With each passing year — and we have had 10 years of recaps and predictions — the future of technology seems less and less certain. But despite the nature of ever-evolving technology, we try to predict where the Indian tech and startup ecosystem is heading.

And so it is in 2024, after the past year that has had its fair share of challenges, success stories and everything in between. We have, of course, taken a look at how the key sectors will look in the new year in our Indian Tech Outlook 2024 series, but there are still some bigger questions to answer:

• Are startups and IPO-bound companies ready for geopolitical headwinds and setbacks?
• Will policies and laws around emerging technologies hold back innovation or spur it?
• Which sectors will face the biggest test with the rise of emerging technologies and regulations around these new areas?
• How will generative AI change the game in 2024 — not only for startups but also for tech behemoths?
• How will the focus on profitability and sustainable models impact Indian VCs, startups and listed tech cos?
• How will the corporate governance debacles of the past two years impact VCs and founders?

We made 24+ predictions last year, and roughly 50% of them were on the mark, while a fair few were just shy of hitting and might come to happen this year. But this time we have eight major predictions for the Indian tech and startup ecosystem for 2024 — along with nine micro-trends that we foresee.

Consumer Services — Get Ready To Pay More For Streaming, Deliveries, Mobility

Platform fees became a thing in 2023 and they are unlikely to be phased out, especially given the clear revenue spike these fees have given to the likes of Swiggy and Zomato.

While Zomato reported two profitable quarters in FY24, Swiggy is also said to be on track to hit the milestone of profitability sometime in 2024. What’s more — both are now charging restaurants a per-order fee as well. So, in some ways, the food delivery giants are turning into double-sided marketplaces.

Quick Commerce Joins Fee Spree: When it comes to quick commerce, similar fees are being tacked on to every order under various names such as handling charges or packaging charges, so expect big announcements from Zepto, Blinkit and Instamart about unit economics improvements.

Ride-Hailing’s Revenue Thirst: On the mobility side, the drive for revenue has resulted in new models such as Ola Prime Plus or Namma Yatri’s subscription plans for driver-partners.

Essentially, the discounts and rebates that were used to grow the user base have given way to the most active users paying a small fee per transaction, or sometimes even for basic services like no cancellations.

Uber, which is striving to turn profitable in India, is also likely to follow suit with such plans in the next year.

OTT Hikes Looming? These platforms are banking on the fact that the most active users will continue to transact, even if other users might drop off. That’s also the rationale that the likes of Netflix and Amazon Prime are likely to use to hike their prices, to defend against the potential threat from a JioCinema-Disney+ Hotstar merger.

Can ONDC Fix Fee Anxiety? The X-factor is ONDC, which could create a new market for the users who grow weary of platform fees. The open network is already bringing some relief to consumers through its seller apps for food delivery and mobility, as we have written in the past year. Expect more such disruptions in 2024.

VC Ecosystem — Consolidation, New Thesis, Partner Rejigs

Partner exits, new fund managers, new funds and old funds slowing down or exiting India altogether —  as we said in our recap of the year for VCs, it wasn’t an easy year, and 2024 is unlikely to come as a relief.

AI Bets With Eye On Exits: The focus on early-stage investments will continue with AI startups getting a bigger chunk of the seed money, but investors are more likely to back those startups that have products and business models ripe for acquisitions by big tech giants.

Deeptech and AI will become a key thesis focus for VC funds as they look for early-stage bets.

After the low returns on existing capital deployed, VCs will prioritise exits in 2024. The movement towards exits began in 2023 when 56% of the investors surveyed by Inc42 reported exits in their portfolio in the year. But it won’t be easy to find the right early bets in GenAI.

Portfolio Consolidation On The Cards: Given the upheaval at VC firms such as Lightbox and Omidyar Network India, we can expect their portfolio companies to face fundraising challenges in 2024. Consolidation of portfolios between firms is also on the cards given that many key partners are looking at new thesis areas.

One also cannot rule out Sequoia-like restructuring when it was rebranded to Peak XV Partners. Foreign funds are definitely watching the regulatory situation closely to restructure their partnerships.

Dry Powder At The Late Stage: Of course, the elephant in the VC room is the dry powder they are holding, and all indications are that this capital will be deployed in pre-IPO rounds or in late stage companies that are set for IPOs in 2025. Investors and startups are anticipating public listings of tech companies in FY25 from the April-June quarter onwards.

As Inc42’s Indian Startup Investor Ranking & Sentiment Survey, 2023 indicates, 38% of investors active in India failed to deploy even 50% of their allocated budget into startups in FY24. Smaller funds will continue to look for early-stage bets to exhaust this dry powder.

In larger funds, the need to deploy this capital will shift focus to late-stage rounds, unlike the past two years when seed was the preferred stage. There is likely to be more pressure on VCs to deploy capital from funds that are running close to expiry.

Big Tech’s Comeback As Investors? Moving on, our conversations with VCs indicate that fundraising will be a struggle for firms as LPs continue to question the ongoing corporate governance debacles.

As a result, big tech companies are slated to once again return to the investment fold after a quiet few years. This is in line with the focus on generative AI startups and AI models emerging in India, which will become attractive acquisition targets for tech behemoths such as Google, Facebook, OpenAI and others.

Fintech — Super App Platforms Will Face The Jio Financial Services Test

If 2023 was the year of super apps, 2024 will be the year of Jio Financial Services (JFS) as Mukesh Ambani’s grand plans in the BFSI space will be seen taking shape.

Jio Wants It All: Already, there are murmurs of Jio disrupting spaces such as consumer durables, merchant lending, personal loans and more. And with the Jio Payments Bank licence, the company is also in the fray to push its payments business which has been lagging behind the competition for many years.

Of course, the likes of Paytm, PhonePe, CRED, BharatPe, Groww and others are unlikely to watch JFS eating their lunch. Expect several new products from these unicorns and listed giants as they push to improve their revenue mix and capitalise on their user base, particularly the ones that are eyeing IPOs in 2025.

Paytm’s Crunch Year: After going through an up-and-down year, Paytm will likely focus on merchant acquisitions in a bigger way as indicated by CEO Vijay Shekhar Sharma, especially given its new lineup of payments devices. This is the best approach for the company, which had to scale back its consumer lending play in late 2023.

Acquisitions On The Card: Of course, one cannot rule out JFS taking the inorganic route to expansion and growth. Reliance Jio and Reliance Retail have banked on high-profile acquisitions in the past few years and this playbook has worked out well for both giants. The fintech landscape’s diversity offers JFS the chance to become the acquisition king in 2024.

Corporate Governance — Serious Consequences For Founders Caught In Legal Probes

Startup founders are used to being in the headlines but not in the way that we saw in 2023. From Ashneer Grover and Rahul Yadav to GoMechanic’s four cofounders and Byju Raveendran, the cofounder and CEO of India’s highest-valued startup (at least till a while back) — many found themselves caught in legal tangles for various reasons.

Lawman Knocking: Some of these founder-related issues are more serious than others with fraud allegations being investigated by the Economic Offences Wing and the Enforcement Directorate. These investigations and inquiries will run their course in 2024, but corporate governance and fraud issues often go under the radar for months before surfacing.

Will many more unicorns and high-profile founders find themselves caught in the legal net? That’s uncertain, but there is a growing concern that a lot of issues have been swept under the rug, and the rejig at VC firms will likely unearth many more cases where founders are hit by fraud allegations.

Erosion Of Trust: “VCs didn’t realise the amount of risk and liability that they are subject to, because they trusted a lot of founders,” at least one early-stage investor told us earlier this year, adding that as this trust erodes there will be more cracks that appear in the woodwork.

However, despite these measures, the sentiment among founders is that investors are not doing enough to improve their role in corporate governance. As Inc42’s Annual Funding Report, 2023 showed 54% of the surveyed Indian founders rated corporate governance measures by investors as moderately or barely effective.

Fate Of IPOs — Geopolitical Tensions Will Complicate Funds Inflow

Ola Electric, Awfis, Firstcry — and a slew of other startups — are lining up for the public markets in 2024. But these best-laid plans could face a curveball with geopolitical conflicts raging in Europe for the past couple of years, in the Middle East and even closer to home in Asia.

A recent EY report looking ahead to 2024 said, “Current events muddy the geopolitical outlook and raise the risk of more significant conflict escalation in the year ahead. But what is crystal clear is geopolitics has become a multiverse: a complex mix of alliances and rivalries, with overlapping bilateral, regional and other types of institutional groupings.”

War, Everywhere: India and Japan are wary of China’s transgressions, while North Korea is reported to be increasing its war-readiness in light of what it believes are US-led confrontations.

For instance, the domestic markets saw some negative sentiments in early October as the Israel-Palestine conflict escalated.

According to investment advisory CapitalMind, “Geopolitical risks create uncertainty, which weighs on economies and equity markets as investors become more risk-averse. This can lead to lower stock prices, especially in the short term.”

Covid Fears Are Back: To make matters worse, there are fears of another wave of Covid hitting big economies — signs of which are already becoming apparent in India. While optimism is high among IPO-bound companies about 2024, they cannot afford to overlook the macroeconomic impact of these conflicts.

The Influence Of Polls: The fact that both India and the US are set for major elections does not make the situation any easier for companies eyeing public markets. In the Indian context, the General Elections will influence market activity and investor confidence to a great extent.

Lightspeed Venture Partners’ managing director Anuj Bhargava believes that generally investors are more cautious and wait for big political events to take shape. “When you have something this substantial coming up, I think people normally like to wait and see the outcome before they make big decisions and IPOs are normally very big decisions… Investors also wait on the sidelines.”

GenAI Revolution — Global AI Regulations; New Realities For Startups

There’s little doubt that 2023 was the year of GenAI and it has already become a crutch that startups and listed companies are relying on to reduce overheads, human resource dependency and more.

But one aspect of the GenAI revolution will become more prominent in 2024 — the push for global or universal regulations to tackle the rise of inauthentic or AI-generated content, ethical AI, deepfakes and other unsavoury aspects in this context.

New Roles, Bigger Budgets: Startups and enterprises will also have to deal with new realities that emerge with the rise of generative AI. For one, we are likely to see more and more companies appoint Chief AI Officers to tackle organisational readiness for emerging technologies.

At least 84% of Indian chief executive officers (CEOs) are raising new capital or reallocating budgets to invest in generative AI, compared to 70% globally, the EY CEO Outlook Pulse 2023 report said.

India-First Models: Startups in LLM ops, AI training, vertical generative AI and localised LLMs will also become more prominent in the year ahead, with India-specific models coming to the fore.

We saw some signs of this in 2023, with the likes of Sarvam AI bagging large early-stage rounds and startups such as Giga ML while the launch of Bhavish Aggarwal-led Krutrim SI was also widely followed by those in the ecosystem.

Early Bets, But Which Ones? The focus of early-stage accelerators is squarely on AI and deeptech too, and in 2024, we are likely to see generative AI become more horizontal than ever before as adoption grows across sectors — even if some of these will largely be experiments for the most part.

Companies are still figuring out how to leverage AI beyond increasing efficiency and reducing turnaround times for customer support, content creation and user experience features.

Peak XV managing director Rajan Anandan told Inc42 in October that India is witnessing the incredible growth of AI and deeptech innovation, as well as the abundant talent in these sectors. “It seems that more and more companies are AI companies today,” Anandan added about the latest cohort of Peak XV’s Surge accelerator.

That said, many investors also acknowledge that early bets can be hit or miss and there is a risk of spray-and-pray in generative AI investments.

Ecommerce — Amazon-Flipkart Duopoly To See Cracks

For years now, ecommerce in India has been all about Amazon and Flipkart. Snapdeal, Paytm Mall and a host of other marketplaces fizzled out, but the two giants have continued to grow larger.

Meesho’s Time To Shine? Between 2019 and 2021, D2C brands tried to shake off the duo but realised they could not afford to ignore their reach and scale. But in late 2022, Meesho looked to break this duopoly, and in 2023, the company claims to have done just that.

While Meesho’s financials are not yet out, the Bengaluru-based unicorn claims to have crossed INR 5,000 Cr in revenue in FY23 and cut its losses by 50%. Meesho’s focus has been on small sellers and low-ticket-price items, which dot India’s unorganised retail channels.

Digitising this class of merchants has seemingly worked out for Meesho, even though Amazon India and Flipkart still have a significant revenue and logistics advantage. In 2024, Meesho is likely to focus on the latter to unlock more efficiencies.

Everyone Joins The Ecommerce Race: Beyond Meesho, Amazon and Flipkart have to deal with Reliance’s JioMart, TataNeu as well as the rapidly-growing quick commerce platforms which have creeped into the marketplace territory with their dark store models. Blinkit sells books and electronics; Swiggy Mall (formerly Maxx) has Dipak Krishnamani, a former Amazon marketing executive, leading the business.

In other words, the duopoly of Amazon and Flipkart has never looked shakier, and 2024 promises to revive the ecommerce royal rumble again. Walmart-owned Flipkart is readying a war chest of $1 Bn to get set for the battle and also take it through to the public listing, similar to what PhonePe did in 2023.

There was some speculation that Meesho might once again revisit its live commerce and social commerce thesis in the near future, through acquisitions of short video platforms. Social platforms such as Josh, Sharechat, Roposo and others have struggled to maintain the momentum they once saw and could become acquisition targets for Meesho and others

Policy Headwinds — New Challenges For Edtech, Ecommerce, Fintech, Big Tech

Continuing on the ecommerce theme, there is another potential headache for the marketplace giants. The Indian government has already stated that the National Ecommerce Policy is coming in 2024, and besides this, the social security code for gig workers could also see the light of day after years of delay in its implementation since the initial announcement.

Rules Of The Ecommerce Game: The ecommerce policy is widely expected to be in favour of small sellers and could further complicate the holding structures of marketplace giants and the alleged preferential treatment for some large sellers. Besides this, discounting and predatory pricing are two other points where the policy could disrupt the existing incumbents, allowing room for more players to break through.

Will Gig Workers Get Their Due? With issues in gig economy platforms persisting in 2023, the social security code could be a much-needed relief for part-time delivery workers and mobility partners. In particular, startups and platforms would have to allocate a portion of their revenue for gratuity, pension, provident fund contributions and insurance of gig workers.

In this context, the rising reliance on platform fees also makes sense. The logic being that companies would charge consumers to pay for workers. How this impacts the profitability of platforms remains to be determined.

The Question Of Data: Another key piece of the policy puzzle is the Digital Personal Data Protection Act and the much-discussed National AI Policy. The former is expected to give a few headaches to fintech, social media, enterprise tech and services companies, while the AI policy is likely to mandate stricter rules to deal with AI-generated content in media.

We have covered the contours of the DPDP Act, which brings clarity to users on how their data can be used by companies and also informs tech startups on how they must deal with users’ personal data, and consent. But, as we reported, many entities have highlighted that the law falters on aspects like implementation and a few other parameters.

All-Important AI Regulations: There is far less clarity on what a potential AI policy might entail, but if recent statements by the government are any indication, there is some momentum on this front as well. In the inaugural statement at the virtual G20 summit, PM Narendra Modi called for using technologies such as AI in a responsible manner.

Union IT minister Ashwini Vaishnaw is said to have discussed the issue of inauthentic content such as deepfakes with representatives of social media platforms in November. Which direction will India’s AI policy take and how significant will India’s mass of users prove in negotiations for global AI regulations, even as big tech companies such as Google, OpenAI, Facebook and others dominate this space. Expect more clarity on this in 2024.

…And Nine Other Trends (Very Briefly)

1. Casual & Mid-Core Gaming To Change The Game As RMG Fades Into The Background 
2. More Unicorns Eyeing India IPOs Will Look To Reverse Flip 
3. Green Hydrogen, Circular Economy Will Take Climate Tech Beyond EVs
4. Mid-sized IPOs To Be The Theme Of 2024 In The Public Markets
5. Generative AI Will Be The Latest Reset In Edtech After Hybrid Models
6. Kirana Tech Wave Of 2020 Will Die Down, Acquired By Quick Commerce Leaders
7. Geopolitical Tensions Will Clip Global Ambitions Of B2B Players
8. Social Media Platforms Will Bank On GenAI To Fill Creator Gap
9. Generative Coding Will Change Cybersecurity Game — For Attackers And Defenders

The post Inc42’s Indian Tech & Startup Predictions For 2024 appeared first on Inc42 Media.

It’s been a busy year for Bhavish Aggarwal and 2024 promises to be nothing less. With Ola Electric filing for its IPO on the cusp of the new year, Aggarwal is in for a nervous few months and lots of twists and turns ahead.

Ola Electric’s INR 5,500 Cr+ IPO, coming just seven years after its incorporation, is not just going to be crucial for Aggarwal, but also a test for India’s electric vehicle market. Interestingly, Ola Electric is looking to go public at a time when India’s EV ecosystem has just begun to find its feet. It’s also the first auto sector listing in two decades.

Despite doubts about how quickly the EV market can grow, the stage is set for Ola Electric to be the first Indian EV startup to go public, and it’s now time to look ahead. The big question for Ola Electric and Aggarwal will be whether public markets will embrace EVs and a new-age company in a sector led by giants.

But for now, we can of course read between the lines of Ola Electric’s pre-IPO filings to see where the EV giant stands today. But first, here are our top stories from the newsroom this week:

• Bhavish Aggarwal’s Other Big Bet: At a time when the LLM fight seems to be intensifying worldwide and in India, Aggarwal-led Krutrim aspires to develop AI-centred cloud infrastructure and more. Here’s our deep-dive
• The Big VC Rejig: Partner exits, venture capital firms pulling out of India, rebranding and separation of VC structures and new fund managers coming into the picture — we recap a troubled year for India’s investor ecosystem
• PhonePe’s Billion-Dollar Year: PhonePe built a war chest in early 2023 and soon after came a flurry of new products that have changed the company considerably, as it steps into 2024

Ola Electric IPO In A Nutshell

Firstly, let’s look at the key details of the IPO itself. The public issue comprises a fresh issue of INR 5,500 Cr and reports indicate an offer-for-sale (OFS) component of INR 1,750 Cr for 9.5 Cr shares.

Aggarwal and major investors such as SoftBank, Temasek, Tiger Global, Alpha Wave, Tekne Capital and Matrix Partners are slated to offload their shares, with the founder and CEO leading the way here with half of the OFS section.

The EV unicorn plans to deploy the capital raised towards setting up its Ola Gigafactory project — targeting 100 GWh capacity for battery production at full scale —  to manufacture EVs, batteries and other components. Proceeds will also be utilised for research and product development, organic growth and general corporate purposes, including paying off some debt raised by Ola Electric.

Finally, the draft red herring prospectus (DRHP) made financial disclosures that Ola Electric reported a loss of INR 1,472 Cr in FY23, growing 1.87X from INR 784.1 Cr in the previous fiscal. Revenue from sales of EVs jumped more than 7X to INR 2,630 Cr in FY23 from INR 373.4 Cr in FY22.

The company also shed light on its financial numbers for the first quarter (Q1) of FY24 where loss stood at INR 267.1 Cr on an operating revenue of INR 1,242.7 Cr. So, essentially, Ola Electric has reached nearly half of its FY23 revenue in the first quarter itself.

That is significant growth for a company that’s just over two years into actually starting its OEM business by shipping units. How exactly has Ola Electric managed this?

What Can Ola Count On?

The company started with two models in 2021 and currently has a portfolio of five scooter models, which it retails through the Ola Cab app, dealers and experience centres.

As per the DRHP, the company operates a full-fledged omnichannel distribution network that comprises 935 experience centres, including 414 service centres, as of October 2023.

In October, Ola Electric also raised a mammoth INR 3,200 Cr funding round, in a mix of equity and debt, that saw participation from Temasek, SBI and others. This is the capital it is deploying to ramp up sales in 2023.

EV two-wheeler registrations have been seeing a solid growth momentum for the last few months, and rose 14% month-on-month (MoM) in November to cross the 85,000 units mark. Ola Electric made the most of the festive season rush for new EV two-wheelers and continued to lead the market by a distance. Its scooter registrations jumped over 14% MoM to 27,331 units in November 2023 from 23,821 units in October.

Besides the festive season, the high demand for Ola Electric scooters comes from its new product offerings. Ola Electric launched a new S1X model in three variants in August this year, with deliveries beginning in mid-September.

Further, Ola Electric tied up with Ola Cabs and brought its EVs into the ride-hailing arena.

As per Ola rider partners that Inc42 spoke to, the company is offering these bikes at an upfront security deposit of INR 5,000 (as of early December) and there are no other costs involved for the rider partners. This model, which opens up a new channel for Ola Electric, is also expected to play a big role in the surge in registrations and potential sales in the months to come.

These are all positives for the company in the crucial run-up to the public listing when its bankers would pitch the model to potential investors.

But in balance, the sales boom for Ola Electric masks many of the pain points that industry experts have raised in the past. Beyond this, the DRHP also includes some of Ola Electric’s admissions of risk factors.

What Are The Red Flags?

For one, the DRHP also gave an insight into the risks of growing operating losses in the near term, adding that it may face significant delays in setting up its Gigafactory due to the uncertain timelines around key government approvals. Any delay would result in rising costs for the company in the near future.

There is also the risk that the company is unable to achieve the level of automation and precision required for cell manufacturing, the DRHP highlighted.

As we had reported in the past, Ola Electric currently has a production capacity of up to 2 Mn scooters annually. It plans to increase this capacity to 10 Mn scooters per year. However, last year the company sold just over 155K scooters.

Speaking to Inc42 earlier, Dr Deb Mukherji, the former MD of Omega Seiki Mobility, said that Indian EV two-wheeler penetration is far too low and Ola Electric’s projections seem too bullish, unless the company expands to international sales.

“India hardly consumes 6 Mn scooters in total. Even if we assume a 50% conversion to EVs, the figures claimed by Ola Electric simply don’t add up,” Mukherji had said then.

There’s another potential risk for Ola Electric in the long run.

The fire incident involving Ola S1 Pro scooters in Pune last year led to Ola Electric paying a fine of INR 15 Lakh. Whether the company is likely to face a similar fine in the future is uncertain, but there have been other reports of safety incidents since last year, which may still be investigated.

After commencing deliveries in December 2021, the company has allocated INR 68 Cr for warranty expenses as of June 30, 2023, increasing from INR 44 Cr and INR 12 Cr as of March 2023 and March 2022, respectively.

Ola Electric is yet to complete a full warranty cycle since the policy covers three years, and the company says it has only seen a limited number of claims for the scooters it has sold. The key here would be to ensure high-quality production and high safety standards, where the EV market is yet to prove itself.

Will Markets Ride On Ola Electric?

While Ola Electric has joined a growing list of Indian startups looking to list on the bourses in 2024, it is pertinent to see what the market is looking for right now.  It’s widely expected that the bearish sentiment of the past couple of years will subside in mid-2024. That could be fortuitous for Ola Electric given that it would potentially only list after this period.

Even though investor sentiments might improve, there is still a risk for new-age tech companies, given that most have weak fundamentals.

Ola Electric’s losses don’t paint the most accurate picture either. As seen in our graphic above, the company currently has negative cash flows to the tune of nearly INR 885 Cr in FY22.

This is going to be a major sticking point for investors. Plus, there will be more questions about the valuation given that the company is eyeing a potential post-listing valuation of $7 Bn (more than 2X its current private valuation).

Investors are likely to ask themselves if it is worth investing in Ola Electric at the IPO stage or they should wait for the valuation to become less rich. Of course, valuation will depend on the IPO pricing.

In the past, massive IPOs such as Paytm, Zomato and Nykaa saw big pressure on their valuations in the early days. While Zomato has turned its course with back-to-back profitable quarters, Paytm and Nykaa are still trying to grow into their IPO valuations.

“There are two kinds of companies that can pull off massive IPOs. One they have really great fundamentals, and two, they have very charismatic promoters. Right now, Ola Electric is in the second category, so investors will look into Bhavish Aggarwal’s capabilities and leadership as a key success factor,” said a Delhi-based cofounder of a VC firm, adding that the EV boom should reduce some of the burden on the CEO.

EV companies could potentially attract higher valuations given that technology is a constant growth area. Plus, investors are likely to be attracted to the fact that this is the only EV company in the market, and positive EV policy changes will give them a big upside on the stock.

But IPO pricing will be key. Many public market investors are reading through the fact that venture capitalists pay a premium price, knowing they are investing for the future. But public market investors think relatively short-term.

Substantial revenues are no guarantee when it comes to retaining investors’ faith, especially when cash flow is poor. Bottom-line profitability and consistent financial reporting are the only true metrics that unlock this faith.

Ola Electric has just kick-started its journey and it has serious momentum, and while it does have some experience dealing with questions about range anxiety in EVs, does it have enough charge to prevent investor anxiety?

Wrapping Up 2023 And Looking Ahead To 2024 

• Next Big Things In Gaming: As RMG fades into the background, the gaming sector is anticipated to witness springtime for mid-core and casual gaming studios in 2024. But there’s a lot more too
• 2023’s Newsmakers: Which personalities, founders and leaders drove prominent themes and trends in Indian tech this past year. Here are the newsmakers of the year gone by
• Will 2024 Prove IPO Friendly? Considering the current bull run in the domestic equity market and a healthy pipeline of startups aiming to go public, the year 2024 is expected to see a sharp increase in new-age tech IPOs
• Climate Tech Outlook: Despite policies in place to support climate tech and given India’s net zero goals, the sector is yet to show the impact that was expected. Will 2024 change the game?

Sunday Roundup: Startup Funding, Tech Stocks & More

• Funding Picks Up: Indian startups raised $349 Mn in funding across 25 deals in the past seven days, a jump of 34% week-on-week
• Big Loss For slice: The fintech unicorn saw its loss surge to INR 405.8 Cr in FY23, even as it is looking to merge with loss-making North East Small Finance Bank
• BCCI Vs BYJU’S: The cash-strapped edtech giant assured the NCLT about its ‘good health’ in relation to the dues recovery case filed by BCCI, despite its losses reportedly growing to INR 8,200 Cr+ in FY22

• Awfis Joins IPO Parade: Coworking startup Awfis, which counts VC giant Peak XV Partners as a promoter, has filed its DRHP ahead of its potential INR 160 Cr+ IPO

We’ll be back next week with our last weekly roundup of 2023.

Don’t forget to stay tuned to our social media channels during this time of the year. Join Inc42 on Instagram, X/Twitter and LinkedIn for the latest news as it happens.

Correction Note | December 26, 2023; 12 Noon

• An earlier version of this story included a graphic with erroneous figures about Ola’s net loss from operating activities. The error has now been rectified

The post Ola Electric Charges Up For IPO  appeared first on Inc42 Media.

What’s a newsmaker in the context of startups and tech? Is it an outspoken founder or investor who was among the headlines over allegations and controversies, or is it someone who creates phenomena with their statements and thoughts?

Over the past month, we have recounted the personalities that found themselves among controversies and success stories of the year — from public listings to startups that turned profitable and from founder exits to shutdowns in the Indian startup ecosystem, While these were some of the bigger stories of 2023, we believe newsmakers are those who drove themes and trends that remained prominent throughout the year.

There were founders and leaders who earned prominence for other reasons too, such as Zomato CEO Deepinder Goyal or Paytm founder and CEO Vijay Shekhar Sharma for turning around their large businesses to some extent.

Or even founders of Honasa (Mamaearth), Zaggle, ideaForge and others that successfully navigated public markets for public listings. Plus, major VC ecosystem developments such as Omidyar Network’s exit from India or Peak XV Partners rebranding from Sequoia Capital also garnered plenty of attention.

But in our recap, we have chosen eight newsmakers who had a more profound influence on Indian tech. As part of Inc42’s 2023 In Review series, we are looking at these founders, CEOs and tech leaders who shaped the discourse and sparked off debates this year.

From Ola Electric founder Bhavish Aggarwal who launched a new company this year to join the generative AI revolution to Tim Cook, who turned into something of a global ambassador for the Make-In-India movement. And from Isha Ambani carrying the torch forward for Reliance’s retail legacy, to Narayana Murthy’s comments that stirred up the work-life balance debate all over again — these are the personalities that drove conversations throughout 2023.

Bhavish Aggarwal: Dominating EVs & Eyeing Generative AI

Last year, the Ola Electric founder found himself in the thick of social media disputes with competitors in the automobile industry, but this year, Aggarwal’s focus turned to pumping up Ola Electric’s two-wheeler sales figures and announcing the launch of the next generation of EV two-wheelers by the end of 2024. There are also plans for an electric car in 2025.

With Aggarwal leading the marketing push on his personal social media channels, Ola’s EV business has seen tremendous growth — nearly 50% higher monthly sales in November 2023 as compared to September 2023.

And with Ola’s growth, the overall adoption for EV two-wheelers has also picked up for other players — sales nearly doubled in November as compared to June 2023.

The Aggarwal-led company also put its IPO plans into full throttle by converting into a public company, after raising INR 3,200 Cr in a year when mega rounds were a rare occurrence. The pre-IPO filings are expected to come in December and there will be a lot of eyes on what Ola and Aggarwal expect from the public markets.

And while most of the focus has been on Ola Electric, Ola Cabs also introduced plenty of changes from ONDC integration to the Ola Prime Plus tier. But Ola Electric is clearly the biggest motivation for Aggarwal currently.

Of course, towards the end of the year, some of his focus turned to generative AI. At a time when the global gen AI fight seems to be centred around big tech giants, Aggarwal’s third venture Krutrim is looking to disrupt the space with an AI-centric cloud infrastructure, developing AI models for Indian languages and more.

Here’s a deep dive into Krutrim’s plans, and what we are more interested in seeing is whether Aggarwal changes the game in AI just as Ola did for EVs and mobility.

Isha Ambani: Revamping Reliance’s Retail Legacy

Reliance is one of the biggest newsmakers in tech every year for everything that Reliance Jio does, but this time around it’s the retail business that has taken centre stage with Isha Ambani leading the line.

Last year, Isha was elevated to chairman and managing director of Reliance Retail and the company’s moves this year signal a change towards digital-first brands, tech-driven platforms and a new-age omnichannel approach.

This year, the retail major forayed into the BPC market with Tira, and Reliance Retail’s digital and new commerce revenue surged to INR 50,000 Cr in FY23, a fifth of the overall revenue. Reliance Retail also raised over INR 15,000 Cr (nearly $2 Bn) from sovereign funds to press the accelerator on the digital commerce businesses, and acquire brands or exclusive rights to international labels.

While Mukesh Ambani and Akash Ambani helm Reliance Industries and Reliance Jio, Isha’s focus has squarely been on Tira and AJIO (fashion), along with JioMart. The revenue contribution just shows how key these platforms will be for long-term growth for Reliance’s retail business.

But that’s not all — the newly-created Jio Financial Services (JFS) has brought Isha on board as a director, and with JFS’ plans to increase credit penetration in the retail market, we could see some interesting developments between Reliance Retail and JFS in the year ahead.

Narayana Murthy: Wading Into The Work-Life Balance Debate

Narayana Murthy is no stranger to being among the headlines, but this year, the Infosys cofounder and former CEO jumped into a hot debate that has polarised the tech ecosystem.

The Padma Shri awardee argued that work productivity in India is one of the lowest in the world and urged youngsters to volunteer to work 70 hours a week. But this caused a lot of furore among certain sections of those who follow Murthy, even as many other entrepreneurs advocated for the same.

To be fair, the work-life balance debate has been a hot topic of discussion pretty much every year. In 2022, Bombay Shaving Company founder Shantanu Deshpande urged startup employees to put in 18 hours every day, which raised concerns about the pressures of working in a startup, work culture and employee happiness.

But Murthy’s comments have been particularly criticised as he cited his own experience with founding Infosys and working long hours as an example. Many pointed out that given his ownership of the company, his motivation was not unnatural, but most entry-level employees have personal goals and commitments that do not justify long working hours. Others also pointed out the low salaries paid by IT giants such as Infosys to entry-level and mid-tier talent.

Besides this Murthy was caught in a deepfake campaign where a video featuring his likeness and voice was used to promote a stock trading platform. The veteran entrepreneur was one of several celebrities seen in AI-generated fake videos this year.

But it doesn’t end there: Murthy also took a stance against government subsidies for infrastructure, saying “nothing should be given for free”. He is believed to have suggested that those availing government subsidies should be made to contribute back to the betterment of society in some form or the other.

His comments, made at the Bengaluru Tech Summit 2023 in December, are particularly ironic given that so much of Indian tech today revolves around digital public infrastructure, which is essentially a free service for users, subsidised by government and policy push.

Rahul Yadav: Return Of The ‘Bad-Boy’ Entrepreneur

While Ashneer Grover continues to cause controversies with each statement, the biggest founder-related governance issues this year have come from Broker Network and its founder Rahul Yadav.

As we recounted in our original and deep investigation into Yadav’s latest venture, Broker Network burnt over INR 280 Cr in less than 18 months, and the founder is alleged to have built a web to syphon off funds from the company.

The biggest surprise with Broker Network is that Info Edge invested INR 280 Cr in the company after being convinced by Yadav that the Housing.com ouster and the Intelligent Interfaces’ no-show are behind him.

Essentially, even one of the most experienced investors in India — led by Sanjeev Bikhchandani, one of the most reputed entrepreneurs in the country — was swayed by a pitch, which eventually turned out too good to be true. Investors have tightened up their due diligence processes for potential investments a lot in the past two years and Info Edge’s bruising experience is only likely to increase their scrutiny into founders and potential bets.

Today, Yadav is dealing with multiple cases. The Economic Offences Wing has registered an FIR against him and is looking into the bigger complaint by Info Edge. Even former employees have filed FIRs against Yadav for furnishing bad cheques. Will 2024 see Yadav being prosecuted and charged for the Broker Network saga?

Rajeev Chandrasekhar: Cementing India’s Place In Global Tech 

Few policymakers and legislators in India wade into tech debates as frequently as Rajeev Chandrasekhar, who as Minister of State (MoS) for Information Technology, is second in command after Ashwini Vaishnaw, the union minister for IT.

But Chandrasekhar has been nearly omnipresent when it comes to speaking about the government’s stand on everything from AI regulations in light of the generative AI revolution, or net neutrality given the battle between telcos and over-the-top (OTT) service providers over network fees.

As per reports, Chandrasekhar, during a meeting with his Dutch counterpart Alexandra van Huffelen, is said to have pushed for a greater role for India in swiftly putting in place global regulations for emerging tech.

The MoS for IT also pushed for greater manufacturing in India by tech giants across sectors — particularly focussing on how Apple has managed to expand its manufacturing footprint in India (more on this later). In addition to electronics manufacturing, Chandrasekhar is said to have liaised with Elon Musk-led EV giant Tesla to bring EV manufacturing to India and procure components locally.

With India looking to carve out a bigger piece of the global tech manufacturing pie in light of the China+1 movement, Chandrasekhar has emerged as the face of India’s tech policy in many ways.

Robin Raina: Eyeing An IPO For A Bankrupt Business 

There are CEOs that seem to grow into mature leaders as their companies head to the public markets, and there are the likes of Robin Raina, whose outlandishness never seems to wane.

The Ebix, Inc. and Ebix Cash CEO has had to face many tough questions in light of the company’s INR 6,000 Cr IPO plans in India, particularly related to the sorry state of its financials and its high indebtedness.

Raina joined Ebix way back in 1997 and quickly rose up the ranks, but the company’s operations have been under a cloud in the past year, especially after the Hindenburg Research report that questioned a lot of the company’s claims. Despite this, Raina has looked to stay in the limelight with his penchant for the high life — particularly, the glamour shots with his Ferrari and other luxury vehicles.

Ebix’s lenders have unsuccessfully chased the company for funds, but Raina took home a $1.8 Mn bonus in September 2023 even as the business was coming close to bankruptcy. In December 2023, Ebix Inc filed for bankruptcy in the US, after defaulting on a $617 Mn loan and several covenants associated with this debt.

The entire episode shows us the severity of corporate governance lapses in some companies, even those that aspire to raise money from public markets. And there’s also a question of how regulators approved the IPO plans for a company that has so many red flags in its leadership.

Sam Altman: The Posterboy Of Generative AI

Fired and back again in five days. Few founders and CEOs can boast of having survived such drama as Sam Altman did with OpenAI in late 2023, after being thrown out of his own company. His dismissal and subsequent reinstatement set off shock waves across the global tech ecosystem, sparking off a debate about the power struggle between a founder and a company’s board.

Altman, considered by many as the face of generative AI, has been in the news all year long — largely because generative AI itself has grabbed headlines and the attention of the world. There were reports about a DDoS attack on OpenAI in early November as well as the company’s close ties with Microsoft, its lead investor.

In the Indian context, however, controversies around Altman started much before the boardroom shenanigans at OpenAI.

Altman’s visit to India and his public appearance attracted the who’s who of the Indian tech ecosystem. But when he was asked whether Indian companies could compete with OpenAI, his answer did not please many. He called it a “totally impossible” endeavour, but later clarified that he was simply responding to a question about trying to compete with OpenAI valued at over $25 Bn+ using just $10 Mn.

Of course, all this was forgotten by the time Altman was sacked by the company’s board and then brought back swiftly, If anything, his reinstatement only seems to reinforce the notion that Altman is not only the most influential person at OpenAI, but arguably also in generative AI.

The rise of OpenAI has fuelled the generative AI revolution with a slew of startups now looking at building LLMs and models for specific needs. Case in point: Indian AI startups Bhavish Aggarwal’s Krutrim or Lightspeed-backed Sarvam AI. Plus, companies across sectors are adopting ChatGPT and generative AI en masse for their operations.

Tim Cook: Making India The Apple Of His Eye

He’s the CEO of the world’s most valuable company, and one could argue that no CEO has backed India in as big a way as Apple’s Tim Cook did this year.

In contrast to the visit of Jeff Bezos in 2020, Cook’s tour of India saw Apple launch its first own-brand retail stores in Mumbai and Delhi. But this was a relatively minor development when seen in the context of Apple’s larger plans for India.

Firstly, the tech giant expanded its manufacturing base in India and is eyeing making more than just iPhones in the country. Given the fact that accessories such as chargers and wireless earphones (Airpods) sell in larger quantities than smartphones, it could be argued that this represents the biggest push for global electronics exports from India.

Apple’s lead in India has since been followed by the likes of Google, which said it would manufacture Pixel smartphones in India from 2024.

Some of the goodwill earned by Apple has been tarnished with allegations around anti-competitive practices by its App Store, as well as the alleged hacking of iPhones of some elected officials. But these were minor blips in the Apple story.

Cook and Apple’s India plans underscore the wider China+1 movement in the tech industry, as many major players are looking to diversify their manufacturing bases away from China and to India and other geographies.

Of course, Apple being the largest company in the world by market cap, seems to dominate all discussion around the Make-In-India success story, but going forward the efforts of the company would be to boost local manufacturing of smaller electronics and components for its devices, so that it has to rely on fewer imports when assembling and making products in India.

The post 8 Newsmakers Of 2023: The People Behind The Biggest Indian Tech Stories Of The Year appeared first on Inc42 Media.

It’s been a tale of two halves for PhonePe in 2023. But now at the end of the year, it would seem the stage is set for the fintech giant’s biggest onslaught so far.

If the first half of the year was all about getting armed for the battle with nearly $1 Bn in funding, the rest of it was about showing what it plans to do with all that money, with several new products ranging from lending to insurance to app development and digital commerce.

But beyond the announcements and the fundraises, PhonePe is perhaps signalling to the Indian tech ecosystem that this is its time.

To put things in context, the company has raised nearly 10% of all funding raised by Indian startups this year. Naturally, there’s a feeling that PhonePe is growing too big to fail, and many compared it to how Walmart gave Flipkart some much-needed impetus in 2017 and 2018 post the acquisition by the US retail giant and subsequently multiple rounds of capital infusion.

“This is what catapulted Flipkart in 2018 towards its current status as the de facto ‘Indian’ ecommerce player, and now it’s PhonePe’s time to grow into its valuation,” a CXO at a Bengaluru-based fintech unicorn told us.

Indeed, it’s hard to escape PhonePe in Bengaluru where it’s the default payments app and its soundboxes and point-of-sale devices are ubiquitous at most small merchants — whether roadside vendors or bakeries.

Such is the dominance of PhonePe in its hometown that spotting a Paytm soundbox or any other rival comes as a surprise. But it would be wrong to think that this is PhonePe’s endgame.

As we have seen throughout this year, PhonePe has much bigger plans. It has the capital, the key personnel and the burgeoning product line-up to bank on. The year has almost come to an end, but PhonePe’s era is just beginning.

With new products in lending, insurance and tax payments on the core PhonePe app, as well as separate apps for ecommerce (Pincode) and investment tech (Share.Market), PhonePe is gearing up in a big way for 2024. Even though some of these products are uncharted territory for PhonePe, it has the resources to succeed in these new areas.

In many ways, 2023 was about setting the stage for this completely new vision. Now as PhonePe prepares for a potential initial public offering (IPO) in 2024-2025, it’s important to understand where the company finds itself at the end of the year.

Recapping PhonePe’s 2023

It all started in late 2022 with the separation from Flipkart and redomiciling to India. This was a critical first step in the plan, which came with a huge tax bill for many of PhonePe’s investors.

The INR 8,000 Cr tax outlay seems like a huge expense, but it was a necessary step to bring PhonePe to India and ensure that the big product plans are not derailed by corporate structures.

Even beyond the tax bill, there was more confidence from investors when they poured millions into the fintech decacorn. The funding spree was led by Walmart, General Atlantic, Ribbit Capital, TVS Capital Funds and others. The plan was to raise $1 Bn, but  PhonePe managed to secure $850 Mn.

PhonePe had its war chest ready and soon after came a flurry of new products that have changed the company considerably and given observers a thing or two to ponder upon.

In April, it launched Pincode, an ONDC-integrated digital commerce app, followed by merchant lending services in June. Then came a new point-of-sale device for UPI and cards, income tax payments and health insurance products in July.

In August, we saw the introduction of Share.Market, a separate product for investments and stock broking, and finally the formal launch of the Indus Appstore in September.

Interestingly, with the last of these product launches, PhonePe is not just a fintech app any more. And indeed Indus Appstore holds plenty of potential for PhonePe in the long run.

A New Trump Card: Indus Appstore

In March, we said that PhonePe wants to be Paytm, but that comparison seems off the mark given the launch of Indus Appstore, which promises to be another lucrative long-term revenue stream.

The app store is an alternative to Google Play on Android, and PhonePe’s investment and acquisition was finalised soon after the Competition Commission of India ruled to allow third party app stores on Android devices.

So the more we think about what PhonePe is doing at the end of 2023, the more we wonder whether the Walmart-owned giant is indeed more than a fintech platform.

With 500 Mn lifetime registered users and 37 Mn+ merchants on its platform, PhonePe is poised to press ahead on other fronts besides payment and fintech.

The Indus Appstore product is unmatched by PhonePe’s primary competition such as Paytm, CRED or Groww. While these are also fast building up platform plays around multiple products, PhonePe’s Indus Appstore could be the trump card in the revenue race.

For context, in-app spending is forecast to reach $182 Bn by 2024 and $207 Bn in 2025, according to research firm Sensor Tower. Consumers are said to have spent $132 Bn in 2021, so the projected figures for 2024 represent nearly 40% growth in two years.

Google will get about $10.3 Bn in revenue from app sales and in-app purchases from the Play Store globally in 2023, according to a Time report. In this context, it’s easy to see why PhonePe has invested heavily in an app store. More importantly, Indus does not have Google’s stipulations around commissions and billing policy.

The likes of MPL, Dream11, Nazara, A23, Gameskraft and others have already come on board the Indus Appstore thanks to its zero commission policy. Plus, Indus Appstore is available in 12 Indian languages, which is also expected to be a major competitive advantage against Google and Apple.

While zero commissions have added to the initial attraction for Indus Appstore, PhonePe is likely to add commissions in the future to make this a veritable revenue source.

Both Google and Apple have been hit by antitrust cases in the US and India in relation to their app store policies. It’s the perfect entry point for PhonePe. PhonePe’s marketing machine has also stepped on the accelerator in recent times to show that it has the user base to capitalise.

The PhonePe-Verse 

“PhonePe is living up to its name. It wants to be everything on your smartphone, from the app store to financial services to digital commerce and more. The Indian market is fast maturing and this is perhaps the best time for a super app or platform play,” says the founder quoted above.

It is impossible to look at PhonePe’s year, without seeing the similarities with the competition that is on a comparable scale. The super app movement or the convergence of financial services is a clear theme emerging in 2023.

For several years, it was believed that Indian apps could replicate the success of super apps such as WeChat, Grab or Gojek in China and Southeast Asia.

But while the likes of Paytm tried this in the past, the strategy did not succeed fully due to a lack of market depth and consumer maturity. Even as late as 2021, Paytm bemoaned the fact that the platform model was not well understood by retail investors.

But times have changed and now the Indian market is looking like a better bet for super app players. Let’s look at two key pieces in PhonePe’s armoury in this battle — ecommerce and investment tech.

ONDC’s New Wings

Built on ONDC, the Pincode app was launched in Bengaluru in April where it has already delivered over 1 Lakh orders as of July 2023, and PhonePe has expanded to Delhi NCR, Mumbai, Chennai, Hyderabad, and Pune, among other cities.

ONDC has become the crutch for non-ecommerce players to scale up their digital commerce footprint quickly.

Take for instance, Paytm Mall, which was once a unicorn, but has faded into the background in comparison to marketplace giants Flipkart and Amazon India. Today, Paytm’s digital commerce business also hinges on ONDC, just like PhonePe’s Pincode.

CRED is relying on a highly curated marketplace approach, while Google Pay is playing the aggregator game. PhonePe’s dedicated app is an interesting approach in this space and unlike any other player in the super app race.

A company spokesperson told us, “The initial response and rapid consumer adoption of Pincode has given us the confidence to expand our services. We are fully committed to championing local sellers and delivering an exceptional shopping experience to our consumers.”

The company added that it will be investing heavily to expand to more cities and into more categories, including medicines, fashion, and electronics to become a full-fledged ecommerce app.

Entering The Investment Fray

The other big piece of the puzzle is Share.Market, which PhonePe has sequestered from its core business as is standard practice. Even though it’s a separate app with a stockbroking licence, Share.Market’s revenue growth will be a key contributor to PhonePe’s business in the long run.

The revenue model for stock broking is relatively straightforward as platforms take a cut on trades and transactions. With the right scale, profitability is not a long shot either.

Fellow Bengaluru fintech unicorn Groww reached profitability in FY23 thanks to its growing user base and today has more than 6.63 Mn+ active investors.

This makes the company the biggest discount brokerage by clients in India. PhonePe would be betting that its existing user base of 200 Mn+ monthly active users can help it leapfrog Groww, Zerodha and others.

At the scale that PhonePe operates on, even an incremental increase in the volume means tens of millions more revenue-generating transactions. For instance, Paytm Money turned profitable in FY23, posting a net profit of INR 42.8 Cr and bounced back from a loss of INR 10.7 Cr in FY22, helped by steadily growing brokerage income.

In a statement, a PhonePe spokesperson added that in the past two years, the company has seen a huge increase in adoption from Tier III  and IV cities and beyond when it comes to payments and other in-app services.

And now is the time to press the accelerator on other products that are tied into the payments core. PhonePe said it registered INR 2,914 Cr as revenue on a consolidated basis in FY23, but the company did not reveal whether it has managed to bring its losses down from the INR 2,013 Cr it reported in FY22.

What we do know is that PhonePe has reached a $1.3 Bn in lifetime total payments value, according to Walmart CFO John David Rainey. Will this translate into profits in the next year?

Where Will PhonePe Go In 2024?

Revenue from the investment tech business will likely contribute in a major way towards bringing the consolidated business towards the black. But other parts of the PhonePe empire will also be key to getting out of the loss-making streak.

It’s interesting that the new products at PhonePe are grabbing a lot of the interest internally from the company, but let’s not forget that PhonePe’s fintech services primarily hold the key for the turnaround.

Merchant services — lending and device subscription — is likely to be a crucial piece. PhonePe is gearing up to roll out consumer lending services on its platform by January next year. Marking its foray into the consumer lending space, Walmart-backed company is likely to operate initially as a distributor for personal loans.

“The Indian market has seen a lot of maturity in 2023. The most active and habituated fintech customers have become familiar with digital-first financial services, and we believe the opportunity is rich for platforms to accelerate the process of unlocking the flow of money and access to services,” the company spokesperson said.

PhonePe’s trajectory is very similar to Paytm, even if there are many differences in strategy. The scale of both companies is similar in terms of the users, and they have got the market timing right on a number of new products. But Paytm is still a long way away from PhonePe in terms of revenue — INR 7,990 Cr for the listed giant vs INR 2,914 Cr for PhonePe.

For PhonePe, 2024 will be about not just proving its thesis around the platform play, but also utilising its deep pockets to grow sustainably and show profits by the end of the year. This is a critical juncture for the company.

Several startups seemed to have cracked the profitability question in FY23 and many of them did not have the luxury of having raised $850 Mn in the year. PhonePe is like royalty in that sense, but even empires face pressure eventually, even when they have a large war chest.

Funding is not a guarantee of success. PhonePe has the right tools and the stage is set, can the fintech giant make something of it in 2024?

The post PhonePe’s Billion-Dollar Year: A War Chest To Fight Super App Wars appeared first on Inc42 Media.

After the funding peak of 2021, when valuations of dozens of startups skyrocketed far away from their actual revenue, it seemed that a profitable startup was rarer than a unicorn.

But the sobering reality of the past two years has given unicorns and soonicorns of India a lot to think about. And primarily, their thoughts turned to one big question: How do we get to profitability?

Several startups have managed to answer this question in FY23 and even the likes of Zomato have turned the course around. What explains this new phase for Indian startups and tech giants?

We’ll look to get the answer about the profitable startup brigade in India, but after a brief detour into these top stories from this past week:

• Omidyar Hits The Eject Button: Omidyar Network, one of the oldest active VC firms in India, is exiting the market. Did the firm’s legal problems with regulators force its hand?
• Groww’s Super App Year: Groww thinks like a D2C company and looks at problems from a consumer-first perspective, says cofounder Harsh Jain as he gives us a peek into how the fintech giant is looking beyond investment tech
• Decoding CRED’s 2023: This was a big year for CRED — embracing the platform life with multiple new and revamped products, and proving that financially too, it is on the right track with its FY23 numbers

Startups Don The Profitability Hat

When we last looked at the financial state of Indian unicorns in March this year, as many as 55 out of 74 Indian unicorns who had released their FY22 numbers were in losses. Their combined loss of $5.9 Bn in FY22 was almost double their cumulative loss in FY21.

While losses are not new in any way, the fact that investor sentiment was turning sour meant that startups had to focus on generating cash from their business rather than relying on VC funding to expand and grow. In other words, VC money was used to widen the top of the funnel, but when the tap is turned off startups have to find a way to get more revenue from the users they have acquired.

“VCs have always wanted startups to monetise and generate free cash flow, but the reality of the market was such that startups needed scale to make this possible. They relied on funding to grow their cache of users and are now looking to capitalise on this base,” Naganand Doraswamy, founder of early-stage VC firm Ideaspring Capital, told us.

Doraswamy, who founded Ideaspring in 2016, claims that this is how tech has grown in the Silicon Valley ecosystem, too. He pointed out that India is going through the phase, which Silicon Valley saw in the late 90s when a few startups emerged and are now tech giants after three decades.

The Profitable Startup Brigade

Other investors believe that if anything, India is maturing faster and profitability is part of the maturity curve. Even younger startups are turning profitable faster because they are focussing on profits and not scale, says the cofounder of a Mumbai-based micro VC firm.

But a lot of this has to do with the sector and segment that the startup operates in. It’s not possible to eke out profits in ecommerce in the first two or three years, but in fintech or enterprise tech, this is very much a possibility.

B2B models are better suited to churn out profitable startups, especially if factors like customer segmentation and product-market fit are right. And this is particularly true for startups that are targeting small businesses, where the TAM is still high and untapped.

B2C startups still need to spend to acquire users but those which did this in the past two years are reaping the rewards. Take Groww for instance, which turned profitable on a base of 6.5 Mn+ users. In a conversation with Inc42, Groww claims that profitability is an outcome of its product, other B2C companies still have to focus sharply on their revenue modelling and reducing customer acquisition costs.

Who Gets The Credit?

But who is to be credited for this change in the outlook among startups? Is it just that investors wanted startups to focus on profits, or to put it differently, would this change have been possible without the global economic slowdown, tight liquidity and the funding winter?

As investors tightened their purse strings, realisation struck that they needed to focus on their bottom lines to extend their runways and get fresh funding. This resulted in the start of restructuring exercises across startups through layoffs and cutbacks.

The fact is that a clear and short path to profitability is a condition for growth capital in 2023, so perhaps this phase would not have come without market conditions. There’s been a flurry of claims by startups around profitability, which is meant to perhaps act as a lure for investors. Startups have relied on vastly different terminologies and parameters for profitability — from profit after tax to EBITDA and adjusted EBITDA to profit as of a single month or the most recent quarter.

“We know many of the larger investors are also stipulating milestone-based tranches for investing in startups. Most startups that have raised large rounds this year have to have demonstrated their path to profitability or the potential for an exit in the next couple of years,” the Mumbai-based investor added.

Exits are, of course, on the cards for many investors with IPOs plans being revived in 2024 and 2025. Listed companies face the most visible pressure from investors to show profits and in Zomato’s case, the profitability has come after a decade of fine-tuning the revenue structure and charging customers directly per order. The rationalising of costs associated with Blinkit’s quick commerce model has also helped Zomato in a major way.

Zomato’s two profitable quarters show that the company has capitalised on the revenue momentum in FY24 and seems poised to become a profit-making machine.

Will The Tide Turn? 

Of course, it’s too early to say whether the profitability streak of FY23 will continue in 2024 and 2025. Like many have pointed out, the profits are in many cases a result of startups slowing down expansion of operations and user base. The focus has instead shifted to maximising revenue. Will Indian startups be back to their loss-making ways if and when they have to scale both revenue and users?

“It’s very much possible that startups go back to their old ways, but one thing is that those which need VC money will know that investor confidence can shift on a dime and if you don’t show the results there are a lot of questions, like in the case of BYJU’s today,” according to a Bengaluru-based edtech cofounder and CEO.

There’s also a feeling among startups that profits are possible without raising mega rounds, especially because talent costs have been rationalised. In addition, startups are replicating the business strategies that are working — Zomato and Swiggy’s platform fees and commission changes this year, for example.

One potential issue for startups that just focus on profits is that they might find their profits stagnating in the long run. “It’s a tricky balance. This year is about profits, but perhaps next year many companies will reinvest this profit into growing and expanding. And then the market will be asking questions about how long before they hit profits again,” the founder quoted above observed.

Profitability is also on the agenda for startups looking to get listed in 2024 and 2025. Showing profits before the listing is a recipe for a successful IPO, and it’s a motivation for the likes of OYO, Swiggy, PayU among others.

Startups go through cycles all the time. This year, startups are in the midst of a market that demands they show profits, but perhaps this expectation will change next year. And if so, will startups forget some of the hard lessons that brought them to profits in the first place?

In Focus: 2023 In Review 

Our wrap of the year continues with a flurry of stories on everything from the most controversial stories and personalities of the year to taking a look at the state of layoffs in the ecosystem.

• Swiggy vs Zomato: While Zomato has grown into a profitable entity, has it managed to outperform Swiggy among consumers in 2023? Here are the results of our survey of the consumer sentiments for these two food delivery giants
• Layoffs Outlook For 2024: After 35,000+ job cuts in 2022 and 2023, will the forthcoming year bring a positive change when it comes to startup layoffs and cutbacks?
• Startups Caught In Controversies: From boardroom battles at BharatPe to founders deceived at a startup event to financial mismanagement at VC-backed first, here’s what brought startups to the headlines for the wrong reasons
• Founders Start Up Again: More than 30 CXOs, including founders, have switched their tracks to float new ventures or join other companies in pursuit of new opportunities. What explains this transition?

Sunday Roundup: Startup Funding, Tech Stocks & More

• Funding Galore: Bright sparks for startup funding this week, with over $527 Mn raised by Indian startups across 21 deals
• Krutrim AI: Bhavish Aggarwal’s latest venture Krutrim has unveiled new large language models and a chatbot, claiming to be “India’s first full-stack AI”
• Alma Better: From a cash crunch to layoffs and opaque performance reviews, upskilling startup Alma Better’s story has gone from promising to problematic
• Grok In India: Elon Musk’s OpenAI and ChatGPT challenger Grok is now available in India for X Premium+ users

• SoftBank’s Sell Streak: Japanese major SoftBank offloaded 2.53% of its stake in Policybazaar this week after its exit from Zomato

We’ll be back next week with another roundup as we close the curtains on 2023.

Don’t forget to stay tuned to our social media channels during this time of the year. Join Inc42 on Instagram, X/Twitter and LinkedIn for the latest news as it happens.

The post Startups In Their Profitability Era appeared first on Inc42 Media.

It’s a season of pain for even some of the most storied venture capital firms in India, and Omidyar Network is just the latest one to succumb.

The firm, which has backed the likes of 1mg, Bounce, Indifi, ZestMoney, Drinkprime, DealShare, Vedantu, Pratilipi among other startups, is shutting down its India operations.

While the announcement has come this week, Omidyar Network India will completely transition out of the Indian market by the end of 2024.

“After several months of deliberation, it has been decided that Omidyar Network India will stop making new investments and will completely transition out of the market by the end of 2024. Over the next two months, the board and leadership team will assess how best to manage the organisation’s portfolio while recognising the long and trusted partnerships that the Omidyar Network India team has built,” a statement from the firm said.

Active in India since 2009, Omidyar is among the handful of VCs that have seen the startup ecosystem grow to its current size from a nascent part of the economy.

There’s some speculation of a division within the Omidyar Network India (ONI) management to further separate the Indian investment vehicle from Omidyar Network’s global investment arm. But at the moment, the firm remains tight-lipped about the next steps.

What we do know is that in a conversation with some founders of its portfolio, ONI has set a 3-5 year horizon for exiting its investments and the firm is likely to also transition out of many boards where its representatives are currently directors.

“The leadership had a short call with some of us portfolio founders and informed us about the next steps, which included the estimated exit horizons and also boardroom changes,” one founder who was present on the call told Inc42.

The founder said Omidyar was clear that there would be no change in management at least until December 2024 and indicated that the firm is not likely to be in a hurry to liquidate its assets, even though that will be the primary focus area.

But before we look at the implications on its portfolio, it’s important to understand what exactly forced Omidyar to quit the Indian market, and as we will see, there are multiple factors at play here, including the firm’s problems with Indian law enforcement. The fund managers and partners we spoke to called it a “sudden-yet-expected” departure.

Omidyar’s India Experience

Backed by eBay founder Pierre Omidyar, Omidyar Network India is a veteran in the Indian startup ecosystem, having invested in new-age ventures since 2009 onwards.

While its core focus has been on impact investing in nonprofits and grassroots organisations, it has also branched out to back startups in the mobility, fintech, edtech and other for-profit sectors, and has invested through three separate entities from its early days.

As per its website, the company has a total AUM of $673 Mn with over 120 portfolio companies. Over 70% of this corpus has been invested in private for-profit ventures.

In 2023, Omidyar invested in Indifi’s Series E round, as well as Series A rounds of SatSure, Sequretek, Kiwi, DGV and ZestMoney, which incidentally is in the process of dissolution. Most recently, Omidyar Network India led dairy fintech startup Digivriddhi Technologies’ (DGV) INR 50 Cr ($6 Mn) Series A funding round.

Over the years, ONI has also seen exits from the likes of WhiteHat Jr, Dailyhunt, Pickrr, NowFloats, Credlfow, IndusOS and 1mg, many of which were acquired by leading companies. Indeed, its exit track record is healthy for a firm of its vintage, given that even the likes of Tiger Global and others have struggled to extract high returns in recent years.

For instance, WhiteHat Jr was acquired by BYJU’S in August 2020, netting a 17X return for Omidyar. Besides this, 1mg was acquired by Tata Digital in June 2021 in a high-profile deal; NowFloats was acquired by Reliance Industries for $20 Mn and IndusOS by PhonePe for a reported valuation of $60 Mn in 2022.

Despite these positive outcomes, it seems Omidyar has lost patience with the Indian market. Or was its hand forced by external factors that are not related to its portfolio, as is the speculation in the immediate aftermath of the announcement?

Why Omidyar Is Quitting India

The undeniable fact is that Omdiyar’s track record of exits has also come alongside controversies related to its investments in non-profit organisations, some of which have come under the radar for the source of funding.

For one, Omidyar Network India came under fire in 2021 when it was placed on a watch list by the home ministry, which came with restrictions on the foreign donations it could accept.

Omidyar was named as an accused by the Central Bureau of Intelligence (CBI) for allegedly conspiring to illegally facilitate the registration and renewal of Foreign Contribution (Regulation) Act (FCRA) licences. FCRA licences are mandatory when receiving funds from foreign sources for charitable purposes.

Additionally, Omidyar has come under fire from members of the current ruling party in India for being associated with alleged iPhone hacking warning messages and its monetary contribution to entities that are said to be working against the interests of India.

Moreover, in June 2021, SEBI alleged that Franklin Templeton’s Asia Pacific head Vivek Kudva and his wife Roopa — ONI’s former managing partner — had violated insider trading laws and barred them from investing in the capital markets for one year.

While this is unrelated to Omidyar’s investments in startups, having the country head named in such a case would undoubtedly have carried some reputational risk for the firm.

The challenges with law enforcement and the general crackdown on FCRA violations by the Indian government have coincided with some pressure on Omidyar’s portfolio in 2022 and 2023.

Many of its portfolio companies have, in recent times, come under stress due to the tough market conditions as well as a paucity of funds. Doubtnut, for instance, was acquired by Allen Career Institute in a distress deal. Doubtnut is said to have been acquired for $10 Mn, despite raising more than $50 Mn in its lifetime.

One ONI portfolio founder told Inc42 that the firm is likely to have booked a loss of over 75% on its investment in Doubtnut. The state of other portfolio companies is also not great. The likes of Bounce, Dealshare, Healofy and others have come under scrutiny for weak business models, founder exits as well as slow revenue growth.

Interestingly, the leadership situation at the firm is less than clear after Kudva’s exit. One noteworthy point is that Omidyar’s decision-making layers have dedicated directors as well as partners. It’s not clear exactly who is calling the shots.

On the director level, the firm has leaders such as Amol Warange, Aditya Misra, Lakshmi Pattabi Raman, Sarvesh Kanodia, Sushant Kumar and Treasa Mathew. At the same time, the firm also has partners such as Siddharth Nautiyal, Badri Pillapakkam, Mahesh Krishnamurthy, and Shilpa Kumar.

This leadership structure is largely due to the fact that Omidyar’s focus was split between private investments as well as funding and grants to nonprofits. However, many VCs believe this is an antiquated structure and often results in delays in investment decisions.

And finally, there is the changing landscape of impact investing in India. When Omidyar arrived in India, its impact investing focus was on grassroots organisations and community-led MSMEs. But today, impact investing is moving into areas such as manufacturing and large-scale production which offer higher potential for employment and economic growth. As such, Omidyar’s thesis is perhaps also a bit outdated in the Indian context and might be better suited for other geographies.

VCs Feel The Heat 

Portfolio problems are of course not exclusive to Omidyar — other VC firms have seen partners exit by the droves and are in the process of dissolution in some form or the other. We have seen changes at firms such as Lightbox, Orios VP, Together Fund and others in recent weeks.

Tiger Global partner Scott Shleifer’s comments earlier this year about the lack of big returns from India also signalled a change of heart for some of the biggest investors in India. Plus, there is a great deal of competition in the early-stage ecosystem where Omidyar likes to operate.

As we have reported throughout this year, the changes at the partner level at VC firms is largely a result of poor performance of the funds and pressure from limited partners. However, this does not seem to be the case with Omidyar, according to the founder and CEO of a unicorn startup in Omidyar’s portfolio.

In the case of Omidyar, the firm is likely to have faced little to no pressure from its limited partners given the fact that most of the firm’s invested corpus comprised the personal wealth of founder Omidyar.

Another factor is that India’s foreign direct investment (FDI) rules excluded Mauritius from the list of geographies exempted from the so-called angel tax. This meant that ONI, which invested through a special purpose vehicle named ON Mauritius, would be subject to tax action in relation to the gains in valuation when investing in startups.

According to the founding partner of a Bengaluru-based early-stage firm, the word within VC circles was that a lot of firms are likely to quit the Indian market due to portfolio trouble and the changing landscape around investment thesis particularly for emerging technologies.

“While this is the moment for impact investing in India, Omidyar’s troubles with CBI were well-known. Most VCs are only surprised by how quickly the firm has announced its exit, not the fact that it has,” the partner mentioned above added.

Of course, the exit of a major investor (at least in the case of some startups) is likely to be a headache for the startup founders. What does Omidyar’s exit mean for its portfolio?

The Portfolio Impact

“In the call with founders, Omidyar was clear that the Indian ecosystem is maturing and that it no longer sees room for the role it played in the past decade. They called it a decision taken by the global leadership which would see the focus shift to other geographies,” one Delhi NCR-based portfolio founder told Inc42.

Naturally, we wanted to know what it meant for some of the companies that had already raised significant amounts from Omidyar in the past year. The likes of Indifi are at an inflection point, having also reached profitability, while others such as Vedantu, Bounce and Dealshare are said to be transitioning to better unit economics. Will Omidyar’s departure have ripple effects that disrupt this momentum?

“The biggest impact will be on the startups which have just raised a seed or Series A round from Omidyar. The exit of one major backer is a signal to the rest of the market, but again this depends on the stage of the company and how much stake Omidyar owns in the company,” the founder quoted above added.

On the positive side, another founder pointed out that given that the firm has announced its intention to exit the portfolio, it will likely make it easier to execute secondary share sales. “Typically investors are okay with a discount when they want to exit, so secondary sales might even see a discount of 40%-50% in some cases. This means founders can buy back some shares at a low rate if they have the capital,” added another Bengaluru-based founder in Omidyar’s portfolio.

Ultimately, M&As are also a possibility for some startups that are staring at an uncertain future. Given the fact that ONI’S portfolio includes some unicorns such as Dealshare and Vedantu, these startups could even acquire some of the distressed startups in the firm’s portfolio.

Whatever the fate of the portfolio startups, Omidyar’s exit is a major signal for the Indian VC and startup ecosystem. Will this be the first of the old guard to give way to a new breed of investors?

There’s also a positive undercurrent in the Indian market for domestic investors and increasing participation of HNIs and Indian corporates in the VC ecosystem. Omidyar’s global DNA runs against this grain. But many in the ecosystem feel its exit from India is nevertheless sudden and there could be a domino effect in store.

The post Behind Omidyar Network’s ‘Sudden-Yet-Expected’ India Exit appeared first on Inc42 Media.

The year was 2017 and four Flipkart executives decided it was time to disrupt the investment tech market. But Lalit Keshre, Harsh Jain, Neeraj Singh and Ishan Bansal had a different view of fintech than most entrepreneurs who jump into this sector. The result was mutual funds distribution platform Groww, where the consumer-first mindset is still paying off.

“We come at problems from a consumer lens because that’s what we know best. Solving problems that customers and consumers face has been our biggest learning at Flipkart,” Jain tells Inc42 at Groww’s HQ in Bengaluru, where nearly 40% of all Indian unicorns have their bases.

But unlike many of its neighbours, Groww has had an optimistic 2023. Jain seems nonplussed when I ask him what it feels like to finally turn profitable as a group. As per him, profits are a byproduct of Groww’s approach to solving the problem.

“We haven’t done anything different, and profitability is just one of our goals. In fact we never had this as a target in our mind that next year we will be profitable. Because we trust that the process of being consumer-first will pay off,” he says, reiterating Groww’s focus on solving consumer problems, which has brought in the results as far as profits are concerned.

Beyond profits, Groww reached another landmark with 6.63 Mn active investors at the end of September 2023, as against Zerodha’s 6.48 Mn. This made the company the biggest discount brokerage by clients in India. For context, Groww had 5.3 Mn active investors at the end of 2022, compared to Zerodha’s 6.3 Mn.

And there’s one more reason why 2023 has been different for Groww — the company’s plans to venture beyond investment tech are becoming clearer and clearer. In other words, Groww too is joining the super app race in some ways, though these are still early days in that regard.

But the blueprint has been laid out — if Groww grew to its current stature on the back of mutual funds and stockbroking, its future could very well be determined by what it took on in 2023.

Firstly, like most other fintech unicorns, Groww jumped onto the lending bandwagon in late 2022, and in 2023, it also entered the tightly contested payments vertical. Effectively, Groww is joining the likes of Paytm, PhonePe, CRED, BharatPe and others in this space, although its lynchpin product remains investment tech.

But as Jain is keen to point out, the approach will be consumer-first. We wanted to understand what that meant for Groww and how the company has leveraged this direction to outgrow long-time competitor Zerodha in some ways.

Our visit to Groww’s headquarters was a part of Inc42’s 2023 In Review series, and we wanted to dive into the fintech unicorn’s journey in 2023 as it prepares for a brave new leg in 2024 with a slew of new products. Here’s what we learnt:

Groww’s Content Stack

At one point during our conversation with executives, Groww is often referred to as a D2C company. The direct-to-consumer model is more commonly used with ecommerce, but even there, the model has become diluted through multiple channels and distribution points.

But in the case of Groww, the approach extends to how the company thinks about new products and verticals.

Another senior executive at Groww tells us that the company’s key strength has been able to convince even on-the-fence customers that investing is not rocket science. The content-to-commerce chain is something D2C brands have tried to leverage for growth. But in the case of Groww, this extends to handholding customers through tough financial decisions via content and allowing them to take charge of their investments in a transparent manner.

The first step is not treating new investors any differently than existing customers except when it comes to content. The end goal for both cohorts of users is the same, Jain reminds us, which is to manage their money better.

Often, discount brokerages get stuck in their positioning around casual or serious investors, and this tends to make it harder for the platform to grow unless the market matures. For Groww, content and its educational initiatives have been the great leveller.

“There’s no such thing as a casual investor. If someone earns INR 15K a month and invests INR 500, they are making a very serious financial decision. So content is critical to help them make the right choice,” the executive mentioned above adds.

Unlike new investors, those who are already familiar with the market and investment strategies need a different degree of assistance from a content POV. There’s also a focus on localisation of content through regional language videos that simplify strategies for new investors.

Localised content is a key pillar for Groww, as we will see, because this ties into the company’s larger plans around lending and other verticals.

Yet, there’s a governance aspect to the content being produced as well, which guards the company against the temptation to bombard new users with content just to drive growth. While many rival investment tech platforms have brought in influencers to bolster content, Groww does it all in-house.

Influencer-led investment marketing has earned a bad reputation in recent months, and Groww does not want to go into this model. On YouTube, it has nearly 2.15 Mn subscribers, compared to Zerodha, which has less than 600,000 followers. Groww launched its YouTube channel in 2017, compared to Zerodha’s 2014 launch.

Instead of relying on other investment experts, Groww prefers a DIY approach when it comes to users Influencer-led investment content has brought trouble for platforms such as Vauld and others in the past, and even market regulator SEBI is cracking down on unauthorised selling.

“We don’t even give our business teams targets to increase transactions, so asking someone like an influencer is out of the question. Again, we wanted to focus on solving for the consumers which influencer-led marketing does not do,” adds cofounder Jain.

Jain believes that not chasing growth has brought the growth that Groww has seen in the past year. “If you do right by the customers, they will stick with you, and eventually each user becomes more profitable. We won’t change this philosophy just for growth.”

In 2021, Groww saw its valuation jump from $250 Mn to $3 Bn+ thanks to massive funding rounds and backing from the likes of Tiger Global, Lone Pine Capital, and many others. The company has since then expanded its lineup of investment tech products, as highlighted above, and added more pieces in 2022-23.

From A Lending Play…

It’s hard to hide from the competition in the fintech space. One way or the other, you will cross paths.

The great fintech convergence is one of the more enduring themes of the past year, as individual apps turned to platforms. Groww is also a platform in many ways, but key leaders in the company believe the difference is in the way it has approached this transition.

Thoughtful product expansion has been the hallmark of CRED in 2023, while massive deployment of capital and resources has been the playbook for PhonePe. Groww has taken customer-first to a different level. And for the company, this is a key USP because it creates a long-term trust bridge between the platform and its users.

“For many days in the past year, our founders have been on the ground and talking to customers directly. We had roadshows to meet some of our most active investors in Tier 2 and Tier 3 towns, where we saw that our customers have deeper problems and a trust in Groww,” says another key member of the Groww platform.

The trust comes from the fact that Groww has helped these individuals see returns on their wealth. Users know that Groww is a legitimate partner and therefore they are more likely to turn to the company for other services.

Based on the feedback from the users on the ground, Groww added lending as the first piece of the platform beyond investments. It had also acquired an NBFC licence through Groww Creditserv Technologies in late 2022 for its first real attempt into lending, and by mid-2023, it had also ventured into UPI payments.

…To Joining The UPI Race

Let’s get one thing clear — UPI is not exactly a novel product by any means and can be expensive to maintain at scale despite its low revenue contribution given the current zero MDR regime.

Even market leader PhonePe struggles to monetise UPI and has to turn to non-payments revenue for growth. But UPI is a glue in the fintech ecosystem and every app realises that UPI can be a top funnel to gain more users.

Groww ranked 28th among all UPI apps in October 2023, facilitating 5.89 Mn transactions totalling INR 3,354 Cr in value. As such, it has a long way to catch up with PhonePe, Google Pay, Paytm and CRED, which are the top four UPI apps in India.

While other companies spend to drive usage, Groww is looking at UPI as a nice-to-have and not as a core focus area. UPI only adds to the trust element of a platform.

Sources close to the company told Inc42 that Groww is also working on a payments gateway business, which is being used to reconcile transactions made by investors on its app. It’s very likely that the company will offer it to other businesses to recoup the investment towards building this product. But Groww did not comment on the plans to enter the enterprise fintech space.

What Can Groww Count On?

Trust is a fundamental building block for any platform, says a founding partner at a Bengaluru-based early stage VC firm. The partner, who primarily looks at fintech investments, believes that fintech platforms need to become walled gardens and there are various ways in which companies are doing this.

Paytm has the deep brand value, CRED has cutting-edge product and design, PhonePe has the scale — for Groww, this is replaced to some degree by the trust from its customer base.

On the lending side, the company has looked at consumer durable loans at the points of sale as well as merchant loans to begin with, but according to sources close to the leadership, there are plans for home loans, personal loans and other credit products.

But the company’s plans are not just restricted to lending. Reports in the past year indicated that Groww is also looking at a co-branded credit card and there was even some speculation earlier about a tie-up with Federal Bank for a neobanking play. These are very much on the cards as well.

Interestingly, Zerodha, Groww’s chief rival on the investment tech side, is also eyeing a banking licence, as per reports. A banking licence is being considered a critical advantage in the discount broking space for speed of executing transactions. As more and more companies look to automate processes for a quicker turnaround time on transactions, having an in-house bank would be a massive competitive edge.

So Groww’s primary objective with its content stack is to inform — and that was also the objective with meeting people on the ground. It’s not about bringing new users, but building trust and visibility with the brand.

If digital-first new-age brands do it through retail channels, Groww does it with roadshows.

Rethinking Asset Management 

Groww’s NBFC licence keeps the door open for a larger banking play in the future, but another critical factor is the new asset management business.

Earlier this year, Groww completed the acquisition of Indiabulls’ AMC licence, a process that began in 2021. For Groww, the AMC licence is critical from a revenue point of view as AMCs typically charge a management fee based on the asset percentage, while brokerages generally charge per trade or offer flat-fee accounts. But for Jain, the opportunity is not about revenue but actually changing the trust equation.

Once again, Groww links the product expansion to consumer-first thinking. The consumer does not want the business to ask for money to solve the problem. The consumer wants to see the value of the brand, and needs to trust the brand to solve the problem.

“There is a lack of trust in the industry because products are not very simple. Customers or new investors need a very simple report. They want to know how to invest. They ask, ‘How do I get the money back? Where is it invested? Is it invested with the right philosophy? Are people taking too much risk or are they very conservative?’ We have the opportunity to create that level of transparency with our AMC and that level of governance,” Jain said.

As per him, Groww’s approach to content and solving the problems faced by consumers easily extends to other categories such as insurance. In other words, it’s not just the AMC space or the investment space that is fraught with bad information.

Sources at Groww talk about insurance as one of these areas and how it has remained a mystery product for certain categories. “Think about life insurance. It is the most critical product for long-term financial planning, but it’s the least understood product and it’s the most mis-sold product. There’s the need to demystify this in the right way and no one is doing that yet,” one source close to the management says.

Groww’s Super App Moment 

Once again, content is the answer for Groww because the questions the company is asking itself are the questions that the consumer has. Even if content does not always translate into monetisable users, there’s a strong belief that investment tech, mutual funds or even fintech as a whole is not a winner-take-all market. Growing the base of eventual users only helps the ecosystem.

Groww might be more suitable for one kind of consumer, because it has a deep consumer insight. But there will always be room for other companies, just like a healthy economy has multiple banks competing.

Despite having higher active user numbers, Groww trails Zerodha in terms of revenue. Nithin Kamath-led Zerodha reported INR 6,875 Cr in revenue and a net profit of INR 2,900 Cr in FY23. In contrast, Groww reported a net profit of INR 449 Cr in FY23 on an operating revenue base of INR 1,277 Cr.

The gap is evidently wide, but comparisons with Zerodha are perhaps misrepresentative of Groww’s place in the fintech ecosystem. Or, at least, will be if the company is able to press the accelerator on its larger plans.

Indeed, the comparisons then will be made with the likes of Paytm or PhonePe, and it will be interesting to see where each of these fintech ‘super apps’ stand a year from now. Will their product diversity stand the test of time?

In some ways, Groww has been lucky so far that the company’s products have been well timed with the market growth and the push for investments in India from policymakers. Plus, digital investment platforms grew by leaps and bounds during the Covid pandemic aka one of the biggest bull runs in India.

Even though the past few years have brought in some correction, Groww believes in taking a broader decade-long view. The aspirations of modern Indians are already growing and this is also an important time to help Indians grow in the right manner.

The cofounder believes that just like Groww got ‘lucky’ in the past few years with its core business, it has the good fortune to be building new products for this new India. Incidentally, this is also the best time to prove any thesis around super app platforms as the consumer base is maturing.

And Groww says it knows consumers well — will this be its trump card?

The post Groww’s ‘Super App’ Year: Going D2C To Win The Fintech Race appeared first on Inc42 Media.

CRED doesn’t do labels — ask the company to name its key leaders, and there’s no straight answer. The refrain time and again is about functional teams and high ownership across the ranks.

But I wasn’t at the company’s new second office in Bengaluru to discuss official designations. Instead, we wanted to dive into the year that went by with the leadership. And I couldn’t help but notice an airier, more open version of the company which is otherwise quite guarded.

After all, 2023 is a big year for CRED — it’s about the coming-of-age for the company’s products and embracing the platform life and proving that financially too, it is on the right track. With new products that could add significant revenue momentum, CRED is answering many who had questioned its business model for years. This year was also about showing that building patiently and slowly has its rewards.

With its new office, the Kunal Shah-led startup has now bookended an entire block on Indiranagar’s 100-foot road, creating what can only be described as the CRED bubble.

The CRED bubble is, of course, not a bad thing. It’s largely indicative of Shah’s outsized influence on the Indian tech ecosystem. Naturally, most people associate CRED with its founder — the only designation that cannot be hidden.

Having completed five years in 2023, CRED is finally opening up, even though it’s awkward about it.

As part of Inc42’s wrap-up of 2023, we dove deep into the year gone by for CRED and unearthed some insights from how the startup builds its products, its relatively slow-burn approach and the questions about profitability.

‘CRED’s Broad Canvas’

For CRED, the benchmark is not Paytm or PhonePe or any other fintech app, it’s Apple and Mercedes — no surprises there (more on this later). It’s the one thing that perhaps sets the startup apart from the horde of competitors in the rapidly growing fintech space.

Every company is gearing up to become an all-in-one fintech app, but CRED claims to have taken a deliberate approach, without compromising on the product ethos — deeply thought-out features, high-quality design assets and UX, and products that fit into CRED’s customer persona model, which make sense for the platform.

“Kunal had a very crisp vision of what the opportunity is, which is that the trustworthy and credit-worthy user base in India deserves better, and can be served in a unique way. That was the broad canvas and that canvas is still the same today,” says the company spokesperson, adding that the primary challenge for CRED from a product vision point of view is choosing what to do next.

Choosing what to do next is not something most startups have the luxury of. In CRED’s case, that’s largely due to the capital raised by the company that allows it to take its time, but it also goes deeper than that. Shah’s reputation as a founder who has seen a big exit also brings a lot of time to grow.

The company has raised over $1 Bn over 10 rounds in five years, so it’s not lacking capital. But it’s also about knowing what pieces of the puzzle will actually fit next to each other.

“You really cannot do step seven, unless you do step one through six. And then you may imagine I want to do step 27 also, but you don’t get the right to do that until you sort of actively build the layers and things adjacent to it,” the spokesperson said.

‘Is This A Delta-4 Experience?’

So when did CRED choose to go into something like vehicle management with CRED Garage, which came out of the blue, but fits like a glove within the platform. After the launch, it seems like a very obviously CRED product, but how did the company arrive at that point?

For the company, it goes back to the underlying thesis of building for the ecosystem of people who are high-trust, which is based on an objective metric called a credit score. In some ways, this cohort represents the cream of the overall Indian fintech TAM. Essentially, the very premium layer comprises the 100 Mn Indians who own a credit card.

“So when we look at the problem statements that they have in their life where we can potentially make a difference. That’s the starting point of how we think about all products, not just Garage. There are some products which we aspire to make, but until we have a unique insight that fits this persona, we’re not gonna go build it.”

The origin point for Garage was more than a year before the launch when the CRED team was ideating on developing a product linked to FasTAG electronic toll payments. By itself, the product would have been just another FasTAG service like Paytm or PhonePe, but the idea was to flesh it out more fully.

Another decisive question that CRED asks itself in the process of product development: ‘can we create a Delta 4 experience’, based on the theory put forward by Shah. Put simply, Shah claims, “Once the user experiences a significantly better way of using a product, there is no way he or she is going back to the old way of doing things.”

The company claims a product like Garage doesn’t exist anywhere in the world, and it’s similar to how CRED changed credit card bill payments, which seems like an afterthought today, but it was also a unique product at the time. In the first three weeks, CRED Garage claims to have hit 1 Mn vehicles registered.

Building backward from the customer persona, CRED is looking to intersect with the digital commerce and lifestyle journey of its users. Besides, the company is also eyeing investment tech vertical as the next area of growth.

Garage is also unique in the sense that CRED did not acquire any companies to build this product, as it has done on the lending side with the acquisitions of CreditVidya in 2022 or Spenny in 2023 or even the likes of Happay in 2021.

While these acquisitions are key for CRED’s grander plans in the investment tech and lending space, Garage remains a wholly unique proposition.

What’s not unique is CRED’s UPI play, but even here the company banked on building for the customer persona, which has paid off in a big way.

‘Why’s Yours Black And Why’s Mine White?’

For years, fintech meant payments and payments meant UPI. Startups built user bases through UPI and now realise they need services for revenue, something which UPI does not contribute towards.

In October 2022, when CRED launched UPI payments, we wondered whether it was too late to enter the game. But since the launch, the company has managed to climb up the UPI rankings and is the fourth-most used UPI app in the country today.

The launch of UPI has been critical for CRED to drive engagement among its users and it’s also one of the places where we can see the product philosophy pay off. “It was an important piece in the puzzle as it ties the various verticals together and you can see the impact in terms of the financials and the growth,” says a Bengaluru-based founding partner at an early-stage VC firm that has invested in several fintech startups.

Unlike other players of its ilk, CRED decided to take a gradual approach to UPI, launching nearly half a decade after the likes of PhonePe or Paytm or Google Pay. And it helps that perhaps people want to try new apps for UPI because there is no cost involved with switching apps.

“The paucity of rewards on other apps after five long years meant CRED had the opportunity to offer rewards and syphon off users. Users ant rewards and delight, and CRED offers both in spades,” the spokesperson added.

We asked CRED team what led to this quick success for CRED UPI, and the answer was — people use different signals for different transactions.

Someone with multiple credit cards will likely pull out the fanciest one in the right company, and the same could be said about CRED’s UPI play. “There’s the factor of ‘Why’s yours black and why’s mine white?’ We also focussed on speed, safety and privacy. We have the fastest QR scanner today and we have fraud protection measures, which is basic but no other app has done that,” the spokesperson said.

The UPI product has been key in converting the user base from low-frequency actions for credit card payments to high-frequency actions like daily small-ticket purchases. And indeed, Garage or CRED Escapes (travel) or the CRED Store are all part of this effort to push up engagement among the most active users.

‘Building Like Apple Or Mercedes’

Products by themselves don’t matter of course. It’s about how they move the revenue needle. For CRED, the FY23 performance is seen as a turning point, but there’s an even more meaningful outcome that the company had been chasing for — higher engagement from its users.

The startup reported a total revenue of INR 1,484 Cr in FY23, a 251.6% increase from INR 422 Cr in the previous fiscal year. On the other hand, losses grew marginally at 5% to INR 1,347 Cr, thanks to expenses growing to INR 2,831.9 Cr from INR 1,702 Cr.

On the engagement side, an average CRED monthly transacting user (MTU) now opens the app more than 20 times a month, which the company claims is one of the best in the industry.

One-third of the credit card bill payments by value were done on CRED, we were told and on a unit economics level, CRED spent INR 2 to earn every single rupee from operations.

That’s a major improvement from INR 4.3 it spent last year to earn a rupee of operating income. So, there have been some measurable improvements for CRED in the past 12-16 months, and new products are very clearly a part of it.

For CRED, financial prudence is not new, and in fact, the company claims to be CM1 positive for seven quarters now and CM2 positive for five quarters (as of December 2023). These are of course the fundamentals that indicate the right trajectory from a unit economics point of view. And these metrics will be sacrosanct — or in other words, they won’t be sacrificed for growth.

As for EBITDA breakeven, for CRED and many other companies at a similar stage, it’s a choice. The company is likely to invest in growth if there are products worth chasing.

The company also claims to be ahead on its plan for EBITDA breakeven, without stating any timelines for when that might be announced. Perhaps, it’s the company’s shyness for labels that’s once again surfacing here.

But even the likes of Google and Amazon faced questions on profitability and their business models before they went public. Until the larger vision and the business fundamentals became clearer. CRED is not in a hurry to claim profitability.

The analogy we were given is of Apple or Mercedes. The best companies in the world take their time because they are pushing the envelope on products. Whether that be a car or a smartphone or laptop or indeed a fintech app. These titans of industry have earned the right to garner the largest share of profits or goodwill among customers.

Of course, success is a factor of the work and not just patience. For the company, the key will be to fight, perform and deliver every day; becoming less and less quiet about the progress. And then perhaps CRED might not shy away from labels as much.

Update | 11th Dec, 9:40 IST

Some parts of the story have been edited for clarity.

The post Five Years In The Making: CRED’s Year Of Vindication appeared first on Inc42 Media.

Just when Paytm seemed to be on track to hit profitability, there’s another speed bump. And this time around, Paytm doesn’t just have to slow down but also swerve to avoid a crash.

This week’s withdrawal of the company’s low-ticket Postpaid feature or buy-now-pay-later (BNPL) service has created a difficult situation, as this was one of the key success factors for Paytm’s profitability in the past few quarters.

And while Paytm has denied that this is the end of BNPL on the app, it’s looking increasingly like that given that the new focus is higher ticket loan sizes.

The BNPL loan book had become a critical monthly recurring revenue for Paytm and the changes could derail Paytm’s run towards profits. But before we look at that, let’s take a detour into the top stories of the week from our newsroom:

• ZestMoney’s Last Days: ZestMoney is shutting down after a torrid time this year. But what happened at the fintech startup that was flying high at one time? Here’s a look at the last few days of ZestMoney.
• Year Of Shutdowns: More than 15 startups had to shut shop this year after being pushed to the brink by tough market conditions — Pillow and FrontRow were some of the big names that bit the dust in 2023
• Layoffs At Simplilearn: Inc42’s exclusive report on how Blackstone-owned edtech giant Simplilearn has laid off 200 employees citing performance reason, which employees allege is not the full picture

Paytm Postpaid’s New Avatar

First, let’s understand the sequence of events leading up to the changes at Paytm. In late November, many users reported on Twitter about being frozen out of Paytm Postpaid.

Then reports emerged this week about Paytm halting Postpaid operations, which the company denied after a swift press conference. Finally, in a call with investors and shareholders, Paytm said it is not halting Postpaid, but recalibrating the portfolio origination of less than INR 50,000.

It claimed to have taken this call on the back of recent macro development and regulatory guidance, in line with its focus on driving a healthy portfolio. “While we’ll continue to do postpaid, and it may not be the same growth level that we were doing earlier, it will be significantly lower than what we were doing earlier, but it will be a product that will continue,” the fintech major told investors.

Given the recent RBI directives to banks and NBFCs to increase the risk weights — the amount of cash banks need to reserve to service risky loans — which has forced the banks and NBFCs to reassess their portfolio. As a result, agreements with the likes of Paytm which offer small ticket loans are being reassessed.

One Delhi NCR-based fintech founder says even banks and NBFCs need to show improved profitability and these small loans do not contribute to their bottom line significantly.

What Postpaid Means To Paytm

Losing the key low ticket size segment of Postpaid is a blow to the company’s financials. While it has admitted that future growth will be slow, the company would also be wary of value erosion due to any slowdown in its lending business.

Paytm has posted staggering growth in the lending vertical in the last quarter i.e. Q2 FY24, where disbursals increased to 1.32 Cr loans (44% higher YoY) and the total loan amount to INR 16,211 Cr (122% higher YoY).

But how much of that is from Postpaid and what can we expect come next quarter?

The Postpaid vertical has historically contributed the biggest to its lending business in terms of value. In Q2, Paytm disbursed Postpaid loans worth INR 9,010 Cr, which is 12% higher than what the company did in Q1. Interestingly, loans under INR 50,000 made up to 75% of the total disbursements, and this entire chunk is more or less out of the picture.

Even if we assume some overall growth for Postpaid in Q3 FY24 (December 2023), Paytm is looking at significantly lower revenue on the lending side.

The nature of Postpaid meant that a lot of Paytm’s young users without credit cards were using the BNPL credit line like a credit card. Postpaid also had wide acceptability in the offline merchant space, making it more attractive than the likes of LazyPay and others which offered a similar feature.

Paytm’s Value Tied To Lending 

For Paytm, the decision to defocus from the low ticket size means that it will likely lose out on the traction it sees from users due to Postpaid usage. It’s a double blow along with the revenue, and one which has decimated Paytm’s stock.

After a rally throughout most of the last few months, Paytm’s market cap tumbled from INR 55,256 Cr to INR 41,373 Cr in a week, a fall of 25%.

Brokerage Motilal Oswal believes Paytm’s loan disbursement run rate is expected to decrease from INR 6,000 Cr per month to about INR 4,500 Cr. “Paytm adds an average 3.5 Lakh to 4 Lakh customers every quarter, which is now expected to come down by 50%,” the firm claimed.

Similarly JM Financial noted that Paytm’s FY24 estimated loss before tax is likely to increase by 11% as a result of the changes.

BNPL’s Time Running Out 

But of course, BNPL was never a reliable ship. The segment has had its share of worries for a long time. Plus, this particular Paytm episode highlights the weakness of relying on a base of low-value loans.

Analysts expect several other companies to also focus more sharply on higher loan tickets where a higher standard of risk assessment and diligence is needed, rather than the blitzscaling of BNPL startups and the associated irresponsible lending.

“BNPL was always a sticky wicket and it’s no surprise when you see that with each RBI intervention, the segment sees great pain. And even the valuation bubble is now burst, so the time is for responsible lending and not spraying capital around,” said one Delhi NCR-based fintech founder.

BNPL startups such as Simpl and Slice which had models similar to Postpaid’s credit lines have pivoted to other models since then, and even Lazypay introduced personal loans to hedge against any slowdown in BNPL.

Speaking to Inc42, Kissht/RING founder Ranvir Singh added that lending by itself is too big and too ingrained into the economy to slow down. What we might see is better governance standards in lending operations. Kissht claims to have an average ticket size of INR 1.1 Lakh.

“Though risk weights for unsecured loans have increased, there is an elevated interest from lenders and co-lending partners to disburse loans greater than INR 50,000. This will further usher an era of more responsible lending where credit worthy customers will continue to be served adequately,” Singh said.

Can Paytm Refocus?

For Paytm, the answer lies in adding more partners for its personal and merchant loans, where it will be looking to make up most of the lost Postpaid revenue. These areas are typically more lucrative for revenue and long-term profits, but building a large loan book requires a lot of legwork.

In the initial days, Paytm is likely to have to spend heavily on customer acquisition and even then it will need to keep a high bar for disbursing loans. Shifting focus to larger ticket loans is not without challenges, given that besides higher risk weights, there is the FLDG component, where partner financial institutions are likely to ask digital lenders to put up collateral.

Lending might continue growing as a whole, but Paytm will have to fight harder for its share of the pie.

2023 In Review: Recapping The Highs And Lows 

As 2023 draws to a close, it’s time to reminisce about everything — from the key deals to breakthroughs from trends to controversies in the Indian tech & startup ecosystem. Like every year, Inc42 launched 2023 In Review in late November and throughout the past few weeks, we have captured the year through snapshots and analyses.

This week, we looked back at the startups that turned profitable in FY23 and set off on a new trajectory. Plus, our roundup of the sport stars and athletes that turned investors, as well as those who continued to back new-age ventures. And while 2023 was not a massive year for IPOs, some startups managed to buck the trend and go public despite tough market conditions.

Bookmark this page to see what we have in store!

Sunday Roundup: Tech Stocks, Startup Funding & More

• Slow Year For Funding: With the year about to close, Indian startup funding is likely to just breach the $9 Bn mark. Between December 4 and 9, startups raked in $85 Mn across 18 deals
• OpenAI’s India Plans: Sam Altman-led OpenAI is reportedly partnering with former Twitter India head Rishi Jaitly to help facilitate talks with the Indian government about AI policy

• SoftBank Sells Zomato: SoftBank offloaded 9.35 Cr shares of foodtech giant Zomato this week in an INR 1,127 Cr block deal, most likely completely exiting its position
• Another Boost For UPI: The RBI has proposed increasing the INR 1 Lakh limit for UPI payments to hospitals and educational institutions to INR 5 Lakh per transaction among other changes

That’s all for this week folks. We’ll be back next week with another roundup as we close the curtains on 2023.

Don’t forget to stay tuned to our social media channels during this time of the year. Join Inc42 on Instagram, X/Twitter and LinkedIn for the latest news as it happens.

The post Paytm’s Lost Postpaid Magic appeared first on Inc42 Media.

Dark clouds have circled BYJU’S all through the past two years. The edtech giant, once heralded as a beacon for Indian tech and innovation, has had a monumental slip and cofounder and group CEO Byju Raveendran is facing his biggest test so far.

While there is growing pressure on Raveendran to reduce operational involvement as per reports this week, the company is also battling a huge image crisis. Today, instead of being an example of how to scale up, BYJU’S has become an example of what startups ought not to do.

But before we delve into these lessons for startups from the BYJU’S journey, let’s take a few minutes to look at some of the top stories from our newsroom this week:

• BharatPe’s Super App: With its product expansion in recent months, BharatPe is pulling into the fintech super app race with the likes of Paytm, PhonePe, CRED & Co. But unlike these rivals, the company has taken a B2B first approach; will it pay off? 
• Decoding APAAR ID: India’s new Aadhaar-like student ID system has the potential to completely revolutionise the education sector just like UPI did for fintech. We dive into the ABC of this new paradigm.
• Taj Breach Explained: The data breach at Taj Hotels which is said to impact over 1.5 Mn customers underscores how critical cybersecurity is today for even the biggest companies, but what can be done to fix this?

Five Lessons From BYJU’S 

As if months of stories and speculation about dealing with lenders, cash crunch, layoffs, departures of key personnel and other corporate governance lapses were not enough, three separate reports this week have worsened the year for BYJU’S:

• First, Anil Goel, the group CTO and president of technology, announced his departure from the company
• Then, the Board of Control for Cricket in India (BCCI) dragged the edtech decacorn to the National Company Law Tribunal over a sponsorship matter
• And finally, Netherlands-based Prosus marked down the value of its investment in the edtech giant, which theoretically means BYJU’S is now valued at $3 Bn, a steep fall from the previous $22 Bn

By themselves, these developments are not significant in nature, but given what has transpired in the months prior, the question is how long Raveendran can withstand pressure. But more importantly, what can startups learn from the edtech giant’s slide?

We spoke to industry stakeholders to get an idea of what went wrong and how other startups can avoid these pitfalls. Here are five things we learnt:

‘Go Tech-Heavy, Not People-Heavy’

There’s a world of difference in scaling up using technology, rather than throwing people at the problem. Tech companies are supposed to have great economies of scale, but BYJU’S banked on tens of thousands of employees to support the scale, which broke this promise.

“It also created immense pressure on the sales teams at BYJU’S to keep selling more and more to justify their own costs. The company should have seen much earlier that this was unsustainable in the long run and looked for a tech-based solution like they did in late 2022,” says one Bengaluru-based fund manager for a US-based firm.

The pressure also resulted in accusations of toxic work culture, a badge that BYJU’S has not been able to shake off even now, in its now leaner avatar. Some reports indicate over 10,000 employees have been laid, though the company insists it has only laid off 2,500 employees Another 4,000 are expected to be let go in the next few months.

Of course, BYJU’S is not the only company to lay off employees since last year, and most companies have rationalised hiring since then, so in some ways, this is one harsh lesson that startups have already learnt.

‘Acquire Only What You Can Sustain’

Another major problem was BYJU’S failure to integrate the acquired companies Aakash, WhiteHat Jr, Great Learning and others well into the main business. This has created a lopsided reliance on one or two companies such as Great Learning and Aakash and these are pretty much the only lucrative part of BYJU’S for investors.

The reports of the edtech giant putting up Aakash, Great Learning and US-based Epic on sale shows that these acquisitions are merely assets and not an indispensable part of BYJU’S. This also resulted in massive marketing costs for BYJU’S as these individual products had different acquisition channels and strategies.

As many have pointed out in the past, a monolithic infrastructure would have enabled a better mix of unit economics and improved economies of scale for BYJU’S. One can even say that the founders of the acquired companies were not brought into the leadership fold as one might expect after an acquisition. This meant those who were closest to the original business were left without a say.

‘Be Serious About Corporate Governance’

It’s one thing to miss a filings deadline by a few weeks or months, another to be two years behind the ball, as BYJU’S has.

“Look at most big startups today; even those who were always a few months late have pulled up their socks. And many have streamlined their financial reporting to eliminate delays. And now founders cannot stall VCs for MIS numbers either as that is seen as a red flag,” says a Bengaluru-based corporate accounting and audit expert.

In other words, no one wants to be in a position like BYJU’S where even the government has asked for filings and investors have been left in the dark about the financial performance of one of their biggest investments.

A fellow Benglaluru-based edtech founder told us investors now tend to paint edtech companies with the same brush as BYJU’S and tend to suspect claims even when there is adequate reporting.

‘Pay Attention To Debt’

Individuals need to plan for a rainy day, companies need to plan for a rainy few years.

In 2021, BYJU’S — like Pharmeasy — made a bold bet at a time when bank lending rates were low (zero interest rate policy or ZIRP) and took a $1.2 Bn loan. Most of this money went to acquire Aakash for nearly $1 Bn. But as we said above, the acquisition has not exactly been a success.

Like BYJU’S, Aakash has also not filed its FY22 and FY23 numbers, so we don’t know its financial state for certain. Plans to raise funds by selling stake in Aakash have also hit a wall due to this gap.

But what we do know is that the debt has become a burden on BYJU’S. It has resulted in a long-drawn battle with lenders in the US and plenty of allegations of impropriety, leading to more pressure on Raveendran.

The uncertainty around the closing terms of the deal have left Aakash’s original promoters with several doubts about the Raveendran’s leadership capabilities. There was even speculation that Aakash Chaudhry would return to his role as CEO of Aakash, and wrest control of the company.

In other words, BYJU’S best bet to get out of the capital crunch has also lost faith in the company.

‘Have A Vision And A Plan To Execute It’ 

“Whenever you spread yourself too thin with many verticals, you defocus on your core and that’s exactly what BYJU’S did in 2020 and 2021,” said the edtech founder quoted above.

When there was a new trend or theme in edtech, BYJU’S went out and acquired someone that fit the bill. The core platform of BYJU’S stagnated and barely saw any innovation as a result. BYJU’S had a first-mover advantage in online learning in many ways, but this lead was squandered as the company went chasing the shiny new thing, repeatedly.

As it became clear that online coding was picking up, it acquired WhiteHat Jr, even though the platform which was said to have rather basic features might not have justified the $300 Mn price tag. Similarly, when offline coaching was bouncing back in 2021 or when higher education was gaining traction, it acquired Aakash and Great Learning.

Instead of building slowly and with the right principles, BYJU’S went in with wads of cash and no real plan. Truly, the lack of vision has been a major problem for BYJU’S and this question also needs to be posed to investors in the company.

“Raveendran was the brand that pulled in people in the early days, but who was thinking about the long-term? Shouldn’t investors have asked for a plan beyond acquiring XYZ company?” added the fund manager quoted earlier

Is it too late for BYJU’S to answer these questions? Perhaps the new India CEO Arjun Mohan can change things. But BYJU’S missteps are unlikely to be forgotten soon. Indeed, they can be a guiding light for thousands of other startups looking to scale up.

2023 In Focus: Inc42’s Review Series Is Back

As 2023 draws to a close, it’s time to reminisce about everything that shaped this year for the Indian tech & startup ecosystem— from the key deals to breakthroughs from trends to controversies galore and more.

As every year, Inc42 is back with the 10th edition of its annual review series — 2023 In Review!

Bookmark this page to see what we have in store!

Sunday Roundup: Startup Funding, Tech Stocks & More 

• Funding Goes Flat: After a brief resurgence in early November, weekly startup funding has plateaued in the past couple of weeks. This week’s tally of $62 Mn is barely higher than the total funding seen in the previous week.
• UPI Boom Continues: The number of UPI transactions crossed the 11 Bn mark for the second consecutive month in November, with a total of 1,124 Cr transactions recorded.

• Alipay Exits Zomato: The Chinese payments group sold its entire 3.44% stake in Zomato for a cumulative INR 3,336.7 Cr, booking a $40 Mn in profit for its investment,
• Mobikwik IPO Back? The fintech startup has reportedly revived its IPO plans and is looking to file its papers for a $84 Mn public listing this month,

That’s all for this week folks. We’ll be back next week with another roundup as we close the curtains on 2023.

Don’t forget to stay tuned to our social media channels during this time of the year. Join Inc42 on Instagram, X/Twitter and LinkedIn for the latest news as it happens.

The post Lessons From BYJU’S appeared first on Inc42 Media.

All roads lead to Rome, and for India’s fintech startups, Rome means owning every inch of the value chain. In the case of BharatPe, the past year has been all about joining the great Indian fintech convergence while also shedding a lot of baggage.

That baggage is of course the persistent controversy around former MD and cofounder Ashneer Grover, facing not only a BharatPe civil suit but a potentially more worrying EOW investigation. And besides this, the company reported a huge loss in FY22, more than tripling to around INR 5,000 Cr, thanks to 30X YoY surge in expenses. Plus, the governance lapses related to Grover and other key employees have also bogged down BharatPe.

But looking to move on from that, the unicorn gave us a glimpse at its financial state earlier this week, and it’s becoming increasingly clear that the future for the company is similar to that of others such as Paytm, PhonePe, CRED and Google Pay. But instead of a consumer-first approach, BharatPe has stuck to its primary B2B strategy.

The current org structure sees former SBI Card CFO Nalin Negi at the top as the chief financial officer and interim chief executive officer.

Negi took over after the exit of Suhail Sameer in January this year, who quit the post just 16 months into the job. Negi himself only came on board in August 2022, and five months later, was handed the CEO role.

And since then, BharatPe has looked to go leaner on costs by getting the right lending partners for the capital, managing acquisition costs, servicing costs and generally bringing in efficiencies in the lending process, which is the biggest contributor to the profitability.

But the competition in the fintech sector is tough and BharatPe’s route to success crosses the likes of Paytm, PhonePe, CRED, Google Pay and others.

With a mix of merchant-focussed services and lending, as well as relatively new B2C verticals, BharatPe is looking more and more like a super app. And in doing so, it’s entering some uncharted territory. That’s the first complication.

At the same time, the problems of the past year mean that the company has not had a full-time CEO for nearly a year and lost several key personnel in the past year. And this is a company that is looking at a public listing in 2025 as per those close to the management, banking on the momentum of the past year.

Behind BharatPe’s Positive EBITDA 

“Now our focus is on scaling the business by disbursing more through our partners and acquiring more merchants. There’s room for improvement in both revenue and costs, but this [positive EBITDA] is the first step and we have the right product mix to accelerate,” interim CEO Negi told us.

BharatPe said in a press statement this week that its annualised revenue crossed INR 1,500 Cr till October in FY24, a 31% increase from FY23. The startup claims to have significantly cut down its EBITDA burn which was averaging INR 60 Cr per month in FY23.

It must be noted that BharatPe’s audited financial statements have not yet been released.

Peak XV Partners’ managing director Harshjit Sethi and a BharatPe board member told Inc42 that the Indian fintech opportunity remains deep and underserved. Sethi said that was true five years ago when Peak XV (then Sequoia) invested in BharatPe and the thesis is relevant even today.

Millions of new merchants are coming under the financial services umbrella and a host of competition is targeting the merchants segment. But both Negi and Sethi are confident that there have been systemic changes in the company that will be key in the long run.

There is a sequence of steps that have led to this EBITDA profitability, which is not just in terms of the strategies, but also on the governance front in the past year, Sethi added. He pointed to the board appointments of former RBI deputy governor BP Kanungo and Thought Arbitrage Research Institute (TARI) founder Kaushik Dutta in September 2022.

He was also quick to remind us about the NBFC licence BharatPe acquired in a watchful regulatory environment in May 2023.

“I don’t think any other fintech company in India has a former deputy governor of the RBI on its board. We felt that this [the time after the Grover controversy] was an opportunity to truly improve and learn from mistakes. So as the board we ripped the band-aid and fixed as many things as we could and focussed on long-term sustainability.,” the Peak XV MD added.

B2B — BharatPe’s Trump Card

BharatPe is not the only fintech giant eyeing the merchant space — PhonePe, Google Pay, Paytm, Amazon Pay are all accelerating fast in this regard with the launch of ‘soundboxes’ and other PoS devices.

BharatPe’s merchant services include card swipe machines, soundboxes, simple QR codes and the BharatPe app that lets merchants track collections and settlements, available credit lines and payment status. The app also lets signed-up merchants lend through the 12% club P2P lending-investment platform.

Negi acknowledged the intense competition with the above players, but also felt that the market is growing and untapped at the same time. He said the recent momentum seen by BharatPe shows that despite heavyweight competition, there’s a lot of room for high volumes in India.

In October, BharatPe claimed to have reached a monthly total payments volume (TPV) of INR 14,000 Cr, after the launch of its revamped PoS device in August this year. PoS is the big focus for BharatPe in the next year, where Paytm has taken something of a lead, with 92 Lakh installed devices in Q2 FY24, nearly doubling since last year.

Much of the company’s confidence also comes from the fact that the lending vertical saw loans exceeding INR 640 Cr in October alone, 36% higher YoY. Just for comparison, Paytm disbursed loans worth INR 3,275 Cr in Q2 FY24.

The acquisition of TrillionLoans in April 2023 gives the company another revenue stream in the lending business going forward, where the NBFC can lend to other authorised lending channels.

Trillion Loans reported a profit of INR 74 Lakh in the financial year 2021-22 (FY22) while its revenue stood at INR 7 Cr. BharatPe would hope to widen the profit margin with its scale and distribution channels. Trillion is also a critical part of the personal lending plans for BharatPe, as we will see.

Peak XV’s Sethi believes that BharatPe’s USP is that it has always been a merchant-first business. “Every other company started off as a consumer company first and then decided to build a merchant business. We have always believed that focusing and building a product specifically tailored to the merchant can unlock greater value in the long run.”

Paytm launched UPI services for merchants in 2018, eight years after starting out as a recharge platform in 2010 and then branching out into Paytm Wallet in 2014. PhonePe also launched its merchant services in 2018, three years after incorporation.

He also believes that eventually everyone will decide to build similar things as BharatPe, but having seen the merchant evolution closely, BharatPe can keep pushing the ball forward. Of course, this is easier said than done, and competition is only going to get tougher with the entry of Reliance’s Jio Financial Services.

And it’s also why BharatPe also has to focus on the consumer vertical to remain in the race. In other words, BharatPe has to join the super app race, which has become heated this year, thanks to the changes at PhonePe and CRED, as we have noted in the past few months.

Playing The Super App Game

BharatPe’s route to success is pretty much the same as several of the most capitalised startups and listed fintech giants.

The product mix will be critical for BharatPe, which has also invested heavily in marketing its consumer-focussed verticals such as postpe (lending), 12% Club (P2P lending and investments) as well as Zillion, the rewards platform which was formerly known as PAYBACK India.

BharatPe acquired PAYBACK in 2021 for $27 Mn. Earlier this year, the platform was rebranded to Zillion, which is also BharatPe’s entry point towards ecommerce in some ways. Though this is largely limited to coupons and gift cards at the moment. Ecommerce will be a key vertical for BharatPe if it has to retain the maximum attention from users in the future.

Getting the NBFC licence has proven to be a key for the B2C fintech play for the personal loans segment, where BharatPe has a lot of catching up to do. To put things in context, Paytm processed 2.4 Lakh personal loans worth INR 3,927 Cr between July and October this year.

Among the fintech ‘super apps’, Paytm is the biggest lender thus far, but CRED is not far behind and is gunning for a bigger piece through a multi-product strategy, and CRED also has an NBFC licence like BharatPe.

Plus, the super app race also includes PhonePe, which is using the $1 Bn it raised this year to bulk up lending, insurance, investment tech and ecommerce plays. It is also eyeing the enterprise space with checkout and payment gateway products.

BharatPe is planning to launch co-branded credit cards in the near future for its merchant base, but the company is also experimenting with some more consumer-focused plans, details of which were not provided.

And Negi added “90% of the business comes from merchants, so that’s the DNA of the company and that will be the primary mission in the future too.”

The Hunt For A CEO

Speaking of the future, there’s talk of an IPO in two years, so one of the big tasks for Sethi and the rest of the BharatPe board is to find the next CEO who will lead this effort.

Two years is perhaps not enough time for a CEO to bed themselves into the company, let alone take to an IPO. Has the right time to get a new CEO has already passed?

“We are not as large as banks but we have size and scale. We have this blend of financial services and tech. We don’t have the many layers and bureaucracy of banks, but we want to be a highly governed company. So we have to find someone who can marry these things,” he added.

Sethi claimed there’s been “strong interest” in the market for the CEO role, and many are pleasantly surprised by the company’s financial state and are attracted to the mission of financial inclusion. He added that the bar is set high because the IPO is just one of the milestones for the new CEO, the full mission is the next five to ten years.

While BharatPe’s current leadership is bullish, the company’s future hinges on how it fares against the heavy competition and whether its next CEO proves to be the right leader for the stage where it is right now and where it hopes to go. Can the company sustain its current good run?

The post Can BharatPe’s Merchant-First DNA Deliver Fintech ‘Super App’ Success?  appeared first on Inc42 Media.

It’s a position fraught with pressures at the best of times, but the last few weeks have made it all the more clear — founders often find themselves on shaky grounds, and in uncertain times, they can feel like puppets of the board or investors.

The OpenAI drama around fired-and-then-reinstated CEO Sam Altman shows how shaky it can be even for someone who’s billed as a once-in-a-generation founder. OpenAI’s boardroom struggle is an anomaly, since the board did not have any direct investor influence. So this exact situation is unlikely to happen in India for a long time.

Indeed, in the Indian startup ecosystem, there’s a curious ‘race’ between investors and founders to reach the reset button first.

VCs are looking to protect their investments by replacing founders in times of crisis, as we will see in detail below. On the other hand, founders are looking to exit without acrimony, before being asked to leave.

This struggle has already seen dozens of founders step away from their companies, and many more are likely to step down in the months to come. So today we are looking at this curious ‘race to reset’ between VCs and founders, but after these top stories from our newsroom:

• New Dynamics In EV Land: Investors in the EV space are looking beyond OEMs and focussing on segments such as batteries, EV infrastructure development and other areas. How will this change India’s EV landscape?
• Game Devs In The Spotlight: Real money gaming is dead and India’s game development startups are rising up to fill the gap. But long-term success requires more than just VC money; is India ready?
• Founders In Legal Tangles: Trouble grows for beleaguered founders Ashneer Grover and Rahul Yadav in their respective legal tussles. While BharatPe took Grover to court for social media posts, Yadav is currently out on bail after yet another court hearing.

New World Order

The fact that several startup founders have quit this year is no secret. We have covered these exits (forced in some cases by allegations of fraud) throughout the year, and we have also looked at how many of these founders are now looking at new innings with new ventures.

But while the announcements are often framed as the founders looking to pursue new opportunities, investors believe that it’s nearly always the case of the business outgrowing its leadership and needing new direction or a professional CEO outside of the founders.

Plus, in some cases, corporate governance lapses have necessitated fresh starts. “No founder or CEO should feel irreplaceable. Businesses grow and flourish even without original founders. It’s all about who’s right for the job, and by the way, that also applies to fund managers and partners at VC firms,” says a Delhi NCR-based early-stage investor.

Even established business leaders such as Vijay Shekhar Sharma also have to earn the confidence of shareholders to continue as CEOs from time to time, as seen last year.

“At the early stages a founder is critical. But after the startup reaches some maturity, the founder needs to be in the background and specialists need to take centrestage. Not all founders are happy hearing this from investors,” the investor added.

More often than not, founders have to be told by investors about the need for new leadership, which is not a great place to start with. Essentially, if investors are the first to reach for the ‘reset button’, it’s not a good sign for the business.

When Founders Bail Out

But as we have seen this year, founders often tend to reach for the reset button before they begin to feel the heat. This week, Dealshare’s Vineet Rao and Sankar Bora became the latest cofounders to step down.

The indications have been there throughout the year with more than two dozen founders having either quit or shown the door this year at more than a dozen startups, most of whom are going through tough times. Examples such as Zestmoney and Gomechanic stand out since they involved founders leaving en masse, leaving the company in a tough spot.

GoMechanic ended up as a distress sale, while Zestmoney is floundering with its acquisition prospects bleak.

But it’s unsurprising that there is an exodus of founders. Many of these entrepreneurs are more than happy to quit given the better funding prospects for early-stage startups and the higher growth prospects for startups with the right product-market fit for today’s post GenAI world.

Many founders are excited by building new products, scaling up new ideas and taking new models to the next level. But this excitement can wane as a startup reaches a certain level of growth. So founders look for the next new thing.

Sharechat’s Farid Ahsan and Bhanu Pratap Singh, who have bagged $3 Mn for General Autonomy, their new deeptech venture, something totally different from Sharechat.

In their case, Ahsan and Singh quit after the company’s problems surfaced, and in other cases, such as GoMechanic, founders have been removed from their positions but this was after they had confessed to misreporting numbers.

But it’s often cases such as Altman where investors or the board and founders are at loggerheads that grab the headlines. Or before Altman, Steve Jobs with Apple in 1985 and Jack Dorsey and Twitter in 2008. Similar high-profile dismissals are also expected in India in the next few years as companies mature.

When Things Turn Ugly

“As a founder, I sympathise with these entrepreneurs, but as an investor or fund manager, these were right decisions for these companies. And in some cases where investors and founders square off over leadership changes, it can get ugly,” says a Bengaluru-based managing partner at a global VC fund.

We don’t have to look too far for examples such as Zilingo or BharatPe or even BYJU’S where investors are reported to be unhappy with the current leadership. The problems came to a head and led to exits from key investors from the company’s board. In the case of BYJU’s there’s a new India CEO to turn the ship, but the problems keep growing for the edtech giant.

“Leadership changes are never easy. Even in the case of Flipkart, there were some corporate governance controversies around the founders Sachin Bansal and Binny Bansal before Walmart’s acquisition,” reminded another Bengaluru-based enterprise tech founder.

It was a tumultuous time for the company, and subsequently, Kalyan Krishnamurthy was named the CEO, while the two Bansals exited. Incidentally, Krishnamurthy was a managing director at Flipkart backer Tiger Global, before he was brought in. Flipkart is today one of the highest valued private Indian tech companies, and has spawned dozens of other startups through its talent pool.

The Silver Lining

The point is that churn comes every now and then — if not before a mega acquisition like Walmart, then due to the souring of the market. But founders quitting ventures to begin anew promotes continuity of innovation.

“Founders starting up again is great for the ecosystem. In the moment of the decision, these are painful decisions, but there is no malice. Repeat founders are great for the ecosystem and investors,” the Delhi-based investor quoted above told us.

Investors who replaced a founder as a CEO in one startup may turn around and back their next venture.

Even second-time entrepreneurs often turn to the investors they know when starting up again. And then the cycle will repeat till in some unfortunate cases, once again VCs and founders will find themselves in a race to reset.

Trend Spotlight: Ecommerce Black Friday 

India’s ecommerce players have always been big on Diwali, and naturally so, given its prominence across the vast country, but this time around, there’s equal fervour for Black Friday, which had thus far largely been a shopping festival in the US.

The likes of Amazon, Flipkart, Nykaa, Myntra, and CRED have all decided to continue the sale season momentum from Diwali with major Black Friday and Cyber Monday discounts. And the scale of these sales has only grown larger with each passing year.

So is Black Friday now a permanent fixture on the Indian ecommerce calendar?

Sunday Roundup: Startup Funding, Tech Stocks And More

• Flat End To November: Funding activity remained cold with just $61 Mn raised by Indian startups this past week. Total funding for the year is unlikely to breach the $10 Bn mark at this pace
• Tracking Founder Pay: Our latest tracker for the Indian startup ecosystem has unearthed some great insights about founder salaries, now updated with quick commerce unicorn Zepto
• Mamaearth Shines: Parent company Honasa’s profits soared 94% to INR 29.4 Cr in Q2 FY24 leading to investor frenzy and a massive surge in its stock price

• Tesla’s Offer To India: Tesla is reportedly eyeing a $2 Bn investment in India for manufacturing, but it has a few tax-related conditions for the Indian government

That’s all for this week.

The post Founders Vs VCs: The Race To Reset appeared first on Inc42 Media.

After being summoned by Mumbai Police for a bailable warrant, Broker Network founder Rahul Yadav pled not guilty to charges in a private complaint heard at Mumbai’s Additional Metropolitan Magistrate court’s Mazgaon division on November 22, 2023.

Yadav appeared in court after a bailable warrant was issued in October 2023 in relation to the complaint filed by former Broker Network employee Arun Singh Shekhawat in May 2023.

Shekhawat told Inc42 that Mumbai police visited Yadav at his residence in Khar and he was then taken to the Khar Police Station on November 9, 2023. Yadav then paid a bail guarantee of INR 5,000 and was released the same day.

Yadav, who previously cofounded Housing.com, was summoned by the court in this matter in June, July and September, but neither he nor his counsel appeared in front of the magistrate as per court records seen by Inc42.

This led to the bailable warrant notice followed by Yadav being taken into custody. Failure to appear for the November 22, 2023 hearing is likely to have resulted in a non-bailable warrant issued by the magistrate.

The complaint was registered under Section 138 of the Negotiable Instruments (Amendment) Act. The issue relates to a dishonoured or bounced cheque for INR 50 Lakh allegedly signed by Yadav and paid to Shekhawat.

The amount was alleged to be in lieu of INR 50 Lakh borrowed by Yadav from Shekhawat in August 2022 at a time when Broker Network was unable to pay the salaries of employees.

Shekhawat alleged, “He borrowed INR 50 Lakh from me personally on the pretext of paying salaries to employees in August 2022, at an interest rate of 5% per month. Then in 2023, he gave me a cheque for INR 50 Lakh which bounced, and led to my complaint.”

The former Broker Network senior executive added that besides this Yadav and the company owed him INR 70 Lakh in salaries and benefits. These pending dues are not part of the complaint filed by Shekhawat.

EOW Looking Into Rahul Yadav

It must be noted that the Economic Offences Wing is investigating two separate cases against Rahul Yadav, one of which is filed by Broker Network’s lead investor Info Edge.

The first case, which has been registered as an FIR, is about non-payment of dues and subsequent INR 10 Cr fraud allegations raised by Vikas Nowal, country head and cofounder of Interspace Communications.

Inc42 first highlighted the sorry state of the company in June 2023 which showed that Broker Network owes tens of crores of rupees to several vendors. Interspace was one of the many vendors that the troubled startup had not paid despite being an empanelled vendor. Besides this, employees of the company have also not been paid since September 2022.

Read Our Full Broker Network & Rahul Yadav Story Here

The second complaint with the EOW was filed by Broker Network’s chief backer Info Edge, alleging a fraud of INR 288 Cr, which we reported last month. It’s imperative to note that the complaint filed on August 22, 2023, has not yet been registered as an FIR by the EOW.

Besides Rahul Yadav, the EOW complaint names 4B Networks Private Limited, and cofounder and director Pratik Chaudhary as well as Devesh Singh (Yadav’s brother-in-law), Yadav’s wife Karishma Khokhar, and RY Advisory LLP, the partnership firm which was set up by the Broker Network founder.

Key employees and business heads involved with Broker Network such as Sanjay Saini, Vivek Jagtap (former CTO), Ashish Chandna, and Manish Agrawal have been named as co-accused in the complaint.

As detailed in Inc42’s original investigation into Broker Network, these individuals are linked to a network of companies and entities that are alleged to have syphoned off funds from Broker Network for personal gains.

The post Broker Network’s Rahul Yadav Out On Bail After Bounced Cheque Complaint In Mumbai appeared first on Inc42 Media.

“The folly of one man, is the fortune of another,” wrote English philosopher Francis Bacon in 1612. And more than 400 years later, this statement still rings true, even when it comes to modern ideas such as gaming.

The clarification around 28% GST for online gaming has undoubtedly disrupted real money gaming (fantasy and card games) startups, but it has also brought India’s game development industry into the spotlight, at least from the investor perspective.

While till early 2023, most VC money was being funnelled into fantasy gaming platforms, the potentially damaging tax action has spooked investors in the gaming space, as we have covered in detail over the past few months.

And while the government has clarified that this is not a retrospective tax, it also stated that these liabilities have always existed. This opens up RMG startups to millions in taxes for the past few years, which were not taxed at 28%.

While some online gaming startups have decided to lay off employees to adjust to the new reality, others have shut shop.

For instance, Bengaluru-based Gameskraft discontinued Gamezy Fantasy, its fantasy cricket app. Other startups such as Quizy have shut down, while Fantok has temporarily paused ops. Some of the more prominent players opted to lay off employees, including unicorn MPL, Kavin Mittal-led Hike, and Spartan Poker.

The likes of fantasy sports giant Dream11, Head Digital Works, Games 24×7 and Nazara  have received show-cause notices from the GST authorities over potential tax evasion or arrears. In its recent industry report, gaming-focussed VC firm Lumikai revised the Indian gaming industry’s revenue projections from $8.6 Bn to $7.5 Bn, which shows just how big an impact the tax changes have had. From rampant growth, the industry is now looking at a slowdown.

Inc42 reported earlier that a consolidation wave in the online gaming industry is expected due to the new tax regime. However, the landscape has shifted, with major industry players now facing show-cause notices for alleged tax evasions to the tune of INR 1 Lakh Cr.

Dream Sports, the parent company Dream11, one of the few profitable gaming startups in the country, has now diversified into game development. Dream11’s net profit fell 56.59% to INR 141.97 Cr in FY22 despite a 1.5X YoY jump in revenue to INR 3,840.7 Cr. Following the 28% GST direction, the gaming unicorn is expected to report a revenue decline of about 30%-40% and 80% reduced EBITDA in FY23, as per reports.

Given these headwinds and the consolidation within the RMG space, many investors are now turning their attention to India’s game development startups as a segue from fantasy gaming.

The Many Shades Of Game Development

When we talk about game development, it must be noted that this is not an unexplored space by any means, particularly when it comes to casual mobile games.

The likes of WinZO, MPL, Zupee, Nazara and others have developed a host of casual games over the years. These games typically leverage in-app purchases or ads for monetisation, but their scope is limited due to intense competition in this space globally, and high marketing costs associated with customer acquisition.

While casual games are the low-hanging fruits in the gaming space, there remains a vast untapped opportunity for game development when it comes to PC and console games, which have the biggest monetisation potential.

Dozens of startups including the likes of AET Fund-backed SuperGaming, MPL-owned Mayhem Studios, Kalaari-backed Bombay Play, Lumikai-backed All Star Games, Studio Sirah, nCore Games, Outlier Games among others are looking to make the most of the game development opportunity with a mix of casual and mid-core games for mobile, as well as PC and console games.

But founders in the game development industry and other stakeholders that we spoke to believe that even if the VC spotlight on game development grows, it will not solve the biggest problems for game development in India — talent and development costs.

Startups in this space are now pushing for improved policies from the government, looking to build and nurture talent in the Indian market and take the Indian gaming industry to the next level. And in many cases, they are forging ahead without any support from the VC ecosystem.

Are VCs Changing The Game?

“VCs don’t bet on long-term game development; they want short-term bets and that’s why the investment in casual games is higher, whereas serious game makers have no option but to bootstrap,” according to Harish Chengaiah, the founder of Outlier Games, a bootstrapped company based in Chennai.

He added that VC-funded startups developing mobile, PC or console games in India are often caught in a dilemma between pursuing their long-term vision and developing large-scale games, or releasing smaller games and products to generate revenue in the short term in line with investor expectations.

Developing large-scale games is time-consuming and involves six to seven years of work, whereas investors are more often than not looking for gains and exit options in the short term.

Echoing these views, Tejraj Parab, cofounder and CEO of Interactive Ice-Spice, believes that even if VC dollars come in, the expectation is to develop games within a year and launch them. On the other hand, a PC or console game takes anywhere between five and six years to develop.

IceSpice is part of the nCore Games group, which houses gaming studios such as Studio nCore and Dot9 Games. Cofounded by GoQii founder Vishal Gondal, the company has released two multiplayer mobile games FAU:G and Pro Cricket Mobile, with more titles expected this year.

Parab believes that most game development startups have no option but to take the slow route without VC backing similar to how gaming giants such as Activision, Blizzard, Epic Games and others evolved in the ‘80s and ‘90s in Silicon Valley.

How VCs See The India Game Dev Opportunity

Firms such as Lumikai or Centre Court Capital are squarely focussed on the gaming ecosystem, but such VCs are a rare breed in India, founders told us. Even if other VCs back gaming startups, it’s not a core focus area for them and therefore partners or fund managers may lack the nuance or patience needed for this space.

“The Indian market needs VCs that are patient when it comes to monetisation in gaming beyond real money gaming. Investors know that the games which have real revenue potential take time to be developed, but they are not willing to back these long-term bets,” added a third founder, whose gaming startup is backed by Kalaari Capital.

Instead, the VC expectation from startups is to follow the beaten path of a casual gaming platform like MPL or a fantasy game like Dream11 because these are working and there’s room for growth.

Now with the souring of the mood around real money gaming, many VCs are wondering whether they should invest in the game development space, where there’s not much precedent of success in India and where timelines for returns are typically longer than other sectors.

“Most Indian VCs will back models that have a monetisation precedent or enough of a TAM from a monetisation potential, but so far no Indian game development studio has shown the capacity to unlock this potential even though there exists a big audience for these games as we know,” explains one Mumbai-based early-stage investor, who has backed some platforms that cater to the gaming community.

It’s important to understand that casual games that typically are developed in a year or two can be an effective segue for monetisation for larger game studios as well, but most startups cannot afford to juggle multiple gaming products in this manner.

Even if VCs back game development studios in a big way, entrepreneurs in this space believe that the bigger problem is the lack of talent in this regard and the high operating costs for game development, which is as much about hardware as it is about resources.

Where’s The Talent? 

“Game development is often equated with software development, but in reality, the two could not be further apart. Game development is not about a lone programmer hacking away, but about teamwork and excelling at individual roles,” Outlier Games’ Chengaiah added.

The term ‘game development’ comprises at least six different roles, Chengaiah clarified, and it’s not just about having one particular skill set or knowhow of just one aspect.

The primary problem when it comes to talent is that engineers and designers that are joining the workforce do not prioritise the skills or the design and programming knowhow for game development.

“There is a certain stigma when it comes to gaming; that it is meant for kids or that it is not serious money. Even in my family, I have to convince people about the scope of game development,” adds Ice-Spice’s Parab.

Continuity of talent is a major issue. Even if those fresh out of college might take up a role in a game development company, retaining this talent is hard because other tech companies can just throw money at the problem. And when it comes to those engineers and designers that are passionate about gaming, their primary destination is the US or Europe, where there’s a bigger market for their talent.

Founders such as Parab, Chengaiah or Supergaming’s Roby John say most dev studios poach talent from one another, especially in the weeks and days leading up to the launch of a game. Besides this, the lack of a continuous stream of talent tends to elongate the development cycles further.

“We have to do a demo, a vertical slice for publishers and then after that gets picked up, we can work on the full game. Just the demo itself takes 2-3 years at times and there’s no guarantee that it will work. The final game, after the publisher agreements, takes another 2-3 years. And the costs are only recovered in the second or third year of sales, and only when the game is a success,” Chengaiah said, adding that it’s no wonder that some of the biggest names in the gaming industry, even in the US, have had to grow bootstrapped in their first few years.

And that’s for a relatively short game that has 1 hour to 10 hours of gameplay. For longer games and larger game worlds, one can easily expect more than five years for the development to be close to completion.

Game development in other words is for patient investors, and founders are finding that not many VCs or funds understand this nuance. And even when startups raise funding at the early stage, it’s not enough to support development throughout this long lifecycle.

Chengaiah added that even if engineers or designers choose to make a career in gaming, they will need to add ancillary skills that are critical in this space. The founder of Outlier Games, for instance, teaches a game design and narrative writing workshop that’s specifically geared for game development or to create game designers.

Chengaiah is also the cofounder of Gamer2Maker, a game development edtech and upskilling platform, which brings together industry experts to nurture the next generation of game designers and developers. These efforts take many years to fructify, and only in 10 or 15 years will India have enough of a heritage in game development to actually make the most of it.

There’s some optimism that the government’s focus on animation and the VFX industry as a revenue generator will lift the tide for gaming startups, but so far the execution or implementation of policy has been slow. “Colleges are slow and outdated. My college which offered a gaming course in 2014 or 2015 has not updated its syllabus in nearly a decade,” Chengaiah bemoaned.

He added that no one expects an Indian gaming studio to make the next big AAA PC or console game right now, but that should be the goal for the next decade.

The High Cost Of Gaming

Common sense dictates that game development like most other tech businesses has eased due to the rise of tech tools and engines that do most of the heavy lifting.

Today, ChatGPT and generative AI tools might be able to develop a rudimentary game without any coder, but to make an engaging high-quality game for the global gamer audience involves multiple years of development, testing across hardware bases and development kits, utilising advancements in gaming engine and VFX and adapting to the changing sociopolitical landscape.

Creating a game is not unlike making a feature-length film, and indeed, in many cases, it’s a lot more complicated. Interactive Ice Spice’s Parab believes that it’s not just talent that’s expensive but also the resources that the talent will need to propel game development.

Most entry-level game designers and developers work on low pay as the cost structures are not favourable relative to enterprise tech or IT services. They often moonlight across many gaming companies to plug the income gap.

Given this, if a startup is not able to provide its talent with the right resources, they are very unlikely to get the best work out of them. Resources, in this case, means hardware development kits for consoles and gaming platforms, software licences for graphics, VFX and game engine work, direct hardware costs related to graphics processing units (GPUs) and high-end chipsets and a lot more.

Given the global semiconductor shortage, GPUs and CPUs have become costlier and excise duties related to importing them is prohibitive for bootstrapped game development startups. Even something like the electricity cost can hamper the prospects of a startup, so state governments need to be proactive about offering subsidies for such startups that often create long-term value and IPs.

These are areas where homegrown game development startups and studios feel they have a disadvantage. Not only are global development giants able to meet these costs more easily, but they are also able to corner the best talent from India and extend their lead in the market.

This is a catch-22 situation for game development studios and startups in India. Chengaiah and Parab believe that more than 40 companies are working in the studio space in India, and most of them are new companies with an average age of roughly four or five years.

This is the new long-term value and IP being created in India, which needs to be protected as it can have a multigenerational impact on the economy similar to the video game industry in the US.

The post With RMG Dead, Can India’s Game Dev Startups Step Up To The Gaming Mantle?  appeared first on Inc42 Media.

In just 24 hours, the future of generative AI is being questioned. The ouster of Sam Altman as CEO of OpenAI has not only caught the entire tech world off guard but serious questions are being  asked about what happens to generative AI.

But it’s not just Altman. OpenAI has also seen the departure of Greg Brockman after he was removed as the chairman of the board and then resigned soon after from his position as the president of what is considered the flagship AI company in the world.

The leadership changes could potentially disrupt a host of startups and tech companies that have relied on OpenAI’s APIs, ChatGPT and other applications.

This Sunday, we look to answer what the dismissal of Altman, the cofounder of the $29 Bn AI behemoth, could mean for generative AI and for Indian startups that are using the company’s tools.

But first, here are the top stories from our newsroom this week:

• • Doom And Taxes For RMG: In just a month, India’s real money gaming industry is feeling the heavy impact of the new GST regime on revenue as well as user spending
  • Behind The Jio Stack: The grander vision of Reliance Jio around its various tech and digital businesses has become clearer over the past year. What does it mean for startups in the long run?
  • IPO Season In 2024? Will startup IPOs be back on the table in 2024 as several prominent unicorns, including Swiggy and Ola Electric, look to take the public listing route

OpenAI’s Stumbling Block

Before we dive in, here’s OpenAI’s official statement on Altman’s ouster: “Altman’s departure follows a deliberative review process by the board, which concluded that he was not consistently candid in his communications with the board, hindering its ability to exercise its responsibilities. The board no longer has confidence in his ability to continue leading OpenAI.”

That’s a rather damning statement about the leadership at OpenAI. Now, reports indicate that Altman’s exit may have come following internal debates about the future of the company and the direction in which OpenAI’s technology was being taken.

According to The Information, OpenAI employees had disagreements about whether the company was developing AI safely enough. Employees are said to have asked Ilya Sutskever, cofounder and board member at OpenAI, what was the reason behind Altman’s dismissal. Some wondered whether it was a “coup” or “hostile takeover” by some of the major investors in the company.

Sutskever, who is largely responsible for limiting societal harms from OpenAI’s technology and products, responded that the board was simply doing its duty to the mission of the nonprofit, “which is to make sure that OpenAI builds AGI that benefits all of humanity”.

Given that Altman’s dismissal comes on the heels of OpenAI’s DevDay, its developer conference, adds more weight to the theory that perhaps the board thought that the company’s gen AI development was going in the wrong direction.

Replacing Altman is CTO Mira Murati, who has been named the interim CEO. She told employees that OpenAI is steadfast in its mission to develop safe and beneficial AI tools and artificial general intelligence (AGI). AGI refers to computer programmes and software that can mimic human reasoning.

Safe and responsible AI development is high on the agenda for lawmakers across the world as well. India’s Union IT Minister Ashwini Vaishnaw said that the government is discussing ways with tech giants to combat the rising threat of deepfakes.

Prime Minister Narendra Modi has urged the media to educate people about deepfakes. Earlier this week, YouTube announced that it requires creators to disclose AI-generated content or videos and introduced a mechanism for users to report suspected deepfakes or generative videos.

Many consider AGI to be the  holy grail of AI, but others have warned about the potential catastrophic consequences of developing the AGI without any safety nets, including rampant creation of doctored videos, fabricated content and seemingly authentic misinformation.

And OpenAI’s DevDay announcements in early November only served to exacerbate some of these fears.

Startups On Generative AI Trail

During OpenAI’s DevDay on November 6, the company released GPT-4 Turbo, which increases the context length for prompts by 16x compared to GPT-4. It also introduced new speech synthesis and image processing features, as well as copyright protection for API and ChatGPT Enterprise Edition.

In other words, OpenAI’s various products have rapidly gained maturity in the past year. Over 100 Mn weekly active users are now using OpenAI tools, with 2 Mn developers using the API solutions for custom software. These numbers underscore the impact that OpenAI has had on the tech landscape.

As seen in Inc42’s latest report on the generative AI opportunity in India, we can see more than two dozen startups are leveraging GenAI tools, and many of them are leveraging OpenAI’s APIs and ChatGPT offerings. These startups will now wonder whether OpenAI’s leadership changes will disrupt their existing products and AI-centric features.

While that is an unanswered question for now, several industry experts raised concerns about the announcements at DevDay, as we reported.

There have been apprehensions about how OpenAI is cornering the resources in the AI industry in many ways, which allowed it to take great strides at the expense of smaller AI startups. Many believe that the new tools forced the industry to embrace OpenAI over competitors since the platform had gained rapid maturity. It creates an artificial dependency on OpenAI, which is not good for innovation at large, or OpenAI’s early principles.

What Could Have Pushed Altman Out?

Altman founded OpenAI with Elon Musk and others as a non-profit in 2015 but launched a for-profit arm in 2019. The initial goal was to create an AI that would benefit humanity.

Following the launch of ChatGPT, a chatbot app for consumers, OpenAI not only broke through into the mainstream but has also become the dominant company in AI. According to reports, Altman claimed OpenAI was generating $1.3 Bn in ARR.

Altman didn’t own any equity in OpenAI and neither did he have voting rights, which opened him up to being dismissed without notice. Now many are comparing him to Steve Jobs, who was also fired from Apple in 1985, following a tussle with the board.

But it must be noted that OpenAI wasn’t without its critics and this could very well have played a role too. Earlier this year, OpenAI came under heavy criticism from published authors and researchers.

An open letter signed by 8,500+ authors urged companies such as ChatGPT, Google-run Bard and Meta’s LLaMa to explain why their copyrighted works were used for developing large language models, without permission or compensation. These authors accused companies of profiteering off of copyrighted works. It’s very possible that companies such as OpenAI are opening themselves up to legal action for using copyrighted work for training sets.

Interestingly, just days before Altman’s removal as CEO, OpenAI paused new subscriptions and signups for ChatGPT Plus, which allows customers to create their own version of ChatGPT. This was a major selling point for OpenAI, leading to several businesses signing up and using GPT to create custom chatbots.

Many are also questioning the role of Microsoft, which does not have a board representative at OpenAI, and whether the Satya Nadella-led company is poised for a major acquisition. Speculation is rife about Microsoft pulling the strings in the background to have Altman removed.

Interestingly, Microsoft, which has invested over $10 Bn in OpenAI, only learned about the board’s decision to remove Altman and Brockman, a few minutes before the announcement was made official. This further points to an internal issue at OpenAI, but again, this is just  speculation at the moment, given that the actual reason for Altman’s dismissal has not yet been revealed.

So, what will Altman do next? The OpenAI cofounder is the largest shareholder in Humane, the company that’s looking to make a ChatGPT-powered mobile device called the Humane AI Pin. Will Altman look to shape this potential gamechanger and disrupt smartphone giants?

OpenAI’s Impact On Indian Startups

There’s a lot of pressure on interim CEO Murati to lead the company beyond this current kerfuffle and answer questions about how the company is looking to tackle the potential pitfalls of rampant AI development.

Interestingly among Indian startup founders, the debate has turned towards the role of the board and how much control founders have in the boards. Altman, who was in India earlier this year, was bullish about investing in Indian startups working on AI.

Manish Maheshwari, former Twitter India head and cofounder of AI startup Fanory.ai, said that Altman’s dismissal is likely to revive debates about board members, transparency in leadership changes and how much say a board has on changing the leadership.

Beyond the boardroom considerations, entrepreneurs are wondering about the strategic direction for OpenAI under Murati’s leadership. One founder compared the development to  how fintechs adapted to the need for multi-bank partnerships.

“ChatGPT was a gift for startups but it would be unwise to rely on just one company for AI. Now startups have to decide how to remain flexible and potentially transition from OpenAI to any other alternatives,” according to the cofounder of a generative video startup.

Others pointed out that Altman was an entrepreneur with a vision and it will be hard to replace this without hampering the progress of the platform. The changes could also spur the development of other LLMs in the global market.

OpenAI’s loss might just prove to be a shot in the arm for competition such as Bard or LLaMA. Altman was by far the biggest pull at OpenAI in the market. Can OpenAI compete with big tech without the weight of his name?

In Focus: Startup Founder Salaries 

The two-year-long funding winter has resulted in layoffs, pay cuts and a lot of heartache for startup employees. But what about startup founders?

Inc42 is back with yet another tracker and this time we are looking to answer the question of who’s the highest-paid startup founder in India. Check out our ‘Founder Salaries FY23 Tracker’ to see the answer and get an idea of what founders get paid these days.

See Our Founder Salary Tracker

Sunday Roundup: Tech Stocks, Funding & More

• Funding Slows To A Crawl: Following two weeks of steady growth in funding, this past week saw a chill hit startup funding once again, with just $44 Mn raised by Indian startups
• EOW Vs Ashneer: Delhi Police’s Economic Offences Wing has summoned former BharatPe cofounder Ashneer Grover and wife Madhuri Jain Grover in connection with the alleged fraud at the fintech giant
• UPI Culling: The NPCI has asked banks and payment apps to deactivate UPI IDs and numbers that have remained dormant for over a year as a security measure

• Ola Electric Eyes IPO: Putting its IPO plans into full throttle, EV unicorn Ola Electric has converted to a public company and is likely to list next year
• Nykaa On A Roll: Nykaa jumped 11% week-on-week to touch INR 170 during Friday’s intraday trade last week, and also hit an 11-month high

We’ll be back next Sunday with another roundup of the week’s biggest stories and our weekly brief on the most pressing debates in the startup ecosystem. Stay tuned!

The post Open Season At OpenAI appeared first on Inc42 Media.

The Economic Offences Wing’s investigation into the alleged fraud at BharatPe has found a host of unexplained payments made to allegedly fake HR consultancies by former cofounder Ashneer Grover, his wife and the company’s former head of controls Madhuri Jain Grover as well as Madhuri Jain’s family members.

The accused are alleged to have used backdated invoices to syphon funds from BharatPe’s accounts towards payments of commissions for recruitment work, as per a status report filed by the EOW in the Delhi High Court.

Inc42 has reviewed a copy of the status report, which shows that EOW’s investigation into BharatPe’s complaint of fraud has two major parts, totalling over INR 81 Cr:

• Payments to allegedly fake HR consultancies to the tune of INR 7.6 Cr
• Payment of INR 1.66 Cr as penalty to GST authorities and alleged embezzlement of INR 71.76 Cr via fictitious transactions

The total amount alleged to have been involved in these transactions could be well over INR 81 Cr as the EOW probe is currently still ongoing.

It must be noted that this is the first time that the EOW has mentioned details of separate bank transfers totalling over INR 56 Cr involving Madhuri Jain Grover and her family members, as well as Ashneer Grover and his family.

The status report says: “During the course of investigation, scrutiny of A/c No. [redacted] (belonging to alleged Madhuri Jain/Grover) revealed that she got huge amount of approx. INR 5, INR 3 and INR 2 crore from her father Suresh Jain, mother Santosh Jain and brother Shwetank Jain, respectively. Further, scrutiny of account no. [redacted] (belonging to alleged Ashneer Grover) revealed that the petitioner Ashneer Grover transferred a sum of INR 46 crore (approx.) in the account of his father Sh. Ashok Grover from the contemporary period 2019 to 2022. These huge transactions are to be verified and their purpose/end user to be ascertained.”

However, it’s not clear whether the above transactions were in relation to the alleged payments of INR 7.6 Cr+ made to HR consultancies or the alleged embezzlement of INR 71.76 Cr.

See our previous coverage for a detailed look at the allegations against the Grover duo.

Payments To HR Agencies

Beyond this, the status report highlights the following HR consultancies which received payments from BharatPe between 2019 and 2021.

According to the EOW report, the first five of the above allegedly fake HR consultancies submitted invoices mentioning bank account numbers that were not even open at the time of the date of the invoice. This clearly shows that the invoices were created at a later date after the bank accounts were opened.

The EOW states that the HR consultancies or agencies were established only for the purpose of syphoning off funds from BharatPe and for causing “wrongful gain” to the accused. A total of INR 7.6 Cr is said to have been credited to these accounts from BharatPe and no transactions other than the ones originating from BharatPe were found.

Besides this, the registered addresses and proprietorships of all eight HR consultancies are allegedly linked to family members or relatives of Madhuri Jain Grover, as seen in the table above. Jain is also alleged to have received INR 1.50 Cr from accounts linked to the proprietors of eight firms investigated by the EOW.

BharatPe and Ashneer Grover did not respond to questions sent by Inc42 in relation to the EOW probe.

GST Trouble Over Fictitious Transactions

The EOW also goes into detail about the GST penalty paid by BharatPe in relation to invoices to allegedly fake vendors, which were initially allegedly concealed by the Grovers.

A total of 33 fake vendors were alleged to have been involved in these fictitious transactions for which BharatPe claimed a GST input credit and then reversed the input credit and paid the penalty of INR 12.75 Cr towards GST liability, as reported earlier.

A physical verification by the EOW showed that only 10 of the 33 vendors had genuine addresses, while the rest were not contactable. The agency is currently examining the bank accounts of these 10 vendors that have been traced.

In addition to the EOW case, BharatPe has also filed a civil suit with the Delhi High Court seeking INR 88.67 Cr in damages from Ashneer Grover, Madhuri Jain Grover and their family.

In addition, an arbitration claim was filed in the Singapore International Arbitration Centre to claw back restricted shares (1.4%) allotted to Grover.

Allegations Against Ashneer Grover, Madhuri Jain Grover

Here’s a gist of the allegations against Ashneer, Madhuri Jain Grover and others, as per the civil suit, some of which overlap with the EOW criminal case investigation.

• Madhuri Jain Grover allegedly approved payments amounting to INR 72 Cr to 30 third-party vendors that did not provide any real services or goods to the company
• Madhuri alleged to have approved payments totalling INR 7.6 Cr towards third-party HR consultants who were never used for any recruitment
• The Grovers allegedly used a duplex apartment in posh Delhi neighbourhood as their personal residence and expensed it as a company guest house. Nearly INR 52 Lakh paid as rent and security deposit for the house, BharatPe claims
• The tenure of Ashneer Grover is alleged to have seen contracts worth INR 48 Lakh contract being awarded to Madhuri Jain Grover’s interior design company for office renovation and decoration
• The couple is alleged to invoiced the company for family vacations to the UAE and the United States; the Grovers are said to have billed the company twice for one trip to Thailand to two different vendors

To sum up the current status of the investigation, the EOW told the Delhi High Court that the probe is at its initial stages and replies from various authorities are yet to be examined. It opposed the petition filed by the Grovers for the dismissal of the case and urged the court to dismiss the petition.

The post EOW Uncovers Ashneer Grover, Madhuri Jain’s Alleged Money Trail In INR 81 Cr BharatPe Fraud Probe appeared first on Inc42 Media.

The year was 2015 and Reliance Jio was emerging as a potential game changer. Reliance had tried to become a telecom player in the first 2G wave, even though this proved to be only a limited success. In 2015, Reliance Jio revisited its device-plus-network strategy from 2004, this time for 4G. And this time around, it worked wonders.

The Indian tech ecosystem, as we know it today, would arguably not be possible without Jio’s cheap mobile internet and affordable 4G devices.

Buoyed by this success, Reliance Jio has evolved beyond a mere telecom operator today and Reliance itself is changing from a petrochemical giant to a tech behemoth in so many ways. Alongside Reliance Jio, there’s Reliance Retail with its many massive marketplaces and an array of brands and Jio Financial Services, which is set to disrupt banks and the fintech ecosystem.

With eyes on the hardware manufacturing ecosystem (especially affordable smartphones and mobile devices), the Mukesh Ambani-led company has created a unique stack — from infrastructure and a mobile network to consumer and enterprise services across ecommerce, retail, financial services, entertainment, and most large sectors.

While the ‘Reliance Jio Stack’ is not just about Jio, the moniker fits because everything is centred around Jio and the internet that is powering the machine.

At the same time, however, one cannot ignore the elephant in the room. Today, Jio, Reliance Retail and JFS have become key competitors for major startups and tech companies in India. From enablers to rivals, the role of Reliance has changed just as it has transformed itself. And all of this has happened in less than a decade.

With Mukesh Ambani stepping aside from key companies such as Jio and Reliance Retail to pass on the baton to the next generation, there’s a lot at stake even for Reliance. Akash Ambani and Isha Ambani will lead the company into the next phase, as it looks to cross the 10 Lakh Cr mark for revenue in FY24.

Through conversations with key players in the industry as well as those who have seen the early days of Jio, we were able to piece together a picture of the grander vision of Reliance and Jio, and what it means for startups in the long run.

Reliance Jio did not respond to our questions about the organisational structure and how the various companies work together. 

The Starting Point: Reliance Jio & 4G

It’s no surprise that it all began with 4G. Even though the timing of Reliance’s 4G launch was fortunate, it did not have the 3G baggage of Airtel, Vodafone, Idea and others. It forced players to not just consolidate but focus on retaining subscribers rather than network expansion.

With its deep pockets, Reliance Jio forced many of these players to become 4G first and start again. For India’s internet companies though, Jio’s entry brought a whole generation of users online.

“Anyone who has seen India’s internet ecosystem mature knows that Mukesh Ambani tried this before with CDMA in 2000, but this time around it was a different market altogether. The mobile industry had evolved; consumer internet was changing and businesses were going digital for the first time; it was the right time for 4G,” recalled Elevation Capital partner Mayank Khanduja.

Khanduja, who began taking investment decisions in 2015 as a principal at venture capital firm Elevation Capital (then SAIF Partners), saw first-hand the emergence of the early stage ecosystem, startups that are today unicorns or value creators in the Indian market.

Between 2016 and 2019, Reliance Jio 4G spread like wildfire, and pretty much cast the competition aside. Reliance Jio added 90 Mn subscribers in 2019 to sit at a total of 370 Mn subscribers in just a matter of three years. Today, it commands a huge lead in the market with 439 Mn subscribers as per its FY2023 disclosures.

And somewhere along the way — between 2018 and 2020 — it began pressing home this market share.

The company’s net profit jumped to INR 5,297 Cr in Q2 FY24. Jio Platforms, the umbrella entity created around Jio, had a quarterly revenue of INR 26,875 Cr (roughly $3.3 Bn).

Targeted Acquisitions: Building The Reliance Jio Stack

“One of the things about Reliance is that it saw waves early on and acquired companies to fill those gaps. When these acquisitions happen, they seem small, but they can snowball,” according to an entrepreneur and investor, whose startup was acquired by Reliance (RIL) in 2019.

In 2019, Reliance Industries signed eight acquisition deals, including the likes of retail tech startup Fynd, marketing SaaS platform Haptik, and digitalisation enabler Nowfloats among others.

The acquisitions in 2019 and since form the backbone of Reliance’s growing prowess in the SaaS space.

The entrepreneur quoted above believes there’s no entity like Reliance anywhere in the world. “Amazon has ecommerce and AWS [besides OTT], Microsoft and Google have a huge array of services; Meta has social media power and Apple rules hardware, but Reliance has the capability to enter each of these spaces. And let’s face it, most of them, in India, they have to work with Reliance,” the entrepreneur added.

The acquisitions laid the foundation for what was to come. While RIL was using its years of profits to buy these companies, eventually they moved to a new umbrella entity encompassing all the digital services and products.

The Age Of Jio Platforms 

“Jio gave Reliance the pipeline through which it can feed all these services in the future,” added another Mumbai-based investor, who was a key figure at Jio for nearly six years when Reliance acquired these various startups and raised the funding from marquee names.

After acquiring these companies, the next big challenge was integrating them into one central vision. And this is where Jio Platforms came into the picture.

“The launch of Jio Platforms is not only a corporate structure, but it also was the first step in the transition of leadership from Mukesh Ambani to Akash Ambani. We then saw a similar thing with Reliance Retail and Isha [Ambani], so these new companies are not just an evolution of Reliance but a passing of the baton in many ways,” added the Mumbai-based investor, who did not wish to be named as they are close to the Reliance group.

Set up in late 2019, Jio Platforms was launched to encompass Reliance-owned digital businesses including Reliance Jio which offered the 4G telecom service, and key B2B and B2C apps and products such as JioMeet or JioCloud.

In 2020, Jio Platforms raised nearly $16 Bn from Google, Facebook, General Atlantic, KKR, ADIA, Mubadala, Qualcomm, Intel Capital among others. This fundraising spree not only gave Jio a capital boost, but also got it ready for a future IPO. But most importantly it signalled a new dawn for Jio and other Reliance companies.

Because, soon after, Reliance Retail began its fundraising spree and became a piece of the Reliance Jio Stack as well.

A majority of Jio’s investors lined up to back what is India’s largest retail operator now. Reliance Retail had raised close to $6 Bn in the year from strategic and financial investors, and went on its own spree of acquisitions.

From A Retail Giant…

It would be folly to think that Reliance has only emerged as a retail force in the last few years. In fact, the seeds were sown more than two decades ago with the launch of Reliance Fresh, Reliance Digital and other retail chains.

Reliance Retail also signed exclusivity deals with a host of renowned brands and labels to bring them to India. Reliance also has a grip on the FMCG segment with a number of private labels that leverage not just its own store network but also non-native retail channels.

The below graphic does not include brands such as Marks & Spencer, for which Reliance Retail had a JV which has now been dissolved. 

Interestingly, a number of international brands that may be more popular on other marketplaces are also owned by Reliance Retail in some way or the other.

“The retail scale is mind-boggling. Most people would not know that Reliance has a piece in bringing such brands to India. This allows the company to really get a huge share of the wallet and when it comes to retail, it’s hard to look around and not see a Reliance brand,” according to Ankur Bisen, a senior partner at Technopak.

..To Building An Ecommerce Empire

The ecommerce opportunity presented after Jio’s internet revolution meant that Reliance also had to double down on marketplaces and online-first brands.

Reliance began its ecommerce journey with AJIO in 2016, followed by JioMart in 2020 and added Tira in 2023. It also entered new areas through acquisitions such as epharmacy Netmeds, Urban Ladder, Just Dial, Milkbasket, lingerie maker Clovia and Alia Bhatt’s D2C brand Ed-a-mamma between 2020 and 2023.

For many years, AJIO was the lone horse battling the likes of Myntra, Nykaa, Flipkart and Amazon. Besides this, Reliance put up its brands on marketplaces to get the right revenue mix.

The addition of JioMart and Tira as channels will prove critical for Reliance in the long run because native revenue is any day more profitable than non-native channels.

Analysts believe that having an array of exclusive brands will be advantageous for fashion through AJIO or beauty and personal care through Tira in the long run, since Reliance can create a walled garden effect.

On the horizontal marketplace side, JioMart is expected to face stern competition not just from Tata-owned BigBasket, Amazon or Flipkart, but also quick commerce players that have emerged as real disruptors in the metros.

Talking about the Reliance Jio Stack, Bisen added that when Jio entered telco, it disrupted lives for existing players.

Reliance’s track record in establishing and nurturing new platforms is evident from its experience with AJIO, which it supported for many years. Additionally, its ability to attract the best talent and provide exposure to new platforms gives it a competitive edge. Those watching Reliance expect a similar strategy to be adopted for Tira, which is the latest platform to emerge from Reliance Retail.

The Tira offline store is expected to have technology-enabled features such as virtual try-on rooms, skin analyser, personalisation engines and smart assistance. This is said to be its key differentiation in retail.

“For Tira, a big chunk of revenue will initially go towards marketing and customer acquisition, at least for the first couple of years, as it is a new brand. More than marketing, Reliance will look at discounting more prominently. Reliance will try to give higher discounts compared to other players,” according to Karan Taurani of Elara Advisors.

Reliance’s Media Dominance Growing

It’s hard to believe that JioCinema, a service that did not exist till late 2022, is the biggest OTT platform in India today. With Disney+ Hotstar expected to be acquired by JioCinema, it would also very soon be the biggest streaming platform for live sports in India.

In the past one year, JioCinema has snatched the digital streaming rights for the IPL and other marquee properties from Disney+ Hotstar. JioCinema is today billing itself as the home of Indian cricket, which naturally brings in millions of subscribers.

Analysts now expect JioCinema to turn on the monetisation pipeline. It has already launched a subscription tier and is likely to put IPL 2024 behind a paywall of some kind. In just under eight months after its launch, JioCinema has 221 Mn monthly active users as of June 2023, according to reports.

Of course, beyond OTT and streaming, Reliance has the might and reach of Network18 with its various TV channels and digital publications, as well as production houses for motion pictures, and Mumbai Indians, which has won the IPL five times. These form a key part of the distribution side of the Reliance Jio Stack as well.

They help drive Reliance’s empire of products and services, as was evident during the IPL 2023, when Reliance products such as Tira and AJIO featured heavily during ad breaks.

JioCinema has the potential to become a very cost-effective sales funnel for Reliance platforms in the long run. Reliance can leverage the scale to succeed at formats such as live commerce, which have so far failed to take off due to the lack of vertical integration.

“The Reliance Jio Stack, or whatever you want to call it, is all about unlocking this vertical integration across all segments, unlike ever done before,” says the Mumbai-based investor quoted above.

The Final Frontier: Financial Services

While we expected Reliance to do something about fintech in the long run, the launch of Jio Financial Services this year was still something of a surprise. From payments to insurance to investment tech, JFS is set to disrupt several key fintech segments and pose a significant threat to existing players — both startups as well as legacy BFSI companies.

At launch, JFS is the world’s highest capitalised financial services platform and this safety net is a key to success for Jio’s fintech ambitions.

“The cost of fintech is still very high in India, whether you look at payments or insurance broking or any other service which relies on commissions. Having capital means JFS can be bullish on expansion. It can acquire some customers very easily due to Reliance Jio and Reliance Retail,” according to the founder of a Delhi-based B2B and B2C lending tech startup.

What works out for JFS is the fact that Reliance Jio boasts of over 439 Mn subscribers, while Reliance Retail has close to 250 Mn registered customers and 3 Mn merchants. These will be the anchors for scaling up Jio Financial Services over the next few quarters as it looks to push personal loans and consumer durable loans.

All this makes ominous reading for India’s fintech startups, which have so far banked on Reliance Jio’s internet services as a growth ladder. But now, startups not only have to solve the revenue puzzle that has plagued fintech for long, but also compete with a giant such as JFS, backed by Reliance’s technological prowess, retail network and significant reach across sectors.

As is evident from Reliance’s journey in the past eight years, the company looks to dominate the verticals it enters with a mix of capital-led growth and inorganic acquisitions.

Will we see a similar burst of acquisitions for JFS? It’s very much on the cards given the wider problems in the fintech space. Startups are struggling with revenue growth and JFS could use its deep pockets to acquire some of these ailing startups.

Even established players such as Paytm, Zerodha, Groww, PhonePe, Policybazaar, Lendingkart and others are very likely to see JFS as a challenge in payments, investment broking, insurance and other areas.

Startups have faced regulatory headwinds, a funding winter and Reliance’s mega entry means another massive player to compete with. A potential consolidation wave of fintech startups cannot be ruled out, which brings us to the final point about this “Reliance Jio Stack”.

Reliance Jio’s Big Tech Avatar

By all indications, Reliance is not about to halt its juggernaut any time soon.

Jio Financial Services is only the latest piece of the empire, which may soon include automotives and electric vehicles besides hardware manufacturing. Reliance is essentially aiming to become an everything-tech company.

And for many startups that have so far leaned on Reliance for growth, this is a scary proposition. There are fears about a monopoly in certain segments such as streaming as well as retail, but more ominously, entrepreneurs and other ecosystem stakeholders are worried about potentially having to cede ground to Reliance in other areas as well.

“No one can dispute that Reliance has taken Indian tech to a new place, but at the same time, there needs to be a check on where this is going. We have seen cases in CCI about monopolistic practices of foreign giants like Google or Meta, and the same argument can be extended to Reliance in many areas,” says the Delhi NCR-based entrepreneur and investor quoted first in this story.

Others pointed out that the Future Retail battle with Amazon shows that as Reliance tries to stretch further it will attract more such opposition. The potential Disney+ Hotstar deal will be an acid test for these concerns. Will there be some opposition to the fact that Reliance would pretty much be in a dominant position in the digital media space?

On the JFS front, many fintech founders have raised concerns in the past few weeks. “JFS will earn the fruits of our years of working with regulators and banks to form this foundation we have today,” the Delhi-based lending startup founder added.

Their primary contention is that Reliance gets an unfair advantage of having seen regulations evolve and mature, which are headwinds that fintech founders have fought back. Similar concerns were raised about Reliance Retail using its financial muscle in the Future Retail saga.

There’s little doubt eight years ago, Reliance Jio changed India forever and gave new wings to Indian tech. Today, in late 2023, the clear signs of the Reliance Jio Stack threaten to do it once again. How will it change Indian tech next?

The post The ‘Jio Stack’: The Making Of Reliance’s Digital Empire appeared first on Inc42 Media.

Wish You A Very Happy Diwali From Everyone Here At Inc42. Here’s To Another Great Year Ahead For You And Us! 

We are taking a short break from our regular publishing cycle from November 11-13, which is why this Inc42 Weekly Brief is different from what you are used to seeing every Sunday. Team Inc42 will be back on Tuesday, the 14th, recharged and ready for the months ahead! Hope you have a great festive season! 

Every Diwali for the past few years, conversations in North India tend to go to pollution before parties. In fact, the daily AQI is the predominant ice-breaker at startup events these days, with the talk often turning to how pollution has changed Delhi or about how everyone’s leaving town.

Unfortunately for one critical part of the startup ecosystem — i.e gig workers — escaping the pollution or other infrastructure problems is far from possible. Not only in Delhi but also in Bengaluru and Mumbai where rains and bad roads have become a permanent hurdle for gig workers to jump over.

Even as offices shut for the festive season, and everyone is at home with their families, thousands of gig workers still have to be on the road to make sure that the celebrations go on. In many ways, the convenience of ecommerce, quick deliveries has come at a high cost for gig workers, especially in the smog season in North India.

We can bemoan firecrackers and stubble burning practices all we want, but it has not changed the status quo. So we wanted to dedicate this Sunday’s piece to the smoggy Diwali for gig workers. As with every Diwali, it’s time to clean up the mess that has become a huge burden over the years and has piled on the problems for gig workers, besides the stress of their everyday jobs.

No City For Gig Workers 

While the month of November brings the focus on Delhi NCR and air pollution, the reality is that gig workers have to deal with bad roads, accidents and other infrastructure gaps on a daily basis in any city. Delivery workers faced hardships due to floods and waterlogging in Bengaluru in August and September, and deaths related to gig workers have been reported in Noida and Hyderabad this year.

“There are so many issues affecting gig workers and platforms have known about all of them for a number of years. Pollution is not new, and as usual, companies will talk about EVs, but not directly address the problems,” says Shaik Salauddin, the national general secretary and cofounder of the Indian Federation of App-based Transport Workers.

He added that in the past, health problems among gig workers were never addressed with real measures. The talk about pollution comes around every winter, but gig workers are out in the open all year long.

Salauddin believes that most companies resort to PR rather than taking actual steps. For instance, when it comes to pollution, platforms such as Swiggy, Zomato, Zepto and others talk about their transition to an electric vehicle (EV) fleet. However an EV does not change the air that the worker is already breathing.

“Covid was an outlier and there was a real threat to life and the government had mandated masks. But now even masks may not be enough for some parts of Delhi,” added the founder of a NCR-based last-mile delivery firm.

Inc42 reached out to Zepto, Zomato and Swiggy for responses on how they are looking to tackle the smoggy Diwali for gig workers. But none of these companies — two unicorns and a listed giant — sent us a statement in relation to our questions, or any clarity on their health policies for gig workers when it comes to air quality.

According to Salauddin, when seasons change, we tend to forget what happened in the months prior. He bemoaned the uncertainty around the Social Security Code for gig worker safety and insurance, which is yet to be implemented by the government.

“There is a heatwave, which then becomes monsoon and now it’s pollution, but there’s no solution for any of the concerns that gig workers have. They spend hours on the road, often unsheltered and in the midst of traffic snarls. Air pollution or floods, the situation is the same in any city.”

The Pollution Problem

It’s impossible to address pollution and how gig workers are exposed to the health risks without asking serious questions about what’s happening on the farmlands in north India.

The stubble burning before the change of season and crop results in vast quantities of smoke being released into the air. This smoke combined with the still air in Delhi NCR during this time of the year creates a smog box. Efforts have been ongoing for the past half a decade to curb stubble burning, but the practice continues unabated.

An agritech founder from Mohali told us that technology solutions as alternatives to stubble burning have failed to take off due to the low ROI for such innovations. “You cannot do this at scale unless the government steps in and makes such tools mandatory. Innovation can be private, but the enforcement of its usage still comes down to the government. Private companies cannot make a dent by themselves,” the founder added.

Indeed, there is some evidence that private intervention is slow and has low efficacy. This past week, Mahindra Group chairman Anand Mahindra claimed that regenerative agriculture is the solution to the stubble burning problem, but his post on X on November 7, 2023 is almost exactly the same as his tweet in November 2021.

Meanwhile, in the two years between those posts, not much has changed. The fact is that solutions have been offered, but none of them have made a dent in the problem.

Are Things Improving?

A Delhi NCR-based founder of a listed company believes that no one wants to hear about children or gig workers falling ill because of pollution, but that things are gradually improving, even if there seems to be no real progress.

“Just think about our roads and highways 15 years ago; things are improving in India for all businesses. Of course, pollution is one of those problems that cannot be solved just by stopping stubble burning. There are many parts to it, so I think governments are doing what they think is possible in the short-term,” the founder added.

Privately, some seasoned entrepreneurs are mulling making representations to government bodies about the recurring infrastructure problems and potential health hazards not just for gig workers but other daily wage labourers as well.

“If schools and colleges are shut and offices are coerced to take steps to reduce emissions, the situation is not good for anyone. But with each Diwali, our reliance on gig workers is increasing.”

In many ways, gig workers are the unheralded brand ambassadors for platforms and services giants. It’s time gig workers get a chance to celebrate Diwali like the rest of India.

With that, we hope you have a great festive season, and stay safe.

The post A Diwali For Gig Workers? appeared first on Inc42 Media.

There’s a new wave of reality TV in India and it’s all about startups. The wild success and popularity of Shark Tank India has spawned a number of ‘clones’.

Shark Tank India is clearly SonyLIV’s crown jewel, and the premier reality show for startup pitching. But it’s been joined in recent times by Indian Angels, JioCinema’s latest big bet. Besides this Mission StartAb, an upcoming Amazon Prime Video show, is expected to also cast a spotlight on the journey of being an entrepreneur.

Despite being just two seasons old, Shark Tank India has gripped the attention of programming heads at major OTT platforms. Since its launch in December 2021, the show’s popularity has grown like wildfire. Not only has the Indian version of “Shark Tank” become one of the topics of discussion at the Indian dinner table, but it has also made startups a household name.

It’s no surprise then that so many new shows are now vying for the viewer’s attention, and looking to replicate the Shark Tank magic.

While one cannot debate that such reality shows have turned the spotlight on the startup ecosystem and the entrepreneurial mindset among Indians, we also have to wonder whether these shows or platforms are actually helping founders or creating unrealistic expectations around how arduous the actual process of raising funds is.

And as we have covered in the past, Shark Tank India has become as much a platform for the investors or sharks as it is for the founders and startups pitching. The celebrity ‘shark’ culture has been criticised by many observers especially because many of the investors on the show do not run profitable businesses themselves.

With the launch of new shows along the same lines, is there a risk of these concerns getting amplified and snowballing into bigger problems?

Shark Tank Clones: Old Wine In New Bottles

Rival streaming platforms are looking to put their unique spin on the format, but Shark Tank’s format of an eye-catching pitch and a jury of investors or sharks remains the most popular.

Produced by Digikore Studios and streamed on Jio Cinema, Indian Angels is billed as the world’s first angel investment show on an OTT or streaming platform.

Indian Angels follows the same format as Shark Tank, with entrepreneurs and angel investors such as Ajinkya Firodia, MD of Kinetic Group; Ankit Agrawal, founder & CEO of InsuranceDekho; Aparna Thyagarajan, cofounder of fashion brand Shobitam; Kunal Kishore, founder of PR firm Value 360; Rikant Pittie, cofounder of listed travel platform EaseMyTrip and Shreedha Singh, CEO & cofounder of The Ayurveda Co.

So far two episodes of the show have aired, and the response has been tepid and unlike Shark Tank, no viral memes have come out of Indian Angels so far.

One of the judges/investors on the show told Inc42 that there’s only so many ways that shows can experiment on the main concept popularised by Dragon’s Den and Shark Tank globally. Instead the differentiation for Indian Angels comes from the fact that the investors on the show have been working to build businesses out of the typical spotlight.

“We [Indian Angels] have the likes of Rikant [Pittie] and Ankit [Agrawal] who have built huge businesses. EaseMyTrip is a listed company already and growing in value, so in my opinion, these investors are different from what we saw on Shark Tank when it launched,” one of the six investors on Indian Angels told Inc42.

Season 3 of Shark Tank India was launched with great fanfare and a litany of high-profile investors. This year, six new guest ‘Sharks’ have been added to the show including Zomato CEO Deepinder Goyal and OYO CEO Ritesh Agarwal. Besides this, the controversies surrounding Ashneer Grover and BharatPe in the first year also gave Shark Tank a big boost.

So far Indian Angels has remained relatively muted in its promotions, but it will be interesting to see whether it prefers to remain the more reserved version of Shark Tank India for too long. But JioCinema does have a wider reach than SonyLIV with 221 Mn monthly active users as of June 2023, according to reports. This could be a big advantage for Indian Angels as a platform.

Setting Unreal Expectations

Unlike Indian Angels, which follows the Shark Tank Way, Amazon Prime Video’s Mission Start Ab is taking a different route.

The show which has roped in Alia Bhatt as an ambassador hopes to follow the journeys of different entrepreneurs as they build their startups. Amazon has partnered with the Principal Scientific Adviser (PSA) of the Indian government to create the show, which is billed as a series “that will showcase India’s grassroots innovators as they turbo-charge their business growth”.

It will focus on the scaling-up journey of made-for-India innovations and offer entrepreneurs a series of challenges before giving them an opportunity to raise funding.

Mission Start Ab claims ambitiously that the show is a search for India’s next unicorn, even though such a thing usually takes many years and is certainly not something that happens just because a startup is being promoted on a streaming platform.

Indeed, we have seen many such shows come and go in the past, as seen in our graphic below.

According to a second Indian Angels investor, the short lifespans for reality TV shows that came before Shark Tank India is because they did not have the branding power to stay for long.

Keen observers might recall The Vault, which had a short stint on TV in 2016 or MTV Dropout which aired for a single season in 2017. Neither could sustain despite having the same model and a similar format.

The longevity of the Shark Tank brand and the localisation of Shark Tank for different geographies has garnered the show a cult following. This is something flash-in-the-pan efforts cannot hope to match, said the second Indian Angels judge we spoke to.

Who’s to say whether Indian Angels or Mission Start Ab will stay the course and compete for many years with Shark Tank India? “Ultimately, this is reality TV and here content will win. It’s not about the quality of investments or startups,” said the first Indian Angels judge.

Investors In The Spotlight

Of course, unlike Shark Tank in the US, where judges earned fame for being on TV, in India sharks were already popular in the mainstream to some degree.

The meteoric rise in Shark Tank’s popularity brought a lot of spotlight for the businesses that the judges have built. For instance, Aman Gupta, cofounder of boAt, has claimed that his appearance on the show has helped the company cut marketing costs significantly.

IPO-bound OYO’s Agarwal and listed giant Zomato’s Goyal would be looking for something similar for their companies too in the upcoming season.

But at the same time, being on the show means investors run the risk of making a hasty decision that they might not otherwise make in the real world.

The camera and the editing of the pitch do seem to add some drama and pressure to the dealmaking, which might bring sentiments or emotions into the equation. Investors usually tend to take a cold hard look at businesses in the real world, as opposed to on the small screen.

“Being on the show means making a decision in an hour versus the many months it takes in real angel investing. There’s definitely some pressure and a good pitch can sway you as well. I had to force myself to not invest in some startups on Indian Angels that made a great pitch, and then we went back to these founders to discuss a potential deal again,” said the first investor we spoke to.

Of course, not all founders are happy with the way these shows cut short their pitches or edit their narratives for dramatisation, a critical part of reality TV. Other founders have bemoaned the lack of response or delay in dealmaking by ‘Sharks’, something we have covered in detail here.

Many have called Shark Tank India the TV version of funding festivals where founders are often taken for a ride or where investors disappear after making commitments. That may be a bit too harsh given that we have seen sham events like the ‘World Startup Convention’, but the commoditisation of Shark Tank can potentially bring the same risk factors to reality TV.

“Because of Shark Tank India, a lot many Indians now know what a startup is. But the show is only successful because it has done things in one way for a number of years. This consistency will be key for any show looking to become the new Shark Tank,” said a Delhi NCR-based founder who pitched on the show in season one in early 2022.

Another aspect of Shark Tank India that cannot be overlooked is the outcome beyond TRPs and viewership data. What we cannot deny is that the show has made startups a bigger part of the public consciousness and its audience gets to see one side of the entrepreneurial journey up close.

But building a startup is more than just a pitch, and that’s something that no reality TV show has so far managed to capture well.

Shark Tank India is definitely the north star for any show looking to replicate the magic. Now the question is can any other show assert its own brand identity and not just remain a Shark Tank clone.

The post The Rise Of The Shark Tank India Clones appeared first on Inc42 Media.

No one can see the future, yet millions of Indians turn to fortune tellers, astrologers and seers to get a glimpse of their days to come. It’s no wonder then that astrology marketplace Astrotalk has emerged as an outlier in the sea of loss-making growth stage startups.

Of course, it would be folly to think of this as a business based around espousing superstitions. In many cases, this is akin to counselling or one-on-one guidance rather than completely relying on the stars, according to founder and CEO Puneet Gupta.

In the past, Gupta has been known to have said that he did not believe in astrology, till one such consultation in 2014 during a tough time in his career proved fortuitous.

It was this happenstance that led to Astrotalk, which first achieved profitability in FY20 and has scaled up exponentially in the past couple of years. Today the company believes that it is poised to be the ‘Uber’ for astrology.

Astrotalk’s Fortune Grows

As per Astrotalk’s audited FY23 financials, accessed by Inc42, the company has reported revenue of INR 282 Cr with a profit of INR 27 Cr in the last fiscal year. That’s 2X-plus growth on the revenue front, as well as a remarkable near 4X surge in profits. And even though the company’s net profit fell in FY22 in comparison to FY21, the FY23 profit is higher than FY21.

In many ways, FY21 was an anomaly, which explains the drop in profit in FY22. It was of course during the pandemic (2020-21) that the demand shot up for online consultations in astrology and related services.

During the first month of lockdown, AstroTalk saw a drop of about 10% in revenue but since then, it saw MoM growth rate of 10% throughout FY21. Daily revenue grew from INR 14 Lakh to INR 19 Lakh within six months. The startup latched onto this momentum by signing up astrologers in droves and connecting them to customers. It gave the company enough cash flow to continue adding more service providers.

And the way this segment is growing, Astrotalk expects to touch INR 600 Cr in revenue by the end of FY24, with a 16% EBITDA margin or INR 100 Cr projected.

Such EBITDA efficiency is not unprecedented but rare. Astrotalk cofounder and chief business officer Anmol Jain believes this is simply because the startup figured out that the quality of the service providers is paramount.

This is especially relevant in a sensitive field such as astrology, where often it’s a one-on-one service and not a company providing services to an end customer.

Seller-First Marketplace Approach

“We chose to go with a curated marketplace where the ‘inventory’ side of the marketplace grows slowly and steadily. There’s a vetting process before astrologers are on-boarded and we typically have a 70% selection rate for astrologers, with four to five rounds of interviews,” cofounder Jain told Inc42.

The model is dependent on verified professionals, since 90% of Astrotalk’s revenue comes from one-on-one consultations, where users pay per minute to talk to astrologers. About 5% of the revenue comes from live streaming fees where astrologers answer questions from multiple users and the rest comes from the ecommerce vertical including the ad revenue and sale of products for rituals and poojas.

Another distinct advantage for Astrotalk with its curated marketplace approach was that sellers or astrologers in this case do not pay to be a part of the marketplace. Instead, Astrotalk charges a commission for each transaction between customers and astrologers. Customers deposit funds, a portion of which is used for their one-on-one or group calls.

The company did not disclose details of how much commission it charges. Per-minute pricing for calls ranges from INR 10 to INR 200 per minute.

The evaluation criteria also involve setting the initial price of each astrologer. The pricing is then regulated based on quality parameters, review as well as demand for particular astrologers.

While some astrologers can pay to advertise and promote themselves to boost discovery, others choose to use YouTube and other affiliate links to bring customers on to Astrotalk.

“We took a conscious call to not charge the astrologers even from a point of view of training because it creates a lot of mistrust when we want to grow our brand and also asking for money to be part of the model. It’s like getting a job somewhere but you have to pay for it,” Jain added.

This allowed the startup to retain most of its astrologers and service providers even though competition has emerged in the space, as we will see.

Astrotalk’s Unit Economics 

So far the startup has raised around $800K from CRED founder Kunal Shah’s QED Innovation Labs, but it is in talks with investors to raise between $30 Mn – $40 Mn in what is being reported as a pre-IPO round.

While Astrotalk cofounder Jain did not specify the size of the upcoming round, he did confirm that the startup is in talks to raise significant funding, which along with its cash flow will hold it in good stead for the expansion on the cards.

The biggest expense for the company is in the form of the astrologer payouts, followed by marketing, largely performance marketing with some degree of social media promotions thrown in.

Currently, Astrotalk sees about 2.2 Lakh to 2.3 Lakh customers coming through paid campaigns every month, which is a mix of Indian and international customers. The total base of monthly transacting users is currently around the 5 Lakh mark.

The blended customer acquisition cost for each customer is in the $6-$9 range. From a contribution margin perspective, this cost is recovered in six to eight months.

In this case, repeat usage becomes vital to unlock profitable growth, and Jain claims that the platform sees 80% of its revenue from repeat customers. “We see people who have been transacting with us for the last three, four years,” he added.

Building The ‘Uber’ For Astrology 

While the CAC may seem to be on the higher side, that’s because the startup spends a lot on performance marketing in international geographies, where ad rates are higher. But the international market has been a major growth driver for Astrotalk, Jain added.

“Right now, about a sixth of our marketing spend is on the international markets, 1/6th of the revenue also comes from these geographies, primarily from non-resident Indians in the US, the UK, Canada, Australia and other English-speaking countries.”

To cut down on the acquisition costs within India, Astrotalk has partnered with a major nationwide publication, which would act as a distribution channel for the startup.

Given the company’s target of reaching INR 2,000 Cr in revenue before an IPO in 2025-26, curbing marketing spends will be a significant challenge, particularly as it looks to expand internationally, acquire non-Indian users and increase the revenue share from international customers.

But as the startup has shown, this particular model works and the competition is moving in this direction as well. Those astrologers who have not partnered with platforms also use WhatsApp and Telegram for digital services.

Plus despite digital platforms, astrology consultation in the offline space is also booming. An EMR study pegs the Indian religious and spiritual market at a value of $ 58.56 Bn in 2023. This is further expected to grow at a CAGR of 10% between 2024-2032 to reach around $150 Bn in less than a decade.

Astrotalk competes with the likes of Astrosage, AstroYogi, AstroBuddy, Ganeshaspeaks, AppsForBharat, and other unorganised players as well as independent astrology service providers.

But the international market remains the holy grail, and Astrotalk plans to add so-called non-Indian horoscopes and astrology-related practices such as tarot, psychic reading or shamanic counselling. Internationally, the startup competes with keen.com, as well Kasamba, both of which offer psychic readings.

Cofounder and CBO Jain believes that Astrotalk is poised to be the ‘Uber’ for astrology, as the core product has use cases and parallels worldwide, and the problem of trustworthiness is universal.

The post Decoding Astrotalk’s Fortunes: How The Astrology Startup Hit 4X Profit Growth  appeared first on Inc42 Media.

After nearly a decade in India, food delivery is finally a profitable business. Zomato’s second consecutive profitable quarter shows that the company in particular has figured it out.

The Deepinder Goyal-led company capitalised on the revenue momentum in FY24 and seems poised to become a profit-making machine based on what we have seen this year.

But it’s not just Zomato; Swiggy, too, is close to cracking profitability, and the company is also eyeing an IPO in the near future. The food delivery race has been fuelled for nearly a decade by VC money, but it seems the duopoly will now rely on cash generated by the business.

There’s of course a lot more at stake than just food delivery, but this Sunday, we wanted to see how profitability might change Zomato and its biggest rival. After these top stories from our newsroom:

• BYJU’S Strange Numbers: After multiple delays, BYJU’S finally released its FY22 financials, but only partially. The core business reported an EBITDA loss of INR 2,253 Cr, while revenue grew to INR 3,569 Cr. But the full picture is still missing
• Funding On The Rise? With Q3 2023 ending this past week, we can see that Indian startups have raised $8.3 Bn so far this year, nearly on par with 2020 levels. Does this mean we are on the road to recovery of some kind? Read our full report for more

The Zomato Express Rolls On

Last quarter, Zomato got a deferred tax boost of INR 17 Cr to eke out INR 2 Cr in profit, this time around it has taken a more certain step into the black. With a PAT of INR 36 Cr, Zomato’s profits surged 18X this quarter, thanks to Zomato Gold subscription revenue, growth in gross order value and an increase in order volume.

While there was bullishness last quarter that Zomato’s core food delivery business would soon be able to sustain Blinkit and other verticals, as it turns out, this will not be needed for long. Zomato’s quick commerce vertical Blinkit turned contribution positive for the first time in the quarter as well, with a record 45.5 Mn orders.

Hyperpure, the B2B supply arm, reported a 123% YoY surge in revenue, while dining-out vertical saw a sharp 88% increase in revenue to INR 49 Cr. But both these verticals continue to remain loss-making.

How Did Zomato Get Here?

So, how exactly did Zomato turn things around? For one, it must be noted that expenses grew 16.3% QoQ in the second quarter, whereas revenue grew 10% QoQ.

This indicates that the push has come from improving how much money Zomato keeps for itself per transaction. One of the ways it has improved this is with platform fees.

The company said that the fee, which ranges between INR 1 to INR 5, did not affect demand elasticity. So one can expect platform fee to become a permanent fixture in our food delivery bills

The other major revenue stream for food delivery is Zomato Pro, but Pro orders are less profitable for the company than regular orders. Here too, the platform fee is a major contributor to Zomato’s bottom line, and makes up for some of the lost revenue for every Pro order.

Swiggy On The Profitability Trail

Of course, Swiggy was the first one to introduce platform fee, charging consumers directly while simultaneously eliminating commissions for restaurants. This strategy protected restaurants and nudged them towards using the commissions saved for ads and promotions.

Zomato aped this strategy and the results are clear for everyone to see now. In Swiggy’s case, the company has not filed its FY23 numbers, but its loss jumped to $545 Mn for the calendar year 2022 from $300 Mn in 2021, according to Prosus, Swiggy’s lead backer.

Swiggy cofounder and CEO Sriharsha Majety claimed in May that the company has achieved profitability in its food delivery business. Majety also said that other parts of Swiggy’s business are slowly gaining traction and close to breaking into positive unit economics.

At the time, Swiggy told Inc42, “Instamart would reach unit economics positivity in the next few weeks.” And now reports indicate that Swiggy is gunning for an IPO too.

Swiggy began preparations for its IPO in 2023. However, the funding winter and a sharp fall in the valuations of tech startups globally made it keep the plan on the back burner. Now, the company is considering a stock market debut in 2024 and has engaged in discussions with bankers to evaluate its valuation.

This will bring another dimension to the rivalry between Swiggy and Zomato, which has been a mainstay in the Indian consumer services market.

How Will Zomato & Swiggy Change?

Of course, it’s not just food delivery, as Zomato and Swiggy have quick commerce and dining out as rival businesses too. Plus, Zomato recently entered the courier delivery space too, which is a direct competition for Swiggy Genie. For the moment though, Zomato is looking at B2B deliveries only.

In all likelihood, given how similar Swiggy and Zomato’s revenue strategy is and given the fact that both have subscription programmes and similar allied businesses, we expect both companies to have roughly the same scale and profit margins by 2024 and early 2025.

The revenue mix might be different but primarily, both companies will more or less grow at a similar pace given that this is not a zero-sum business category. Essentially, Zomato users also use Swiggy and vice versa.

There are possibilities that profitability will unlock better outcomes on other fronts such as customer service and issues related to gig workers, but that is still not a certainty.

What cannot be doubted is that Zomato and Swiggy will need to look for ways to maximise revenue and add more revenue streams, even perhaps outside their traditional strengths.

As per analysts that track food delivery space, fintech is one area that both Swiggy and Zomato will look to target, particularly financing for cloud kitchens and restaurants. The duopoly has the data advantage to create better risk models for lending to such businesses.

Another option is lifestyle-related verticals that are asset-light. Zomato already does events, and analysts can also foresee the company branching out into hotel and travel experience bookings.

“There is room for a disruptive player at scale, similar to what Airbnb did in Silicon Valley to the likes of Booking.com and others. And it fits what Zomato does with Zomaland and other events,” said one analyst at a Mumbai-based brokerage that covers Zomato.

Profits can change a company, and this is especially true for listed companies that have shareholders to answer to. In the past, Zomato’s experiments and pilots have been hit or miss, but in its current situation, the company needs to take a more measured approach to expansion.

For now, Zomato can bask in the afterglow of its second profitable quarter for a brief moment, but before long, it will be back to the old rivalry and figuring out the next big thing.

Financials In Focus 

It’s not just Zomato, of course — a whole host of Indian startups and listed tech companies have released their latest financial statements.

• Tiger Global-backed unicorn Apna saw revenue grow by nearly 3X in FY23, closing in on the INR 200 Cr mark
• Delhi NCR-based logistics unicorn Shiprocket saw operating revenue go beyond the INR 1,000 Cr mark, but its net losses widened due to acquisition costs
• The Indian entity of gaming unicorn MPL narrowed its loss by over 80% in FY23, while operating revenue surged by 36%
• Listed logistics unicorn Delhivery posted a net loss of INR 102.9 Cr in Q2 FY24, down 59.5% from INR 254.1 Cr
• Listed geospatial tech company MapmyIndia saw profits rise 30% YoY to INR 33.1 Cr in Q2 FY24, with momentum across business verticals
• NASDAQ-listed SaaS unicorn Freshworks reported 19% higher revenues, and stepped out of the red with a profit of $17.4 Mn in the July-October quarter

Find these and more financials in our tracker here

Sunday Roundup: Startup Funding, Tech Stocks, IPOs & More

• Funding Galore: Indian startups raised $133 Mn across 18 funding deals, a decline of 71% week-on-week. Aequs and Skyroot saw the biggest rounds of the week
• Mamaearth’s Mega IPO: D2C unicorn Mamaearth’s public issue was oversubscribed 7.61X on the last day of its IPO buoyed by huge demand from qualified institutional buyers

• Drone Battle: The NCLT has blocked RattanIndia’s attempts to alter the shareholding structure of Throttle Aerospace Systems amid an ownership dispute between the two parties
• Messaging Apps Vs Telcos: A telco body has appealed to the government to classify WhatsApp, Telegram and other apps as illegitimate channels for business communication

That’s all for this week. We’ll be back next Sunday with another roundup of the biggest stories and trends from the startup ecosystem!

The post Zomato’s Profit-Making Machine appeared first on Inc42 Media.

When Mamaearth or Honasa Consumer’s IPO first came to the market in late 2022 and early 2023, we wondered whether the company could shake off its identity crisis. As we said at the time, the company’s key strength is its retail or offline sales network, even though Mamaearth disrupted the space in its early years as an online-first direct-to-consumer brand.

Of course, as companies and brands mature, they have to adapt to the tune of the market. Mamaearth’s latest avatar has been dictated by the age-old mantra for selling products: sell closer to your customer.

Mamaearth began as an aspirational brand, but it had to transition to a model that more or less resembled traditional FMCG players because it realised the real strength of these brands is in their retail presence and distribution prowess.

Along the way, the company raised funds to acquire several players, and now, beyond the retail channel, it has the salon chain BBlunt as an intermediary channel to reach customers. So, in essence, Mamaearth today is a new-age D2C brand, retail FMCG player, as well as a services company.

So the biggest question for many investors ahead of the company’s IPO today is which Mamaearth should they bet on, if at all?

But before we go ahead, we must mention, we are not focussing on the company’s valuation, which many claim to be rich, or indeed its revenue growth. Instead we wanted to examine what expectations investors and other observers can have from the company, given that services, products and new-age companies are respectively evaluated very differently.

What Even Is A D2C Brand? 

In the past two years, the line between ecommerce and retail has blurred repeatedly in different ways. Many D2C brands, particularly in the beauty and personal care category, took the omnichannel route to reach retail consumers, but they also realised that the most habitual online shoppers had changed their shopping behaviour.

Particularly, in the metros, where quick commerce apps became the go-to destination for the most active online shoppers. Dark stores and apps such as Zepto, Blinkit or Swiggy Instamart are fast replacing marketplaces from a FMCG consumption point of view, at least in dense urban areas.

Today, the presence on marketplaces such as Nykaa, Tira, Myntra, Flipkart, Amazon India or Meesho is necessitated by the fact that brands are building a second layer of customers. That’s the online shopper from Tier 2 and 3 and beyond, being targeted by the likes of Mamaearth and Honasa’s other brands, The Derma Co., Aqualogica, Ayuga, BBlunt and Dr. Sheth’s.

Lastly, the less tech-savvy retail consumer is still buying from traditional stores and prefers the high-touch experience. So Mamaearth has to cater to these, also build up marketplace presence and work with quick commerce distribution and procurement teams.

Besides, it has to build native channels like its app or website for the fraction of shoppers who become repeat and loyal users. Therefore, they can be pulled into the more profitable native channels.

And that’s not the story for Mamaearth alone. It’s the trajectory that D2C brands, particularly in BPC and F&B, have to follow today. Profitability, in the long run, depends on a healthy mix of these channels that offer varying margins. In FY23, Honasa earned 59% of its revenue from online sales, whereas 36% came from offline channels. However, the share of offline channels doubled from 18% in FY21.

So firstly, looking at Mamaearth as a technology-first D2C brand would be folly. Yes, it has the branding nuance and digital marketing nous of a D2C brand, but the core of the business as we have seen in our analysis recently is a retail brand.

BBlunt: Honasa’s Trump Card?

Of course, what sets Honasa’s product and brand umbrella apart is BBlunt, which is the company’s services arm in the beauty and wellness space. BBlunt is not just an independent salon chain, but a channel for Honasa and Mamaearth’s products.

One can see The Derma Co. (skincare), Aqualogica (hydrotherapy), Ayuga (ayurvedic products) being consumed at the salon end, while this will help reinforce the brand’s presence in retail shelves and online channels.

Founded in 2004, the BBlunt salon chain already has very strong brand recall and enjoys the goodwill that comes from being in the market for nearly two decades. One can see Mamaearth leveraging BBlunt to enable the efficiency that the house-of-brands model requires.

Indeed, ‘house of brands’ as a concept has failed to take off because platforms are unable to make the most of the margin efficiency offered by the omnichannel GTM across their portfolio. Only one or two brands have the appeal to bring customers into brand-owned retail stores.

In Honasa’s case, Mamaearth enjoys a lopsided advantage in terms of brand recall, whereas the other brands in its portfolio are not immediately associated with the company. The non-Mamaearth brands would gain from the wider spotlight under BBlunt to gradually gain some equity.

However, the big challenge here would be the expansion of BBlunt’s salon network from the current 10 salons. BBlunt has zero presence in North India, for instance, according to the company, so this channel only becomes meaningful if the company spends a significant amount of its IPO proceeds to expand BBlunt. The filings indicate an allocation of INR 26 Cr from the IPO proceeds to expand BBlunt. Will this be enough?

Honasa is bypassing several complexities in the house-of-brands model through BBlunt, but the latter being a retail services business has different headwinds. “This channel is expected to provide us with a ready base of consumers to generate trials and will provide the ability to acquire new consumers, not only for BBlunt but also for other brands in our portfolio,” the company said in its RHP.

And looking at it from a competitive standpoint, it is a big strength that is unmatched by many of its direct rivals. Having said that, BBlunt itself has competition from franchise or brand-owned chains such as Jawed Habib, Gitanjali, Lakme Salon, Looks, Naturals and a host of other international brands such as Jean-Claude Biguine and Toni & Guy, among others.

To maximise revenue under its various channels, Honasa would need a steady stream of new SKUs and the right SKUs for the right channels. As outlined in the company’s pre-IPO filing, the contribution of new SKUs to overall revenue growth in FY23 was 56.58% higher than FY22.

Adding new SKUs across price points is one way to win the game, as seen in the case of FMCG majors such as Unilever which has 15 unique brands in BPC alone.

What Mamaearth IPO Means For D2C Brands 

Speaking of rivals, their attention will be on Honasa and Mamaearth for altogether different reasons. As some analysts told us this past week, this is a litmus test for the D2C segment and the Indian ecommerce ecosystem as a whole.

Yes, Mamaearth and Honasa have to invest more to bolster their in-house manufacturing operations, but short-term profitability hinges on efficient distribution and supply chains.

Even though many of the private equity and venture capital investors that backed D2C brands were bullish on the ecommerce aspect, pretty much all food & beverage, beauty and lifestyle brands now acknowledge that omnichannel is key and retail is king.

So while Mamaearth might not be a puritan’s D2C brand that only uses native channels, the success or failure of its listing and the subsequent movement of the stock with investor sentiment will inform a lot of its competition about how to tailor their operations.

The likes of SUGAR, WOW Skin Science, Purplle, The Ayurveda Co., Pureplay Skin Sciences and others are some of the brands that are waiting in the wings to not just go to the public markets like Honasa, but also see whether the company’s bet on a hybrid services-plus-products model will fulfil its potential.

The post Searching For The Real Mamaearth: Key Questions Ahead Of Honasa’s IPO appeared first on Inc42 Media.

So much has already been said about the unit economics problem in quick commerce, but startups in this space are ultra bullish and the revenue growth announced by Zepto this week is just another example of why that is.

With the massive spike in its revenue, Zepto is definitely in the quick commerce spotlight for now, especially after becoming the only unicorn in India this year so far. But is there a deeper story behind the 14X revenue growth, which has unsurprisingly dominated headlines?

We’ll take a look at this major question for Zepto and indeed quick commerce, but take a a few minutes to check out these top stories from our newsroom:

• Mamaearth’s IPO Trail: Mamaearth’s parent company Honasa Consumer Limited is all set for its IPO this coming week, but what exactly do investors need to know before it opens. Read in our in-depth story
• Deeptech’s Moment: Peak XV Partners MD Rajan Anandan on why deeptech startups are all set to change what it means to be a technology company in India
• Startups Vs Network Fees: More than 130 startups have sent representations to TRAI over the telco plan to implement network fees, but will this actually calm the fears in the ecosystem?

Zepto’s Dream Start

It’s not often that one sees a company breach the INR 2,000 Cr revenue mark in its first two years, but that’s what Mumbai-headquartered Zepto has managed. Credit where it’s due in terms of scaling up quick commerce, bringing a competitive intensity to the segment.

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 QC emerged as a category in 2020. Zepto, which rebranded from Kirana Kart in late 2021, clearly saw a gap and that was related to the mixed focus of Zomato and Swiggy.

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.

But at the same time, losses have grown pretty significantly in absolute terms, even if Zepto has made quite a progress from an EBITDA margin point of view. The quick commerce startup reported a net loss of INR 1,272.4 Cr in FY23, an increase of 226% from FY22, which is a big number, but this blow is softened by the improvement in profit after tax margin from -277% to -63% in FY23.

The Unit Economics Question

So the question is: Is Zepto out of the unit economics weeds? Not quite say some former executives in the quick commerce space, including some who have come through Zepto in the past year.

“Zepto’s operating leverage is still very low. The company has to continue to spend money in expanding and scaling up revenue in the future. The trickiest part is maintaining this execution over a number of years,” according to a Mumbai-based retail and digital commerce analyst as well as investment advisor.

Operating leverage is the degree to which any company can increase its operating income through revenue, while keeping gross margins high and variable costs low. In the case of Zepto, the gross margin is not that high, as is typically the case in quick commerce.

“One might see around 15% gross margin in this space. In a typical INR 450 order, Zepto and others are losing around INR 15 to INR 20 per order, if you include discounts, last-mile delivery costs as well as warehousing costs,” added a Delhi NCR-based finance professional, who has worked closely with ecommerce players across segments.

Even a 15% margin of INR 75 is not enough to cover this, we were told, and the only way to solve this is to keep the older stores profitable for a period of more than two years consistently.

“If a dark store was opened 15 months ago, and it’s still making losses even at 100% warehousing capacity, then it will be very hard to make it profitable now. Such stores have to bring in profits for Zepto to cover corporate costs such as expansion of the network,” says the finance professional quoted above.

Cash Burn Remains A Problem

Given that we have not seen Zepto’s audited financial statements but only a part of the P&L, there are some other aspects that we are not yet privy to, which will only become clear after a deeper perusal of the startup’s financials.

The first of these is that there are abnormal losses in the quick commerce segment, which are below EBITDA line items and not always accounted for. There’s inventory pilferage, wastage, obsoletion of inventory, which are not always accounted for.

These are typically clubbed under EBITDA, but these should be accounted as business losses, we were told. Of course, we will find out more once we see how the below-EBITDA calculations are being done for Zepto in FY23.

The second problem is that as players such as Blinkit, Zepto and Swiggy Instamart expand, the working capital also increases. Even if a company has EBITDA of -INR 200 Cr or -300 Cr, the company will continue to need cash, added the first Mumbai-based analyst.

“In the case of Zepto, there are some monthly debt obligations, working capital needs, GST credit, inventory buying and inventory write-offs. If you put all this together the company will continue to need cash for buying inventory and to add more stores, which will also need more inventory. In Zepto’s case it will have to come from outside i.e investors.”

Fighting Deep Pockets

This is why some analysts and those who have worked in this segment believe that success in quick commerce essentially boils down to who has the most amount of cash. Zepto, some told us, will need to raise cash nearly every 12-15 months to scale up this revenue to compete with Zomato, which is likely to have profits to invest in Blinkit or Swiggy, which has a similar revenue mix advantage.

The company has stated that it will reach INR 10,000 Cr in lifetime revenue in the next few months. That would mean that it has doubled or tripled its revenue in FY24, at the very least, which is quite a tall claim. Zepto also said it is on track to achieve EBITDA breakeven (excluding ESOPs and other non-cash line items) in 10 months.

But this bullishness does not fit the view of the category among the experts. They believe margins may improve but losses will continue to grow unless a significant proportion of dark stores turn profitable or Zepto ventures into other verticals. The alternative is adding platform fees, which we have already seen in Swiggy and Zomato. But will this be enough to cover for the losses per order?

Essentially, the execution and singular category focus that allowed Zepto to push forward might be a bit of a problem in the long run, because it will need profitable streams to continue growing without relying on debt or equity funding. This despite raising $200 Mn in August 2023.

Zepto has quite clearly grabbed the quick commerce bull by its horns, but it’s still far away from taming the beast.

GenAI In Spotlight

It is no longer hype, but indeed the next big thing in technology. Generative AI, or GenAI and intelligent automation has the potential to disrupt industries at large, changes many of the paradigms of Web 2.0 or even Web3, and opens up the possibilities for altogether new business models. And India is currently at the forefront of this global technology shift.

Inc42’s latest report titled India’s Generative AI Startup Landscape, 2023 delves into the revolution and our data shows that the GenAI opportunity is projected to surpass $17 Bn by 2030 from $1.1 Bn in 2023, growing at a CAGR of 48%.

This meteoric rise is attributed to the innovative prowess of India’s GenAI startups as well as how quickly startups across sectors are harnessing the powers of generative AI .

Get Our Much-Anticipated Report Now

Sunday Roundup: Tech Stocks, Startup Funding & More

• Ola Electric’s Mega Round: This week’s total funding tally is well above the weekly average for 2023, but a bulk of the $466 Mn raised came from Ola Electric’s $384 Mn debt and equity round
• Another Finfluencer Fined: SEBI has slapped a disgorgement fine of INR 17 Cr on fintech influencer Nasiruddin Ansari aka ‘Baap of Chart’ for allegedly misleading investors
• RateGain Gains: Travel SaaS startup RateGain’s net profits more than doubled YoY to INR 30.04 Cr in Q2 FY24, as travel demand bounceback continued to drive revenue

• More Exits At BYJU’S: CFO Ajay Goel is the most recent high-profile exit from the beleaguered edtech giant, who is quitting just six months after joining BYJU’S
• Jio’s New Bet: Reliance Jio has entered the satellite-based internet race with the announcement of JioSpaceFiber, which aims to bring connectivity to remote regions

That’s all for this week. We’ll be back next Sunday with another roundup of the biggest stories and trends from the startup ecosystem!

The post Beyond Zepto’s 14X Revenue Surge appeared first on Inc42 Media.

The Delhi Police’s Economic Offences Wing has registered an FIR against the four cofounders of GoMechanic as well as key management personnel in relation to alleged fraud and cheating after a complaint by the startup’s key investors in June this year.

The complaint was jointly filed by Orios Venture Partners, Peak XV Partners (Sequoia Capital) as well as Chiratae Ventures.

As reported exclusively by Inc42 in August, GoMechanic’s three major investors approached the EOW to probe the role of the four cofounders in misreporting financials and any potential misappropriation of funds.

That complaint was formally registered as an FIR by the EOW on October 20, 2023, under Section 120-B, 409, 420, Sections 465, 467, 468, 471 and 477-A of the Indian Penal Code, 1860, which cover cases of fraud, dishonesty and cheating, among others.

Inc42 has seen a copy of the FIR, which names founders Amit Bhasin, Kushal Karwa, Rishabh Karwa and Nitin Rana, along with other senior officials, Prateek Jain (VP, finance), Yogesh Narnawat (senior executive, finance), Vishambar Sharma (VP, admin) and others as the accused.

More importantly, for the first time, we are able to get information about what exactly happened at GoMechanic in the years leading up to the founders confessing to misreporting numbers and fudging account statements.

Interestingly, the FIR does not arrive at the total amount involved in the alleged fraud. The three complainants said a thorough investigation is required to unearth the extent to which such financial records were cooked up and falsified.

“Instead of using our investment of over Rs 200 crore towards the legitimate business activity of the company, the accused have fraudulently abused their authority as directors, agents, and employees of the company to commit criminal breach of trust by diverting and siphoning the capital/funds for personal and ulterior uses,” the FIR reads.

GoMechanic Fraud Began At The Seed Stage

Shockingly, the FIR states that the alleged fraud at GoMechanic began way back in 2017, when the company was in talks with investors for a seed funding round. It must be noted that GoMechanic was incorporated in May 2016.

As per the FIR, these details were shared by the founders with the shareholders during meetings in January 2023, when the controversy first broke out. Here’s the full text from the FIR that indicates how the fudging began in 2017.

“Started from the seed round when we were doing a business of 7-8 crores per annum. Founders went to the investor and committed that the Company does a business of 12-13 crores. Came back from the meeting saying we have to do something because we have committed to the investor saying that we do business of 12-13 crores and they will not fund otherwise. The CA said that he will do some adjustments. Then what we started doing is that we started the concept of flagship workshops — the arrangement was that they will transfer all of their ‘payments’ to GoMechanic — GoMechanic will inflate the commission and transfer less to these workshops and then as and when the business grows we will work together.”

Thus, the company showed inflated revenues of INR 12 Cr-INR 13 Cr, while expenses were being incurred basis the actual revenue of around INR 7 Cr-INR 8 Cr revenue.

“In order to bridge the gap on the net margin, we started inflating EBITDA. As and when the gap increased. it became a substantial one and we were showing a GMP of INR 200 Cr for an actual GMP of INR 50 Cr,” the FIR added.

Falsified Bank Statements

Further, the EOW has stated that management personnel such as Narnawat, a senior executive in the finance team, sent falsified bank statements to investors, including Stride Ventures.

The bank statements sent to Stride claimed that the company had a positive balance of INR 19.92 Cr on July 29, 2022, when in reality the balance was a negative INR 10 Cr at that time.

“Line items in the bank statements have been fraudulently and deliberately altered and falsified to inflate the balance by approximately INR 30 crores to mislead stakeholders, including the recipient of the entail [Stride].”

Investors also alleged falsification of accounts through round tripping of cash, and inflation of revenue in audited financial statements.

For instance, GoMechanic’s audited FY22 financial statement records ‘market support income” of INR 24,95 Cr under “revenue”, but a majority of this amount — INR 23.98 Cr — recorded against ten entities was proved to be fictitious and unsupported by any actual identifiable transactions as per the forensic audit ordered by the investors.

GoMechanic reported revenue from operations of INR 34.1 Cr in FY21, which grew 2.6X to INR 90.5 Cr in FY22 (March 2022). Its expenses grew faster in the fiscal, surging from INR 74 Cr to INR 210 Cr. As a result, the losses ballooned to INR 114 Cr ($15 Mn as per 2022 rates) from INR 74 Cr ($10 Mn as per 2021 rates) a year ago.

It must be noted that the company’s filings for FY22 show a higher loss for FY21 than its earlier financial filings for FY21.

In the FY21 numbers reported and approved by the board in October 2021, the losses stated were INR 27.4 Cr. In its FY22 filings reported and approved by the board in September 2022, the losses for FY21 grew to INR 74 Cr.

It is not yet clear how this adjustment was made because there is no explanation for the same attached in GoMechanic’s filings. But at least some of these corrections are likely to have been because of the wildly disparate monthly income that was being reported to investors.

For instance, the FIR alleges that investors received falsified monthly income statements (MIS) in November 2022, a few weeks before founders confessed to the fabrication of numbers.

While by November 2022, the company claimed to be earning INR 194.11 Cr as gross revenue, the actual revenue was approximately INR 100 Cr, indicating a near-2X inflation for this period.

Between March 2022 and July 2022, investors were also shown inflated liquid cash positions of the company in monthly statements. GoMechanic’s VP of finance Jain is said to have inflated the cash balances in a range of INR 10 Cr to INR 39 Cr over this period in each monthly statement.

The GoMechanic-Parcit Connection

One of the biggest red flags in the GoMechanic story came in its transactions with an entity named Parcit (registered as Parcit Autocrazy Private Limited).

Parcit is not directly related to GoMechanic, nor is it a subsidiary of the company. But according to Ministry Of Corporate Affairs records, accessed by Inc42, the mobile number associated with the incorporation belongs to GoMechanic VP [Prateek] Jain. Further, GoMechanic founder Nitin Rana’s email is also mentioned on the MCA file for the company.

We can see that Parcit reported INR 63.66 Cr as revenue in FY21, up nearly 4X from the INR 18 Cr it reported in FY21. The company stated a profit of INR 76.01 Lakh in FY21.

Coming back to the FIR, investors allege that GoMechanic wanted to work with Parcit as the latter was engaged in the business of the buying and selling of auto spare parts, a vertical that GoMechanic had entered in October 2020.

GoMechanic told investors it would provide financial support to Parcit to onboard vendors and other activities. Between April 2020 to January 2023, Parcit received a number of fund transfers from GoMechanic as per the FIR.

Approximately INR 264.98 Cr was transferred to Parcit, but the payment could not be linked to any underlying business transactions as per forensic auditors. Then INR 200.37 crores was received by GoMechanic from Parcit, again without links to any actual business transactions. The gap of INR 64.81 Cr is alleged to have been syphoned by founders and other accused.

Further, GoMechanic made purchases worth INR 45.34 Cr from Parcit and received sales INR 2.45 Cr as sales consideration in the same period. But in the FIR, investors allege that no invoices or other supporting documentation was found for these sales and purchases. “Therefore it appears that a net fictitious liability of INR 42.89 crones has been created in the books of the Company [GoMechanic] through potentially fake sales and purchase transactions.”

The FIR also claims that Parcit was involved in circular trading by selling auto spare parts to certain parties and purchasing auto spare parts from the same parties.

Payments for these transactions were made through the vendor financing facilities provided to Parcit by GoMechanic. These funds would come back to Parcit when it sold parts to the same vendors, which were then paid back to GoMechanic’s vendor financing partners.

Investors alleged that since Parcit was unable to pay the amounts borrowed by it under vendor financing facilities, an amount of INR 67.74 Cr was settled by the lenders of Parcit (post 14.01.2023) through utilisation of the GoMechanic’s assets.

The Parcit transactions resulted in a loss of at least INR 101.59 Cr to GoMechanic, including a potentially fictitious liability of at least INR 42.89 Cr.

Did Founders Gain From GoMechanic’s Distress Sale?

Eventually, two months after the allegations surfaced in January 2023, GoMechanic was acquired by a consortium led by Lifelong Group, a majority shareholder in GoMechanic rival Servizzy.

At the time, sources told Inc42 that the deal saw write-offs by all GoMechanic equity investors, while the venture debt investors in the company managed to recover some funds. According to reports, Stride Ventures recovered INR 100 Cr through the deal, but Inc42 could not independently verify this information and nor did Stride Ventures comment on this speculation.

But now, the FIR has revealed a twist in this M&A deal. Investors claimed that they exited the company at a significant loss and sold all of their shares for zero consideration to GoMechanic cofounder Bhasin on March 23, 2023.

“As things stand, We/the Investors have effectively lost all our investment in the Company and the Accused Persons are therefore jointly and severally liable to be prosecuted and punished for the offence under Section 420 IPC.”

In effect, this means that the Servizzy deal, announced a week later on March 29, 2023 did not involve any of the investors, but it was actually cofounder Bhasin that sold the company to Servizzy.

Inc42 has reached out to Stride Ventures and other investors at GoMechanic for clarity on who saw the proceeds from the acquisition by Servizzy and Lifelong Group.

At the time of the acquisition, one source close to the investor group, indicated that the forensic audit might complicate the liability situation for Servizzy in this case. For now, the EOW investigation is likely to take several months to be completed.

Meanwhile, at least two of GoMechanic’s founders have moved on to new ventures, as reported by Inc42 in July. Rishabh Karwa and Nitin Rana are currently working on two separate and unnamed new startups, even as the EOW investigates their role in the GoMechanic saga.

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