrepreneur.

“Our biggest worry was the competition that we would face from the bigger players. However, we knew we could come out with a product that’ll be bigger than just a HR solution. We knew we could mount aspects like wealth management, insurance and digital education as additional offerings. Darwinbox, we were confident, would be an agile organisation that can take on the biggies,” says Rohit, 36. The discussions at the restaurant proved very fruitful. “It was a period of high energy.”

However, the trio was aware of the challenge ahead. It was not easy to convince clients to experiment when they were already working with products from legacy players. The “sell” effort was high. Darwinbox started off with attendance and payroll solutions, which every company needed.

The plan was to provide a multi-pronged solution. Firstly, create a platform for employees to get relevant HR information about the company they work for. That could include the goals and objectives of the company, the goals of the manager, the objectives of the manager’s boss and other relevant HR details, so that you could plan your own roadmap in the company. Secondly, to create a platform where employees could voice their opinions and provide feedback through the right channels. The third aspect involved automating and simplifying the regular touch points like leave records, attendance and payroll.

The company was bootstrapped for the first nine months. The founders put in their own savings. The year 2015, the year when Darwinbox was started, was a period of intense start-up activity in India with venture capital funds flowing.

Hiring was the most difficult aspect when the company started out. “How do we hire folks working in large companies with high salaries and good career paths? As a company yet to be funded, how can we try to convince them?” That was the foremost thought in the minds of the co-founders.

Says Rohit, “One day we were interviewing a candidate, who pulled out at the last minute, saying that his value in the marriage market will go down if he joined us!! There were occasions when parents of the candidates would drop in to check our offices. They wanted to ensure we had an actual office and a relevant address.”

Darwinbox, initially, built an HR software module that would work across sectors. They also focused harder on Asian markets and built a mobile platform that went on to become a differentiator. After nine months of working hard on the product and travelling extensively to meet customers, the founders finally raised seed funding of Rs 4 crore from Endiya Partners, 3One4 Capital and others. Even after that, it was difficult to convince customers about the product, since the company was talking to large enterprises who had the experience of dealing with SAP and Oracle, the giants in the space.

How do we know whether you guys will be in this for a long time? What if we sign-up and later find that you guys are not around? These were the kind of questions that the co-founders were faced with. “We had to work hard to convince them how we were in the game, long-term, and also that we have all left high-profile jobs to venture into a start-up, completely committed,” says Rohit.

But the struggle did not last long. Soon, the internet start-ups flush with funds came along and were prepared to believe in a fellow start-up like Darwinbox. That was a bit of a turning point. The Indian start-up scene was booming and it’s possible that the bigger players were slightly slow off the blocks. This is where Darwinbox spotted a big opportunity and moved in quickly. The business took off.

In 2017, Lightspeed Ventures invested $4 million. Till that time very few investors had pumped money into products for the enterprise space but Lightspeed was willing break the norm. Soon after, Sequoia Capital and Salesforce Ventures came forward with their cheques and Darwinbox’s fortunes took a huge positive turn.

Chennamaneni would fly down from Mumbai in the initial days of refining the idea for the startup.

The backstory

Jayant Paleti was academically driven and always nursed ambitions of becoming an entrepreneur. His cousin was a friend of Rohit Chennamaneni. Jayant did his engineering from IIT Madras and then joined IIM-Lucknow where he ran into childhood friend Rohit again. He subsequently joined EY in its investment banking division where he met Chaitanya, who had joined the HR Consulting wing of the company, after passing out of XLRI.

While there was no indication that the three would venture into entrepreneurship soon, all three knew that Paleti eventually wanted to be a businessman. Rohit, with his stints at McKinsey and Google, knew what technology could do to fast-track businesses. All of them knew how the big enterprises operated, and possibly where they could possibly do better.

Since Chaitanya knew HR systems well, it was clear they had a subject expert who would know the pain points of a large enterprise. Jayant and Rohit could always be counted on to talk to customers. So, they had the team. It was all about coming up with the right idea.

Unlike a lot of other founders, they didn’t have to really convince their family members much. They were already on board. It was clear that their family wanted to support them in their entrepreneurship journey.

“About 1.5 years before we started Darwinbox, we used to talk about how would there could be more opportunities for folks with our background in Hyderabad. Maybe we can create those. Nothing serious, but we used to chat in general about business, without quite realising all of that would come true so soon,” says Rohit.

Chaitanya knew HR systems; his co-founders banked on him to know the pain points of a large enterprise.

The road ahead

For the fist two years, the lion’s share of the company’s revenues came from tech start-ups. Now, Darwinbox works with 25 unicorns across different geographies. It has 1.5 million users on its platform and 650 customers. Over the next two years, the company hopes to achieve $100 million in annual recurring revenues. The company wasn’t willing to divulge its existing revenue run rate.

“There are three threads as far as the future is concerned,” says Rohit. “Firstly, we are looking at market leadership in existing markets. Getting to number one in India in 1-1.5 years is a goal. We are like the number three player here now. In South-East Asia we are in the fourth spot, and we would like to move up to the top in 2-2.5 years and achieve the same in the Middle East in the next three years.”

The second thread involves expansion. The plan is to identify one or two more markets in the short term like the US, Japan or Australia and enter those regions. Plus, also get to $10-20 million in revenues from these new markets. The third thread is about dealing with the new way of working, that has come about during the pandemic. “There is a big push on employee experience due to remote working. There is a need to reimagine work. This is a new opportunity to work on,” says Rohit.

With greater accent on remote/hybrid workstyles, Darwinbox is expecting faster transition to cloud-backed SaaS platforms and hence greater revenue momentum in the days ahead. The pandemic has rung in changes in HR and related spheres, and like the boards outside Darwinbox’s offices say, survival happens when a company quickly adapts to change. In Darwinbox’s case, it not only survived but it thrived.