Seventeen years is a long time in any era — for Flipkart most of this time was spent creating ecommerce in India. But now in 2024, ecommerce is more than just about marketplaces.

Flipkart and Amazon India created what was believed to be ecommerce for so long, but now things are changing and quick commerce is the belle of the ball. At the same time, ecommerce is also broadening and turning into digital commerce, that pretty much means selling anything and everything online — from electronics to fashion to unbranded products to insurance to travel and even personal loans.

The past year for Flipkart has been about seeing this market in transition. It tried some things to stay relevant, it reportedly looked to acquire startups that could fill the gap, but now Flipkart is going at it alone, launching its fintech product Super.Money in beta and is gunning for the quick commerce vertical next.

So this Sunday, we wanted to see how Flipkart is getting ready for the brave new digital commerce world. But first, here’s a look at the top stories from our newsroom this week:

• Indus Vs Google Play: Indian startups are growing increasingly wary of Google’s stronghold on the app ecosystem, and PhonePe’s made-for-India Indus Appstore is looking to become the alternative. Can PhonePe loosen Google’s grip?
• NODWIN’s Next Focus: Even as it commands 80% market share in the esports market, NODWIN Gaming is eyeing a wider presence in the youth-centric recreational entertainment space and plenty of acquisitions to get there

The New Flipkart 

When Flipkart started out in 2007, India’s internet economy was a newborn. It’s only come of age in the past eight to nine years after the 4G revolution made internet access ubiquitous for Indians. So it’s worth noting that for the first half of its existence, Flipkart was pretty much reliant on the consumers from metro cities.

And the truth is that Flipkart has always been chasing the ‘eight ball’ ever since this inflection point. That’s because even the internet revolution has not been as equal as many claim it to be.

Consumers could access Flipkart, but logistics problems needed to be solved. Cash on delivery suffered a disruption with demonetisation. UPI solved this issue to a large extent after 2016, but then marketplaces suffered setbacks in terms of policy decisions and ecommerce rules in 2017 and 2018.

When Walmart acquired Flipkart in 2018, it was seen as a major validation for the business, but things were changing on the ground.

By 2019, D2C brands were rising, and many bemoaned the over-reliance on marketplaces such as Flipkart, leading to alternative channels, native stores and more. This was of course as true for Amazon India as it was for Flipkart.

Covid was the next big disruption to Flipkart and in some ways, it changed ecommerce for good. As all commerce moved online, Flipkart found itself part of this growing and evolving ecommerce ecosystem. As the pandemic ripped through the economy, access to credit was a major gap to be solved. The digital lending boom is a testament to how large this gap was.

From 2021 onwards and increasingly in the past year, the game has moved to quick commerce, and cross-selling, which has once again sparked off a super app race. This is the moment that Flipkart finds itself right now, and it is arguable that it’s definitely moving towards becoming a super app itself.

Flipkart’s Fintech Dreams

The newest piece in the Flipkart universe is Super.Money, which has launched with UPI payments but will see other financial services soon.

The cross-selling strategy is obvious when you see the introductory offers on Super.Money, which include cashback rewards of up to 10% on Flipkart, Myntra and Shopsy.

The other financial products include a credit card offering in partnership with Utkarsh Small Finance Bank, a pre-approved personal loan service called “superCash”, and a fixed deposit offering “superDeposit”, which would also require banking partnerships.

As Inc42 reported earlier this year, Flipkart initiated the fintech app’s development in July 2023 and earmarked an investment of $20 Mn for the project. Back in January, the company rolled out personal loans on the Flipkart app, which will soon be offered through Super.Money.

This after the company launched UPI services to select users in March. In its first month, Flipkart recorded 5 Mn UPI transactions worth INR 197.24 Cr.

Flipkart’s full-fledged fintech entry comes a year after its demerger with PhonePe, and interestingly, PhonePe will be one of the biggest competitions for Flipkart, along with the likes of Paytm, CRED, Jio Financial Services (JFS) and others.

The launch is one thing, scaling it up will be critical. PhonePe invested billions of dollars in scaling it up, just like Paytm or Google Pay, Amazon Pay or others. While the market is undoubtedly large, competition makes it hard to acquire and retain users.

Quick Commerce Rebuffs

We’ve written about it before — Flipkart is looking to get third time lucky with grocery deliveries and quick commerce, after two relatively unsuccessful attempts over the past few years. But before venturing out on its own, the company looked at its options, as per reports.

First there were talks with IPO-bound Swiggy some time late last year, as reported this week. The talks fizzled out as the two giants failed to come to consensus over a valuation. Besides this, Flipkart is also said to have demanded a majority stake in Swiggy, which proved to be a roadblock to the deal.

Separately, Flipkart reportedly held talks with Reliance-backed Dunzo which was in a severe cash crunch throughout last year, and has scaled back to B2B deliveries only.

Flipkart also held talks with Zepto, which is currently in the quick commerce spotlight thanks to its massive fundraise and high valuations. These talks also failed due to a lack of valuation consensus.

The biggest factor behind Flipkart’s most recent push into quick commerce is the revenue outcome. Ten-minute deliveries are no longer just a fancy proposition, as they were in 2020 and 2021. Cumulatively, Swiggy Instamart, Zepto, Blinkit — the three biggest quick commerce platforms — are on track to report combined revenue north of $1 Bn in FY24, as we had reported earlier.

Flipkart’s next-day grocery delivery business clocked 1.6X year-on-year (YoY) growth in FY24, but the company did not share the revenue numbers for this vertical, which is said to be present in over 200 cities already.

Over the past two years, Flipkart has watched as quick commerce platforms demonstrated massive growth, and indeed even encroached on ecommerce territory in recent months with larger warehouses and plans to deliver large products and electronics, which have been the forte of marketplaces for so long.

Instead of relinquishing the opportunity, Flipkart wants to build it anew. It’s not alone, Reliance Retail and JioMart also have plans to extend their reach into quick commerce, so here again, Flipkart is faced with a massive revenue opportunity but strong competition with a foothold on a segment that will be new for Flipkart.

On The Prowl For Profits

For Flipkart, these two new verticals come at a critical moment. Some might call it a defining moment for the company, which seems strange given that it has been around for nearly two decades. But Flipkart cannot afford to wait too long.

Earlier this month, Flipkart majority owner Walmart said that the company (along with PhonePe) is heading towards profitability. Interestingly, Flipkart brought Google on board as a minority investor as part of the funding round led by the US-based retail giant.

In a statement, Flipkart said, “Google’s proposed investment and its Cloud collaboration will help Flipkart expand its business and advance the modernisation of its digital infrastructure to serve customers across the country.”

This points to Flipkart looking to scale up its various digital commerce verticals across categories. It needs to do a lot to get back into the black after years of losses.

Flipkart’s B2C arm saw a 42% YoY jump in revenue to INR 14,845.8 Cr in FY23, while its loss reduced 9% to INR 4,026.5 Cr. On the other hand, the B2B arm of the company saw its standalone net loss widen to INR 4,845.7 Cr in FY23.

Last year, the company went through a reorganisation and also laid off employees to cut costs. But the new fintech and quick commerce play will be critical for Flipkart in turning the ship around and heading in the direction of profits.

Neither fintech services nor quick commerce are saturated by any means — opportunities exist to disrupt the incumbents and gain a foothold. But execution will be key and both these segments require diligent focus and operational efficiency.

Flipkart has watched Indian ecommerce and digital commerce evolve for the past few years, and now it’s ready to jump in from the sidelines. Can the ecommerce giant find new wings 17 years after it took off?

Sunday Roundup: Tech Stocks, Startup Funding & More

• The weekly startup funding fell to $196 Mn this past week, a 75% decline from the previous week, when the tally was inflated by Zepto’s $665 Mn round
• The Ministry of Corporate Affairs (MCA) had to step in to clear speculation around BYJU’S being cleared of financial fraud and major corporate governance lapses reportedly after a ministry probe
• Zoomcar cofounder Greg Moran has been removed as the CEO of the company after a 12-year tenure as the Nasdaq-listed company faces regulatory scrutiny

• Adding to its product portfolio, Zomato has rolled out a restaurant services hub to plug in operational requirements such as hiring, regulatory requirements, taxation and trademarking
• Bhavish Aggarwal-led Ola is all set to roll out grocery delivery through ONDC on its app after seeing success with the food delivery pilot

The post Flipkart On The Chase Again appeared first on Inc42 Media.

Zerodha was down again this week, as the platform was struck by an outage just before 10 AM on Friday, June 21, rendering users unable to place new stock trade orders or modify existing ones.

This was the second such outage just this month, after a similar one took down Zerodha, Groww and others on June 3, a day before the results of the 2024 General Elections.

And over the past two years, there have been over a dozen such outages on Zerodha’s platform alone, with others such as AngelOne, Groww and Upstox also facing some challenges on occasion. It’s no coincidence that these outages have come as the overall base of Indian retail investors has grown exponentially.

But given this spurt of new users, any doubts about platform stability can also see users jump ship. Zerodha, which lost out to Groww in terms of active investors last year, is especially under the heat. Other platforms are catching up and the entry of Jio Financial Services has also made it more difficult to compete in this space.

So is Zerodha’s lead under threat — that’s what we are looking to answer this Sunday, but after a look at these top stories from our newsroom this week:

• Upheaval At Reshamandi: After burning through $40 Mn of VC money and more in venture debt, ReshaMandi is looking to respawn through another company. Here’s the full story of the B2B marketplace
• Zomato’s Next Target: After grabbing a lion’s share of the quick commerce segment with Blinkit, Zomato has now set its sights on the events and movie ticketing business. Will the potential deal with Paytm have the same fairytale ending?
• Edtech Consolidation: Edtech unicorn Unacademy and K-12 Techno Services have been in discussions for a potential acquisition of the former, according to Inc42 sources, but the deal hinges on Unacademy’s path to profitability

Rivals Feast, Zerodha Watches

Just a couple of years ago, Zerodha’s lead in the active investor base seemingly looked untouchable, and this gave it an aura of being the de facto platform for online trading. But Groww had other ideas, and it used VC funds to acquire users by the millions.

The pandemic-fuelled boom in online trading had seemingly worked more in favour of Groww and others of its ilk than Zerodha. While Zerodha had already reached 6.5 Mn active investors by June 2022. In comparison, Groww was second at 4.4 Mn active investors.

But nearly one year later, by March 2023, Zerodha was still at 6.4 Mn investors, while Groww’s base had increased to 5.4 Mn users. The momentum was in Groww’s favour as it finally surpassed Zerodha in September 2023, and reached 6.63 Mn as against Zerodha’s 6.48 Mn.

Launched in 2017 — seven years after Zerodha — Groww raised a staggering $360 Mn in 2020 and 2021 to smash its way through the investment tech market.

In fact, Groww only launched stock trading in 2020 and primarily focussed on mutual fund investments till then. After it raised its first major round of $30 Mn in September 2020, the Bengaluru-based fintech super app has rapidly added many other asset classes and trading platforms.

It would seem that most of the user boom of the past four years has been seen by platforms other than Zerodha. Groww now boasts over 1.03 Cr (10 Mn) active investors on its trading platform as of May 2024, with closest rival Zerodha coming in second with 75 Lakh (7.5 Mn) active investors.

Among other investment platforms, Angel One gained 1.84 Lakh users in May, taking its total count to 64.86 Lakh, while Upstox has an active user base of 25.91 lakh, and Paytm Money had 7.86 Lakh active users as of May 2024.

Outages Galore For Zerodha

Incidentally, as Groww was catching up, Zerodha was mired in issues such as outages. Between 2021 and 2023, the bootstrapped startup faced as many as 15 technical glitches during trading, leading to customer complaints.

As we saw in our year-end survey on customer sentiment in 2023, customers preferred rival platforms to Zerodha due to the outages and tech glitches. Groww, Upstox, Angel One scored higher on this front.

In 2024, we have seen three outages that have been widely reported — including one in January and two in June. To be fair, two of these outages affected other platforms as well, such as the disruption to mutual fund transactions and orders on June 3, 2024, which also affected Groww users. But as the largest investment tech platform in India by revenue, Zerodha definitely gets a lot more attention.

Last year, the BSE’s Grievance Redressal Committee asked Zerodha to compensate a trader for losses due to a technical outage. The order said that Zerodha failed to take corrective action despite being alerted by the exchange. However, Zerodha called parts of the order a “blatant mistake”.

And in many cases, the outages are short lived. The most recent one on June 21, 2024 lasted just 30 minutes from what Inc42 could understand, but since this happened just after the markets opened, users were understandably frustrated.

What Explains The Glitches?

Our conversations with industry players revealed that Zerodha alone is not impacted by outages, but there is a bigger glare on the platform. However, a lot of the older investors still use Zerodha and they seem to have a louder voice on social media and generally have more influence on other investors.

This puts Zerodha immediately under the spotlight whenever there are issues. Plus, Zerodha founders Nithin Kamath and Nikhil Kamath are always in the public glare and responding to issues and user challenges on social media, which makes it easier for others to talk about these problems openly.

From a technical standpoint, Zerodha or Groww or any other platform have not explained why these outages happen, except for the disruption on June 3 a day before the Lok Sabha Election results. Coin, Zerodha’s mutual fund platform went down and a similar disruption was seen on Groww.

It must be noted that the record gains seen on June 3 in the stock market were followed by the biggest crash in four years. This volatility resulted in crores of losses for investors, but many also blamed the outages for their losses on June 3.

Neelesh Verma, product head for Coin by Zerodha, said at the time, “We work with multiple payment aggregators, and one of them faced issues on Tuesday. Even after pointing out the problem on time, it could not be fixed. As we work with multiple payment aggregators, only a small percentage of the transactions were affected.

Groww also said it was a problem with payment aggregators and gateways that impacted users. “In MF investments, money flows directly from customer accounts to the banks (managed by payment aggregators or through direct integrations, not touching intermediaries like brokers or MF distributors), where it is aggregated and sent to the clearing corporations. The delay in receiving money by clearing corporation resulted in delayed NAV,” the company’s statement said.

While there is ire among users, they also acknowledge that the benefits of Groww or Zerodha outweigh the odd disruption. Yes, it can be a big problem on key days like June 3, but overall, investors say that these platforms have made it easier for everyone to invest, which has brought investments into mainstream conversation.

“If you look at the past month, Groww has faced just as many issues, but mostly everyone talks about Zerodha. As Groww’s user base has grown, there have been just as many complaints about Groww,” said one Bengaluru-based investment advisor, who added that many investors have moved to Groww when Zerodha had issues and they also move to Zerodha when Groww has problems.

As such, neither platform wins or loses from one isolated incident. It’s just about long-term stability and Zerodha has definitely had issues in this regard over the past two years. It doesn’t help that it has also lost users during this period, or at least has not capitalised enough as the market has boomed.

Zerodha Up Against It 

Given the rising competition, its tech issues and the slow user growth, perhaps Zerodha should be worried. The company has never spoken about competition except to explain the rationale for its annual maintenance charge (AMC) of INR 300 which investors don’t have to pay on other platforms.

The Kamath brothers have always claimed that the AMC allows Zerodha to offer investors the best features and new products. But in light of the disruption, there are many questions that users have raised about the fee.

What Zerodha’s fee model means is that it has the operating revenue among investment platforms as of FY23. Even retaining a portion of its 75 Lakh active investors automatically brings in hundreds of crores in revenue for Zerodha based on the AMC alone.

The platform’s revenue grew 37% to INR 6,832.8 Cr in FY23 from INR 4,977.3 Cr, while profit grew to INR 2,908.9 Cr. The profit itself is higher than the revenue earned by both Groww and Upstox.

In contrast, Groww recorded INR 1,277 Cr in operating revenue last fiscal and turned profitable for the first time since inception. Upstox also claimed it turned profitable in FY23 with a consolidated profit of over INR 25 Cr, on a revenue base of over INR 1,000 Cr. However, the company has not filed audited financials yet.

Angel One, the third largest platform after Groww and Zerodha, reached INR 3,000 Cr in revenue in FY23, with INR 889 in net profits. This is the closest rival to Zerodha in terms of revenue from online stock broking.

Angel One is the only platform to release its FY24 numbers, which show a revenue YoY jump of over 35% to INR 4,520 Cr, while profits grew to INR 1,125 Cr. What will be really interesting to see is where Zerodha ended up in FY24, even as the likes of Jio Financial Services and PhonePe continue to press the accelerator on their respective investment platforms.

The company has lost its pace of user acquisition, while rivals such as Angel One have caught up and Groww has surpassed it. With IPO season in full swing (at least for new-age tech companies) and likely to continue well into 2025, investor activity is expected to surge in the next few years.

Historically, new high-profile IPOs draw a lot of casual and new investors to the market and we saw this happen with nearly a dozen listings in 2021. Now that Go Digit, Awfis, TBO Tek, ixigo and others have listed, and the likes of Mobikwik, Ola Electric, Swiggy, PhonePe and Flipkart expected to come to the IPO table next, India is on the cusp of a major inflection point in stock market investing.

Can Zerodha capitalise on this new gold rush with its 15-year-long experience of catering to the Indian investor? Or will its baggage of tech glitches hold it back against competition that is on the rise?

Sunday Roundup: Tech Stocks, Startup Funding & More

• Led by Zepto’s massive $665 Mn round, Indian startups raised over $800 Mn across 29 deals this week, the largest weekly tally in months
• Google has hit pause on real money games on the Play Store in India and globally, citing the absence of a licensing framework and monetisation model challenges. Another blow for India’s online gaming startups

• Travel tech major ixigo saw a rousing debut on the stock markets getting listed at a 45.16% premium on the BSE earlier this week
• Logistics giant Blue Dart has commenced drone deliveries in partnership with drone startup Skye Air with an initial focus on ecommerce deliveries and last-mile services

The post Zerodha’s Downtime Blues appeared first on Inc42 Media.

Till two years ago, India’s edtech startups had all the leverage. They also had the funding, unbridled optimism and amassed talent by the thousands to scale up. But as we all know this story has come undone since 2022.

The past two years have shown the weak foundations on which this optimism stood — the edtech sector has led in terms of notable shutdowns and layoffs in the startup ecosystem. It’s quite clear now that edtech has lost its shine and a lot of the leverage.

But what it has also lost is the trust that is inherent in education businesses, and that’s not just from the consumer standpoint but also from the point of view of other more traditional education businesses. Given BYJU’S high-profile corporate governance meltdown, questions about multi-year revenue recognition, buried costs and a severe cash crunch, there’s definitely a pall over the edtech market in India.

Which is why the report this week about edtech unicorn Unacademy looking at a merger with K-12 Techno Services Private Limited (K-12 Techno) piqued our interest. What caught our eye specifically was the reported 50:50 partnership between the two companies, because it would be the first such deal in edtech history in India.

While Unacademy did not respond to our queries seeking a clarification on the development, a K-12 spokesperson declined to comment on the speculation.

Inc42 has learnt from two separate sources that while talks between the two companies are ongoing, but we are quite a away from even entering advanced discussions. More importantly, both sources claimed that if a deal materialises, it would not be a merger, instead, K-12 Techno would acquire Unacademy. However, the deal is nowhere close to done, as currently the companies only met to initiate talks.

Founded in 2010 by Jai Decosta and Maguluri Srikanth, K-12 Techno operates the chain of Orchids International Schools across India. Besides, the company offers full-stack solutions to educational institutions from curriculum and academic design to technology services, solutions for administrators and teachers as well as for education marketing. Decosta is currently the CEO and managing director at the company.

K-12 Techno would potentially leverage Unacademy to add a B2C test prep to its chain of Orchids International Schools and other B2B edtech services.

The first source, close to Unacademy’s leadership, said that the companies have held talks for the past few weeks, but these discussions have cooled down to some extent in recent days. At the moment, things are moving slowly on this front.

The second source, privy to developments at K-12 Techno, corroborated this claim, and added that K-12 Techno is far from convinced about the value that a potential Unacademy acquisition would add to the business. The source close to K-12 Techno Services claimed the company is yet to identify the profitable verticals and products in Unacademy.

“The first thing you need to know about K-12 is that it is a very profit-driven company. So the first step for K-12 is to understand the economic engine of Unacademy, and the company is yet to arrive at a clear conclusion on this front,” the source close to K-12 Techno Services said.

As per both sources, K-12 Techno is a profitable company on an EBITDA level (INR 100 Cr as of FY24), whereas Unacademy is yet to solve the unit economic challenges that have kept it mired in losses. Despite having higher revenue than K-12 Techno (as of FY23), Gaurav Munjal-led Unacademy is far from profitable (more on this later).

Unacademy K-12 Services

Currently, K-12 Techno runs Orchids International Schools in 19 locations in India for day schooling and five boarding schools. Our source in the company told us that last year, nearly 3,000 students graduated from class X across Orchids’ 20+ facilities in India.

On the other hand, 2015-founded Unacademy is primarily a test prep platform, which has recently expanded to offline or hybrid learning and also operates verticals such as Relevel (job assessment tests), NextLevel (gamified job search), and Graphy (course creation and management).

In June 2022, Unacademy launched Cohesive as a developer-focussed SaaS product, which then pivoted to generative AI content creation in 2023. Most recently, it has launched Unacademy Stars, a 12-week course designed for those looking to become Unacademy teachers, and expanded its language learning app Unacademy Languages for more foreign and Indian languages. Incidentally, Unacademy Languages is operated by Unacademy, Inc, the company’s US-based entity.

Unacademy’s vast product universe is one of the challenges that K-12 is looking to solve, according to sources. There’s a lot that K-12 Techno is less than convinced about. One of the sources added, “Unacademy needs a turnaround because it has huge losses, though the test prep business is said to be making money. K-12 wants to know whether it is making money on online courses or in offline learning, and which courses or verticals in test prep is Unacademy getting the most money from.”

Other hurdles in the way are Unacademy’s negative gross margins, which would not be accretive to K-12 Techno’s EBITDA-positive business. Every company has different verticals and each of these verticals may have varying accounting cycles and revenue recognition processes. “There are other questions too, such as what is the revenue recognition process or how does the company recognise multi-year revenue or revenue collected for future courses where there could be refunds,” according to the first source.

Has Unacademy Fixed Losses?

Over the years, K-12 Techno has raised more than $175 Mn from investors such as Peak XV Partners, Sofina, Navneet Education and others. Incidentally, Unacademy is also backed by Peak XV, but it has raised more than $440 Mn since inception, at a valuation of $3.5 Bn (as of 2021).

From the financial performance (FY23) standpoint, K-12 Techno seems to have utilised the funding raised in a more efficient way.

In FY23, K12 Techno registered INR 382 Cr in revenue with a loss of INR 39 Cr. According to sources, the company almost touched the INR 500 Cr mark in FY24 and a positive EBITDA of INR 100 Cr.

In comparison, Unacademy reported revenue of INR 907 Cr in FY23, with a staggering INR 1,678.1 Cr in net loss. Sources claimed that Unacademy has nearly doubled its revenue in FY24 which is now close to INR 2,000 Cr.

Inc42 could not verify the FY24 numbers as neither company has disclosed its performance.

Late last year, Munjal took to Twitter to announce that Unacademy had slashed its cash burn by 60% in the calendar year 2023. While the online business saw a degrowth of 30%, EBITDA was claimed to have improved by 87%. Munjal also claimed that the Unacademy Centres offline business had 32,000 students in 2023 from 6,000 in 2022.

He also said that the startup’s Graphy vertical was on the verge of achieving profitability, but did not reveal more details about this. But the improved EBITDA performance is certainly linked to the layoffs of over 2,000 employees since the beginning of 2022.

Besides, Unacademy also cut pay for higher management, and many senior-level employees have walked out of the company since late 2023, including:

• Arnab Dutta – Senior Vice President Strategy
• Vivek Sinha – Chief Operating Officer
• Abhyudaya Singh Rana – Chief of Staff, Chief Compliance Officer
• Subramanian Ramachandran – Chief Financial Officer
• Siddharth Manchanda – General Counsel
• Tina Balachandran – Senior Vice President, Talent and Culture
• Sachin Aggarwal – Head Franchisee Business (Offline Centres)
• Karan Shroff – Partner & Chief Operating Officer
• Ashish Arora – Senior Vice President & National Head Academics

Most recently, cofounder Hemesh Singh stepped away from the CTO role and day to day operations to take on an advisory capacity position.

The departures of these key leaders has undoubtedly stymied some of the momentum that Unacademy had achieved during the Covid years, and left the company bereft of the talent that had the institutional knowledge to turn things around.

Edtech’s Trust Deficit

Even so, the work put in over the past decade has created ‘Brand Unacademy’, which still has quite a pull in the market. In the case of Unacademy and K-12 Techno, the strategic match is plain to see.

As our second source added, “Synergistically, Unacademy is a great fit for K-12 Techno. Gaurav Munjal has built a massive brand for test prep, and from it would be a good way for K-12 to extend the revenue pipeline, as the next big step after the tenth or 12th grade is test prep.”

Given the lack of diverse employment opportunities in India, the test prep market continues to be in demand. The recent controversy around NEET results has also shown that there are a lot more problems to be solved in this space.

But then, there are deeper trust issues related to the high-profile meltdown of BYJU’S. And the erosion of trust is very real for those looking to raise funds or find exits. This is now perceived to be an industry-wide problem, especially in matters of revenue recognition.

According to a Bengaluru-based entrepreneur in the test prep space, “Investors want to plug all corporate governance holes after what happened at BYJU’S, which is why everything is delayed from fundraising to other strategic deals. Every disclosure and claim is being minutely examined.”

Besides revenue recognition, cost recognition is another aspect where founders are being pressed for answers. The founder quoted above added, “Two years ago, investors had little reason to suspect that companies are not removing the refund costs from revenue, or whether they are accounting for financing costs properly when offering courses on EMI through lending partners. But now these have become hygiene.”

In many cases, these problems are not just limited to edtech startups. It has become increasingly common to see corporate governance trouble stemming from revenue inflation or GMV inflation, so the trust erosion is pan industry.

Traditional educational institutions and schools — even those offering tech-first solutions — know that trust is paramount and have invested in building that for the long term. Orchids and K-12 have a track record of running schools for nearly 15 years, and while K-12 also relied on VC funding to grow and scale up to some extent, the profit-driven approach has paid off results.

Past M&As in the edtech space such as the $1 Bn BYJU’S-Aakash deal or Vedantu’s $40 Mn acquisition of Deeksha have shown mixed results for acquisitive edtech startups.

A long-drawn ownership battle in Aakash after the acquisition and the fact that loss-making BYJU’S depended heavily on its profits have had a negative impact on the offline coaching giant. Aakash was supposed to be margin accretive for BYJU’S, but the company’s situation has gone from bad to worse and BYJU’S has been accused of mismanaging the business to save its ship.

It’s less clear how Vedantu has leveraged Deeksha, since the edtech startup has remained under the radar relatively speaking, but like others in its space, Vedantu had a massive task of clawing back its way after reporting losses of INR 358 Cr in FY23.

The success — or lack thereof — of such deals often comes down to the entrepreneurial mindset and how it varies between new-age companies and so-called traditional businesses. Bringing these forces together is not an easy task and several acquisitions have failed to have the right impact as a result.

In Unacademy’s case too, we have written about how its acquisitions have not yielded the right outcomes and many of these were culled from the company in the past.

With ten years of operations, investors have shown patience with Unacademy too, now close to its 10th anniversary, but given the improving market for IPOs, this patience is wearing thin. If not in the case of Unacademy then certainly in the case of Swiggy, Ola, OYO and other startups that are of a similar age as the edtech unicorn.

An exit through an acquisition may not have been the vision that Gaurav Munjal harboured when starting the Unacademy journey, but it could well come to that.

From what we were told, it’s not even clear whether a potential deal will cover Unacademy’s entire business or whether it would just be the test prep vertical that would change hands. Sources claimed Unacademy has close to INR 1,600 Cr or $200 Mn in the bank, which offers it a long runway, but having nearly 30 shareholders on the cap table complicates the structuring and the contours of the deal.

After arriving at a decision on the viability of the acquisition deal, there is still the matter of ironing out these final nuances, which could take a few more months. All said, any potential deal is only likely to materialise towards the end of the year.

The post Merger Or Acquisition? Unacademy, K-12 Techno Services And Edtech’s Trust Deficit appeared first on Inc42 Media.

The quick commerce game in India right now is a game of stealing the spotlight. If Blinkit grabbed the attention with its FY24 performance last month, it’s time for Zepto now.

This past week, Zepto was in the spotlight for two very different reasons, which underline the present state of the quick commerce business.

First, the Mumbai-based unicorn grabbed attention with a head-turning $650 Mn round, talks for which are said to be in the final stages. That’s a massive infusion for a three-year-old company, but also speaks volumes about what it takes to grow a quick commerce business, and it’s not just for Zepto, mind you.

Second, an ice cream delivered by Zepto to a Mumbai customer was found to be contaminated with a human finger. The social media meme fest aside — and there were plenty of them — the issue highlighted that scaling up rapidly comes with some serious challenges that also have to be addressed by Zepto, Blinkit, Swiggy and other players.

So this Sunday, let’s take a look at the other side of the quick commerce boom. After a brief detour into these top stories from our newsroom this week:

• Kenko In Catch-22: The Peak XV-backed startup is staring at an uncertain future and a potential shut down over an investor deadlock and has even laid off more employees in 2024
• The Sherpa’s View: The former NITI Aayog CEO and current G20 Sherpa for India, Amitabh Kant is bullish about the future of Indian tech particularly given the focus on semiconductor industry, EVs and green energy
• Introducing The D2C Retreat: Inc42 is launching The D2C Retreat, an exclusive 3-day ‘unconference’ bringing together India’s top D2C and retail leaders to drive innovation in Indian retail

Quick Commerce Fuel Guzzlers

By now, there can be no argument that creating and sustaining a large consumer business in India takes plenty of capital. If and when its latest round materialises, Zepto would have raised nearly $1.2 Bn since inception in 2021.

The latest round, which brings in CRED-backer DST Global and Lightspeed, would see the company valued at close to $3.5 Bn, thrusting it into the upper echelons of India’s unicorn club. This is after three full years of operations, one of the most unique journeys in the Indian startup ecosystem for sure.

The fact that Zepto reached a revenue base of INR 2000 Cr+ in its second full year in FY23, which is well higher than many other unicorns shows the massive momentum behind the company and quick commerce. For context, Blinkit only reached that mark in FY24, one year later, despite being around since 2013 as Grofers before pivoting to quick commerce in December 2021.

But what Zepto’s story also shows is how expensive it is to run a quick commerce business. The company has only got here after raising more than $580 Mn thus far, and the next leg of the journey will take more than that.

It’s not just Zepto of course. Zomato is investing INR 300 Cr ($38 Mn) in Blinkit over the next few weeks. The company has invested INR 2,300 Cr ($290 Mn) in Blinkit since the acquisition in August 2022.

Swiggy is looking at an IPO in the next year or so, and is said to be in talks to raise fresh funding before the potential public listing. Swiggy was the first to enter the quick commerce space with Instamart and is expected to close FY24 with revenue of over INR 5K Cr.

Zomato’s infusion comes as ecommerce giant Flipkart and JioMart are set to foray into the quick commerce space. Moreover, Blinkit plans to double its store count in 2024, which would require plenty of capital as well.

Similarly, Zepto is likely to make a major push in terms of adding more locations and expanding the delivery network. The quick commerce platform has added multiple additional revenue streams in addition to commissions from orders to improve its bottom line.

Where’s Zepto Heading?

As cofounder and CEO Aadit Palicha has said several times since last year, Zepto’s advantage is its singular focus on executing the quick commerce model. In terms of revenue, it has worked well at least as far as FY23 is concerned.

Plus, in FY24, Zepto shored up its bottom line further with the introduction of platform fees, handling charges, surge fee and a separate “cart fee” for orders below INR 100. It also unveiled a new membership programme Zepto Pass, starting at INR 99 a month, for select users.

For FY24, the numbers are likely to be significantly higher. Reports in the past said the company claims to be on track to turn EBITDA positive by end of Q2 FY25 with over INR 10,000 Cr in gross order value or GOV.

Even as Zepto pushes for growth, a portion of the new funds are also likely to go towards fulfilling tax obligations for a potential reverse flip from Singapore to India. The startup is said to be close to redomiciling to India and also has eyes on a public listing by 2026.

In Zepto’s corner is the fact that none of its major rivals currently have focussed on building up private labels, whereas the Mumbai-based company launched meat brand Relish in late 2023. Relish is reportedly clocking INR 150 Cr in annual recurring revenue and can be INR 1,000 Cr standalone business by the time Zepto plans its IPO in 2026.

Dark Store Hurdles

Growing competitive intensity is also likely to push Zepto, Blinkit and Swiggy to spend more to acquire users, and it would also complicate expansion plans as more platforms fight for dark store and warehousing space.

And it’s looking increasingly like authorities and consumer protection bodies are looking to take a fine-tooth comb to quick commerce operations.

In this light, the Zepto ice cream incident from this past week makes for bad reading. The company has not officially responded to the incident, but there have been questions about whether quick commerce platforms have their eye on quality of products, expiry dates and hygiene of perishable goods.

While grocery was the primary focus for a long time, platforms are rapidly updating their warehouse and dark store layouts to accommodate new product categories, larger appliances and other products.

At the same time, they are pushing hard to bring D2C brands on board. Quick commerce has given a new meaning to the fast moving consumer goods segment, where products tend to get sold out every day.

In fact, many of these D2C brands themselves are pushing to scale up and quality control issues trickle down to quick commerce quickly. Brands — particularly food and beauty brands — realise that quick commerce is a major channel for them and as a result, they are accelerating manufacturing to meet the demands of these channels.

Besides Zepto, in early June, the Telangana food safety department raided a Blinkit warehouse and found the premises to be “disorganised, unhygienic and dusty”. The department also seized edible items worth INR 82,000 from the premises, which either did not comply with food safety norms or had expired licence.

The Central Consumer Protection Authority (CCPA) had reportedly asked quick commerce players Blinkit, Swiggy Instamart, Zepto and Big Basket (BB Now) to prove their ‘10 minute’ delivery claims. Many of these platforms don’t actually deliver in 10 minutes, though the advertising hinges around this promise.

In the past, we have seen government bodies crack down on ecommerce platforms for counterfeit goods, fake orders, delivery fraud and most recently, predatory pricing and brand or seller bias. Will this focus on cleaning up the online shopping journey trickle down to quick commerce as well?

For now, Zepto, Blinkit, Swiggy Instamart and BBNow might not be under the scanner in a major way, but will the rising competition force companies to cut corners when scaling up?

Will Competition Throw Zepto Off?

No matter how we look at it, Zepto has actually managed to disrupt players such as Zomato-owned Blinkit and Swiggy’s Instamart which should ideally have made the most of their existing scale when quick commerce emerged as a category in 2020.

The company saw that grocery by itself would outpace food delivery, and the mixed focus of Zomato and Swiggy allowed Zepto to come out of the left field.

To be clear, Swiggy and Zomato have the larger network in India till now, but Zepto still continues to enjoy the unique advantage of singular focus over its rivals.

The three-horse quick commerce race is about to change though with the entry of Flipkart and Reliance JioMart, as well as the growing reliance of BigBasket on quick commerce.

The Tata-owned platform has replaced slotted deliveries with BBNow, modelled after Instamart, Blinkit and Zepto, and is pumping in serious marketing dollars to grow its customer base.

Mukesh Ambani-led Reliance Industries Ltd (RIL) is reported to be close to launching its own quick commerce operations through JioMart after taking a punt earlier and pulling out. Reliance is looking to deliver groceries in select cities in under 30 minutes and is likely to ramp up operations by next year.

JioMart will tap into Reliance Retail’s network of over 18,000 stores across the country. That kind of scale would allow JioMart to potentially catapult the existing group of quick commerce apps, Blinkit, Swiggy’s Instamart and Zepto as well as Tata-owned BigBasket and Flipkart.

Flipkart is fresh with funds from Google and majority stakeholder Walmart and is also likely to make a major push for grocery delivery, where Blinkit, Zepto and Swiggy have created a precedent on how to make this work.

Can Zepto continue to bank on its execution and singular focus on quick commerce to succeed in a market, where it not only has to fight off Blinkit and Swiggy, but also giants such as Reliance and Flipkart?

Sunday Roundup: Startup Funding, Tech Stocks & More  

• This past week, startups cumulatively bagged funding of $201 Mn across 21 deals, with Battery Smart’s $65 Mn round making the bulk of this tally
• Nykaa expects its fashion business to only become EBITDA positive by FY26, or nearly two years from now. How will the markets react to this timeline? 

• The NCLT has directed BYJU’S to maintain status quo with regard to existing shareholders and their shareholding, effectively putting a halt to its $200 Mn rights issue
• Data from recruitment firms points towards a declining trend in salaries for key edtech roles, with annual pay falling by almost 50% compared to the highs of 2021
• Times Internet has reaped at least $1 Bn from selling its multiple digital properties since 2022, with ET Money’s $44 Mn deal being the most recent example

The post Zepto’s Turn In The Spotlight appeared first on Inc42 Media.

For Mumbai-based Kenko Health, the future was always about insurance. The founders — Aniruddha Sen and Dhiraj Goel — launched Kenko Health in 2019 after spending more than two decades collectively in the sector.

The idea was to make health insurance more affordable and healthcare more accessible through deeper insurance penetration. But without an insurance licence from the Insurance Regulatory and Development Authority (IRDA), Kenko’s go-to-market strategy was built around a quasi-insurance model.

But the goal was always insurance. And given the background of the founders and the large value creation opportunity in insurance, Kenko attracted the attention of major investors.

By early 2022, it had already raised more than $13 Mn from Peak XV Partners, Beenext, Orios Venture Partners, angel fund Waveform Ventures, accelerator 9 Unicorns and the likes of Jupiter cofounder Jitendra Gupta, CRED founder Kunal Shah, Pine Labs CEO Amrish Rau as angel investors.

Buoyed by this capital, Kenko seemed to have cracked the revenue model for its subscription-based health plans for consumers. This is a quasi-insurance product, which covers outpatient department (OPD) benefits during hospitalisation as well as medicine purchases.

As we see in its official filings, Kenko’s revenue grew from roughly INR 5 Cr in FY22 to INR 85 Cr in FY23 (17X growth), even though the net loss almost tripled to INR 68 Cr from INR 24 Cr in the previous year. But given that this was just the third full fiscal year in its lifetime, there were encouraging signs of growth.

In fact, things couldn’t have looked better for the company when it was about to raise close to INR 220 Cr ($27 Mn+) in June 2023 from Healthquad, B Capital, Bertelsmann and other large institutional funds as indicated by its regulatory filings. Armed with this, the startup was hoping to clear the capital requirements threshold for insurance.

But this is also where things came undone for Kenko — not only did the Series B not go through, but Kenko is left in a difficult Catch-22 position.

Right now, the insurance goal is looking more and more out of reach for Kenko, according to sources close to the shareholder group and the founders of the company.

Insurance Hurdles Derail Kenko

“Kenko approached IRDA and the regulator was of the opinion that while any company is free to raise capital from VCs, the easiest path to a licence is having an Indian entity with domestic capital as the lead investor. We were told that the insurance regulator was very specific in asking for domestic capital backing new insurance players,” one source close to the investor group told Inc42 last month.

But discussions between the management and the existing shareholders have resulted in discord, Inc42 has learnt over the past two months.

In particular, some shareholders are displeased with the restructuring proposal, which they believe leaves them with very little value for the capital already invested.

It must be noted that Peak XV Partners (investing as Sequoia Capital India & Southeast Asia) is Kenko’s lead external shareholder having led its Series A round. Peak XV is followed by Orios Venture Partners and Beenext in terms of shareholding.

Inc42 sent questions to Kenko Health’s cofounders Sen and Goel separately in early May 2024, as well as its existing shareholders. CEO Sen did not respond to our questions sent on email or follow-up text messages.

On the shareholder side, only one investor responded to our questions but declined to comment.

Other sources close to the investor and management group at Kenko spoke to us on the condition of anonymity. And the problem, we were informed, began roughly a year ago when the company had to rethink what investors it brings on.

Having to change its fundraising strategy in the middle of a key round in August 2023 was a major blow for Kenko. It had seen commitments from marquee investors such as B Capital, Healthquad and Bertelsmann and turning them down was never going to be easy.

While there was real confidence about Kenko’s future because of the founders’ pedigree and the revenue growth, even the best of founders cannot adjust as quickly as Sen and Goel had to.

Another source, who has seen the company’s journey closely, added, “Getting a big commitment in the middle of a funding winter was not easy. And then the company had to shift its focus to Indian investors, specially family offices or large corporations. The founders had to tell large VCs and investors to hold on.”

Beyond the need to bring in domestic investors, the corporate structure of Kenko also posed some problems as the insurance business had to be run by a new entity which was created only in 2022, whereas the current operations are handled by the parent company Redkenko Health Tech Private Limited from 2019.

Focus Turns To Domestic Investors

Raising from Indian family offices sounds simple enough — HNIs and family-run corporations are increasingly looking to diversify their portfolio and back startups. In fact, HNIs and family offices are also backing large funds in India as limited partners. So the regulator’s stipulation was not unusual.

Even in a tough market for fundraising, Kenko is said to have seen interest from two large family offices in India. One of them is still in talks with the company on how to proceed. According to the ET report on the state of Kenko, the company had received a term sheet from Hero Group.

Inc42 could not verify whether Hero Group had prepared a term sheet for the investment. However, it is the contours and the structure of this deal that has forced Kenko Health into a Catch-22.

Firstly, the incoming investor has to get the go-ahead from Kenko’s existing shareholders for the proposed new structure. Existing investors have to give approvals to their revised equity holdings.

In this case, Kenko Health had to restructure its entire cap table. Existing shareholders would have had to relinquish some stake in this restructure and dilute equity in favour of any incoming investor.

“Some of the shareholders felt they needed to be either adequately compensated through some kind of returns for backing the startup when it did not have a licence, and others were wary of whether the resultant equity dilution would essentially leave them with a really small piece of the company,” one of the key shareholders in Kenko told Inc42.

Even if shareholders agree prima facie, the specific terms of the deal could become a problem later on as talks advance, added another source close to the group of existing shareholders in the company.

Another source close to the investor group added, “The company has to first get shareholder approval for a new investor. Even if there is a consensus on dilution, there might be differences in terms governing information or anti-dilution rights in the new deal.”

Talks between the founders and representatives of the family office are said to have been going on for months, with no real headway in either direction. Nothing is certain, but if things take a lot of time, the family office may back off, another person close to the company’s management told Inc42.

The Compliance Bar For Investing In Insurance

What complicates the matter more is that Kenko would only be an attractive investment opportunity if it could get the insurance licence.

Getting the regulatory nod depended on a large domestic investor coming in as the lead shareholder. However, even this may not guarantee a licence, and with no such guarantees, this is a risky bet for any incoming investor.

“There was no doubt on the execution side of things. The founders are a perfect fit for insurance but the company needs the licence to prove it. And regulators can reject applications for a number of reasons. Even the likes of Paytm or PhonePe are waiting for an insurer licence,” added the cofounder of a Bengaluru-based insurance tech startup.

To get the general insurance licence, Kenko registered a new entity called Kenko General Insurance Limited in May 2022. One of the requirements for an insurer licence is that the entity has to clearly state the word ‘insurance’ in its registered name. The new corporate entity would essentially carry out the business of insurance for the Kenko group.

While it was the holding company Redkenko Health Tech Private Limited that raised the funds till date, any new capital was set to be invested towards the insurance play.

Under the restructuring proposed by founders, existing shareholders would be given shares in Kenko General Insurance Limited in lieu of their shares in Redkenko Health Tech Private Limited, the current main entity.

There are of course other eligibility criteria for prospective insurance companies, including capital requirement of between INR 100 Cr and INR 200 Cr depending on the segment and insurance model.

Perhaps the most critical eligibility requirements are to do with the shareholding of the investors and promoters.

While 100% FDI is allowed in the insurance space, there are a number of restrictions on how much shareholding each investor can have, and this changes depending on the number of insurers these investors have invested in, as per the updated regulations as of December 2022.

To steer clear of the hurdles posed by these restrictions, companies applying for an insurance licence are often advised to have a clear domestic lead investor as well as significant equity holding for the promoter group — in this case, founders and the lead investor.

Further, companies that have been rejected by IRDA have to wait between two and five years before reapplying for a licence. Plus, in certain cases, reapplication is not allowed if the licence bid is rejected.

So Kenko could not afford to rush the deal and slip up in any manner when it comes to the eligibility criteria.  Given IRDA’s requirements, in many ways, restructuring at Kenko is being forced due to regulatory reasons. The founders have very little room to manoeuvre in this non-bargainable position.

Massive Opportunity Waiting To Be Unlocked

The best option for the founders was getting Kenko Health’s various investors on the same page about dilution, but this is proving to be difficult. Three out of the five institutional shareholders in the company are against the proposed restructuring, while several other investors seem to be on-board.

An existing shareholder, who was not completely in favour of the deal, told us on the condition of anonymity, “We have been open to any new investment in the company, subject to the offer being fair to all parties, non-discriminatory & consistent with the terms of shareholder agreements.”

So what has led to the disagreements and is the deal proposed by the company to existing shareholders and the incoming investor unfair?

“As far as the deal proposed by the company under the new structure, up to 75% of the equity would be held by the incoming investor, the founders would have a large enough single-digit stake, while other existing investors would see dilution from their current positions. In some cases, they would end up seeing their stake reduced by 4X or 5X,” claimed another source close to the existing investor group.

The problem, of course, is that such a dilution would give many existing investors a smaller piece of the company, albeit one that could potentially become much larger than Kenko Health in its current state.

One investor who has assessed Kenko in the past year said that most VC funds would rather have a small stake in a large company with an insurance licence, rather than a large piece of a company that had very limited prospects without this licence.

“Typically speaking, in the insurance business, given the low penetration in India, valuations tend to be higher than other fintech segments. There’s also a bigger IPO opportunity for investors with a registered insurance company than for a healthtech company that is quasi-insurance like Kenko right now,” we were told.

An insurance licence is only handed out on the condition that investor and promoter shares stay locked in for a period of at least years since the time of IRDA registration. It is only during a public issue that insurance companies can suspend the staggered lock-in periods for investors and promoters.

So the IPO opportunity is in fact critical for investors in the insurance space if they are to see returns before the lock-in period.

However, the potential for things to go wrong in the meanwhile is one of the reasons that some existing investors are wary of restructuring the cap table. For one, there’s no guarantee of an insurance licence even if the shareholding is resolved.

That’s not to say that all existing investors are opposed to the proposed changes.

According to one source close to a fund that has backed Kenko, “The vision from the beginning was around insurance and these are the realities of working in the insurance business. Yes, there is an equity dilution, but the deal is fair if you look at the long-term value.”

Kenko’s Future Uninsured

At the moment, however, there is no certainty of any deal materialising. The founders are still in talks with domestic family offices for a deal that works for all parties involved.

If these talks fail to materialise into an investment, Kenko Health has to swallow a bitter pill. The company laid off 20% of its workforce in August 2023, just after its bid to raise INR 220 Cr from foreign VCs failed due to potential regulatory hurdles.

Soon after that Kenko Health raised INR 10 Cr in venture debt from Blacksoil as per regulatory filings. And then in January and February this year, existing investors — Waveform, Peak XV, Orios, Beenext and 9 Unicorns — infused INR 12 Cr in the company as a bridge round, show the company’s filings with the Ministry of Corporate Affairs.

Without the insurance licence in place, Kenko’s future rests on how sustainably it can scale up its health plan subscription play, if it chooses to stay operational.

Sources indicate that another round of layoffs is underway at Kenko. This is because Kenko has to save costs to repay debt obligations as well as pending employee costs and other operational expenses for its current business in FY24.

Employees have taken to LinkedIn to raise concerns about unpaid dues after being laid off in April 2024. Customers are claiming that the company has withheld reimbursements for OPD costs incurred while their plans were active.

Kenko did not respond to our questions about these dues to customers or its former employees.

While the revenue growth in FY23 is encouraging, the company’s biggest expenses are insurance costs, benefit payouts and employee benefit costs. It spent INR 42 Cr, INR 37 Cr and INR 35 Cr respectively in this regard. The layoffs in 2023 would have reduced the employee benefit costs in FY24, but the other two costs are directly linked to revenue growth, and cutting them would mean taking a bath on overall growth.

In other words, while Kenko set out to build an insurance business, at the moment, its costs are like a B2C healthcare middleman that works with insurance providers.

As per FY23 filings, the company has over INR 42 Cr in the bank and it looks like Much of this reserve was exhausted during the course of FY24. This can be understood by the fact that the company raised debt from Blacksoil, and got a bridge round in early 2024, as stated above.

Some sources close to the company expressed optimism that a deal may be cracked with the new investor given that the business had good traction with users till FY23. But this optimism is not shared by all close to the company. While some are opposed to the deal, others are left with little to no recourse but to write off the investment if the new deal does not go through.

And in case the startup is unable to resolve this situation, it stands to lose out on all the value it had created in the past four years. So in a sense, Kenko is in a make-or-break situation and the startup has no insurance to fall back on.

The post Kenko Health In Catch-22: Investor Deadlock Puts Insurtech Startup On Thin Ice appeared first on Inc42 Media.

When we caught up with ixigo cofounder Aloke Bajpai in early 2023, the focus had turned away from the company’s first bid to go to the public market.

And now 15 months later, Bajpai and ixigo are once again on the cusp of the IPO. This time around though there’s no hitting the brakes like in 2021.

The ixigo IPO opens tomorrow morning and with this one of the most unique startups in the Indian ecosystem will soon be jostling with listed competition in the stock market.

Unique because ixigo is often called a ‘cockroach startup’. “We have always been a very scrappy and frugal company,” Bajpai told us last year in reference to the cockroach startup moniker, when we dove into ixigo’s playbook for frugal and sustainable growth

And also unique because it is a major milestone in the 18-year journey of a venture funded startup. Not many venture-backed startups have displayed such resilience, survived multiple cycles of recessions and reached profitability like ixigo has done.

So the ixigo story is something different, and that’s the subject this Sunday. But only after a look at these top stories from our newsroom this week:

• The Startup Ecosystem’s Wishlist: Aarin Capital’s partner Mohandas Pai has called on the next Narendra Modi-led government to ease angel tax hurdles and set up an INR 50K Cr fund of funds for startups to take the Startup India vision forward
• Swiggy’s IPO Test: With Swiggy all set to bring in one of the largest IPOs in India for a tech startup, what is the grey market’s view on the valuation and what Swiggy needs to do to win over investors
• Zomato’s Rollercoaster: Despite the high potential for Blinkit, a profitable food delivery business and the ever-growing Hyperpure B2B vertical, Zomato seems to have lost some of its charm in the stock market. So what gives?

ixigo On The IPO Bandwagon

After three startups went for public listings in May, it’s now ixigo’s turn to keep the IPO momentum going in June. Come tomorrow, the ixigo IPO will open for subscription and once again test the appetite of public markets investors for new-age tech stocks.

Given the recent experiences of TBO Tek, Go Digit and Awfis last month, the subscription for ixigo is expected to be healthy, the competition is steep in the travel tech segment. But ixigo’s profitability and its sustainable model are being counted as major advantages despite the competition.

The ixigo IPO comprises a fresh issue of shares worth INR 120 Cr and an offer for sale (OFS) component of 6.67 Cr shares worth INR 620 Cr. The startup has set a price band of INR 88-93 per equity share for its public issue.

At the upper end of the price band, ixigo is expected to raise a total of INR 740 Cr. Out of this, the company has raised over INR 333 Cr from 23 anchor investors at a price of INR 93 per equity share.

Most analysts believe that the competition will be iixgo’s biggest challenge given players such as EaseMyTrip, MakeMyTrip, Yatra, Flipkart-owned Cleartrip, as well as the likes of Paytm, Amazon, PhonePe and others that have travel ticketing verticals.

In fact, travel tech is one of the most competitive spaces in India and the market is still underpenetrated to a large extent given the use of ticketing agents and travel agencies in smaller towns and even large cities for corporate bookings.

This could be a cause for concern according to some analysts, because investors might not move to ixigo as soon as they see the IPO. Many investors have built a robust travel portfolio in the past two years, so this could be one potential hurdle for ixigo, but in all likelihood the IPO will see healthy oversubscription.

“The likes of EaseMyTrip, Yatra, TBO Tek and others might have tapped some of the liquidity of large investors in the past two years, and nobody wants too much exposure to travel given the present geopolitical situation around the world,” says one travel segment analyst with a Big Four firm.

The analyst added that ixigo has a strong moat in the railway ticketing business, which is an untapped market for investors after IRCTC.

Going Beyond The Comfort Zone

As we noted a few weeks ago, the competitive advantage in railway ticketing could become a double-edged sword for ixigo since IRCTC is the platform’s most important partner and also its biggest rival for direct train bookings. In its DRHP, the company highlighted that any variation or termination of its agreement with IRCTC might have an adverse impact on its business.

Train ticketing constitutes almost half of ixigo’s revenue. For the nine months ending December 2023, train ticketing revenue of INR 265 Cr contributed 45.3% to the total ticketing income of INR 585 Cr. ixigo posted a consolidated net profit of INR 65.7 Cr in the first nine months of FY24, up 3X from INR 23.4 Cr in the entire FY23.

At the same time, this is also a moat for ixigo, since its revenue base is higher than EMT or Yatra.

Analysts believe that it might be a good opportunity for investors to subscribe to the IPO from a long-term perspective, and the profitability track record is also very encouraging. But for long-term value creation, ixigo has to compete with majors such as EaseMyTrip, Yatra, MakeMyTrip, Cleartrip and others that focus primarily on flights and hotels.

This will help reduce the company’s high dependence on IRCTC as a partner, which is pretty much the biggest risk for investors, according to analysts.

So while ixigo has largely relied on its railway ticketing business to grow and increase its user base, the same energy has to be brought to the air ticketing, hotels and packages businesses as well.

Given that ixigo’s core target customer in Tier 2 or Tier 3 India is price-sensitive, the company has to spend significantly on customer acquisition. Advertising and sales promotion expenses made up 24% of total revenue as of December 2023, and this is much higher than the 18.6% in FY23

Other risks such as its limited experience of operating as an online ticketing agent also come into play, since ixigo transitioned to ticketing in 2019-20 from being a travel aggregator. It has also expanded into hotel bookings only as recently as 2024, so here too it has limited operating experience.

Will ixigo Go For Acquisitions?

But these risks apply equally to players who are looking to grab market share from ixigo in the train bookings space. At the end of the day, all travel tech players will have to push the accelerator on all key verticals in travel.

For example, ixigo recently launched an AI-powered travel planning and recommendations tool called “ixigo PLAN” for personalised itineraries and destination suggestions, which the company is hoping will target customers in metros and Tier 1 cities.

The company is also building its hotels business from the ground up since late 2023 and launched this recently. So there are some areas where ixigo will clearly need to invest from the proceeds of the IPO. And there could be more acquisitions on the cards as well.

After narrowing down on train and bus bookings as a core business, ixigo acquired Confirmtkt and AbhiBus in 2021. Other players have also gone for inorganic expansion to enter new verticals.

For instance, EaseMyTrip acquired ETrav Tech in April this year to focus on the corporate bookings space as the company looks to diversify its portfolio in the non-air segments.

In 2023, EMT acquired Guideline Travels, TripShope Travel Technologies and Dook Travels, as well as hotel booking marketplace cheQin. This after acquiring Spree Hotels & Real Estate for INR  18.25 Cr in 2021.

It must be noted that EMT was a bootstrapped company when it went public and as a result, it is doing what the likes of ixigo did with VC money in their growth stages.

But it’s also fair to say that ixigo’s competition is also new to some of the key lines of business in travel, and it’s definitely a large enough market for multiple players.

The Cockroach Mentality

India’s travel tech ecosystem is witnessing promising growth and is expected to receive a further boost with the advent of AI-led tools and products. Unlike the ecommerce sector, where there is a duopoly of Amazon and Flipkart, the travel tech segment has plenty of players with high brand visibility and the numbers to back it. At the moment, the market is far from saturated, and this means ixigo and others can grow and thrive without cut-throat competition.

A report by Allied Market Research estimates the global travel tech market to reach $21 Bn by 2032, growing at a CAGR of 8.6% between 2023 and 2032.

The analyst quoted above said there is no shortage of capital in the Indian public markets, and all manner of investors are ready to invest in companies with unique stories and attractive valuations. In both these regards, ixigo scores highly.

The valuation itself has sobered down from the 2021 expectations significantly with the IPO size cut almost in half from three years ago.

But most importantly, ixigo’s story continues to be unique among Indian startups for its steady run of profitability and the clues it leaves behind for startups to solve the growth vs profits dilemma. It’s showing that even cockroaches can get to the stock markets.

Sunday Roundup: Tech Stocks, Startup Funding & More 

• Funding momentum plummeted in the second week of June with $97 Mn raised by Indian startups across 10 deals, 55% lower than the previous week’s tally
• Unacademy cofounder and CTO Hemesh Singh is stepping away from day-to-day operations at the edtech startup and transitioning to an advisory role
• HSBC has cast serious doubts on the future of edtech giant BYJU’S, assigning zero value to Prosus’ nearly 10% stake in the company for which it invested over $500 Mn

• After a marketwide rout on Tuesday, June 4 coinciding with the results of the Indian General Elections, new-age tech stocks rallied back mid-week and most stocks showed an upward movement this week
• As a new government is all set to take power at the centre, startups want lower regulatory and compliance burden and a bigger focus on AI over the next five years
• RBI’s draft guidelines for payment aggregators have sparked concerns among payment majors, particularly in relation to KYC compliance and the bar on direct fund disbursal to vendors

The post ixigo IPO: The ‘Cockroach Startup’ Goes Public appeared first on Inc42 Media.

The Zomato stock has been one of the most intriguing success stories from the 2021 vintage of startups that went for public listings.

After popping on listing, Zomato has typified the investor sentiment when it comes to tech stocks. In the first year of being a public company, the Zomato stock crashed, along with the rest of the market, amid the massive sell-off at the end of 2021 and early 2022. However, this also set the stage for a big comeback.

And Zomato’s comeback did happen, coinciding with the company inching towards profits by around March 2023. We’ve of course covered the ups and downs in detail, but every quarter for the past five quarters, Zomato gathered momentum and became one of the hottest stocks.

The company’s market cap touched the $20 Bn (INR 1.6 Lakh Cr) along the way, and when Zomato ended FY24 with record profits of INR 351 Cr ($40 Mn), it seemed that the stock would continue to climb. But in the weeks since the release of its Q4 results, Zomato has been one of the weakest new-age tech stocks.

After touching an all-time high of INR 207 during the intraday trading on May 13, Zomato closed the trading session on Wednesday (June 6) at INR 183.65. This is a decline of over 11% from the all-time high mark in less than a month. In fact, the stock fell to as low as INR 146.85 during the intraday trading on June 4, when the votes for the Lok Sabha elections were being counted.

However, the stock did manage to rally nearly 7% on June 5 as investors went shopping after the previous day’s crash. But despite the high potential for Blinkit and the possibility of unlocking massive profits there, Zomato’s profitable food delivery business and the ever-growing Hyperpure B2B vertical, Zomato seems to have lost some of its charm.

In fact, even the day after it reported the profits for the full fiscal year FY24, Zomato saw a 6% drop in share price.

At the time it was believed that the company’s less-than-robust performance in the food delivery segment particularly grated investors, many of whom looked to book profits anticipating slower growth in Q1 FY25 (the ongoing quarter).

In its Q4 presentation and earnings call, Zomato stressed that it would also have to invest heavily to scale up Blinkit, which is also being seen as a hurdle in the quick commerce vertical’s bid to reach profitability.

Zomato Stock, But Value Tied To Blinkit 

The rapid growth seen in the quick commerce business has compelled Zomato to double down on Blinkit. It is looking to nearly double its store count by the end of FY25. This aggressive expansion is also likely to have tempered investor expectations around future growth in profits.

While Blinkit did turn adjusted EBITDA positive in Q4, the road to full profitability is still long. And since the Q4 results, a raft of bad signals have come to the market, including the entry of Reliance and Flipkart as stiff competition in quick commerce, possibly spooking many investors.

Mukesh Ambani-led Reliance Industries Ltd (RIL) is reported to be close to launching its own quick commerce operations through JioMart after taking a punt earlier and pulling out.

The conglomerate is looking to deliver groceries in select cities in under 30 minutes and is likely to ramp up operations by next year. Reliance reportedly plans to take it to around 1,000 cities in future, and JioMart will tap into Reliance Retail’s network of over 18,000 stores across the country.

That kind of scale would allow JioMart to potentially catapult the existing group of quick commerce apps — Blinkit, Swiggy’s Instamart and Zepto — and also end the nascent ambitions of Tata-owned BigBasket and Flipkart before they take off.

Flipkart is fresh with funds from Google and majority stakeholder Walmart and is also likely to make a major push for grocery delivery, where Blinkit, Zepto and Swiggy have created well-oiled playbooks.

While the potential threat from Reliance cannot be ignored, the fact is that Blinkit has not yet cleared the doubts in the investor mind by itself. So JioMart only compounds the problems for Blinkit.

Remember, Blinkit is not just a vertical for Zomato, it could soon become larger than food delivery. Analysts such as Bernstein estimate that Blinkit will have larger revenue than food delivery by FY27.

“A lot of the value built into the Zomato stock over the past year is linked to the growth potential for quick commerce, and if Zomato is shedding the gains now, that’s largely because of the potential weakness in the Blinkit narrative,” according to an analyst at a Mumbai-based brokerage that has been covering Zomato since August 2021, a few weeks after the listing.

Patience Needed For New-Age Stocks

Another thing that most analysts told Inc42 is that Zomato is not a stock for the short-term gain chasers. It’s a stock that can have a 2X or 3X growth in the next two years if investors show patience. This seems obvious, but it’s important to have this context when talking about the recent weakness seen in the stock.

Particularly because a lot of new-age investors are joining the market who are more exposed to the power of brands like Zomato or Nykaa or Paytm. Paytm’s woes have become part of memes, but the fact is investors have lost real money and it won’t be the first time that a ‘startup’ stock sees such a meltdown.

“Zomato’s gain in the past year is only half the story. The stock has grown as a direct result of operational efficiency, but this comes at the expense of a large scale. Zomato still needs to show it can continue to bring in profits despite the investment needed for scale which is a matter of a few quarters at least,” the analyst quoted above added.

Investors in the public market cannot expect to see the rocket growth that private market investors and VCs are used to. Assuming that a new-age tech stock will sprout wings is a big mistake made by investors, particularly novice investors, because they may not see threats to business models in the same way as experienced investors who have lived through cycles.

“Tech-first business models are more exposed to the changes in the underlying infrastructure and the internet ecosystem around which they are built. Newer investors don’t have the years of expertise needed to react unpanicked to such changes, one relevant example of which is AI,” the founder of a Bengaluru-based consultancy and auditing firm added.

However, one cannot blame investors alone. Brokerage signals are not all in the Zomato stock’s favour.

Australian brokerage firm Macquarie gave Zomato an ‘underperform’ rating and assigned the stock a price target of INR 96, roughly half of the price Zomato is trading at today.

Macquarie’s view is centred around the competition from Reliance JioMart which has a last-mile logistics arm Grab, and has invested in Dunzo which does have operational history in the quick commerce space.

And given that Swiggy is also likely to be listed within a year, things are not going to be easy for the Deepinder Goyal-led company. Zomato has done the hard yards when it comes to profits, but now it has to drive value for shareholders to retain their long-term faith and that’s an entirely new ballgame.

The post Zomato’s Up-And-Down Ride: Is The Stock Losing Its Charm? appeared first on Inc42 Media.

India is set to get a new government by today evening, whichever way you look at it, as the results of the 2024 General Elections are announced. And if you ask Indian startups, no matter who is in power by June 4, 2024, there is a need to set the right vision for the next five years.

Many believe that the next five years will be the defining years for Indian startups, with some of the biggest startups set to go for public listings and AI changing the product and market dynamics. As such the results of the 2024 Indian elections could well decide the future of Indian startups.

Founders that have been celebrated for years will be put to pre-IPO litmus tests and the fate of some giants hangs in the balance. The government has set 2030 as a target for many key milestones particularly in relation to electric mobility and sustainability, so the next five years will be just as critical as the past ten years, which have been celebrated as the golden age of startups.

So what can the startup ecosystem expect from the next five years? And what should be the new government’s vision which would hold Indian startups in good stead till 2030 and the decade that will come after that

Through conversations with some veterans of the startup ecosystem and venture capitalists that have seen India mature over the years, we are able to bring some clarity to those questions — although there are no definitive answers yet.

Startup Founders In Election Games

A few days ago on May 20, 2024, right in the thick of the 2024 General Elections, a curious development involving some of the biggest Indian startups caught our attention.

Zomato’s Deepinder Goyal, Urban Company’s Abhiraj Bahl, Honasa’s Varun Alagh, EaseMyTrip’s Rikant Pittie, MapmyIndia’s Rohan Verma, Peak XV Partners’ MD Rajan Anandan among others gathered in Delhi, but it was not a tech conference.

Instead, it was a night where these CEOs, venture capitalists and drivers of the tech economy mingled with the leadership of the current ruling party, the Bharatiya Janata Party (BJP), and spoke glowingly about the past ten years for Indian startups

To be fair to the entrepreneurs and CEOs, this was not an endorsement of the current ruling party, but meant to be a celebration of how far the Indian startup ecosystem has come in the past ten years. But the subliminal message was clear, given the timing of the evening, and reportedly some of the founders even endorsed the current government for another term.

With the members of parliament elected by the day’s end and a new government soon to be in place, perhaps this is the right time to understand where startups fall in the political machinery today. And also answer why many entrepreneurs found themselves in the middle of electoral campaigns.

This is not the first startup event that has the government’s support. The Startup Mahakumbh in March, for instance, was bigger and even saw Prime Minister Narendra Modi meet some of the startups on the ground. And the National Startup Day, introduced in 2022, is another example of how the government has directly engaged with startups.

The Indian government’s policies for startups and engagement with the stakeholders is perhaps unique among the large economies of the world. The Startup India programme launched in 2015 and formalised in 2016 is all set to complete a decade. Indeed, Startup India was one of the flagship programmes for the current government during the 2014-2019 tenure, and was given some more impetus in the past five years.

“I have seen the tech industry of the early 2000s and the government did not necessarily promote technology, but rather focussed on traditional economic growth engines. By 2013-14, tech was firmly a growth engine and the last two governments had to capitalise on this movement. This is why we saw the policies that enabled tech such as Startup India and Digital India,” a senior tech founder and investor told Inc42.

The next government will also have a big focus on digital products and services. “They are the future. Every industry will go through the tech transformation so there needs to be an automatic focus on tech policies, especially with AI coming up,” the founder and CEO added.

Indian Startups In The Election Debates

When it comes to the 2024 General Elections campaigns by various parties, that May evening in Delhi was the biggest showcase for startups and how far the tech ecosystem has come. Naturally, given that this happened right in the midst of polls, not everyone was so happy about this subtle endorsement of the BJP by entrepreneurs.

Many on X (Twitter) and social media pointed out that entrepreneurs ought to be neutral in their public stance on elections and focus on the business. The fact that many present on the night — Zomato’s Goyal, EaseMyTrip’s Pitti, MapmyIndia’s Verma and Honasa’s Alagh — run public companies and have a larger responsibility towards neutrality was another point raised by some.

Of course, those on the opposing side to the BJP were not happy that many of the founders did not engage with non-BJP parties on manifesto points, seemingly out of fear, even though founders put forth certain points such as angel tax as being problem areas.

When it comes to the vision for the next five years, there is some indication that the two major parties (and their allies) have some specific plans for the tech and startup ecosystem.

For instance, the manifesto of the Indian National Congress (INC) states that the party, if elected, would abolish angel tax. “We will eliminate “Angel tax” and all other exploitative tax schemes that inhibit investment in new micro, small companies and innovative start-ups,” the INC’s poll manifesto states.

The INC also talks about job-creation push in laggard states. “Congress will restructure the Fund of Funds Scheme for start-ups and allocate 50 per cent of the available fund, as far as possible equally among all districts, for providing funds to youth below 40 years of age to start their own businesses and generate employment.”

The Congress also spells out some measures it would potentially implement to improve ease of doing business such as ensuring adequate sharing of resources needed by entrepreneurs. “We will remove the current environment of distrust and fear, and create a healthy ecosystem where private enterprises, regulatory authorities, tax authorities and government will work in a spirit of mutual cooperation and respect.”

The opposition alliance party also says it would focus heavily on green energy and deeptech sectors for future growth. “The challenges of the future include the changes in the global economy, advanced technology such as artificial intelligence, robotics and machine learning, and climate change. The future of our energy is Green Energy. We will mobilise the massive capital required for our green energy transition,” the Congress pre-poll manifesto added.

Now, let’s take a look at what the BJP says about startups in its manifesto.

Given the fact that the previous BJP-led government brought in Startup India, it’s no surprise that the startup ecosystem features on the BJP manifesto for 2024 too. It spoke about four points — Expanding the Startup Ecosystem, Expanding Funding for Startups, Providing Mentorship to Startups, Encouraging Startups in Government Procurement.

“We will expand the existing Startup India Seed Fund Scheme and Startup Credit Guarantee Scheme to ensure adequate funds,” the BJP manifesto says.

The manifesto talks about the impact of the various enablement programmes for startups and how they will be expanded under the next government, if the BJP is reelected to power. The party also says it would encourage new startups in Tier 2 and Tier 3 cities. Besides this, the BJP states that it would promote startups in the sports sector and those building forest-based enterprises.

When it comes to future growth, the BJP manifesto focussed heavily on the space sector and areas such as quantum computing, geospatial data and more. There’s also prominent mention of supporting the electronics and component ecosystem by promoting semiconductor design and manufacturing.

“We will develop a comprehensive ecosystem under the IndiaAI mission, driving AI innovation through collaborative strategic programs and partnerships to position Bharat as a global leader in AI innovation and build domestic capacities to ensure tech sovereignty,” ruling party BJP says in the manifesto.

It must be remembered that election manifestos don’t always materialise. But the fact is that both the major parties have looked to focus on startups, technology and emerging industries when it comes to job creation and economic growth.

One could argue that the BJP is more direct about the areas it wants to target, and indeed, startups have been a more clear focus of the BJP-led governments of the past two terms. However, there’s little in the manifestos beyond continuing that vision, nothing that talks about what Indian startups need in 2024.

“It can be said that neither of the manifestos focus on specifics on enabling the next phase of growth for Indian startups. The vision is there, broadly speaking, but specific action points are missing. Many founders might prefer the current government because of the track record of supporting startups,” says a Delhi-based partner of a noted VC firm.

Focus On The New Era For Indian Startups

Of course, the fact that the Indian startup ecosystem has flourished in the past eight to nine years is a testament to the entrepreneurial spirit of Indians, even though a lot of credit is due to the startup-specific policies brought in since 2015, and frameworks that have eased new venture creation.

We have written extensively about how Startup India has fuelled entrepreneurship and encouraged investments into Indian startups, but others believes that this is a pivotal time for Indian startups and tech. One could argue that just focussing on how things have improved might be missing the point a bit.

Action is also needed on several other fronts from whoever wins the 2024 General Elections. There’s a need to remove the fear of regulations in key startup sectors, the need to secure the future of Indian businesses and people with climate resilience action, the need to boost semiconductor manufacturing, the need to build IPs in AI, next-gen software development, robotics, and a lot more, with specific policy that will attract the big investments for Indian startups.

“It can’t be argued that startups have not grown, but now, the new government needs to focus on new areas and look at incubators and accelerators for domain-specific growth. If we are serious about AI, semiconductors and robotics then we need to show this through action and dedicated projects. Space tech is a good example of how to make this happen,” the managing director of a marquee VC fund pointed out.

The government made a bridge between spacetech startups and government-backed organisations such as ISRO. A similar backing was seen for fintech applications with the RBI sandbox and digital public goods.

The future of Indian tech is ultimately not going to be determined by government or policies of the past or simply sticking to what worked. The maturing and profitable business models of Zomato, Honasa, Urban Company and others in the past year show that past government action has resulted in the right outcomes. Now it’s time to enable different kinds of startups.

“When it comes to AI, data protection, semiconductors and deeptech, a more firm course of action is needed. India has a rich history of R&D in science, biotech, pharma and all areas that will be changed by technology and AI in the next few years, but this is lost because we cannot compete when it comes to commercialisation like the West. This needs to change,” said a managing partner of a Mumbai-based VC firm.

It’s true that government support has created the right conditions for some of these startups to thrive in the past eight years, but that was an India which was waiting for the consumer base, where internet access was limited and where startups were a fairly new idea.

Now the focus needs to turn on the gaps that do exist, and here simply, relying on past laurels may not be enough.

Startup India was a tech policy for the 2015 era, but this is a new generation of tech. Time for the next central government to look at what Indian tech and startups need for 2024 and beyond.

The post Elections 2024: The ‘Startup India’ Vision For The Next Five Years appeared first on Inc42 Media.

One app to rule them all: that’s the fintech story in India over the past couple of years. And now Jio Financial Services (JFS) is ready to show off its own super app.

With the launch of the ‘JioFinance’ app, JFS is looking to integrate digital banking, UPI, bill payments, and insurance advisory in one app, and the company is also adding digital lending and an investments platform to the mix.

Even though it is in the beta phase at the moment, JioFinance is going to be a major headache for the competition due to Reliance’s vast network of retail stores and its various SME partners. If Jio 4G was a key growth factor for fintech apps (Paytm, PhonePe, Google Pay et al), JioFinance threatens to eat their lunch.

So, how does Jio’s entry change things for these startups and companies that have defined fintech in India till now? This is what we will look to answer this Sunday but after a look at the top stories from our newsroom over this past week, incidentally featuring two of JioFinance’s big rivals:

• • Into The CREDverse: Super apps are a strong theme in the fintech world and CRED exemplifies this movement with its acquisition-led platform play. A deep dive into how the platform has expanded in the past year.
  • Paytm’s Lost Merchant Magic: Paytm took the super app route for merchant services and it paid off massively till 2024, but now this vertical is reeling under operational challenges and compliance lapses. Can the fintech giant bounce back?
  • The ‘30 Startups’ Spotlight: Going from scaled up giants to early-stage innovators — a look at the May edition of our coveted list of the most innovative startups in India that are cracking PMF and gaining traction.

Jio Goes The Paytm Way

Jio’s strategy of having products in key verticals is similar to Paytm’s playbook, right down to the payments bank licence. JioFinance app’s key features on debut include digital banking centred around the Jio Payments Bank as well as insurance broking and secured loans against mutual funds.

“Our end goal is to simplify everything related to finance in a single platform for any user across all demographics, with a comprehensive suite of offerings like lending, investment, insurance, payments and transactions and make financial services more transparent, affordable and intuitive,” a JFS statement said.

The payments bank account is likely to sit at the centre of the super app platform, just as Paytm Payments Bank did for Paytm till February 2024 before the RBI action against the bank, and the subsequent changes in Paytm’s backend banking partnerships for lending and payments.

Till the RBI action, most analysts saw the payments bank licence as a major competitive advantage for Paytm. It also enabled the payments app to offer faster transaction times and lower failure rates.

The same advantage will be critical for JioFinance to stand out among a sea of payments apps today. JFS also plans to include secured lending products such as loans against mutual fund investments and home loans in the future. Besides this, it plans to enter the mutual fund business through the JV signed with BlackRock.

During the Q4 FY24 post-earnings call with analysts, JFS managing director and CEO Hitesh Kumar Sethia said, “In the past quarter, the [payments] bank has revamped its digital savings account offerings and also launched virtual debit cards leading to a rapid increase in the number of customers acquired. In the coming quarters, we expect to ramp up our business correspondent touch points to facilitate further growth.”

But given the current market, the payments play will be the central large funnel through which Jio Financial Services acquires users for other services. JFS’ go-to-market strategy will be critical given the competition.

The Fintech Super App Field

While most large fintech companies have gone the super app way, their GTM strategy has differed.

Paytm relied heavily on acquiring digital payment consumers at a very early stage with its wallet business and built inroads into other services including UPI. Till very recently, in fact, UPI was not a big focus for Paytm given how much more profitable the wallet business is and the better terms for merchant discount rates on wallets compared to UPI.

Google Pay and PhonePe used Paytm’s example and doubled down on customer acquisition as well, before slowly adding more and more pieces to their platforms. PhonePe’s entry into the secured lending space, announced this week, is an example of how the Bengaluru-based decacorn is building a larger fintech empire leveraging its lead in UPI.

BharatPe took the B2B route and is now slowly adding B2C products to its mix. BharatPe’s JV for the Unity Small Finance Bank is another competitive advantage for the Peak XV Partners-backed company.

CRED started by tapping the creditworthy creamy layer of the urban population and built on that with more products, while Groww built a sizable lead in the investments space before jumping into lending and payments.

Zerodha which has the second largest active investor base after Groww is another formidable competitor for JFS in the investments space.

Each of these companies is also looking at payment aggregator licences to build further products that help them own a bigger piece of the digital financial services value chain. Jio too has a PA licence which will be leveraged for its B2B verticals.

While the super app field is growing wide, and rightly so given the untapped depth in the market, these specific GTM strategies indicate that owning a single niche is vital. This forms the spine against which the other parts can be added.

What strategy will Jio Financial Services and JioFinance rely on? And how will the fintech platform look to tackle the scale of existing players in each of these verticals? How will the larger Reliance universe link to JFS?

The Jio Financial Services Advantage

By all indications, JFS is more focussed on the wealth management opportunity. The JV with BlackRock has been expanded to cover wealth management and broking, in addition to the asset management.

The strategy questions will be more important for Jio to answer because it is already on course to raise funds and is expected to garner plenty of interest from institutional investors, sovereign funds and private equity giants.

The company is also looking to raise the limit of foreign investment in its equity capital up to 49%, for which it has sought a shareholder nod. JFS’ formation as part of a demerger from Reliance Industries in mid-2023 meant it was already a heavily capitalised business, but its new platform push will require further fresh infusion.

Remember the Jio Platforms funding spree in 2020, and then a similar run for Reliance Retail in 2023? It’s time for Jio Financial Services to be the next big Reliance bet.

Besides investments in the JV with BlackRock, Jio will also use the funds to scale up its merchant business and take on the likes of Paytm which are currently struggling. JFS launched Voice Boxes last year and plans to add to its PoS and devices network in 2024.

Its subsidiary Jio Payment Solutions Limited, which operates the payment aggregator business, will drive the merchants business, and here Jio will also have to fight off Paytm, PhonePe, Google Pay, BharatPe, CRED, Pine Labs and others that have scaled up their PoS businesses.

Not to mention the big investments needed on the consumer side for payments. If Jio hopes to drive scale for its platforms rapidly, it will need to invest heavily on customer and merchant acquisition. The Jio telecom subscriber base of 470 Mn (47+ Cr) users will very likely be JFS’ first target.

Adani Group is also eyeing a fintech super app and has partnered with ICICI Bank for its payments play. The Adani One super app logged INR 750 Cr in sales in FY24, according to reports, the group could leverage ONDC for its ecommerce and payments businesses. Along with Jio, Adani also poses a major threat to the fintech startup ecosystem.

Given the intense competition, Sethia told analysts in April this year that JFS’ advantage can be broken down into three aspects: “Number 1, the Jio brand; number 2, capital; and number 3, customer adjacency from our ecosystem,” he said.

Will these three be enough for the JFS super app? The competition has the deeper fintech experience, and startups such as Paytm, PhonePe, Google Pay, BharatPe, CRED have shown that they rapidly implement new technology and have built tech stacks that can support scale of millions. These are brands in their own rights too and are digitally-native companies that are also investable.

JFS will definitely have the pedigree of Reliance and the Jio brand and even the capital, but fintech is proving to be more than that. Can Jio Financial Services step up?

Sunday Roundup: Tech Stocks, Startup Funding & More

• Indian startups raised more than $217 Mn across 31 deals, this past week, a massive 273% week-on-week jump, taking the May 2024 tally to just over $650 Mn. Stay tuned for our full report
• Coworking space provider Awfis made a strong market debut this week, with its shares listing at a substantial premium of 12.8% on the BSE

• Online travel aggregator Yatra slipped into losses in FY24, just like software development company Yudiz, which reported a loss of INR 2.9 Cr
• On the other hand, recently listed B2B travel portal TBO Tek posted a 64% jump in profit at INR 46.4 Cr for Q4 FY24
• Paytm CHRO Swati Rustagi has quit the company, adding to the recent leadership exodus as the fintech company goes through a reorganisation

The post The Jio Threat To Fintech Startups appeared first on Inc42 Media.

Many have celebrated Zomato’s rise to profitability, and how it has managed to stay there over the course of four quarters. But the same credit is due to Mamaearth and Honasa.

After reporting profits in the last three quarters, the company ended FY24 with profits of INR 110.52 Cr, a big turnaround from the INR 150.96 Cr loss of FY23.

So what exactly propelled Mamaearth and Honasa towards this major milestone? And has Honasa cracked the house of brands model to finally realise the promise of this model?

That’s what we will look at but after these top stories from our newsroom this week:

• Paytm’s Big Test: After reporting 3X higher year-on-year losses in Q4FY24, Paytm is on the ropes, but it has a plan to get out of its current financial turmoil. Can Vijay Shekhar Sharma turn things around?
• Tira’s Next Phase: As competition intensifies in the beauty segment — not least from Honasa — Reliance-backed Tira is banking on unique value propositions through its private labels. Is it enough to fight off rivals?
• ixigo On The IPO Trail: With the startup IPO season in full bloom, ixigo is waiting in line to join the bourses. Does it have enough of an edge over the travel tech competitors?

What Worked For Honasa?

Honasa started out in 2016 with Mamaearth and an eye on making the most of the direct-to-consumer ecommerce wave that was about to kick off. For the first four years, it was largely an online-only brand, till the Covid-19 pandemic when it began looking at retail outlets as a way to be closer to consumers.

While ecommerce boomed and flourished after the initial days of the lockdown, Mamaearth focussed heavily on the omnichannel model expanding to 10K stores by the second half of 2020 and with an eye on long-term brand building. In fact, this helped Mamaearth establish itself as a new-age alternative to traditional FMCG brands in the beauty, skincare and personal care segments.

In fact, in FY24, the company made nearly 35% of its revenue from offline sales, and a bulk of this has come from general trade retail outlets, which shows that Mamaearth positioned itself not as a premium product but targetted mass availability.

But it was also during this time, the company even acquired other large brands with affinity to beauty and personal care, that have helped it have a good mix of premium and mass products. We will look at how these acquisitions have proved critical later, but it is the omnichannel distribution that has also become one of Honasa’s key strengths over the years.

One D2C founder told us that while everyone was talking about omnichannel in 2021 and 2022, it takes years to establish the distribution network that has paid off for Honasa in FY24.

In FY24, Honasa also began a transition journey by eliminating super stockists from its supply chains and going to direct distributors. This eliminated a big cost and allowed the company to walk towards profits. The direct distributor model is active in Honasa’s top 10 cities by sales and is expected to be adopted across its key markets.

While there was an impact in terms of sales growth in Q4FY24 due to inventory reduction and supply chain recalibration, the company expects to recoup in the quarter ahead, according to its analyst call post the earnings. Next on the cards is broader expansion of offline retail presence, and that means taking what worked for Mamaearth and taking it to other brands.

Honasa’s House Of Brands: Looking Beyond Mamaearth

As we mentioned, soon after the funding peak of 2021, Honasa acquired two major brands. First there was Mumbai-based BBlunt from Godrej Consumer Products and then Dr Sheth’s, a dermatologist-formulated premium skincare brand. Honasa also acquired a health content platform Momspresso, which was subsequently shut down due to inefficiency in scaling.

It also invested in building Aqualogica, Ayuga and The Derma Co as standalone brands, and most recently launched Staze 9to9. In May, the company also acquired Cosmogenesis Laboratories, a research-led cosmetics development company.

These brands and their individual product lines and positioning has been key for Honasa. The company identified a premium gap in its lineup and launched new products under differentiated brands. The acquisition of BBlunt gave it a strong channel for beauty products, while Dr Sheth’s expertise allowed it to explore new-age formulations.

Ayuga targetted the trend of ayurvedic and herbal products in BPC, while Aqualogica created a water-based patented formulation. These are significant investments that take time to gather momentum and in FY24, some of this seems to have paid off.

In FY24, The Derma Co scaled to an annual recurring revenue (ARR) of INR 500 Cr and is now expected to touch an ARR of INR 1,000 Cr within 3-5 years.Honasa is now focusing on rolling out The Derma Co in offline channels through the more upmarket modern trade stores and chemists.

Similar growth projections are also anticipated for its other brands Aqualogica and Dr. Sheth’s, which are expected to have ARR of INR 500 Cr as well as BBlunt, which is expected to touch INR 250 Cr in the same time frame.

CFO Ramanpreet Sohi told analysts that the company sees 20%+ revenue CAGR in the next three years, with Mamaearth’s growth expected to be in the double-digit figures and other brands driving a significant part of the growth.

The company is quite certain that investments in new product development have worked out. New products contributed 18% to sales in FY24. Cofounder Ghazal Alagh told analysts that product innovation is a key driver of growth and will contribute over 50% to the incremental revenue in FY25 and ahead.

Honasa’s Place In The Beauty Landscape

While it’s clear that Honasa has the momentum of the past couple of years behind it, the company is set to experience increased competitive intensity in the online space with conglomerates targeting the beauty category and individual brands growing large.

The former of the two can splurge on discounts, while the latter can have the product edge in the long run, if Mamaearth fails to identify emerging trends. Analysts were clearly told that Honasa is not focussing on categories outside beauty and personal care (say, home care or lifestyle accessories for example) and it is also not looking at mass categories within BPC. Skin care is the largest segment for Honasa (accounts for 60% of the topline) and is the fastest growing category, followed by hair care, colour cosmetics and baby care.

Honasa wants its brand to be aspirational in nature and focus on retail where typically there is higher per-capita spending on beauty and personal care, but brokerages such as Kotak Securities believe that quick commerce will be a key for higher margins for Mamaearth in the long run.

These are all highly competitive areas with the likes of Tira and Nykaa investing in private labels and offline penetration. The growth seen by the likes of The Minimalist, Nat Habit, Pilgrim, The Beauty Co, Plum and others and the entry of new brands such as Gabit will also test Honasa in the long run. Many of these are also using Honasa’s playbook to expand offline.

The heavy reliance on Mamaearth as a brand is also a worrying factor for the group. Even at the time of its IPO, the Mamaearth factor was seen as a weakness in Honasa’s house of brands. So going forward, it will be critical for the company to build other brands to Mamaearth’s levels.

In this regard, Honasa will have to continuously invest in brand recall on quick commerce and retail channels. While FY24 showed that Honasa can ring in the profits, the maturing beauty market in India means there is no time to rest.

Sunday Roundup: Tech Stocks, Startup Funding & More

Funding Drops By Half: Week-on-week startup funding saw a major dip as just $58 Mn was raised by Indian startups this past week

Google’s Flipkart Bet: Walmart-owned Flipkart has brought Google on board as a minority investor but has not disclosed the size of the investment

Awfis Awaits Listing: The public issue of coworking space provider Awfis was subscribed 11.4X after bidding closed for the IPO. Will it make a bumper debut on the markets?

Digit’s Lukewarm Debut: A day after listing, Go Digit General Insurance was given a Sell rating by brokerage firm Emkay for its rich valuation and lack of competitive advantage

Blinkit Gets Sporty: Blinkit has added branded sports goods, athleisure wear and gym equipment to its quick commerce cart in a bid to diversify its product mix.

The post Mamaearth’s Makeover appeared first on Inc42 Media.

There’s little doubt that Blinkit has become a rocketship for Zomato in the past year, and we already looked into what’s working for the quick commerce platform earlier this week.

But this Sunday, we wanted to focus on how Zomato became Zomato in the first place. That means food delivery and here, there’s been some discussion about food delivery in India hitting a wall.

The point being made is that outside of the metros and cities, growth for food delivery has been tepid and underwhelming. And that Zomato — and indeed Swiggy — will see slow growth in the near future as a result.

But this may be a bit of an exaggeration. In our opinion, it’s not that Zomato and Swiggy are hitting a wall, but it’s just that the road ahead is not paved. The question is can their existing businesses continue to hold good while they wait.

We’ll look at the food delivery revenue games in light of potentially slow growth, after a look at these stories from our newsroom this week:

• Blinkit Takes Off: After a watershed FY24, Zomato’s quick commerce platform seems to have turned around its story with a huge spike in revenue and a massive market opportunity
• Crypto’s Revival Story: After a decline in 2022 due to three black swan events, Indian crypto startups are now stepping up from recovery to growth phase. What explains this swing in the crypto fortunes?
• IPO Season In Full Swing: it’s the season of Indian startup IPOs once again. Coworking startup Awfis’ public offering is all set for the coming week, following the bumper listing for TBO Tek and great response to Go Digit’s IPO.

Quick Commerce Vs Food Delivery

First, we need to understand why food delivery has seemingly taken a backseat. The answer is closer to home for Zomato and Swiggy than one might expect. It’s quick commerce.

Blinkit, Zepto and Swiggy Instamart have essentially replaced food delivery in the minds of many consumers.

Incidentally, the quick commerce growth has come in the same cities and regions where food delivery has dominated. The overlapping of these two models definitely seems to have had a worse impact on food delivery. After all, an average consumer is more likely to buy groceries twice a week than order in from Swiggy or Zomato twice a week. While food delivery is still considered discretionary spending, groceries are certainly not.

Plus quick commerce use-cases have widened in the past few quarters, making it more indispensable than food delivery in many cases.

In its Q4 FY24 results, Zomato revealed that quarter-on-quarter the food delivery business saw a decline in gross order value (GOV). This was expected because even in the previous fiscal year, Zomato’s Q4 GOV declined compared to Q3, which accounts for the peak business day of New Year’s Eve.

The near-instant availability of ready-to-eat products, coffee, salads and other grocery staples on Blinkit, Swiggy and Zepto has definitely grabbed a share of the consumer’s wallet in the past year.

As a result, Zomato’s food delivery gross order value grew 28% year-on-year (YoY) and declined 0.6% quarter-on-quarter (QoQ), whereas quick commerce GOV almost doubled on a YoY basis and saw a sharp 14% sequential jump.

Swiggy, which is expected to record revenue of over INR 10K Cr in FY24 as per sources, is also seeing greater acceleration on the quick commerce front. In fact, one could even say that quick commerce is changing how these companies are viewing delivery too.

Take for instance, Zomato’s large order food delivery fleet. This can easily be extended for larger orders on Blinkit, a trend that’s already gathering momentum. So in many ways, quick commerce is becoming the new face of delivery startups.

One could even imagine these as small Blinkit kiosks with a fixed inventory of the most purchased products or seasonal products, ready to go to the customer as soon as they place the order. Not too far fetched for Zomato or Blinkit, given recent experiments on both platforms.

Platform Fees Play Their Part

Despite a decline in orders, Zomato has managed to add to its profits significantly in Q4 FY24. Net profit grew 26.8% to INR 175 Cr in the quarter and the company attributed this primarily to higher average order value, improvement in take rate and ad monetisation, introduction of platform fee and cost efficiencies. “Together, these factors more than compensated for the lower customer delivery fee on account of the free delivery benefit on Gold orders”

It’s interesting that Zomato name-drops Gold here because as we see some benefits under Gold have been unbundled by the platform.

Zomato’s priority delivery service is one example of a Gold feature that’s been ported out for the wider consumer base. Of course, Zomato charges a platform fee per order as well, regardless of whether the consumer is a Gold subscriber or not. Depending on the restaurant, there may be a handling fee or a packaging charge as well.

More recently, there’s a surge fee, which has cropped up recently, particularly during peak lunch hours, where we have seen delivery fees as high as 5X a regular order. The fact is that food delivery as a service is much dearer for the average consumer than it was a year ago, and many might argue that it’s a worse experience than takeaways in some cities.

It will be interesting to see where Swiggy stands on these metrics when its FY24 numbers are released. With the Bengaluru-based delivery giant expected to hit the stock markets to take on Zomato later this year, analysts predict that both businesses will be more or less on par in terms of the revenue breakdown and unit economics.

Like its old rival, Swiggy has also relied on platform fees to increase its take rate from every order. Last year, cofounder and CEO Sriharsha Majety mentioned that the company is profitable on the food delivery front after excluding some one-time costs. But we do know that the company stands in losses as of December 2023.

Where Will Growth Come From?

So in light of the discussion of food delivery hitting a wall even as Zomato’s revenue has grown, it could be argued that perhaps the more affluent Indians who continue to use Zomato frequently are not averse to paying a little more.

Zomato says that its monthly transacting customers (MTC) have grown in line with the overall growth in volumes at around 20%.

“We expect that as the business GOV continues to grow 20%+ (which we have guided on), that will likely be a combination of some AOV increase and order volume increase,” Zomato CFO Akshant Goyal claimed in an analyst call this week, adding that most of this growth is going to come from new customers joining the MTC base.

Beyond consumers, revenue growth for food delivery is also highly dependent on the growth in the restaurant business as well. Last quarter, Goyal told analysts that among new restaurants “a large chunk of what we are seeing as new restaurants today are cloud kitchens, at least on our platform”.

This makes sense given that the restaurant space has become highly competitive due to recent capital accumulation by some large players through public listings. This has pushed some of the newer entrants or brands out of retail spaces and into the territory of cloud kitchens. The lack of talent is another recent pain point for the retail restaurant industry.

Cloud kitchens are more important for Zomato because a lot of their spending goes to ads on platforms such as Zomato and Swiggy. Overall, Zomato has added 33% more monthly transacting restaurants in the past year. Creating an ad platform that works is critical for Swiggy and Zomato to keep its flywheel running and attract more restaurant partners.

Swiggy And Zomato’s Parallel Lives

When we talk about food delivery, the challenges and the opportunities are as applicable for Swiggy as they are for Zomato. Even though Zomato and Swiggy seem to be such strong rivals, the companies move in parallel tracks more or less. Zomato all but admitted that in the earnings call with analysts after the Q4 FY24 results.

When asked whether revenue growth for food delivery will come from the consumer side through more fees or restaurant side through ads, CFO Goyal insisted the company does not approach the business in a binary way.

“We think of it more in terms of optimising absolute profits in the business while providing the best experience to customers. And to be able to do that, these answers on economics keep changing. So, there is also an element of competition here and what they are doing and so on.”

The CFO clarified that Zomato doesn’t have a target on each of these line items such as take rates from consumers or ad sales. The goal is about meeting the margins targets.

In the FY24 annual presentation, the company boldly says, “investments in category creation now largely behind us” and talks about the progress in profitability, claiming that EBITDA margins on food delivery would remain around 4%-5% of the GOV in the medium term from the current 3.3%.

It’s taken nearly a decade for Zomato to get to the position where it can talk about margins not just notionally but actually have the numbers to back it.

Growth might be relatively slow compared to previous years, but in a market that is trending towards saturation, the winner is often the one that ekes out the most profit. Now it’s Swiggy’s turn to show its cards.

Sunday Roundup: Tech Stocks, Startup Funding & More

• Startup Funding Drops: Indian startups raised $121.8 Mn across 21 deals this past week, nearly half of what was seen in the week-ago period, and well below the recent weekly average tally
• Delhivery’s New Plans: Delhivery is looking to expand into drone manufacturing and freight air transportation services; after reporting EBITDA profitability in in FY24

• OYO One Step Closer: SoftBank-backed OYO is reportedly preparing to refile the draft papers for its potential IPO as the company is close to finalising its debt refinancing plans
• Zoho Enters The Game: Zoho is reportedly looking to enter the semiconductor space and is seeking approval to get incentives under the PLI scheme for a $700 Mn chip fabrication plant

The post Zomato, Swiggy And The New Shades Of Food Delivery appeared first on Inc42 Media.

Exactly a year ago, we asked if food delivery can solve Zomato’s Blinkit problem — but now after a watershed FY24, the quick commerce platform seems to be the one doing the heavy-lifting for Zomato.

Here’s some perspective: Zomato’s food delivery gross order value grew 28% year-on-year (YoY) and declined 0.6% quarter-on-quarter (QoQ), whereas quick commerce GOV almost doubled on a YoY basis and saw a sharp 14% sequential jump.

While Blinkit’s revenue for the full FY24 was over INR 2,300 Cr, its GOV or gross order value soared 97% year-on-year (YoY) to INR 4,027 Cr in the quarter ended March 2024.

The quick commerce platform clocked revenue of INR 769 Cr in Q4 FY24 as against INR 363 Cr in the year-ago quarter and INR 644 Cr in Q3 FY24. Importantly, Blinkit turned adjusted EBITDA positive in March 2024, right as it exited FY24.

Beyond the numbers, the focus on Blinkit was clear from the fact that Zomato’s now-signature ‘Shareholders’ Letter’ was largely dedicated to the quick commerce vertical. Blinkit cofounder and CEO Albinder Dhindsa and Zomato cofounder and CEO Deepinder Goyal took turns in celebrating the milestones for the platform over the past year.

While Dhindsa spoke about the growing network of stores in key markets, CEO Goyal pointed out that the Blinkit deal was critical for the company, even though it may have seemed like a risky one at the time of acquisition.

“When we acquired Blinkit, we outlined that one of the key reasons to acquire the business was to defend the food delivery business, because a well entrenched quick commerce player could pose an easy threat to the food delivery business in the long term,” Goyal wrote in the letter.

Expanding The Blinkit Network 

Even though Blinkit is a small part of Zomato’s large empire, contributing just under 20% to the total revenue in FY24, this share has grown from 11% in FY23.

Plus, in terms of standalone revenue, its growth outpaced food delivery on a YoY basis as well — 186% YoY growth for Blinkit vs around 40% for the food delivery platform.

A large part of this outsized growth for Blinkit, Dhindsa said, has come due to store expansion strategies. “In Q4FY24, we added 75 net new stores taking our total store count to 526. For comparison, this is more than the number of stores we added in the three preceding quarters cumulatively,” the Blinkit CEO added.

A majority or 80% of the new stores in Q4 FY24 were opened in the top eight cities for the platform, with Delhi NCR seeing the most investments in terms of store expansion. Delhi NCR is also the biggest contributor to Blinkit’s GOV and revenue, and well ahead of the other 25 cities that Blinkit currently has a presence in.

The addition of new stores allows the platform to reach more customers and be more consistent in terms of the product, irrespective of the location the customer is ordering from — this is linked to the baseline service expectations for quick commerce, as Dhindsa further explained in the letter.

The GOV for Bengaluru, Blinkit’s second largest market, is less than 30% of Delhi NCR’s GOV.  The company said that it will look to get Bengaluru and other large cities such as Mumbai and Hyderabad to the same penetration levels as Delhi NCR, both in terms of store footprint and GOV.

Bengaluru, Blinkit’s next big target, is incidentally the home ground for Zomato rival Swiggy. Now, as Blinkit gears up to fight Swiggy Instamart on its home turf, it will certainly add an interesting dimension to this rivalry.

In the ongoing quarter (Q1 FY25), Blinkit is looking to add another 100 stores and reach a base of 1,000 stores by the end of FY25. Despite the planned store expansion spree, Blinkit said its overall adjusted EBITDA is likely to hover around breakeven for the next few quarters.

New Categories Pay Off 

One of the reasons for the EBITDA improvements is the higher average order value and improvements on the unit economics front in terms of delivery fees, platform fees and other miscellaneous charges.

Zomato is also looking to broaden the focus area for Blinkit by adding more brands across new categories, in a bid to compete with ecommerce marketplaces like Amazon and Flipkart. Already, Blinkit is delivering products such as Apple iPhones, Sony PlayStation 5 consoles, electronic accessories and home appliances such as air coolers in a matter of minutes.

Blinkit is also selling gold coins, sunglasses, everyday apparel and kitchen appliances these days. In fact, the recently launched Zomato large order delivery fleet is perfectly suited for delivering such large products and packages in the future.

With 40% growth in the number of stores in FY24, Blinkit is now able to offer a wider selection of products to most of its users, Dhindsa added.

Besides this, the platform is looking to enable fast-growing direct-to-consumer (D2C) brands by building its own supply chain to directly source products as well as manage stock from new-age brands.

While quick commerce has become a major sales channel for D2C brands, the path is not exactly easy for newer brands. Blinkit is looking to enable these brands by leasing warehouses to increase their distribution footprint in key markets.

It’s not just Blinkit that has moved in this direction — Swiggy recently integrated Swiggy Mall into Instamart. However, Swiggy Mall, in terms of availability, is currently restricted to Bengaluru – its biggest market.

Blinkit, on the other hand, is looking at category expansion in most of its top markets, in addition to Delhi NCR.

Take, for instance, the recent introduction of air coolers on Blinkit, coinciding with summers in India. Besides Delhi NCR, Blinkit customers in Bengaluru and Hyderabad could also order the appliance and get it within 10-15 minutes. So Blinkit is jumping in with both feet when it comes to new categories, and it’s clearly making a difference in the number of daily orders as well as the average order value.

Service Reliability Makes A Difference

“In our case, we obsess about making our service reliable. Our investments (intellectual and financial) in the business are over-indexed to making our service more and more reliable. Reliability means a) availability of products at all times and b) quick and predictable delivery times,” Blinkit CEO Dhindsa said in the ‘Shareholders’ Letter’.

It’s hard to quantify reliability of a service, but Dhindsa went out on to list some of the operational parameters that are vital for quick commerce, and Blinkit seems to have passed the litmus test here.

The average delivery time for Blinkit was 12.5 minutes in the month of March 2024. Close to 75% of the orders were delivered within a two-minute window of the promised delivery times, while item fulfilment was higher than 99%, Dhindsa claimed.

“We believe that a business built on the back of great service quality is much tougher (and hence more defensible) than just offering lower prices (usually through unsustainable subsidies),” the CEO added.

But that does not mean that Blinkit is completely turning away from discounting. While some categories do have heavy discounts, the company is countering this with improvements on the unit economics front.

Blinkit’s Unit Economics Leaps

Dhindsa pointed out that the Blinkit’s “high quality of service results in higher customer willingness to pay us a delivery fee thereby leading to better economics.”

Blinkit added an INR 2 handing fee for every order, just like Zomato’s platform fees. This has undoubtedly led to improvements in the bottom line for the platform.

For context, the GOV-to-revenue ratio improved to nearly 20% in Q4 FY24, compared to around 17% in Q4 FY23. Besides, Blinkit’s adjusted EBITDA loss improved to INR 37 Cr in the March quarter from INR 89 Cr in the preceding quarter and INR 203 Cr a year ago.

These might seem like marginal improvements, but with scale, they can snowball into major contributors to Zomato’s overall profitability

Further, Dhindsa claimed that almost 100% of Blinkit’s orders in March 2024 had a “non-zero delivery fee with an average delivery fee per order of INR 20 (not including new customers).

What’s Next For Zomato’s Quick Commerce Bet?

One potential soft spot for Blinkit could be its weaker presence beyond Delhi NCR. The company has admitted that it needs to increase the penetration of its stores in Bengaluru, Mumbai and Hyderabad among other cities in its network.

Zepto is said to be inching forward in terms of market share and has the ability to raise fresh funds to expand rapidly. Swiggy is looking at an IPO in the next year or so, and is said to be in talks to raise fresh funding before the potential public listing. On the other hand, Blinkit can rely on some of Zomato’s cash reserves of over INR 12K Cr, for its growth push.

“In addition to scaling up the existing store network and use cases, we will be adding more use cases so that the Blinkit platform is even more useful in the everyday lives of our customers,” the CEO stated in the letter.

It will be interesting to see what these new additions will be — we have seen the company indicate that it might be venturing into home repair and other handyman services which would overlap with Urban Company. But this has not yet come to fruition.

Besides this, quick commerce rivals have experimented with delivery of packaged food and beverages, including Zepto Cafe and Swiggy Instacafe. While Blinkit has not yet revealed its plans in this regard, it will be interesting to see where the quick commerce platform goes in the year ahead.

There’s little doubt that FY24 has proven Blinkit’s potential to a large extent, but now it has to show that these improvements were not a flash in the pan.

The post Blinkit Takes Off: How Zomato’s Quick Commerce Bet Delivered In FY24 appeared first on Inc42 Media.

Nearly two years ago, Go Digit was set for an IPO. But market conditions, SEBI regulations and more put that plan on hold.

But the insurance tech unicorn is back for another shot at a public listing, and this time around, the IPO is definitely happening. The company has set a price band in the range of INR 258 to INR 272 per equity share for its upcoming INR 1,125 Cr+ initial public offering, which is opening for bids on Wednesday, May 15.

With this, Go Digit is becoming one of the first major IPOs of 2024. And other companies are lining up in 2024 and 2025 to join the insurance tech unicorn. So in many ways, the Digit IPO is one of the most critical ones for the Indian startup ecosystem since 2021. Which way will the coin fall for Go Digit?

We look to answer that, but first, a look at the top stories of the week:

• Big Questions For Swiggy: Like most loss-making startups, Swiggy has to answer plenty of questions ahead of its IPO. Here are the five major ones ahead of the $1 Bn+ IPO
• Unacademy’s Profitability Push: The edtech giant’s medical entrance test prep platform PrepLadder has undergone another round of layoffs amid a shift in Unacademy Group’s sales strategy to streamline costs
• Paytm’s Big Shift: With several key business heads exiting Paytm, a lot rests on how the new leadership works under the direction of founder and CEO Vijay Shekhar Sharma to revive the company

The Question Of Valuation

The first thing we have to turn our attention to is the valuation for Go Digit or the pricing for the IPO. The insurance startup is going for an IPO at a discount of 25% to its last known private market valuation, which is largely a result of how much things have changed in the past two years.

At a price band of INR 258 to INR 272, the company is eyeing a valuation of $3 Bn (approximately INR 24,000 Cr) on the higher band. However, its last private valuation in 2022 was $4 Bn (close ot INR 32,000 Bn). Go Digit founder and chairman Kamesh Goyal said the price band will leave plenty of value on the table for investors, and is in line with what investment bankers have advised the company.

While the class of 2021 might have tried ambitiously to list at super-high valuations — Paytm being a prime example— the past two years have shown the reality of the market for companies such as Digit. More and more Indian startups, particularly those at the later stages, are realising that the valuation terms of the past are history. Now, companies are more than happy to raise money at lower valuations as long as survival is possible, no matter if they are private or going for a public listing.

In fact, for a unicorn, Digit is going for a relatively small listing. In terms of fresh funding, the company is looking to raise INR 1,125 Cr, while the offer for sale from existing shareholders has also been halved to 54 Mn shares from 109 Mn shares as stated in Digit’s previous IPO filings.

Digit’s valuation expectations are still relatively high compared to other insurance players in the market. At the higher price brand, the company is looking at a 680X multiple on revenue basis, whereas the insurance industry leaders are close to 43X.

Investors we have spoken to believe that given the low penetration of insurance in India, high valuations are a norm. Plus many investors believe that insurance tech is only going to grow larger with new models of underwriting, the increase in data and high growth ceiling for business-related insurance products.

“The Indian non-life insurance market will grow at 13-15 per cent in the medium term. The industry’s growth will be primarily driven by the health and motor insurance segments, supported by increasing disposable income levels and a rise across other segments,” ratings agency CareEdge said in an April 2024 report about the Indian insurance space.

So let’s look at the two major categories it is targeting that will determine the course of the general or non-life insurance space, and how Digit is placed in this regard.

The Digit Network: Motor Vs Health Insurance

There is no denying that Digit is seeking the valuation multiples of a typical tech startup, while being in the insurance business which is tightly governed by regulations. In fact, in the early days of the startup, Digit relied heavily on the digital onboarding of customers, and in the past few years, this reliance has gradually reduced.

Online direct selling is still relatively small for Digit and other players, as compared to human agents selling insurance plans and onboarding users after KYC. Even a digital insurance platform cannot be completely online, and has to work as the traditional players do because of the high bar for regulatory compliance.

This is why today, Digit has a network of 61K+ distribution partners and nearly 59K sales agents on the ground. According to the company’s revised DRHP, Digit expects the majority of its customers to be acquired through its agent and broker network, which is to say that the company has to increasingly look at the model which has been popularised by LIC, and followed by other players, including insurance tech companies like InsuranceDekho.

Much of Digit’s network is geared towards selling motor insurance. This comprises 61% of Digit’s business, while health insurance is a distant second at 14% of the gross premium received by the company in FY24.

Because motor insurance is mandated by law for all vehicles, this is a highly competitive segment and there’s no real moat for companies except low premiums and discounts on insurance plans. Health insurance is the true underpenetrated product.

Digit’s share of the overall health insurance market is just around 3%. This is the big opportunity that Goyal will be targetting after raising capital from the public markets.

Analysts believe that Digit will have to up its game across multiple insurance products to continue the premium growth that justifies its valuation multiples which are quite rich compared to listed companies.

Growing Profits Are Key

The only factor that can help Go Digit swim against this tide is profitability, and here, there may be some merit to the company asking for high multiples from the market.

According to General Insurance Council data, Digit had a gross written premium (GWP) of INR 7,941.1 Cr in FY24, which is nearly 30% higher than the INR 6,160.08 Cr it recorded in FY23. However, Go Digit’s RHP only has data up to December 2023, when GWP was at INR 6,679 Cr. When comparing the GIC data to Digit’s FY23 numbers, we can see an increase of just under 10% in GWP.

In comparison, the nearest insurance tech competition is Acko, which had a GWP of INR 1,870 Cr in FY24 and INR 1,509 Cr in FY23. This is an increase of just under 24%, which is more than 2X of what Digit saw, highlighting that a relatively low revenue base is not a disadvantage for Digit’s competition.

This is yet another indicator of the low insurance penetration in India.

For the first nine months of FY24, i.e as of December 2023, Digit sharply brought down its operating loss to INR 10 Cr, while profit after tax (PAT) stood at INR 129 Cr. Chairman Goyal said the loss is small at operating level and not meaningful to impact the company’s services.

“Most of our business is retail, so expenses will be high. If you look at our AUM in the last 6 years, it has been more than 15% of some of the top 5 companies. When you are growing fast, it leads to losses because your commission expenditure has to be expensed on day 1 while revenue is earned over a period of 365 days.”

As for the category split and the heavy reliance on auto or motor insurance, Goyal acknowledged that health insurance has to become the key focus for Digit going ahead. “Our health (insurance) business has doubled over the years. The loss ratio was good at a time when everyone was losing. We doubled our premium in one year. In three years, it will be the fastest-growing category for us,” he said.

Three years is a long time and competition in the insurance space is only expected to grow. So, while Goyal may be optimistic, there’s a lot that Digit has to prove before it can claim for certain that the IPO valuation was on the mark.

The New IPO Wave

However, Digit’s IPO is important for other reasons. Before we wrap up, let’s take a moment to see why the Digit IPO is a big deal for Indian startups and tech companies.

The Digit IPO is not just vital for the company but also a test of the Indian startup ecosystem, and something of a report card on the past three years.

After PB Fintech, Nykaa and Paytm got their listings in November 2021, Go Digit is the next major new-age tech company going for an IPO. It’s been three years, and in that gap a lot has changed. Unicorns have largely delayed their IPOs, including the likes of OYO, boAT, Pine Labs and others, besides Digit.

So many entrepreneurs and public markets investors would be watching the fate of Digit now, because it will give them a hint about how other IPOs might be received. Besides the insurance unicorn, other key public listings expected in 2024 include FirstCry, PayMate, Awfis, Mobikwik, Ola Electric and OYO, and Swiggy is expected to join this group by later this year. There’s a bit of pressure on the startups of an older vintage to get those returns for investors.

As per an Inc42 ‘s 2024 u, 95% of investors believe that IPOs would be the most popular exit route for startups in 2024, given that most M&As are going through only because of their distressed nature. Essentially, IPOs are becoming a reality for investors, even though the valuation maths is still very critical.

For many of those who backed Digit, as early as 2016 when the company was founded, this is a vindication. These investors are all but certain to make a lot of money from the Digit IPO, given how these things usually work.

But as far as the public markets are concerned, the key to future value creation will be profits and profits alone. Will Digit’s rich valuation be able to sustain itself as the company adds to its revenue base?

That is a critical question that is likely to be answered later this month. And another big question is: will the public market response to Digit determine the fate of other massive Indian startup IPOs in 2024?

Sunday Roundup: Tech Stocks, Startup Funding & More

Weekly Funding Drops: Startup funding was a low-key affair this past week as compared to the previous one, with just over $220 Mn raised across 21 deals, a 30% decline week-on-week

Groww ‘Returns’ To India: Fintech unicorn Groww has completed its reverse flip, shifting its domicile to India from the US, merging the holding company Groww Inc with its Indian entity Billionbrains Garage Ventures Private Limited

Bhavish Aggarwal’s Feud: Amid a tussle with Microsoft-owned LinkedIn over a post on the use of genders in AI, Ola chief Bhavish Aggarwal said that Ola would stop using Microsoft’s Azure and migrate to a native cloud platform, but is this easier said than done?

TBO Sees Big Bids: B2B travel portal Travel Boutique Online received an overwhelming response for its IPO, with 86.7X subscriptions as of the final day for bidding

The post Digit IPO: Litmus Test For Insurance Tech appeared first on Inc42 Media.

How often does a company paying salaries make the headlines? But that’s the state of BYJU’S today.

Like this past week, when the company clearing the salary backlog for March 2024 was widely reported. The caveat is that only some employees within the company have been paid, and not others — we’ll get to that later.

While a lot has been said about BYJU’S in the past year, it still does not answer the question of whether the company can survive the storm. Cofounder Byju Raveendran has turned over every stone to keep his company afloat, including the new BYJU’S 3.0 plan, but seems to have fallen short on most accounts.

So the question is: Can BYJU’S even be saved? We will look to answer that, but, as usual, after a look at the top stories from our newsroom this week:

• The Payment Aggregator Rush: Why have the likes of CRED, Groww, Pine Labs, PayU, mSwipe and others entered the payment aggregator field despite increased regulatory scrutiny and higher burden of compliance? Here’s an explainer
• 30 Startups To Watch: The 46th edition of Inc42’s much-anticipated ‘30 Startups to Watch‘ is here, and, with it, we are once again turning the spotlight on the most innovative early-stage startups in the country today. Take a look at the list
• Swaayatt’s Story: Bhopal-based Swaayatt Robots is looking to take on automobile giants in the autonomous vehicle space and claims to have a lead on much of the competition. Is this hype or reality?

No Salary, No Future

Let’s start with the headlines this week around the company settling some salaries.

First, there were reports about the company suspending monthly fixed salaries for its sales team. According to reports, the company would only pay the sales staff on the basis of their weekly sales. This change essentially puts the sales team on the chopping block, according to two current employees at BYJU’S.

“It’s impossible to earn a living by trying to sell BYJU’S courses at this point of time. We have to sell test prep and other online courses, which is not something customers want because offline learning is the better option right now,” one current business development associate in Bengaluru told us.

This after the company laid off many employees from its sales team in pursuit of the inside sales strategy last year. Under the inside sales strategy, associates were paid incentives on the basis of their performance, but now the basic salary is being linked to performance.

Employees claimed the company will only pay a percentage of the weekly revenue generated by each member of the sales staff at the end of the seven days. The policy will continue till the end of May 2024, but that’s the current status, and no one knows whether this will be extended for longer.

Another employee revealed that currently most sales employees are working from home given that BYJU’S has given up most office spaces. “There is no infrastructure which is needed for inside sales, so the new performance-linked salaries is just one way of telling us that our time with the company is running out. There’s no future at this company.”

A couple of days after the salary changes for the sales team, reports claimed BYJU’S had cleared the March 2024 salaries, but this did not include the salaries for the sales team. What’s important to note here is that this is just a portion of the employee dues.

Not to mention, the frequent changes in salary terms and contracts for employees is bound to have a demoralising effect on the current workforce, leading to higher churn and attrition.

Can BYJU’S Stay Alive?

Employees who were laid off in late 2023 and early 2024 are yet to be paid salaries as Inc42 had reported earlier, and even the most recent salary payments do not include the backlog for February and March for many employees.

The only people who have been paid are part of the management team and handle administrative functions that are needed for everyday operations, not related to sales. In other words, the employees needed to keep the corporate entity alive are being paid, those in the sales team allege.

Reports claimed the monthly salary burn for the company is between INR 40 Cr ($5 Mn) to INR 50 Cr ($6 Mn), and that’s not even counting the backlog of salary and the dues owed to the various vendors, which we have covered in detail here.

While CEO Raveendran has claimed that the delay in salary credits is due to the company being unable to access funds from its recent rights issue, the reality is that $200 Mn will not go a long way towards compensating employees.

In this regard, the BYJU’S 3.0 plan — which includes lower salaries for new hires, consolidated operations for verticals and other cutbacks — does not seem to infuse much confidence.

Sales is critical for BYJU’S to prove that it’s not dead. It’s not enough to keep the corporate entity alive and working with no revenue coming in.

Even compared to past years and BYJU’S sales-first DNA, there’s a lot more pressure on the sales team today. Only now, the pressure is not coming in the form of words or targets from the management, but rather on the basis of the pay itself.

And is it even fair to ask the sales team to sell more when the BYJU’S brand has suffered a pretty big hit in the past few months?

The Fall Of Brand BYJU’S

A CEO of a rival edtech company, which also has a significant presence in the offline space, told Inc42 this week that BYJU’S troubles have not only harmed the company but also the Indian edtech sector. “We were only able to achieve 40% of the targets set for online courses, while offline coaching has seen more students each year.”

This after upGrad’s Ronnie Screwvala also claimed that due to ‘one rotten apple’ the industry is seeing reputational damage. “If people had asked questions, they’re now beginning to ask, four years back, it would have been a very different story,” Screwvala had said during February’s ASU+GSV & Emeritus Summit.

Of course, it’s not just BYJU’S that’s having trouble selling online learning as a proposition, but the industry as a whole is seeing some headwinds. From Physicswallah to Unacademy to Vedantu and others, most of BYJU’S competitors are more focussed on the offline business and hybrid online-offline models to bolster revenue.

PW’s cofounder Prateek Maheshwari said that online learning grew 80% YoY in FY24 compared to 115% growth for offline learning. The startup plans to open 50 more centres in the next two years, Maheshwari said in February this year.

For BYJU’S, competing with these startups on offline learning expansion is next to impossible. The company has no money to pay employees, let alone look at expanding its offline presence. Indeed, the cutbacks under BYJU’S 3.0 extend to the BYJU’S Tuition Centres as well as the online learning side.

Several educators at the BYJU’S Tuition Centres (BTCs) in Delhi, Bihar and West Bengal have been let go. In their place, the company has roped in educators at lower salaries who have been asked to work for longer hours and also have to do online lessons in addition to offline coaching.

“Reputation is everything in education and once there are questions raised about the legitimacy of institutions, these tend to stick around for years. Look at what happened with IIPM or even now with influencers who use online platforms to lure students,” a founder of a Delhi NCR-based student counselling platform and a veteran in the education sector, told Inc42.

In other words, BYJU’S as a brand is on the death spiral and very little can be done to salvage any reputation in the short term. It might take years for BYJU’S to become a reputable platform again, and as things stand, the company does not have the luxury of time.

Sunday Roundup: Tech Stocks, Startup Funding & More

• Funding On The Rise: May 2024 has started off on the right track for the ecosystem, with a total of over $316 Mn being raised by startups this past week, well higher than the weekly average of the past few months
• New Era At Freshworks: Freshworks cofounder Girish Mathrubootham has stepped down from his role as CEO after 14 years, with Dennis Woodside named as his successor
• Apple Boom: The tech giant saw record revenue in India during the March 2024 quarter, with CEO Tim Cook once again claiming double-digit growth in the country

• Rejig At Paytm: Amid the regulatory storm, Paytm has seen the exit of president and COO Bhavesh Gupta and a new CEO taking over Paytm Money
• FirstCry’s Fresh IPO Bid: FirstCry has refiled its DRHP for an IPO where it will look to raise INR 1,816 Cr through fresh issue and an offer for sale of 5.4 Cr equity shares

The post The Clock Is Ticking For BYJU’S appeared first on Inc42 Media.

It’s a payment aggregator (PA) feeding frenzy out there as dozens of startups and big tech companies have bagged the licence in recent months.

Since December last year, the RBI has approved the PA applications or has given in-principle approval to Zoho, Juspay, Decentro, CRED, PayU, Enkash, Pine Labs, Amazon Pay, Innoviti, Razorpay, CC Avenue, Cashfree, Tata Pay, Google Pay, Infibeam Avenues, Mswipe, among others.

Just this week, Groww and Worldline Global also joined this list. Overall, more than 20 companies have received the green light from the central bank in 2024 alone.

So what explains this sudden rush to become a payment aggregator and why exactly are companies queuing up?

The payment aggregator rush in India is particularly curious because becoming a PA could soon come with increased regulatory scrutiny on startups, and higher burden of compliance as well as increased cost of due diligence.

The RBI is looking to bring in a new set of guidelines for this space over the next month. In draft directions released on April 16, 2024, the central bank has sought comments and feedback from the fintech and payments industry. Stakeholders have till May 31, 2024 to submit their views to the RBI, post which the final guidelines are likely to be finalised before the next quarter.

In the present state, the draft directions bring in some much-needed clarity on the entry requirements for companies looking for a PA licence, but along with this, the central bank has looked to ensure a higher degree of customer monitoring by existing and future payment aggregators.

As one Gurugram-based fintech startup founder put it, “The KYC and due diligence requirements are pretty much similar to what the RBI expects of universal banks. It may seem like a challenge, but it’s a welcome change since it creates a level playing field.”

The primary attraction for a payment aggregator licence is that entities can enable ecommerce sellers and other merchants in India to accept various payment instruments from customers, pool these collections and get settlements through PAs, without the need to create a separate payment integration system of their own.

Essentially, PAs act as intermediaries between the merchant and the customer, ensuring that funds are transferred in a timely manner to the former.

The Cost Of Being A PA

Many of the players that we spoke to are either in the process of replying to the central bank or are awaiting approvals for their payment aggregator licence bids and in this case, not many are willing to publicly comment on how the new guidelines might complicate matters.

“This is definitely going to increase the cost of compliance for some startups, but more importantly it hurts those merchants that want to start selling online. They have to ensure full compliance with the rules so that they can be onboarded by PAs, but this is not always possible,” said a Bengaluru-based founder of a payment aggregator startup.

While these are not the final guidelines, industry sources we spoke to believe that the Reserve Bank is unlikely to budge from its position on many of the points.

In particular, the RBI’s stipulation for customer verification is likely to remain unchanged, but there could be further clarity on points such as maintaining common escrow accounts for online and offline operations.

Customer verification is going to be a sore point for many PAs as many independent sellers operate out of informal workspaces or may not have the adequate documentation required by the RBI.

The RBI’s diligence requirements are rather stringent on the time allowed for payment aggregator to comply.

The central bank has stipulated that those with an existing PA licence or those who have applied for one and are awaiting approval need to process 100% of their gross processing value (GPV) through customers and merchants whose diligence has been completed.

Meanwhile, companies that apply after the guidelines have been notified will need to have 100% compliance on the customer due diligence front within the first year of operations.

The RBI has allowed for a phase-wise implementation of diligence but PAs have to increase the base of verified customers by 25% every three months from December 2024.

Diligence Burden On Payment Aggregators, Merchants

With higher due diligence requirements, startups fear that it will take them longer to onboard new customers. Plus, it also adds to the cost of compliance both on the PA side as well as merchant side.

For instance, some PAs might have to increase the strength of their in-house teams for customer verification purposes. While several are banking on automation to accelerate onboarding, the RBI has called for physical verification of merchant and business documentation.

However, given the mandate for physical verification, those PAs who do not want to hire additional employees could be compelled to empanel agencies and outsource the verification.

“This might be cheaper than hiring staff to conduct the verification in-house, but also opens up risks of inadequate checks by agencies that are dealing with large volumes. At the end of the day, the burden to ensure that the verification is done in the right manner still falls on the PA,” said another industry insider and cofounder of a digital KYC solutions company that works with a number of such payments companies.

With the new guidelines, the RBI has for the first time also brought physical digital payments under the same ambit as the rules for online digital payments. This means that companies offering point-of-sale systems or quick response (QR) codes or soundboxes among other devices to small and medium retail merchants would also need to get a PA licence for operations.

While the RBI has separated these two licences, it allows players to apply for both or either with different thresholds for due diligence of its customers i.e merchants.

“Essentially, it’s making it harder for smaller merchants to sell online or to implement PA services such as QR codes or soundboxes. Many of these merchants do not have data related to contactability or proper addresses in the places they operate. Many have permanent addresses in other states, so this complicates how quickly they can be onboarded,” added the Delhi NCR-based founder quoted above.

What Explains The Payment Aggregator Rush

Given these potential compliance challenges, one wonders why there is a glut of companies lining up at the RBI for a PA licence.

Besides the obvious economic upside, there is also a feeling that the RBI wants to encourage a large base of PA entities to ensure that no single PA can gain an advantage over the others in terms of onboarding merchants.

For instance, given the PA licence for Amazon Pay or Google Pay or Tata, there is always a danger of big tech companies and conglomerates monopolising the PA space and leveraging affinities between their various businesses to dominate the market.

Having multiple payment aggregators also means that merchant onboarding does not slow down due to friction with any particular player’s verification operations.

“When it comes to UPI, two or three platforms have a large market share and now the regulator is looking to tackle this with caps on the transaction shares for each platform. Instead of concentrating payment aggregation with one or two companies, it’s better for the system to have multiple players who all have to follow the same rules,” according to the founder of a Mumbai-based fintech-focussed fund.

This would also help arrest any potential slowdown in the number of online sellers or verified retail merchants. With many PAs targeting the merchant and seller base, there is a greater chance of covering the depth of the market faster. “India has millions of merchants and online sellers who need better KYC. It’s better to have 20 players operating and growing this penetration rather than one or two players enjoying the access which is not suited for such a large market,” the investor added.

And this is not an overnight development either. Many of these startups have waited for nearly a year for RBI’s nod and perhaps the recent spate of approvals is a sign that the central bank was waiting to make up its mind on the regulations needed to govern online payment aggregation, which is seen as a critical pillar of the digital economy.

So why are more and more startups going for a PA licence even as compliance seems to be getting harder? The answer ironically is because compliance is getting harder, and everyone sees a chance of grabbing a chunk of the market in these circumstances.

The post Why Are Startups Joining The Payment Aggregator Rush Despite RBI’s High Compliance Bar appeared first on Inc42 Media.

Three years after Indian startups lined up for public listings in 2021, we are back on the IPO trail in 2024. And it’s Swiggy which is looking to make the most of this renewed optimism.

The Bengaluru-based food delivery and quick commerce giant has reportedly taken the confidential filing route for an INR 10,414.1 Cr ($1.2 Bn) IPO. And it has the company of Indian unicorns such as Ola Electric, MobiKwik, Digit Insurance and FirstCry on the IPO road this year.

Interestingly, Swiggy’s IPO plans come despite the company‘s inability to clear the profitability hurdle in FY24 by most accounts. And as we have seen over the past year, this is a critical factor for success in the public markets.

And at the same time, Swiggy’s quick commerce business Instamart seems to be slipping against the competition. So this Sunday, we wanted to examine whether these challenges will derail Swiggy’s potential IPO in 2024?

But first, here’s a look at the other top stories from our newsroom this week:

• Online Fashion Boom: The Indian ecommerce opportunity is projected to cross the $400 Bn+ mark by 2030, with online fashion platforms accounting for more than 25% of this surge, according to the latest report by Inc42
• Koo’s Woes Continue: After seeing a massive decline in users, Tiger Global-backed Koo has halted salary payments for April 2024 as talks with strategic partners are yet to fructify, the company confirmed in our exclusive report
• Healthify’s Cutbacks: Another Inc42 exclusive — the healthtech giant has laid off 150 employees in a restructuring exercise as it looks to make its India business EBITDA profitable and expand its offerings in the US market

Swiggy Joins IPO Buzz

Before we dive into the past year for Swiggy, let’s take a look at the IPO details. Swiggy’s potential IPO offer will include fresh issue of shares worth INR 3,750.1 Cr (about $449 Mn) and an offer-for-sale component worth INR 6,664 Cr (around $799 Mn), as per regulatory filings.

Founded in 2014 by Sriharsha Majety, Nandan Reddy, Phani Kishan Addepalli and Rahul Jaimini (who exited in 2020), Swiggy is backed by VC and PE giants such as Prosus, Accel, SoftBank and Invesco among others.

While the company was valued at $10.7 Bn after its funding round in early 2022, in recent weeks, many of the company’s investors, including Invesco and Baron Capital, have marked up the value of their investments in Swiggy, which would bring the company’s valuation to over $12 Bn.

At the moment, little is known about which shareholders will be offloading their shares in the IPO but reports suggest Prosus is likely to shed a bulk of its stake in Swiggy.

The global investment giant could well be tagged as Swiggy’s promoter in the IPO given its large shareholding. Currently, Prosus owns 33% of Swiggy, which would automatically make it a promoter in any public offering.

But the investment arm of South African conglomerate Naspers is said to be in talks to sell a portion of its stake before the IPO to bring its holding under 26%, which would release it from SEBI’s restrictions on the shares it could sell after the public listing.

Profitability Remains A Question Mark

Given the valuation markups by key investors in recent months, there’s optimism about Swiggy significantly cutting its losses over FY24.

As Inc42 reported in early 2024, Swiggy is expected to report revenue of over INR 10,000 Cr in FY24, 20% higher than the INR 8,260 Cr it reported in FY23. This is largely due to a big surge in Instamart orders, platform fees related to food delivery and growing traction for its dining out business, according to sources within the company.

Other sources who have seen Swiggy’s disclosures for H1 FY24 told us the company touched INR 4,735 Cr in revenue only from food delivery and its quick commerce vertical Instamart. This is over half of the total revenue from these two verticals in FY23.

So while the revenue base has definitely grown, the real question is whether profitability is within reach. As early as May 2023, Swiggy claimed that its food delivery business was more or less profitable, but things have changed since then, particularly given the competition in the quick commerce space (more on this later).

While we don’t know the loss for FY24, as per reports, Swiggy trimmed its net loss to around $207 Mn (INR 1,730 Cr) in the first nine months of the fiscal year, compared to the INR 4,179.3 Cr net loss in the entire FY23.

But some analysts we spoke to believe that this may not be enough given Zomato’s swing towards profits in FY24. If Zomato is able to show profits for the full fiscal year, which we will find out in the next month or so, then Swiggy will have to do a lot more than just shave some of its losses.

“Quick commerce is the key for long term profitability. Blinkit has already outpaced Zomato’s food delivery business. A Goldman Sachs report this week said that Blinkit’s contribution to Zomato’s market value has surpassed the core food delivery business. So Instamart will be extremely critical for Swiggy,” according to Rahul Jain, vice president of brokerage firm Dolat Capital.

The Goldman Sachs report estimated that Blinkit has an implied value of INR 119 per share, compared to INR 98 per share for the food delivery vertical. As a result, Blinkit is contributing close to $13 Bn to Zomato’s market cap, out of a total market cap of nearly $20 Bn.

Importantly, Blinkit has been contribution positive in the last two consecutive quarters. In February, Blinkit’s contribution margin, as a percentage of GOV, in the overall business improved to 2.4% in Q3 FY24 from 1.3% in Q2 FY24.

Losing Ground On Quick Commerce

Blinkit’s massive surge is despite the fact that Zomato’s food delivery business has looked to push the accelerator on platform fees and delivery fees in recent months. Given this shift in dynamics between food delivery and quick commerce, it will be interesting to see how well Instamart holds up for Swiggy in the long run.

It’s no secret that Swiggy started as a food delivery startup, and while it was one of the first movers in the quick commerce vertical with Swiggy Instamart, its two major rivals Blinkit and Zepto have made the most of the quick commerce opportunity.

On the food delivery side, Swiggy has gradually ramped up the platform fees and has also added collection fees from restaurants in the past year. The company charges between INR 3 to INR 4 per order from customers, which directly contributes to Swiggy’s bottom line.

Platform fees have become an industry-wide trend, so this may not necessarily be a big moat for profitability for Swiggy. Besides this, it’s been a year of restructuring exercise at Swiggy, which included mass layoffs, reduction in spending, and streamlining of operations to reduce cash burn.

Whether it is the partnership with IRCTC to deliver pre-ordered meals to train passengers or merger of its premium grocery vertical InsanelyGood with Instamart, the startup has taken a number of steps to boost revenue and curb its losses.

In a bid to push up the average order value for quick commerce, the company recently integrated Swiggy Mall, which sold a wide range of non-grocery items like footwear and electronics items, within the quick commerce offering.

This will be critical as Zepto claims to be on pace to achieve $1.2 Bn in annual sales in FY24, which will undoubtedly be helped by the recent introduction of Zepto Pass loyalty programme and a per-order platform fee.

Even though it remains the second largest quick commerce player in India after Blinklit, Swiggy has seemingly lost its first mover advantage in this category.

In a recent report created in collaboration with HSBC Global Research, Zepto claimed that it has a market share of 28% in January 2024, compared to Zomato-owned Blinkit’s 40%. Instamart, which was the market leader in March 2022 with 52% share, has seen its share of the pie drop to 32% in January 2024, the report claimed.

While it may not be the most accurate representation of the market given Zepto’s collaboration with HSBC, this is not the first report to indicate that Swiggy is losing ground on the quick commerce front. And what complicates this further is the big push for quick commerce from the likes of Tata-owned BigBasket and Flipkart in recent months.

So even as Swiggy gets ready for its IPO, it has to contend with multiple challengers in the highly lucrative quick commerce vertical, while also ensuring that this doesn’t take its focus away from food delivery or the dining out business.

And this also means Swiggy’s potential public listing will be the first public test for quick commerce as a category in India. Which way will the market sentiment fall when Swiggy eventually comes up for its IPO?

Sunday Roundup: Tech Stocks, Startup Funding & More

Funding Dip: After two weeks of steady funding inflow, there was a decline in startup funding this past week, with a total of $172 Mn raised across 21 deals, down 33% week-on-week

WhatsApp’s Ultimatum: Continuing its legal tussle with the Indian government, WhatsApp told the Delhi High Court that it would be forced to pull out of India if it is forced to revoke end-to-end encryption in its app

Jio’s FY24 Numbers: Despite muted sequential growth in Q4, Jio Platforms’ operating revenue for FY24 grew 10.4% YoY to INR 1.09 Lakh Cr, while its annual net profit rose 12% to INR 21,423 Cr

FirstCry Pulls DRHP: Kids-focussed omnichannel retailer Firstcry has reportedly withdrawn its DRHP filed with SEBI and is likely to file new IPO papers with more up-to-date financial disclosures

Mixed Signals For Paytm: Indian mutual funds increased their shareholding in Paytm during the March quarter despite selloffs by foreign institutional investors. Does this signal an imminent rally for the fintech giant?

The post Swiggy IPO Out For Delivery appeared first on Inc42 Media.

India’s EV story is about to change in a major way this year. Tesla is finally coming to India.

After teasing the Indian automobile enthusiasts for years, it looks like the company is closer than ever. Reports this past week showed the US EV giant is preparing for its first major shipment into the country and also has plans for a major manufacturing push.

Tesla’s entry is undoubtedly massive for the country and signals a new phase of maturity in the India EV story. This Sunday, we will look to dig under the hood of Tesla’s India entry and see whether it will accelerate the Indian electric car market, which has been sorely lacking momentum.

That’s after these top stories from our newsroom this week:

• Into The Soonicorn Club: India’s future unicorn startups together boast a combined valuation of over $40 Bn and have netted more than $15 Bn since 2014. Here’s what the data shows about India’s soonicorns
• What’s Next For Bengaluru? Bengaluru was the top startup hub for funding and deals in 2023, but now the Karnataka government is looking beyond — at plug-and-play infrastructure, global linkages and more, according to IT & BT minister Priyank Kharge
• Edtech’s GenAI Phase: After several disruptions in the past year, edtech startups are now turning to GenAI for customer support, hyper personalisation, content creation and of course, operational efficiency

Clear Road For Tesla

Reports around Tesla this past week have put the Indian automobile industry under a big spotlight in the global market.

The EV giant is said to have begun production of right-hand drive cars at its plant in Germany, as it moves ahead with a possible entry later this year into India, the world’s third-largest car market. Further, a team from Tesla is expected to visit India later this month to look at sites for a car manufacturing plant in Telangana, Gujarat or Tamil Nadu with a potential investment of $2 Bn.

Fans have waited for Tesla in India for a number of years, and when the Indian government updated its electric vehicle policy in March, many thought it was specifically meant for the Elon Musk-led car maker.

In March, the central government approved a new EV policy which opened the door for the entry of global EV manufacturers. The policy involves lowering the import duty on EVs — this has been a long-standing demand for EV majors such as Tesla — for companies setting up a manufacturing plant in India with a minimum investment of INR 4,150 Cr or roughly $500 Mn.

Companies wishing to enter the Indian market through this route have also been set clear localisation targets by the government. They need to have 25% localised components by the third year and 50% by the fifth, which is in line with previous manufacturing incentives such as for smartphones and laptops.

Why India Matters For Elon Musk

India is a critical market for Tesla, especially in the current China+One movement, and as the US market slows down. Tesla CEO Elon Musk even met Prime Minister Narendra Modi in New York in June 2023 to open up dialogues with the Indian government.

Even though India is a two-wheeler and three-wheeler country when it comes to EVs, by 2030, the country is expected to have significantly more electric cars on the road, especially as most manufacturers look to compete on pricing. The scope for growth in various EV segments is massive, especially considering the Indian government’s push to have 30% EVs on the road by 2030.

While the current EV four-wheeler or car market in India is small, the overall momentum is with EVs. Sales of electric vehicles crossed 1.5 Mn in 2023, dominated by two-wheelers and three-wheelers, as reported by Inc42. The EV four-wheeler space is dominated by Tata Motors, but electric cars made up just 2% of total car sales in 2023.

Tesla’s push into India comes at a time when slowing EV demand in the US and China, its two largest markets. In China, the company is facing intense competition from Chinese OEMs, while some quality and manufacturing issues have damaged Tesla’s reputation and market share in the US. The company reported a decline in its first-quarter deliveries and missed analyst estimates on shipments.

India’s Electric Car Race

Tesla’s India entry plan also includes investment in a charging network, which will come on top of the $2 Bn earmarked for the plant. But competition is also heating up.

Besides Tesla, Vietnamese OEM VinFast said it would invest $2 Bn in India and started building an EV factory in Tamil Nadu. Further, a number of ride-hailing players are also looking to increase the share of EVs in their fleet and are signing deals with OEMs and fleet operators for the transition.

Interestingly, Ola Electric also has plans for an electric car by 2025 or 2026, and Tesla’s entry is likely to accelerate those plans for the Bhavish Aggarwal-led company, which is also eyeing a public listing this year.  Ola Electric plans to construct what it calls the largest automobile factory in the world, with an annual production capacity of 1 Mn electric cars.

Besides the number of players, Tesla will also be tested by the price-sensitive Indian market. Even though India has a growing base of affluent population, Tesla will likely attract quite a bit of premium in the Indian market, even compared to the higher-end EVs by the likes of Hyundai or Volvo. Will the brand’s prestige be enough to sway Indian car buyers?

In the recent past, the US-based giant is speculated to be working on a smaller and more affordable car for the Indian market, which is said to be priced at less than $30,000 (roughly INR 25 Lakh), which would put it directly in competition with some of the existing models.

However, the OEMs focussed on EVs are looking to compete in the affordable category as seen with the launch of MG Comet and Tata Punch EV.

Make In India, Like Apple

For Tesla, the Apple experience is likely to be a big inspiration. Apple reportedly manufactured iPhones worth INR 1 Lakh Cr in India in 2023 or roughly 7% of its global production at the end of December 2023. Of the total output, ‘Made in India’ iPhones worth INR 65,000 Cr were reportedly exported between January and December 2023.

A host of Apple vendors have made a beeline for India, including names such as Foxconn, Pegatron, Wistron India, and the same recipe could be followed by Tesla for its India plans.

Apple has also shown that made-in-India products can be sold globally, with 65% of the iPhones made in the country being exported to the US, Europe, West Asia, among other regions. Apple plans to manufacture more than 50 Mn iPhones in India annually.

Tesla would do well to take a page out of Apple’s playbook, but the electronic giant’s success has not come overnight. Apple has invested billions of dollars and several years in ensuring that India becomes a key piece of its global empire.

Given the growing competition in the EV cars space, Tesla would do well to set low targets for itself in the first few years as it sets up its India base. Companies such as Tesla which enter India are also likely to focus heavily on charging infrastructure especially if they have long-term ambitions.

Is Tesla Ready For India?

This will be a critical piece of their growth story in India, and there are some signs that Tesla is preparing for this experience already.

For one, charging interoperability with other EVs will be key for Tesla and other car makers as the Indian government is likely to bring in standardisation in the near future.

Tesla Supercharger stations in the US, for instance, now have a ‘Magic Dock’ that allows non-Tesla cars to charge up. Besides this, the company is also looking at charging for EV two-wheelers, which will be a huge factor in India and other Southeast Asian markets.

For Indian consumers, the entry of Tesla and other potential global manufacturers will signal the beginning of the electric car era. If we take Apple’s success as an example, the likes of Samsung, Google, Oneplus and others followed suit and expanded their India manufacturing bases.

Tesla’s entry could similarly spark off the golden phase of EVs in India, but a lot would depend on how robust India’s EV infrastructure gets alongside these new players. And perhaps this is where the next phase for EV startups also begins.

Looking Back At The GenAI Summit 

The first ever edition of The GenAI Summit saw the most influential leaders, builders and investors in AI delve into the future of AI in India. From founders talking about how GenAI has disrupted business models to investors eyeing next-gen innovations:

• The India Opportunity: In the Indian context, startups can not only solve problems at home but also take their solutions to developing economies, said Microsoft India and South Asia CTO Rohini Srivathsa
• PhonePe’s AI & ML Playbook: PhonePe CTO and cofounder Rahul Chari said that while the company has been leveraging ML for a number of years, the potential of GenAI in boosting productivity is exciting
• Dual Opportunity For Startups: Rephrase.ai cofounder Shivam Mangla believes that Indian startups have twin opportunities — solving problems in India as well as globally — to effectively harness the GenAI boom
• But VC View Differs: Some of the most active GenAI investors such as partners from Accel, Lightspeed and Bharat Innovation Fund believe that solving India-specific problems using AI is the key for startups looking to raise large growth rounds
• The Enterprise Opportunity: GenAI has the potential to alter the operational and workflow equation for enterprises at a very fundamental level, according to Observe.AI cofounder Jithendra Vepa
• New Rules Of Digital Commerce: When it comes to ecommerce, GenAI will result in a convergence of offline and online shopping experiences, believes Healthify CTO Abhijit Khasnis

Sunday Roundup: Tech Stocks, Startup Funding & More

• Funding Slides: After showing signs of some resurgence in the past few weeks, there was a slight dip in the weekly funding tally — with $151 Mn raised and 22 deals recorded
• Founder Turns VC: US-based Tribe Capital has reportedly roped in logistics unicorn Shiprocket’s cofounder Vishesh Khurana to lead its $250 Mn maiden India fund

• Zomato’s High: The foodtech major started off the new fiscal year in style as its stock soared to an all-time high this past week, ending Friday just over INR 190
• Rejig At Inshorts: In a major reshuffle, Inshorts’ incumbent CEO and cofounder Azhar Iqubal has moved to the role of chairman, while cofounder Deepit Purkayastha is now the new CEO
• TAC’s Listing Pop: SaaS cybersecurity startup TAC Infosec made a blockbuster debut on NSE Emerge, with its shares listing at a 173.6% premium on the issue price of INR 106

The post Tesla Pulls Into India appeared first on Inc42 Media.

Announced in 2015 and rolled out the next year, Startup India is about to turn 10. And the inaugural Startup Mahakumbh in Delhi this week was a showcase of the first decade and how far Indian startups have come.

What started as an idea floated by some seasoned venture capitalists and entrepreneurs got the support of the government and Startup Mahakumbh showed the depth and breadth of the Indian startup ecosystem in 2024.

More importantly, with many noted entrepreneurs and CEOs on the ground, there was also a sense that this was something bigger than just another startup-centric conference. Could the Startup Mahakumbh turn into India’s answer to Web Summit in the years to come?

We’ll look to answer after these top stories from our newsroom:

• Ecommerce Revamped: As we gear up for The GenAI Summit, here’s a look at how generative AI will change the face of ecommerce in India — from customer support to content generation to marketing
• Snapchat’s India Surge: Snapchat is sharply focussed on building for the Indian GenZ population and its high-tech experiments are clearly paying off with 200 Mn+ users. Here’s the Snapchat India story
• The BYJU’S Legal Web: The edtech giant faces a web of legal troubles, including allegations of predatory practices and defaults on payments, with over a dozen cases totaling defaults and fines worth $1.5 Bn. Will it survive these challenges?

Startup Mahakumbh: It’s A Start

Let’s not get too ahead of ourselves; we are not saying that the inaugural edition of the Startup Mahakumbh was perfect. For one, the vastness of the pavilion zone meant many of the smaller booths got stuck in dead zones where there was low footfall. Some of the main pavilions had a high density of startups too, which was not great for visibility.

And it was not all about tech startups either, as many arts and crafts companies jostled with robotics startups on the exhibition floor, with no clear distinctions between sector-specific pavilions.

Perhaps the biggest gap was the limited public presence of venture capital funds as well as the low profile of foreign tech companies.

While plenty of marquee fund managers and investors were on the ground backing their portfolio startups and founders, the likes of Meta, Google, Amazon and others did not have a large footprint. These giants typically have large budgets for Web Summit or Consumer Electronics Show (CES) in Las Vegas, but Startup Mahakumbh is obviously not yet a big marketing channel for them yet.

These are all teething issues, but those that need to be fixed when we look at the Startup Mahakumbh from a long-term perspective.

When we spoke to some of the members of the organising committee, it was clear that this is the first such effort and as such there will be plenty of learnings for the next run.

The organising committee for the inaugural edition was led by Prashanth Prakash, partner at Accel, and Sanjeev Bikhchandani, founder and chairman of Info Edge, Archana Jahagirdar, founder and partner at Rukam Capital, and Sanjay Nayar, founder of Sorin Investment Fund, with support from government agencies and nodal bodies such as MeitY Startup Hub, GeM and the DPIIT.

Given the presence of more than 1,000 startups, the event required the mobilisation of a lot of resources and sources from the aforementioned group told us it was pulled off in about two months. Of course, this maiden run gives those in charge plenty of information about what to get right next time.

“At the next Startup Mahakumbh, we want to see even greater participation. India has a very large number of startups and thousands are joining each year. We obviously could not cover everyone in this edition. So the next one will be much larger — maybe even 2X of what we’ve seen this year,” Jahagirdar told us.

A New Stage For Startups

Besides this, by and large startups at the Startup Mahakumbh told Inc42’s on-ground reporting team that this is a unique and unprecedented sales and networking channel for them. The pan-India nature of the exhibitions and affinity of some models within the sector pavilions in particular were some of the positives.

For instance, Curefoods founder and CEO Ankit Nagori believes that the first Startup Mahakumbh is just scratching the surface. Even most of the funded startups did not have a major presence here, he pointed out. “The growth that we have seen in the number of startups, the number of funded startups, the number of profitable startups is tremendous, now startups are also going public. This event shows the entire journey of the past 10 years, but there’s a lot more to come,” Nagori told Inc42.

Startups felt the event helped them gain visibility about their offerings. For instance, a top executive of a Rainmatter-backed fintech startup said that his team was able to better explain the startup’s product of escrow accounts to customers and investors who were part of the target audience.

Engaging with the officials from ONDC, SIDBI, GeM was also a new experience for many of the startups that do not often have the platforms in their own states.

Given the hype around AI, we saw many startups rely on the buzzword to attract attention, but one cannot deny that deeptech startups and AI enterprise applications got plenty of attention from visitors, investors in particular. But of course, there were over 1,000 startups on the ground, and it’s hard to stand out in such a crowd.

The biggest outcome for startups is being able to leverage a nationwide platform and network with those who they would not ordinarily see. The Startup Mahakumbh was really a showcase of startups going mainstream in India — the number of Shark Tank India startups on the floor was just one indicator.

The Economic Upside

But there is a deeper narrative. Events such as this have the potential to bring in revenue for all involved in the future? Let’s take Web Summit for instance, which is more in the spirit of Startup Mahakumbh than something like CES.

Founded in 2009, Web Summit is an annual technology conference and also an organisation that conducts various other events, including SURGE in Bengaluru. The flagship Web Summit is held in Lisbon, Portugal every year with the biggest internet technology companies and venture capitalists participating in it. Fortune 500 companies jostle with startups.

If that sounds like an average tech conference, here’s some context: Web Summit’s economic impact for Lisbon and Portugal is estimated at $325 Mn a year. Lisbon signed a 10-year agreement to bring Web Summit to the city from Dublin, such is the economic upside of the event.

We don’t know how big the Startup Mahakumbh will grow or whether it will be India’s version of the Web Summit, but this is the start that was much needed.

BookMyShow’s founder and CEO Ashish Hemrajani, in particular, believes that India now has the infrastructure to build world-class tech-centric events like Web Summit and CES, and there’s also a lot of spotlight on startups in mainstream media. This is the time to capitalise.

“It’s a start. We need to see more foreign delegates coming in and we need to plan it well in advance so that the Startup Mahakumbh becomes the pride and joy of our ecosystem. This needs to scale up to a point where needle-moving things happen,” the BookMyShow CEO added.

Startup Spotlight: The Portkey.ai Story

Portkey began with a problem statement when cofounder Rohit Agarwal was still working with Freshworks, when the GenAI revolution was just bubbling. Along with cofounder Ayush Garg, Agarwal had the idea that companies will need to develop, launch, maintain and iterate their GenAI apps and features with agility.

At the core of Portkey.ai lies the startup’s vision to help businesses in managing and having oversight of all the GenAI solutions that have been deployed. Five months after the official launch in April last year, the startup raised $3 Mn in a seed funding round led by Lightspeed Venture Partners and others.

Three months out of the beta phase, the startup is currently focussed on strengthening its language model operations (LLMOps) stack, ramping up the go-to-market strategy, and hiring

Read the full Portkey.ai story

Sunday Roundup: Startup Funding, Tech Stocks And More

• Funding Stays Stable: Between March 18 and 23, startups cumulatively raised funding of $204 Mn across 14 deals, just slightly lower than the $226 Mn seen in the previous week
• Builder.ai In Hot Soup: Builder.ai cofounder Sachin Dev Duggal has been named as a suspect in an alleged money laundering case, while the other cofounder Saurabh Dhoot is in dock in connection with an alleged loan fraud case
• CCI Blow For Startups: In a major setback for startups, the Competition Commission has dismissed interim relief applications seeking restrictions on Google in relation to its Play Store billing policy
• Policybazaar’s New Avatar: Fintech major Policybazaar’s parent PB Fintech plans to incorporate a new wholly-owned subsidiary to enter the payment aggregation business in addition to insurance and lending

The post Can Startup Mahakumbh Become India’s Answer To Web Summit? appeared first on Inc42 Media.

From IPL to GST — between these two acronyms, the fate of fantasy gaming in India has swung from euphoria to austerity.

With the 2024 season of the Indian Premier League kicking off on March 22, one would expect fantasy gaming apps to be pulling all stops for users with massive marketing spends and ads everywhere.

But the atmosphere is much more sombre this year, as fantasy gaming apps continue to reel under the GST clarity received last year. Most have hit pause on huge marketing spends, and customer acquisition remains a challenge even for IPL, the marquee tournament for fantasy gaming in India.

So this Sunday, we wanted to see the state of fantasy gaming apps and startups ahead of the IPL 2024. Over the next two months and 74 matches, many of these platforms will be looking for big gains, but the situation looks bleak even for the biggest startups, such as Dream11 and MPL.

But before delivering into this, let’s take a look at the top stories from our newsroom this week:

• Uber’s Playbook For India: With an eye on long-term success, Uber’s India playbook not only revitalises its global strategy but also positions the country as a crucial hub for innovation and growth
• Crypto Is Back? With Bitcoin touching its all-time high of $73K this week, Indian crypto investors are rushing to exchanges to cash in, but will this new gold rush last for long?
• Paytm’s Future: Even as the Paytm Payments Bank has been forced to make changes, the fate of Paytm as a fintech platform still hangs in the balance. What’s in store next?

Fantasy Apps Bowled By GST 

IPL is big money for fantasy gaming apps. According to an analysis by Redseer last year, IPL 2023 generated a gross gaming revenue of approximately INR 2,800 Cr for fantasy apps, compared to INR 2,250 Cr in 2022. The cumulative gross revenue has seen a compound annual growth rate of 30% since 2019.

The total user base for fantasy gaming touched 61 Mn during the two months of the IPL 2023, and a whopping 35% of them were new to fantasy gaming. However, to achieve these outcomes, fantasy apps had to spend significantly on ads and marketing in the run-up to the IPL.

In contrast, customer acquisition has slowed down in the past six months after the GST clarity in August last year. Startups such as Dream11, MyTeam11, MPL, Zupee, WinZO, Rush by Hike have all gone through cutbacks of some kinds, including layoffs.

If anything, IPL 2024 was supposed to be the balm to soothe the revenue pains after the GST setback, but several fantasy gaming platforms are rethinking their customer acquisition costs so as not to run into major losses. MPL, Hike (Rush) and Spartan Poker let go of more than 500 employees, while Bengaluru-based Gameskraft’s Gamezy Fantasy, MPL-backed Striker, Fantok and Quizzy shut down operations.

The tax nightmare for real money gaming companies means startups are possibly looking at an additional tax liability of nearly INR 45,000 Cr, as per reports, with fantasy apps seeing the worst of the impact. Dealing with the revenue decline and huge tax exposure due to the GST clarification, fantasy gaming apps are likely to have a muted IPL in 2024.

Marketing On Mute For IPL

From sponsoring franchises in a major way and roping in cricketers for campaigns to spending millions on ads, fantasy gaming startups have gone all out to woo customers during the IPL over the last few years. However, there is a calmer atmosphere this year.

My11Circle is the only startup that has seemingly invested big in marketing but this is for the long run. The fantasy gaming app is the official partner of IPL from 2024 onwards, outbidding Dream11 with a INR 125 Cr annual outlay for five years. Over five years, My11Circle will pay the BCCI a total of INR 625 Cr for these rights.

Meanwhile, most others have cut their marketing spending in the past six months, which is largely an impact of the 28% GST rule.

This is how GST on real money gaming works now. The tax is applicable on the total value of bets for online games, irrespective of whether they are games of skill or chance. Previously, a lower 18% GST was levied, specifically on the platform fee for skill-based games.

While earlier the tax was applicable on the smaller platform fee charged by apps, now it is charged on the whole bet. For example, a user adding INR 100 to their fantasy account would be charged INR 28 as GST and would only get INR 72 to play with.

“There is a percentage of users out there who are just not happy with this new regime. If platforms subsidise the 28% tax, users will not get the offers and bonuses they are used to. Platforms have to find new ways to attract players. Users are not happy with this and there is a clear drop in engagement there,” a Delhi NCR-based gaming startup cofounder told Inc42.

Fantasy Games But Real Taxes

Plus, there is uncertainty around the exact tax exposure. Startups have taken some of these tax concerns to litigation and many are fearing that the GST would be applied retrospectively.

For instance, Dream11 founder Harsh Jain recently said at the Mumbai Tech Week that only after the issue of retrospective tax is cleared can there be any talk of IPO or other fundraising for fantasy gaming apps.

Given these troubles, it’s not a surprise that the 2024 IPL has seen muted promos by many of the fantasy apps.

“Fantasy gaming players other than those with deep pockets would not bet big on IPL because many are trying to cut costs. Plus there is a negative sentiment in real money gaming, which can lead to low ROI from ads and marketing rather than positive outcomes,” said a Bengaluru-based founder from the fantasy gaming industry.

The founder added that companies such as MPL, WinZO, Dream11 and others are likely to portray themselves as having games other than fantasy sports so that they can attract active gamers rather than casual users.

The GST changes spurred a consolidation wave in the online gaming industry. Many of the bigger players acquired smaller rivals to venture into new areas and new gaming formats.

Dream Sports, which runs fantasy gaming platform Dream11 and is among the few profitable players in the segment, is also considering diversifying into sectors like sports commerce, content, fitness, among others.

Casual gaming unicorn MPL has shifted its focus to Mayhem, its game development studio, and is bullish on creating games in categories other than fantasy sports. But these are new products or still in the works, so they still have a long way to go.

Where Will Fantasy Gaming Turn To?

Even for unicorns such as Dream11 and MPL, missing out the annual IPL bonanza is a major blow. It only makes it harder for these companies to raise funds for growth and scaling up other products.

Besides the revenue panic that set in last year, there’s also a fear that VCs might walk away from real money gaming and fantasy apps in the long run given that the GST has changed the unit economics drastically.

The Indian online real money gaming industry, which generated a revenue of $3.1 Bn in FY23 and grew at a robust 33% during the year, is likely to see a sharp slowdown in growth as the taxation is anticipated to impede expansion plans, a report by early-stage VC fund Lumikai said.

Founders in the space told us that cost-cutting has become necessary for many platforms because if they want to survive, they need to solve the unit economics problem first, and then look to acquire users. Even now, companies are looking at ways to make real money fantasy gaming as attractive as it used to be in the pre-GST era.

However, many including founders themselves, feel that IPL 2024 has come too soon for fantasy gaming apps in the process of making these changes. They might look at this season as a last ditch attempt to regain some market share and revenue momentum but are likely to turn to cost-effective strategies such as influencer-led content and referral campaigns to grow.

The usually loud and bombastic fantasy gaming marketing machine is giving this IPL a miss.

In Focus: What’s The Indian VC View On GenAI

With less than a month to go for The GenAI Summit on April 3, 2024, we are turning our focus to how generative AI is changing the startup ecosystem — from the business models of GenAI native startups as well as how other startups are adopting generative AI tools.

But what is the investor view on the GenAI hype?

Naturally, GenAI startups have drawn interest from the VC ecosystem, but investors are being more cautious given how novel GenAI is and how rapidly it is maturing. For instance, there is a slightly more conservative approach to investing in startups building the foundational models because of the capital-intensive nature of this space.

Here’s a deep dive into the world of GenAI investments

Sunday Roundup: Tech Stocks, Startup Funding & More

• Funding Galore: Startup funding activity gained ground in the second week of March, with startups cumulatively raising $226.2 Mn, 50% higher on a week-on-week basis
• Google On CCI Radar Again: Following the recent standoff between Indian apps and Google, the Competition Commission of India has ordered another probe into the tech giant’s app store

• Investors Jump Off Paytm: At least six mutual funds completely divested their holdings in Paytm last month amid major regulatory trouble, while other funds six significantly reduced their stakes
• BYJU’S In More Trouble: In a fresh trouble for BYJU’S, a US insolvency court ordered the arrest of a hedge fund manager who allegedly helped the edtech major hide $533 Mn from its creditors

The post IPL Blues For Fantasy Gaming appeared first on Inc42 Media.

Last time when we caught up with things at Flipkart, our focus was on the company’s fintech ambitions, and in particular, digital lending.

Since then we have also detailed the company’s broader payments play with Super.Money and more recently the launch of UPI on Flipkart. But Flipkart is not forgetting about ecommerce, and for the past few years, this story has been written by quick commerce. So now, Flipkart is looking to bet big on grocery and quick commerce again.

This Sunday, we wanted to see whether Flipkart can get third-time lucky with grocery deliveries and quick commerce, after two relatively unsuccessful attempts over the past few years.

In the past few weeks, we have delved into the turnaround at Blinkit, the revenue momentum gathered by Swiggy and Zepto in quick commerce, which has gone from proof of concept to big business in two years. Can Flipkart emulate this rapid growth?

But before that, here’s a look at the top stories of the week from our newsroom:

• Ola’s Glacial Pace: Despite an early start in the EV mobility space, Ola Cabs has lagged its rivals when it comes to transitioning to electric vehicles for ride-hailing. Will this inertia come back to bite Ola?
• Crypto Battle At NCLT: LetsKrypto cofounder Vaibhav Shukla has moved the NCLT against the cofounders of cryptocurrency trading platform Brine.fi and investor Elevation Capital, accusing them of stealing cryptocurrencies and other assets
• ZestMoney Founders’ New Innings: Former ZestMoney CEO Lizzie Chapman and CTO Ashish Anantharaman are working on a B2B fintech venture, SwiffyLabs, which is expected to raise $100 Mn from Jio Platforms as it starts off

Quick Commerce = Revenue

The biggest factor behind Flipkart’s most recent push into quick commerce is the revenue outcome. Ten-minute deliveries are no longer just a fancy proposition, as they were in 2020 and 2021. While at that time, many wondered about the need for such quick deliveries, the persistence of platforms and the obvious convenience for consumers have won out.

Then many wondered whether the segment can see scale with profitability, and Blinkit is clearing these doubts. Cumulatively, Swiggy Instamart, Zepto, Blinkit — the three biggest quick commerce platforms — are on track to report combined revenue north of $1 Bn in FY24 as we had reported earlier.

Through improvements in customer acquisition costs and higher retention, Blinkit’s contribution margin, as a percentage of gross order value (GOV), improved to 2.4% in the latest third quarter of FY24 from 1.3% in Q2 FY24.

Zepto also reported an improvement in net profit margin from -277% to -63% in FY23, and claims to be on track to become EBITDA positive by next March. As one high-level source at Mumbai-based Zepto told us recently, “People are starting to realise that quick commerce is not only a much more concrete guarantee than people thought a year-and-a-half ago, but it’s also gonna be a much bigger category. I think there is a realisation that quick commerce has the potential to disrupt ecommerce.”

Further, sources at Swiggy told Inc42 that Swiggy Instamart’s revenue growth has come alongside an increase in take rates from Instamart. Average order value has also grown by over 20% in the ongoing fiscal year to around INR 460 per order. The company is likely to report close to INR 5,500 Cr in revenue from Instamart in FY24.

This momentum is what has attracted Flipkart to quick commerce and the large grocery pie. This offers a much larger outcome potential than what ecommerce marketplaces are currently doing given their heavy reliance on sales and discounts for growth. Brands are starting to realise that quick commerce puts them closer than ever to the online consumer and marketplaces are taking a backseat.

Grocery 3.0 At Flipkart

This thesis explains Flipkart and indeed Meesho’s push towards grocery. A recent Bernstein report suggested that quick commerce is now about 40% of the online grocery delivery category, where Blinkit is the market leader with about a 40% market share.

The emergence of Meesho as a credible challenger to the Flipkart-Amazon duopoly has also changed the dynamics of marketplaces as a category. So naturally Flipkart is looking for a valve and quick commerce is its major bet.

Over the past few years, Flipkart has taken a couple of stabs at grocery delivery between 2015 and 2017. First, it launched Flipkart Quick, which offered 30 to 90-minute deliveries in some cities. It also launched Flipkart SuperMart in 2017, which became the central focus after Flipkart Quick was phased out in November 2022.

Supermart is a company-owned channel, which required Flipkart to set up fulfilment centres. Currently, it claims to have 24 grocery fulfilment centres catering to more than 1,800 cities and 10,000 PIN codes across India, but scaling this up requires capital.

The company is expecting a further infusion from parent Walmart as part of a $1 Bn round. Walmart has committed to a $600 Mn infusion, which would take Flipkart to the next phase of growth, which the company says will be profitable growth. It has raised some portion of this funding round in a recent $111 Mn fundraise.

Why Quick Commerce Makes Sense For Flipkart

Kalyan Krishnamurthy, the group CEO of the Walmart-led ecommerce giant recently said the company has scaled up its verticals in a sustainable manner. While it continues to be a loss-making company as a whole, the group is nearing profitability on the back of a significant reduction in monthly cash burn.

Flipkart Internet Private Limited, the B2C arm of Walmart-owned Flipkart, saw its operating revenue near the INR 15,000 Cr mark in FY23, while Flipkart’s B2B or wholesale arm, Flipkart India Private Ltd, reported operating revenue to INR 55,823.9 Cr in FY23.

Cumulatively, Flipkart remains a league apart from quick commerce players, but revenue growth is a challenge, despite the meteoric rise of Zepto and Co. But the rise is noteworthy for how quickly it has come and how quick commerce has disrupted marketplaces.

One anecdotal example points to the growing significance of quick commerce: D2C brands pitching on Shark Tank India’s season 3 have routinely spoken about growth from quick commerce. The channel dominance of marketplaces is fading for fast-moving consumer goods or FMCG, and quick commerce has become a major focus area, multiple D2C brands have told Inc42 over the past few months.

Quick commerce offers a much more streamlined view on inventory for new brands and helps them adjust faster to demand supply mismatches, for instance. Sellers also appreciate being closer to their consumers and lower order returns through quick commerce. Plus, new brands see faster traction as brand discovery on quick commerce is less reliant on ads for the time being.

This perhaps explains Flipkart’s recent focus on hyperlocal logistics for quick commerce, which has been solved to a large extent by incumbents Zepto, Swiggy and Blinkit. And this is delivering immediate results, whereas clearing the pan-India logistics hurdle is a patient game.

Flipkart’s local distribution network is relatively strong given its penetration in last-mile logistics over the years through EKart. The company can leverage this intelligence and the fleet for more efficient quick commerce operations. It has also built up expertise in warehousing and fulfilment through its ecommerce journey and its various acquisitions over the years, and this is going to be a key determinant of the quick commerce battle.

There is speculation of Flipkart acquiring cash-strapped Dunzo, and Dunzo’s hyperlocal intelligence and data related to customer orders over the years will be particularly critical for Flipkart in its quick commerce bid. But given Reliance’s 25% ownership in Dunzo, talks for acquisitions are likely to take a while and the deal is not certain to materialise.

Zig Zag On Ecommerce Street

While there are some clear advantages for Flipkart thanks to its experience of creating ecommerce as a category for India, there’s little doubt that the revenue and profits playbook of existing players is a bigger trigger.

Plus, Flipkart does not have the luxury of time and cannot fail in its grocery push yet again. That’s because ecommerce and quick commerce are converging fast. And increasingly, it’s looking like the ecommerce battle in most large cities and metros will have more than two players soon.

The likes of Zepto and Blinkit are investing heavily in delivering higher-value products through their dark stores and are looking to attract D2C brands, even as Flipkart is eyeing the quick commerce territory. In other words, both segments of digital commerce are racing into each other’s way.

Flipkart, Meesho and potentially the likes of JioMart and others joining the quick commerce rush is likely to throw fresh spanners in the works of Zepto, Blinkit and Instamart. Competition means higher customer acquisition costs and that could potentially mean the loss of momentum on the profits side. And this is the competition that’s arriving with millions to spend and with strong brand recalls.

Blinkit, Zepto and Instamart have turned around the perception of quick commerce from its early days, and built brand loyalty which is paying off today. Customer service is one of the key criteria for consumers choosing a grocery delivery service, as our survey in 2023 showed.

And how will Amazon India respond? The ecommerce giant has fleshed out its fintech services in recent months, but will Flipkart’s move into grocery and quick commerce, force Amazon to take another punt at it.

Amazon Pay has continued to chug along, but just like Flipkart, Amazon has not yet become the quick commerce force it would want to be, despite heavily promoting Amazon Fresh in 2023 for its two-hour deliveries.

It will be interesting to see how the two ecommerce ‘veterans’ adjust to the new reality. But so far Amazon has not signalled a new punt at quick commerce, and instead is going after Meesho’s pie with unbranded fashion and other products.

All things considered, it’s been a while since ecommerce was such hot news in India. Quick commerce and grocery delivery is perhaps the most interesting new dynamic in digital commerce since the quick entry and exit of social commerce and live commerce. It won’t be a while before quick commerce becomes the default growth model for ecommerce.

It’s somewhat funny that this is a fight over who will deliver the most fruits and vegetables. Quick commerce has reignited the Indian ecommerce wars.

Sunday Roundup: Tech Stocks, Startup Funding & More

• WoW Funding Activity Slips: Investment activity across the Indian startup ecosystem dipped again in the first week of March after a brief uptick. Startups raised over $150.1 Mn across 17 deals, a 254% decline from the previous week
• India’s AI Warchest: As AI mania grips the world, the Indian government approved the budget for the IndiaAI Mission with an allocation of INR 10,372 Cr over the next five years driven by public private partnerships
• App Store Battle: Google has agreed to reinstate the Indians apps which were delisted from Play Store in late February, according to IT minister Ashwini Vaishnaw, but the bigger battle is likely to go on for a few more months

• Antfin’s Windfall: Chinese tech giant Ant Group’s arm Antfin Singapore offloaded 2% stake in Zomato via bulk deals for INR 2,827 Cr as the foodtech major’s share priced saw some weakness this week

The post Flipkart’s Quick Commerce Do-Over appeared first on Inc42 Media.

Chaos, anger and then some relief. It’s been a rocky two days for some of the biggest apps in India, between Thursday night and Saturday afternoon. While the standoff between Indian app publishers and internet companies and Google Play is more than three years old, the relations between the two sides have not been worse than now.

The latest feud began after Google delisted dozens of Indian apps from its Play Store.

While founders claimed Google’s actions were anti-India, the tech giant said it had given three years to the apps to comply with new terms of service for the Google Play Store. By midday on Saturday, the government seemed to have stepped in and many of the delisted apps were restored, though Matrimony continues to remain impacted, as per founder Murugavel Janakiraman.

Before we get to the bottom of the past 48 hours and what will happen next, let’s take a look at the other top stories of the week from our newsroom:

• Rise Of Semiconductors: India’s is eyeing semiconductor supremacy and startups are looking to become the engines of this future. Here’s a look at the startups laying the foundation for India’s semiconductor boom
• Celebrating D2C Mavens: The FAST42 list is back. And in the third edition, we unveiled not just 42 but 52 of India’s most innovative and disruptive D2C brands that are moving the needle in the new-age retail market
• BYJU’S Blames Investors: Troubled edtech major BYJU’S has blamed investors for its delay in paying employee salaries after claiming that it has successfully closed its $200 Mn rights issue, which is being contested in court

The App Store Rollercoaster

The startup ecosystem went into a tizzy on Friday after it was reported that Google sent notices to internet companies such as Shaadi.com, TrulyMadly, Matrimony, Kuku FM and others, saying it would take action to delist their apps for non-compliance with Play Store policies. It removed  dozens of apps soon after and later published a blog to explain its actions.

While the tech giant relied on a Supreme Court decision in its favour, the companies, which filed that case, claimed Google continues to violate the Competition Commission of India (CCI) ruling from 2022. Bharat Matrimony, Shaadi.com, Unacademy, Kuku FM, and Alt Digital Media were among the companies that filed the petition in the Madras HC soon after the CCI ruling, which the Supreme Court then heard.

Even as Info Edge — the parent company of Naukri, 99Acres and Jeevansathi — claimed on Friday noon that its apps were not delisted, this changed by the evening. And by Saturday morning, Chennai-based Matrimony said 100 of its apps have been delisted and new business has effectively shut down.

Then on Saturday, Union Minister For IT and Telecom Ashwini Vaishnaw said that actions such as delisting cannot be permitted. “The government takes a strong view of Google delisting some apps from the Play Store. We will not allow delisting of apps,” Vaishnaw told PTI.

Now, the IT minister is expected to hold a meeting with Google and the impacted companies over this issue. The next few days will involve some high-level meetings and most founders are hoping that the government brings Google to task once and for all, according to one of the entrepreneurs whose apps were delisted by Google Play.

What Went On Behind The Scenes?

Many are saying the government’s intervention forced Google’s hand as it reinstated Shaadi.com and five of Info Edge’s apps, including Naukri, Naukri Recruiter, Naukrigulf Job Search, 99acres and Shiksha. Info Edge founder Sanjeev Bikhchandani said, “The efforts were well-led by Hitesh [Oberoi, CEO] and the entire Info Edge team, working tirelessly through the night for this successful crisis management.”

Similarly, other founders we spoke to said work had been going in the background with government officials as well as with the Google team to immediately bring the apps back. Some suggested more ways of drumming up public support such as publishing the amount being paid in commissions to Google, or the ‘Google Tax’.

The biggest complaint from startup founders has been around the lack of transparency and Google’s inability to work with Indian startups directly to solve the issues.

A founder of a Delhi NCR-based tech company told us, “Google can cut sweetheart deals with Western app companies like Spotify, but it’s not willing to extend this to Indian apps, which have a similar number of users or more, in many cases. Even if the argument is that it’s a private platform and can set its policies, we can argue that it is unfriendly to the businesses, like any customer can.”

Other founders used terms such as ‘Internet Lagaan’ and ‘Digital East India Company’ to describe Google’s actions. People Group (Shaadi.com’s parent) founder and CEO Anupam Mittal claimed Google has gone from its previous motto of ‘Don’t be evil’ to “hallucinating like their GenAI Gemini”.

Did Google Bypass The CCI Order?

The CCI in its order dated October 25, 2022, found Google guilty of abusing its dominant position and imposed eight behavioural remedies, including a penalty of INR 936.44 Cr.

In response, Google amended the Play Store policy to allow companies to set up their own browser-based payment gateways and interfaces or user choice billing. One of the ways companies can implement this is through the consumption model, but even this is not ideal, founders said.

Founders told Inc42 that user choice billing has similar or higher commissions than using Google’s native billing system. Under Google Play Billing, developers were compelled to pay a commission of 15%-30%, but user choice billing only reduced this to 11%-26% and over and above this app makers have other payment gateway charges for each in-app transaction. Essentially, Google’s amended policy is a worse deal for Indian app makers.

Matrimony’s Murugavel Janakiraman, for instance, said, “Google’s consumption model will mean that users will not be able to make any payments for any services on a mobile app. They will instead have to be redirected to a desktop browser to make any purchases in the app—no payment method is allowed within a mobile app.”

Others told us that Google is not willing to budge, and this is why it’s hard for founders to negotiate with the company in good faith. “There’s a feeling that if we agree to Google’s terms now, it will decide to increase it in the near future or make it more difficult for us to get paying customers. There’s no trust in Google,” the cofounder of a Bengaluru-based media platform told Inc42.

While most of the ecosystem is seething, some are sympathetic to Google’s stance. We have seen arguments that companies knew about what was happening for three years, and the tech giant’s actions cannot be called sudden. Others also claimed that as a private company, Google can set its policies for customers, just like Apple does.

For instance, the Play Store commissions are different from what Apple charges, but at least one founder who has criticised Google for anti-competitive practices admitted that Google gets more flak because of its market share in India.

It is pertinent to note that the CCI launched a probe into Apple’s policies in December 2021 following allegations by NGO ‘Together We Fight Society’ about allegedly high commissions charged by the Apple App Store and the lack of third-party payment options on the app store. At the time, the Alliance of Digital India Foundation — an industry body comprising several startups — and the US-based dating giant Match Group also filed similar cases.

The complaints said Apple made it compulsory for app developers to use its in-app payment solution for distribution of paid digital content and pay a 30% commission. But Android is the clear market leader with an 81% share as of Q3 2023, while Apple’s iOS has a market share of 16%, according to Counterpoint Research.

Naturally, revenue from Android users is likely to be the major source of income for app publishers in India, and therefore the higher commissions on Google pinch them more. Add to this the fact that customer acquisition is not inexpensive in India and giving up a big share from every paying customer is damaging for the profitability of these platforms.

Can Play Store Alternatives Thrive?

The fight between Indian apps and Google is only about to get more intense in the next few weeks, as many are exploring accelerating the launch and promoting alternative app stores. PhonePe-owned Indus Appstore is among the front-runners to become a major Google Play Store alternative.

Even though Indus has been launched officially, it is not yet pre-installed on devices. Users have to download the app separately from the Indus website and then use the app store. As PhonePe cofounder and CEO Sameer Nigam told us a few weeks ago at the Indus Appstore launch, the company is in talks with phone makers for native integration of the app.

Indus Appstore’s launch in Delhi played host to Info Edge’s Bikhchandani, Matrimony’s Janakiraman, MapmyIndia CEO Rohan Verma, Dream11’s Harsh Jain, Hungama MD Neeraj Roy, Dailyhunt’s Virendra Gupta as well as IT minister Vaishnaw. These companies have come on board as partners for the app store, but these are early days for Indus.

Having Indus Appstore on new phones out of the box would increase engagement, but this is likely to take a few months. And it would also require PhonePe to strike high-value commercial deals with OEMs such as Oppo, Samsung, OnePlus, Xiaomi and others that are market leaders in the Android smartphone market.

Founders and investors we spoke to also suggested that the Indian internet industry can take a page out of the digital public infrastructure book to solve the app store problem.

Asking the government to directly create an alternative might not be feasible, said a Delhi-based partner at a growth fund, but working within existing frameworks is possible. “Why can’t we have apps on an ONDC-like network where any device can access them? It’s not that far-fetched given our reliance on digital public goods in recent times. It’s time to think seriously about alternatives, instead of asking the government for help every time.”

Sunday Roundup: Startup Funding, Tech Stocks And More

• Funding Bounces Up: After a slight dip, startup funding seems to have gained momentum in the last week of February, which saw $381.4 Mn raised across 27 deals, taking the total funding for 2024 to over $1.2 Bn
• Digit Gets Go-Ahead: Insurtech unicorn Digit Insurance has received SEBI’s nod for its IPO, nearly a year after refiling the DRHP for a fresh issue of INR 1,250 Cr and an offer for sale (OFS)
• Startup India’s Next Phase: The Bharat Startup Ecosystem Registry will provide a platform for scaled-up startups to mentor and help young entrepreneurs in a responsible way, believes DPIIT joint secretary Sanjiv

• Paytm’s New Avatar: Fintech major Paytm terminated inter-company agreements with the Paytm Payments Bank and will sign new partnership deals for its various services

The post Indian Apps Vs Google  appeared first on Inc42 Media.

BYJU’S has lost the faith of its investors and BYJU’S has very likely also lost Byju Raveendran.

If the all-important Karnataka High Court order comes against BYJU’S, we could see sweeping changes at the edtech giant. And after all the drama and the media war of the past week, we wanted to see whether a change in guard could change things for the troubled company.

How does that change things for the edtech giant? Will it solve all the long-pending issues at the company? What else needs to be fixed before one can claim that everything is alright with BYJU’S?

These are the questions we are pondering this weekend. But as usual, first we will dive into the other big stories from this past week:

• Avaamo’s GenAI Bet: Enterprise tech startup Avaamo is making a big play for the GenAI world and debuting its product suite with Indian IT giant Wipro, the largest GenAI deployment globally. Here’s the Avaamo story
• Mumbai’s Startup Spirit: Can India’s financial capital pull itself up the startup charts to catch up with Bengaluru and Delhi? A group of unicorn founders from the city certainly think so, but here’s why it won’t be an easy path 
• Spacetech Boost: The Indian government has fulfilled a long-standing demand of spacetech startups by allowing up to 100% FDI via the automatic route for certain sub-segments

The Battle Will Go On

Before we look at how BYJU’S might change, we must clarify that the resolutions passed at the company’s reportedly chaotic extraordinary general meeting (EGM) are not final yet. As we had reported earlier this week, the Karnataka High Court has the final say in the matter and the decision is likely to come on March 13.

In a letter to employees on Saturday (Feb 24), CEO and cofounder Byju Raveendran claimed, “I continue to remain CEO, the management remains unchanged, and the board remains the same. Put differently, it is “business as usual” at BYJU’S.”

The letter goes into detail about the illegalities of the EGM and that resolutions were passed in violation of the company’s Articles of Association and Shareholders Agreement (SHA). It ends in florid language that’s become typical of Raveendran’s communications in recent months. “To reemphasize, the rumours of my firing have been greatly exaggerated and highly inaccurate,” he claimed.

But let’s assume these are not exaggerations. Will BYJU’S bounce back simply with a new Group CEO or board?

New Leadership, Same Old Problems?

One of the curious things about the investor-led EGM is that it does not directly address the fundamental issues at BYJU’S. The problems at the company are not about the leadership but about the lack of clarity on audited financials and its cash reserves.

As Inc42 reported exclusively earlier this month, the edtech giant is expected to report total revenue of around INR 6,500 Cr in FY23, and it has touched a revenue of INR 3,500 Cr in the first six months of the ongoing fiscal year (H1 FY24).

But these are unaudited numbers. Given that we don’t have a clear picture of the FY23 and FY24 financials, is there a possibility that the company is in a worse position than what the investors believed ahead of the EGM?

The company is currently said to be seeing close to INR 200 Cr in monthly sales, but revenue collection challenges persist due to the discontinuation of partnerships with non-bank financial company (NBFC) lenders.

BYJU’S net loss surged 81% YoY to INR 8,245.2 Cr (close to $1 Bn) in FY22 as WhiteHat Jr and other loss-making acquisitions continued to weigh down the bottom line. In FY22, the startup’s total expenses nearly doubled to INR 13,668 Cr.

Whoever is in charge of the company first needs to fix this severe imbalance. A rights issue of $200 Mn or $300 Mn is not about to save the company as much as it would help keep it afloat for a few more months.

Another interesting point from a Bengaluru-based investor: What can BYJU’S do with $300 Mn that it couldn’t with more than $1.5 Bn in the past two years?

In comparison to the Term Loan B and the separate loan from Davidson Kempner, the rights issue is a drop in the bucket and might not be enough to even keep BYJU’S core online learning business ticking, let alone the offline business (BYJU’S Tuition Centres, Aakash) or higher learning (Great Learning), besides subsidiaries like WhiteHat Jr or US-based Epic.

Despite downsizing over multiple rounds since 2022, the company currently has over 35,000 employees. That itself will be a huge monthly expense for the company and $300 Mn will not go a long way with that employee base.

WhiteHat Jr in particular is bleeding heavily with its own losses; what is the plan to change this? BYJU’S lent INR 2,526.40 Cr to WhiteHat Jr in FY22, of which INR 1,735.05 Cr was due as of March 31, 2022.

In FY22, the coding edtech startup saw a 25%+ drop in revenue from INR 484 Cr to INR 356 Cr, and WhiteHat Jr’s standalone losses increased to INR 2,692 Cr from INR 1,690 Cr. The company’s losses themselves are INR 2690 Cr or over $300 Mn.

The WhiteHat acquisition has continued to underperform for BYJU’S despite being one of the biggest deals in the Indian startup ecosystem.

While the dispute between the management and investors is far from settled, how much can a potential new CEO do given this incredibly weak financial state? Plus, a new CEO will not solve the issues overnight; whoever takes charge of the company will need to get familiar with the operations, embed themselves within the company’s culture and perhaps even reshuffle some of the key managerial positions.

The company saw a new India CEO Arjun Mohan in September 2023, but the problems over the past few months, call for new leaders across all subsidiaries in the group.

Will BYJU’S Still Offload Assets?

Now let’s look at the potential sale of Great Learning, Aakash, Epic as reported in the past few months.

First, Aakash. Ranjan Pai, the chairman of the Manipal Education and Medical Group (MEMG), emerged as something of a white knight for BYJU’S when he infused $300 Mn as debt in the offline coaching entity last year, which was converted into 40% equity.

Reports indicate he is likely to infuse another $60 Mn over a period of time into the unit, where he is already the largest shareholder. Prosus, the lead external investor in BYJU’S parent Think & Learn, sent a legal notice to Pai over the latter’s conversion of debt into equity in Aakash.

Prosus is also part of the group of investors that moved the NCLT to sue Raveendran and cofounder Divya Gokulnath for mismanagement and suppression of facts, raising concerns about BYJU’S loss of control over Aakash.

Given his stake in the company, Pai and MEMG are in the pole position to take over Aakash, especially if BYJU’S efforts to raise funds fail. Given this context, a new CEO or board at BYJU’S is unlikely to have any influence on the course of events at Aakash.

The ownership of Great Learning, which BYJU’S acquired for $600 Mn in 2021, is also uncertain. As per the EGM notice, investors in BYJU’S are particularly aggrieved about the so-called failures of the management to disclose a notice of default from Great Learning in April 2022 and its consequences which had a material impact on the value of the group.

Given the default notice, it’s unclear if BYJU’S completed the transaction for Great Learning, just as questions were raised by Blackstone about the company not adhering to terms of the Aakash deal.

Neither BYJU’S nor its investors responded to questions about the default, but in October last year, reports indicated that Great Learning founders Arjun Nair, Hari Nair, and Mohan Lakhamraju held talks with investors to buy the company back from BYJU’S. The three founders are negotiating an additional equity stake with an investor consortium if the potential buyback goes through.

Epic, which is based in the US, is also on the chopping block, with BYJU’S looking to offload the company, but it is likely to have a problem selling the $400 Mn valuation it’s seeking for the deal.

Like we wrote ahead of the EGM, BYJU’S various acquisitions over the years have proved to be a costly and deadly gamble. Neither of these high-value acquisitions has proved to be anything but a burden on the company, and now given its weak financial state, it has also lost control over some of these assets, which were once quite promising.

Even if Byju Raveendran is cast away from the CEO role by the investors, these acquisitions will continue to be a big headache for the potential new management.

A Legacy Tarnished?  

BYJU’S might survive the current malevolence, Raveendran may end up being just a shareholder and not the CEO, but there are questions about the legacy of the once-celebrated founder.

Let’s not forget the way dirty laundry got aired in the media over the last week. If the high court turns down the company’s petition, the battle is likely to continue, and will further tarnish the image of the company.

Even as the management battles with investors, no one is talking about the customers. Will the company have to refund more of its users in the next few weeks? And new customer acquisition is likely to become extremely hard for BYJU’S putting the survival of the company in further jeopardy.

Some might say that the founders need to step away to preserve their legacy, the positive trajectory of the Indian tech economy and the startup ecosystem.

The fact is that BYJU’S scaled the heights till 2022 because of Raveendran’s brand equity as well as his leadership. A new CEO might save the company, but does the fact that he was replaced tarnish the legacy of Raveendran?

As many investors have told us in the past two years — amid corporate governance scandals — founders need to realise they can only take a company so far before an external professional CEO has to step in. Especially, when the company has grown much beyond anyone imagined at the early stages.

Flipkart’s acquisition by Walmart saw founders Sachin Bansal and Binny Bansal step away, as Kalyan Krishnamurthy took over. BharatPe’s governance issues saw Ashneer Grover ousted as MD, and Suhail Sameer resigned in just a year as CEO, with professional management with relevant financial services experience stepping in.

We predicted in 2023 that the ecosystem-wide focus on sustainability and profitability will force scaled-up startups to go beyond founder vision and look for operational efficiency. Growth and late stage startups with monetisation or bottom line challenges need a change of guard, and corporate governance debacles required investors to curb founder influence on operations.

But this does not tarnish the legacy of the founder themselves. No one believes, for instance, that the Bansal duo did not create Flipkart to become an attractive target for Walmart. Similarly, BYJU’S is likely to survive and even thrive without Byju, but it does not diminish the legacy of Raveendran and Gokulnath.

Startup Spotlight: 30 Startup To Watch (January Edition)

As we usher in 2024, our drive to discover early-stage Indian startups is growing, as seen in the 43rd edition of 30 Startups To Watch. What sets this cohort apart is that more than 70% of the featured startups have secured funding below $2 Mn.

In this edition, we have selected startups from a broad array of sectors, going from the ‘traditional’ startup segments of fintech, ecommerce and enterprise tech to new disruptors such as GenAI, electric vehicles and cleantech.

In line with industry-wide trends, a significant portion of this cohort is bootstrapped, signalling in no uncertain terms that raising funding is secondary to driving innovation for a startup.

Here’s the full list

Sunday Roundup: Tech Stocks, Startup Funding & More

• A Trickle Of Funding: Indian startups collectively raised $110.4 Mn across 15 deals this past week, with Rentomojo leading the list as funding in February inches close to the $500 Mn mark
• Swiggy’s IPO Dreams: IPO-bound Swiggy is changing its registered name from Bundl Technologies Private Limited to Swiggy Private Limited ahead of its potential public listing this year

• Blinkit’s Big Run: Zomato-owned quick commerce platform Blinkit is on the verge of venturing into new categories as it aims to compete with ecommerce marketplaces Amazon and Flipkart
• Uber Backs ONDC: India is one of the toughest markets, claimed Uber CEO as the ride-hailing giant jumped on the ONDC bandwagon

The post BYJU’S Without Byju appeared first on Inc42 Media.

It’s D-Day for BYJU’S as the contentious extraordinary general meeting (EGM) is expected to shine a light on a number of key issues that have plagued the company for the past two years. 

Ahead of the EGM, the management of the beleaguered edtech giant, including CEO Byju Raveendran, cofounder Divya Gokulnath and board member Riju Ravindran, is at war with the company’s investors in many ways. 

Even as the cash-strapped company is looking to raise fresh capital to stay afloat, it is facing the EGM test after pressure from a group of key shareholders. 

And in a few hours (Friday, February 23), we will find out whether the push by investors to reconstitute the company’s board and change its leadership will bear fruit.

Interestingly, ahead of the EGM, the Byju Raveendran-led company dragged its investors to the Karnataka High Court, arguing that the shareholders didn’t follow the procedures under the Companies Act, 2013. 

While the Raveendran family did get a temporary relief from the court, the troubles are far from over.

Sources told Inc42 that the EGM will be held on Friday and most of the investors are expected to vote in favour of the removal of cofounder and CEO Raveendran from the company. 

Big Questions For BYJU’S Ahead Of EGM

Inc42 has seen a copy of the notice for the EGM sent by the shareholder group on February 1, 2024, which raises concerns on several fronts at the company, including the alleged deteriorating financial and corporate governance state.

It is pertinent to note that a day ahead of the EGM, a BYJU’S spokesperson said that neither CEO Raveendran nor the other board members will attend the EGM, which the company has deemed to be invalid. 

However, sources within the investor group told Inc42 that the EGM will proceed as planned and the resolutions would be taken up for voting.

We have kept up with all the latest developments in our live blog tracking the war at BYJU’s, but what exactly is at stake? Here are the seven key questions that BYJU’S, Raveendran and Gokulnath will face at the EGM in a few hours:

Will Byju Raveendran Be Ousted As CEO?

The first point of contention between shareholders and the BYJU’S leadership is around the leadership itself. The investor group wants to replace Raveendran as the chief executive officer given the “the mismanagement and failures”, and have sought a change in management “to prevent further dilution of value”. 

Besides CEO Raveendran’s removal, Gokulnath and Byju’s brother Riju Ravindran will also face pressure from the shareholders to step down from their management roles and as directors. 

However, Byju Raveendran is expected to put up a fight against any attempts to replace him as CEO. Days before the EGM, the CEO said, “The highest duty of an entrepreneur is to support the team and shareholders. I have personally put in $1.1 Bn in the company over the last two years to pay salaries and maintain operations. I view this not as an obligation, but as my Dharma and duty. I have sacrificed everything to not fail in this duty.“

A potential change in leadership would be the biggest signal of the investors wresting control of the company amid its several challenges, but this would still not help BYJU’S dig itself out of the financial and mismanagement hole, especially given the other question that the company has to answer. 

What About Allegations Of Financial Mismanagement?

Investors have also sought answers for the alleged contraventions mentioned in show cause notices sent to the company by the Enforcement Directorate (ED) in November 2023. 

Investors allege that details about the alleged FEMA violation were only made public through news reports and that the company failed in its obligations to inform shareholders about such a large potential issue. 

Further, investors are looking for more concrete answers about the company’s failure to resolve the issues with Term Loan B (TLB), which has now resulted in another insolvency plea being admitted by the NCLT in the past week. It is claimed that the lender issues have ultimately caused severe value erosion for shareholders, resulting in a massive valuation drop during the rights issue. 

Another high profile legal battle is also on the investors’ radar. The management has been asked to explain its strategy in response to the petition filed by the Board of Control for Cricket in India (BCCI) for non-payment of dues which has also resulted in insolvency proceedings. 

The Term Loan B aside, BYJU’S also faced another issue with a lender (Davidson Kempner or DK), where the company negotiated and staked Aakash shares in exchange for a loan. CEO Raveendran is alleged to have repeatedly misled shareholders “about the existence of INR 400 Cr earmarked to partially repay the DK loan”, which was eventually not utilised for the repayment. 

BYJU’S problems with delayed audited financials are well publicised and these are also on the investors’ radar. They are likely to be brought up for discussion at the EGM. The CEO is alleged to have continuously misled shareholders about FY22 and FY23 audited financials, “in total disregard and violation of the Shareholders Agreement dated 28 February, 2019”, the EGM notice said. 

Lastly, the list of financial mismanagement allegations includes a contention that BYJU’S delayed payment of statutory obligations including taxes deducted at source (TDS), provident fund contributions for employees as well as salaries to current employees and laid-off employees

What About The Value Erosion And Failures In Dues Collection?

While most of the complaints against BYJU’s from investors and vendors in the recent past have been about unpaid dues, its management is alleged to have failed in its responsibility to recover approximately INR 1,400 Cr of billings from an affiliated reseller in Dubai (More Ideas General Trading LLC). 

This is especially alarming given the company’s dire need for funding over the last 12 months, investors allege. Investors have claimed that the company paid INR 300 Cr in commission to More Ideas despite 4X the amount pending for recovery. 

Investors are also questioning the “management’s failure to enforce the company’s rights against the Blackstone entities and Mr. J.C. Chaudhry to ensure that the company’s entitlement to their Aakash shares is upheld”. 

The management team is said to have acted in contravention to the company’s counsel’s opinion regarding its obligation under the terms of the Aakash acquisition deal. Lenders of BYJU’S $1.2 Bn Term Loan B approached the Bengaluru civil court in early 2024, seeking an ex-parte injunction on the transaction allowing Manipal Education and Medical Group’s Ranjan Pai to convert a loan of about $250-$300 Mn he had advanced to Aakash Institute into equity.

While the court declined to admit the plea challenging the 40% stake buyout, the matter is far from over as investors are now seeking answers for the prolonged state of uncertainty around Aakash, for which BYJU’S is said to have paid nearly $1 Bn. 

Why Did The Management Conceal Material Information From Shareholders?

Investors in BYJU’S are particularly aggrieved about the so-called failures by the management to disclose a notice of default from Great Learning in April 2022 and its consequences which had a material impact on the value of the Group.

Raveendran and the other leaders in the company have also been alleged to have failed in their responsibility to disclose transfer of funds to Camshaft Capital Fund. The company moved $533 Mn from the $1.2 Bn loan to Camshaft, a three-year-old hedge fund, which many have deemed to be a suspicious transaction. The CEO will be questioned on the level of diligence carried out on Camshaft prior to the transfer of funds and the consequences on the consolidated business. 

Other allegations pertaining to concealment of material information include “failure to disclose potential departures of key management personnel”, “the state of the group’s trading financials and the material discrepancy between MIS or guidance provided relative to actual results”, and “failure to accurately disclose the level of available capital”. 

Assurances by the management about the company’s cashflow breakeven status have also been alleged to have been false, in addition to failures to disclose legal action by lenders, the ED and the BCCI, as mentioned earlier. 

Did The Company Breach Its Obligations To Shareholders?

Most seriously, BYJU’S management is alleged to have committed deliberate and repeated breaches over the years in terms of reporting information to investors and the inspection covenants under the shareholders’ agreement. 

These include lack of information and updates regarding its audited financial statements, management accounts and monthly management reports or MIS of each group company. Investors also claim that the company failed in its responsibility to disclose its cash reserves, outstandings, financial liabilities, and shareholding pattern of group companies. 

Shareholders are also looking for answers on lack of information pursuant to inspection rights held by investors, the lack of observers at board meetings, and allegedly not allowing shareholders to exercise rights in relation to board observer positions despite repeated written and oral requests.

How Did Corporate Governance Lapses Occur At Such A Large Scale? 

The company has been asked to submit its performance review process with reference to evaluating the performance of Raveendran as CEO and managing director, as well as Gokulnath and Riju Ravindran as directors.

Besides this, status updates on critical matters, including the rights issue, the terms of the Aakash acquisition, and further fundraises, have been sought. 

As mentioned above, investors will press for answers on the status of investigations by the ED, the Ministry Of Corporate Affairs, and the Serious Fraud Investigations Office (SFIO). The management is likely to be asked to reveal the steps and measures it will take to improve corporate governance across its group companies. 

Will A New Board And CXO Suite Take The Helm?

Finally, shareholders are looking for clarity on CEO and CFO status for each entity in the BYJU’S group, as well as “interim succession plans including authorisation to hire a third-party to act as temporary CEO for the consolidated entities”.

These requests in the EGM notice are in relation to the replacement of the existing management layer, which as we have pointed out above, are alleged to have abdicated their responsibility in terms of corporate governance lapses. 

The investor group is seeking a reconfiguration of the company’s board to allow proper oversight of the company’s decisions and to prevent further shareholder value destruction. 

Specifically, the management is being urged to have shareholder representation, independent directors, and board committees in its boardroom layer to consider and approve amendments to the shareholders’ agreement and articles of association as may be required given the many changes that are being sought in the company. 

Shareholders want nine members appointed to the board within 15 days of the EGM, three new independent directors within 30 days of the EGM, and three shareholder directors and two company executive management employees on the board within 15 days of the EGM.

Among other personnel changes requested by the company’s shareholders is the appointment of a chief compliance officer and a senior regulatory affairs official to address compliance, regulatory, government affairs 

Byju, Riju and Gokulnath would also have to consider the requests regarding beginning an independent third-party forensic investigation into acquisitions, alleged breaches mentioned above as well as regulatory and statutory affairs. 

The War At BYJU’S

While the company’s shareholders have requested for clarity on the seven issues above, we are not yet sure which of these will be directly addressed by Raveendran and others in the management layer. 

Given the fact that BYJU’s moved the Karnataka High Court looking to invalidate the EGM request and Raveendran and family have decided to skip the meeting, it remains to be seen how the situation pans out. Any resolutions passed at the EGM cannot be ratified as per the HC’s order. The next hearing in this matter is scheduled for March 13, 2024. 

However, what cannot be denied is that Raveendran, Gokulnath and BYJU’S management are on thin ice, even if they are able to fight off the investors on any of the above demands and requests. 

By the end of Friday, the BYJU’S we have known for over a decade might not be the same company, and it could very well send shockwaves across the entire startup ecosystem, given how significant the company has been in India’s startup and tech narrative.

The post 7 Big Questions For BYJU’S Ahead Of The All-Important EGM appeared first on Inc42 Media.

“For GenAI, last year was the honeymoon year. Which was about being amazed with what you can do with it. Today, we are in the meat and potatoes era. And now enterprises are asking themselves, how can I save money?” — Ram Menon, cofounder and CEO, Avaamo

If 2023 was the year of generative AI (GenAI) and GPT models, for Avaamo CEO Menon, it’s been 10 years in the making. Founded in 2014, Avaamo has seen the trajectory of AI-enabled enterprise services up close.

From conversational AI to call centre AI to low-code machine learning and automation skill building, Avaamo has seen the AI ecosystem mature and reach the crescendo that’s ringing today. And now it’s getting ready for the GenAI world with Avaamo LLaMB, a suite of products developed specifically for large enterprise use cases.

While Avaamo has worked with the likes of Pepsi, HSBC, Intel and other massive enterprises, LLamB is debuting with a deployment at Wipro, which Menon says is the largest GenAI deployment globally, addressing 40+ use-cases for more than 2 Lakh employees across the world.

Besides being the first customer for Avaamo LLaMB, Wipro’s corporate venture capital arm Wipro Ventures was the first investor in Avaamo way back in 2014. So, in a way, this is a full-circle moment for Avaamo, as it celebrates its 10th anniversary this year. And it’s this decade-long journey that has given Menon and cofounder and CTO Sriram Chakravarthy a unique viewpoint on the massive GenAI opportunity relatively early.

Before Avaamo, Menon was part of the early team at TIBCO, another enterprise software giant, which was acquired by Vista Equity Partners in 2014 for $4.3 Bn.

Avaamo cofounder Chakravarthy is also a TIBCO alumnus and was the VP of engineering at the time of the acquisition. The duo have over four decades of combined experience in the enterprise tech space.

As Menon tells Inc42, “When we got to GenAI, I dare say that we knew a thing or two about natural language interfaces. Salesforces and other enterprise giants came in 10 months ago, but we’ve been doing it and dealing with all the mistakes and we have all the scars on our back from servicing these large customers. So it was relatively easier for us to incorporate GenAI into existing enterprise frameworks and architecture.”

Avaamo LLaMB is primarily a low-code framework that enterprises can use to build generative AI applications for their specific use cases.

Menon claims this is faster than anything else in the market. He believes that the use of generative AI in the enterprise has been mostly experimental with products around retrieval-based generation use-cases with a few documents. This does not unlock the true efficiencies in productivity and operations that GenAI promises to bring.

The LLaMB framework, on the other hand, is focussed on key challenges in enterprise adoption related to the accuracy of responses and data security — eliminating hallucinations, bringing together siloed enterprise data and content, automating cross-enterprise workflows and allowing large companies to accommodate any large language model (LLM) that suits their operational needs.

In a press statement, Anup Purohit, CIO of Wipro, said, “Avaamo and Wipro have created novel ways to improve employee experience using GenAI. We have been working together to implement an AI playbook and have deployed over 40 use cases for 200,000 employees spread over 53 countries. By building on Avaamo’s GenAI technology in new and secure ways, we plan to continue our digital transformation journey and further enhance our employees’ experience.”

Over the years, Avaamo has raised more than $30 Mn from the likes of Intel Capital, Ericsson Ventures, and Mahindra Partners, among others.

Avaamo’s GenAI Playbook For Enterprises

The central tenet behind Avaamo LLaMB is that enterprises do not want off-the-shelf LLMs that can be arduous and more expensive to manage due to their inability to cohesively parse through critical enterprise data, unsecured prompt environments, as well as lack of data moderation.

Chief information officers across enterprises are excited by GenAI, but almost everyone recognises the dangers of letting an LLM loose on company data. Enterprise-grade accuracy and security are paramount.

Avaamo’s LLaMB’s suite of capabilities is build around four key pillars:

• Trust Architecture: Encryption of all prompts with a zero retention guarantee and GDPR, CCPA, and SOC2 compliance.
• Dynamic Prompts: Lower burden on enterprise developers to craft, manage or update prompts and support for custom libraries for accurate responses
• Data Sync: Connectors for structured, unstructured, or semi-structured enterprise systems
• Data Moderator: Monitoring responses for tracing weak, contradictory, or outdated information and actionable insights to identify and plug gaps

To start off, the LLaMB framework enables self-service experiences across call centres, HR, IT, procurement and patient communication in healthcare.

Menon showed us a demo where an employee could simply talk to their in-house LLaMB-powered travel desk or IT procurement agent to book the right kind of itinerary or get access to the right device, according to their level in the corporate structure or budget allocations.

“The problem with the open model is inconsistency. And sometimes this can be disastrous. Take a practical example such as summarising documents when employees ask the platform a question. AI can summarise a travel policy because this is not critical data, but it cannot, for instance, summarise an FDA warning to a healthcare organisation, where each line and specific wording matters. Or it cannot summarise a lender’s disclosure.”

Enterprises want GenAI tools that understand precisely which information to surface as well as the organisation’s intricacies. This is a critical contributor of trust, Menon says.

Another friction point is the provenance of an answer. Where is the response from GenAI coming from? “For instance, is it a citation and which revised version of the document is it coming from? Enterprises need explicit dates and the context of the creation and how it adheres to that data policy,” Menon says

Avaamo’s approach revolves around the dynamic grounding of the data, where the model doesn’t invent anything or doesn’t create content. It only uses content that’s verified to be from the enterprise.

While enterprise SaaS promises to rid large businesses of inefficiencies, one of the key gaps is engagement and compliance with tech platforms. Often the burden of using a separate platform results in employee engagement dropping off, resulting in low ROI on the spending.

Avaamo’s LLaMB is looking to eliminate this giving CIOs the flexibility to choose between Avaamo’s interface or consume the framework as an API. So if a company relies on Microsoft Teams or Slack for communication and workflow management, LLaMB can be accessed through the chat dialog box like any other contact or bot. Wipro, for instance, is deploying Avaamo LLaMB within Teams, which Menon says results in faster and more immediate adoption.

Menon is confident that the enterprise adoption wave will be the big inflexion point for GenAI applications. As per Inc42’s report on the Indian Generative AI Landscape, the global market opportunity around GenAI is poised to grow to $552 Bn+ by 2030.

Further, beyond enterprises, GenAI adoption among startups is also set to boom with nearly 3/4ths of startup founders surveyed by Inc42 last year eager to increase their technology spending by up to 30%.

While he also expects the adoption to trickle down to smaller and mid-cap companies in the GenAI future, Menon’s sights are largely set on generative AI for enterprises, because as he says Avaamo’s DNA is built around large outcomes.

Besides embracing Avaamo’s LLaMB framework, Wipro has launched Wipro ai360, which is envisioned as an ecosystem of AI products and solutions to be used internally by the company and offered to its clients. The IT giant also committed to making a $1 Bn investment in improving AI capabilities over the next three years.

Other Indian enterprises such as Reliance Jio and Infosys are also ramping up their investments in this space.

Bringing Wipro on board for LLaMB is a big signal about India’s place in the GenAI market, Menon says. The company is eyeing the Indian market not just for deployment but also from a talent point of view. “Roughly 70% of our company is in India. All this technology is being built in Bengaluru. We are a startup, but we are a mature startup. Plus, when you’re profitable, it gives you freedom to build a business the way you want it,” the CEO tells us.

Avaamo’s focus on next-gen tech means it also has to bear the burden of identifying and training the right talent. “We found great engineers in Bengaluru and we also do a lot of recruitment from my alma mater Manipal University, and BITS Pilani, where my cofounder graduated from. We bring graduates from these and other colleges, we train them and we send them to the US. So we have methodically built a startup in a very different way,” Menon adds.

His mantra is not focussing on headlines, not burning money, and being product-first. Of course, the world’s largest deployment of GenAI for enterprises means Avaamo is definitely among the headlines now.

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