At a time when the Indian online gaming sector is crying havoc due to the new 28% GST regime, which does not differentiate between games of skill and games of chance, top industry sources have revealed that the Centre’s decision has triggered a consolidation wave in the industry.

After the introduction of the GST, several gaming startups, including unicorns and soonicorns, wrote to the central government seeking some modifications in the 28% GST regime for the greater good of the industry.

In the aftermath, Inc42 has learnt that more than 20-25% of these companies are now in the market for sale or are looking for acquihire opportunities. According to sources, a gaming giant alone may have spoken to at least 100 Indian small online gaming firms in August for acquisitions.

 A top investor, who did not wish to be named, said that a Series A gaming startup, which has acquired lakhs of customers, is profitable and offers various real money gaming options, is looking to get acquired at a valuation loss of 50-60%.

 “We are talking to at least 2 to 3 companies daily that are up for sale. It is a distressed market and hence the buyouts are the only option. We can say that the Indian gaming industry will see a lot of consolidations happening in the next few quarters,” the investor said.

 Another industry veteran said that it is a very opportune time for companies that have enough capital to acquihire, acquire and merge with smaller peers. This will not only help them to expand their capabilities but also save many from getting perished.

“Companies are selling for pennies as against dollars,” the analyst said.

It is pertinent to note that many gaming startups have been severely impacted by the Centre’s decision to levy a 28% GST on the sector. As a result, while some startups have been forced to shut their shops, others have resorted to slashing headcount to cut costs.

Gaming unicorn, MPL was one of the first industry players to announce layoffs after 28% GST rule. The company fired 350 employees. This was followed by the online poker platform, Spartan Poker.

Who Is Looking For A Potential Sell-Off?

According to the sectoral experts we spoke with, real money gaming platforms, which promote games like rummy, poker, ludo, etc., may look at selling off their assets due to the prevailing market conditions.

 The CEO of gaming firm 1Verse, Prashanth Joshua, said that the skilled gaming platforms on which players play individually will be severely impacted compared to fantasy gaming platforms that engage players in groups.

 “Every RMG company is supposed to pay 28% of their deposit money as GST, however, the companies that focus on individual gamers and are in the annual revenue range of INR 1 Cr to INR 100 Cr will find it unsustainable to run operations in this environment and would be looking to merge,” he added.

Joshua added that gaming companies with conventional focus like card games and the ones that are popular among various Indian communities, may not be up for sale.

“As against the notion that online gaming is a new concept in India, the reality is that various games are very much a part of our country’s culture and are played on festivals and involve real money. Eventually, the same games are played in online groups or social media platforms. Now, the platforms that built the technology for these gamers have a strong userbase and would not necessarily merge with others,” Joshua said.

However, as per him, companies with a huge user base may merge with the ones that have a strong tech interface.

“The product, consumer experience and user retention are some of the metrics that the investors or large firms will be keen to look at when it comes to acquisitions of smaller RMG companies. The companies that are strong in any of these propositions would be a good buyout opportunity,” he explained.

 Echoing the sentiment, Pearl Agarwal, the managing director of a gaming-focussed fund, Eximius Ventures, said that real money gaming companies, which offer both — the games of chance like betting, lottery, and opinion trading and skill-based casual gaming platforms such as rummy, poker, ludo, and chess — will be looking to get acquired.

 She pointed out that larger gaming firms would look to re-strategise their revenue, and valuation expectations and accept the new normal, which directs them to pay a 28% GST on overall deposits.

“The important aspect to look out for both small and big companies would be user retention. That is because the new GST rule applies to the deposits made by any user with the gaming platform. However, if the same user again deposits his winnings or more money with the platform, the GST may not be even applicable on the recurring deposits. Hence, retaining users will be key to avoiding the tax burden,” Agarwal explains.

Meanwhile, E Paul Micheal, the former CEO of India Plays and a gaming consultant, anticipates that the real money gaming industry would see the entry of fewer players due to the new tax regime. However, the sector is all set to witness a wave of consolidations in the next few quarters, paving the way for innovation, promotional offers, and more liquidity for users.

“This is true for any industry going through distress. Some shutdowns and a lot of M&As to sustain the changed regulatory environment and work around a process that is in line with the rules. However, to say that the industry will shut down or major players will move their bases out of the country would be an exaggeration. The truth is that the online gaming sector is a highly regulated sector globally. There are tax provisions for the industry even outside India,” he added.

Funding Focus On Non-RMG Platforms?

Even as the real money games contribute more than 70% of the revenues to the online gaming industry, there are VC funds like Kalaari Capital, Matrix Partners, Lumikai, Exumius, KRAFTON’s VC arm that are now looking to invest actively in non-RMG gaming companies.

For non-RMG gaming firms, monetisation avenues are mainly advertisements and platform fees. However, they will have to add value proposition to the users beyond entertainment to attract funding.

Some firms like Krafton and Lumikai have announced new funds to focus on online/mobile gaming in India, and it would be interesting to see how the capital is deployed across the gaming industry.

In June this year, Lumikai announced its fund II with a corpus of $50 Mn to be invested across 15-20 interactive media and gaming startups.

“Over the course of the last 3 years, we have seen 1,400+ deals and seen the industry attract investor interest, deepen founder quality and achieve liquidity events. We continue to remain bullish on the long-term potential of the India interactive market and this is our opportunity to build on the foundation we have laid,” Lumikai’s founding partner Salone Sehgal had then said.

Earlier in August, Battleground Mobile India (BGMI) maker KRAFTON announced to invest $150 Mn in India’s gaming and entertainment startups to nurture local talent, foster innovation and propel India to the forefront of the gaming industry.

In February, online gaming startup WinZO’s backer Courtside Ventures announced the launch of its third VC fund with an outlay of $100 Mn. Fund III will invest in across segments of startups including sports, online gaming and lifestyle. Besides WinZo, Courtside Ventures has backed gamified fintech startup Filo and NFT startup FanCraze.

A top marketing communications consultant who works with various gaming companies in India said that the global gaming venture funds are on an active lookout for India-based gaming startups because of the country’s massive gamer base of 450 Mn.

“We understand that the new regulations are in place, but instead of being bogged down in the rules, startups will have to find a way around and work with the government. At least now we can say that there is more clarity in place. We are actively seeing interest from global as well as domestic VCs when it comes to India’s gaming market,” she added.

According to experts, India will see a lot of interest from investors in segments like Generative AI, web3, NFTs, and gaming infrastructure.

With much at stake right now, it remains to be seen whether the gaming industry will survive the regulatory jolt and emerge stronger than ever on the back of quality consolidations or will continue to backslide and eventually die down.

[Edited by Shishir Parasher]

The post On The Brink: Small Indian Gaming Startups Mull Sale Amid 28% GST Chaos appeared first on Inc42 Media.

With an aim to have 500 startups in its portfolio in the next 2-3 years, homegrown early stage venture capital firm 100X.VC has its eyes set on signing 100 startup funding deals this year, Ninad Karpe told Inc42 in an exclusive interaction on the sidelines of the MoneyX conference that was held last month.

100X.VC, a sector-agnostic VC investment firm, typically invests in early stage ventures and writes small cheques on the lines of the US-based startup accelerator, Y Combinator.

The investment in early stage startups is converted into equity when they raise Pre-Series A or Series A funding. The funding happens through an instrument called iSAFE (Safe Agreement for Future Equity) notes.

Karpe credits his firm for introducing this concept to the Indian startup ecosystem and is not pioneering the show. The instrument has now been adopted by many early stage venture capital firms. According to Karpe, this investment process usually restricts investors from having a seat on the board and curbs the time of the deals that take months to close, like in the case of conventional startup funding.

Founded in 2019, 100X.VC is a SEBI-registered fund, which is led by angel investor Sanjay Mehta’s family office, Mehta Ventures.

Speaking on a range of topics, from funding winter to corporate governance issues plaguing the world’s third-largest startup economy, Karpe outlined that neither there is a dearth of deals nor investors looking to place their bets. However, founders today need to get their act together in striking a balance between dos and don’ts while sitting on heaps of investor capital.

Edited excerpts…

Inc42: What impact has the ongoing funding winter had on 100X.VC’s investment strategy?

Ninad Karpe: Funding winter is a big word. It is all-encompassing, but, if you come down the ladder and slice and dice, there is no winter in some cases.

As early stage investors, we get 25,000 to 30,000 pitch decks every year. While, on the one hand, there is no dearth of deal flow, on the other hand, there is no shortage of interest from angel investors to invest in the early stage.

Also, we are witnessing greater interest from a lot of individuals who are willing to take high risks with small ticket sizes, which is a good sign. Another positive development is that we are seeing a lot of founders emerging from Tier II and Tier III cities, which has only added to the deal flow.

So, when we talk about the funding winter, the pressure is more at later stages, Series C, D, E, and so forth. However, we provide bigger VCs a solid pipeline of startups to invest in for the next 3-5 years, and by then we believe any remaining traces of the funding winter will subside.

Inc42: So, according to you there is no funding winter right now?

Ninad Karpe: I think the exuberance is gone and reality has struck, and this is both from the perspective of founders and VCs.

I think we are at the fag end of the funding winter. In the next couple of months, we should start seeing more and more funds where people are more realistic about everything, sans the blind chase for startups or ideas.

The Indian VC ecosystem is still nascent compared to the West. There is a lot more headroom for a country of our size, and we can easily grow a hundred times from where we stand today.

Inc42: How many number of deals have you closed this year?

Ninad Karpe: While we have already closed 47 deals so far this year, we intend to do 100 deals in 2023. As of now, we aim to close 30-40 deals, however, the range could vary between 80 and 110 deals. Notably, these will be the startups from the 30,000 pitch decks that we have received this year alone.

Inc42: Is there any corpus that 100X.VC has built to invest in startups?

Ninad Karpe: So, we want to keep investing. We are the first institutional cheque writers, and we want to continue with this philosophy. Within the ecosystem, founders know that 100X.VC signs the first institutional cheque by deploying founder-friendly, agile funding instrument iSAFE notes, which we have pioneered in India. So, we want to continue doing this.

Inc42: Are you looking at any specific industry vertical to invest in this year?

Ninad Karpe: Given that we are sector agnostic, we look at groundbreaking ideas, which don’t get funded by anyone else.

Inc42: What is 100X.VC’s exit strategy? Is there any timeline that you set?  

Ninad Karpe: Since we are the first cheque writers, we take a more patient approach. Realistically speaking, I don’t think that we will get an exit within five years from our investments. Given that our fund is only four years old, we haven’t had any major exit yet. However, we expect some good news in the next 1-2 years.

During the pandemic, our investment slowed down, but we are back with a bang, and we want to invest in a hundred startups every year. Hopefully, we will have 500 startups in our portfolio in the next 2-3 years.

Inc42: How have the recent issues around corporate governance that cropped up at several big Indian startups impacted your strategy or relations with your portfolio companies?

Ninad Karpe: Corporate governance is an issue that needs to be fixed. It has happened in some cases due to various reasons.

At 100X.VC, we don’t take any board seats as a VC, however, we have now started including a separate session on corporate governance and its importance before investing.

Corporate governance issues that have recently cropped up among Indian startups could be a lesson for many founders on what should not be done.

Also, founders should be aware that if they mess up, it is pretty much over for them. The situation of bad actors in the ecosystem can be kept at bay if the guilty are easily let off the hook.

Inc42: What, according to you, should young startup founders learn from recent corporate governance issues?

Ninad Karpe: Founders today need to understand that if they have the requisite capital, it is unnecessary to spend it all, just because they can.

In the Indian startup space, a root cause of the evils that have recently emerged is the flow of excessive capital, and hardly restriction on spendthrift founders.

I don’t think this will work anymore. However, this also does not mean that investors do not want founders to scale their businesses. What is important is to understand the nuances to strike a balance between dos and don’ts.

We need to understand that young founders come with a lot of enthusiasm to make a difference. They’ve quit jobs or they’ve not gone for jobs and come to the startup ecosystem where the success rate, at best, is just 10%.

When capital was flowing freely, many failed to spend it consciously. However, this will be history now, and the Indian startup ecosystem is going to see a lot of disciplined founders emerge not too far in the future.

The post What Funding Winter! Have Set Eyes On 100 Startups This Year: 100X.VC’s Ninad Karpe appeared first on Inc42 Media.

Even though India produces around 15 Lakh engineering graduates every year, there is a huge gap in the skills they possess versus what the job market demands. According to a study by Scaler, an upskilling platform, only 2.5 Lakh engineering graduates (or 16%) land relevant jobs every year.

A lack of close collaboration between India Inc and academia has created a huge demand in the market to upskill fresh out-of-college engineers in the constantly-evolving age of new-age technologies like artificial intelligence (AI), machine learning, etc.

It is on the back of this red-hot market that several big edtech companies have been able to raise millions of dollars to make fresh graduates job-ready and upskill working professionals. On the flip side, recently, many bad actors have been accused of exploiting this lucrative space, and continue to get exposed every now and then.

Chennai-headquartered Skill-Lync, founded by SuryaNarayanan PaneerSelvam and Sarangarajan V Iyengar in 2018, is witnessing itself standing at a crossroads of many controversies from employee layoffs to now students levelling serious allegations against the edtech startup.

Since its inception, the Y Combinator, Better Capital and Iron Pillar-backed startup has raised more than $20 Mn in multiple funding rounds. Its playbook is simple — tap into the growing upskilling market by offering advanced PG-level courses to young engineering graduates and make them job ready.

Indeed a noble idea, however, the company may have walked too far with its playbook when it started to guarantee jobs and internships to its students. Now, amid an uproar by students that Skill-Lync has faltered to deliver, it could be looking at multiple lawsuits from its customers for allegedly duping them of lakhs of rupees on the pretext of giving jobs and allegedly tricking them into taking loans.

This is not it — many serious allegations have been slapped by students, both former and current, on Skill-Lync’s modus operandi and the authenticity of the student data that the company shares with its lending partners to avail loans.

Before we delve into the series of allegations, it is vital to highlight that the edtech is on a cost-cutting spree and has axed more than 600 employees so far this year.

Is It Really Raining Jobs At Skill-Lync?

More than a dozen former and current Skill-Lync students that Inc42 spoke with have alleged that Skill-Lync made them take loans by showcasing them as salaried employees with various companies, which as per the students, don’t even exist.

These students told us that their job details and salary information, which reflect in their loan documents allegedly submitted by Skill-Lync to its partner lenders, are all fake.

Inc42 has access to various materials, including student data provided to a lender, showcasing them as working professionals instead of students.

What’s even more surprising is that one of these students works for a company, ‘student’, for an annual salary of INR 1.9 Lakh. (Images for reference below)

As we dug deeper, we met a 24-year-old Skill-Lync student, Mohit (name changed upon request), who showed us his details on the website of lender Eduvanz, which states that he has been working with a company, for more than two years and was drawing an annual salary of INR 3,48,000.

An unemployed Mohit who had completed his course in Data Analytics last year, told us that his mind was boggled, and he got pushed into a state of mental turmoil before he could finally digest that Skill-Lync made him take a loan by showcasing him as a salaried employee, at least what his loan documents show.

“Typically, these aren’t educational loans under which students are expected to pay after the completion of the course. These rather seem to be personal loans where the salaries of the borrowers act as collateral. In education loans, banks or NBFCs ask for the repayment of loans, along with interest, only after the completion of their courses, and even give students an extension in many cases,” a Bengaluru-based banking professional said, requesting anonymity.

Meanwhile, a former Skill-Lync student from Chennai shared an audio recording with us in which a Skill-Lync employee can be heard using ‘job guarantee’ as bait to divulge the details of his bank account for the loan application. “One year on, there is no job, and the employee has left the company too,” the student said.

Inc42 did not receive a satisfactory answer from the CEO and cofounder of Skill-Lync, PaneerSelvam, when we asked if the company’s finance team showcased students as working professionals to avail loans.

“The loan transaction/EMI for enrolment in our course emerges from an “Agreement” which is entered between the student and the Lending Institution, and Skill-Lync is not privy to the contract,” the Skill-Lync CEO said.

If this is the case then why an employee of the company’s finance team can be clearly heard requesting bank details of a student for the loan application in a call recording shared with us.

“The loan is an “OPTION” provided to students who intend to pursue the course but do not have the means to pay the course fee. In such a case, such students are connected to third-party lenders. It is made clear that Skill-Lync is not the lender here. Upon confirmation from the students through Aadhar verification, OTP verification or e-signatures, the loan application is processed and approved,” said the CEO.

On the contrary, students whom we spoke with said that more than 50% of them, who registered with a nominal fee of INR 5,000, were not even informed that the monthly payments they were making as course fees were rather the EMIs they were paying for the loan taken on their behalf.

“We were put under the impression that the course fee is divided into EMIs. For this, the Skill-Lync finance team took our bank details, and bank statements, along with Aadhar and PAN card details. When we questioned, the officials told us that the details were being taken to ensure that students do not falter in making payments post the completion of their courses. Soon, we were left scratching our heads when we got a message from Eduvanz that our loan application has been accepted,” said the students who are accusing the company of showing them as employees of fake companies.

Moving on, our quest to get to the crux of the matter took us to many more students, who too alleged that the company made them fall prey to its questionable practices.

Several students have alleged being tricked into taking loans, ‘probably personal’, from various lenders, including Eduvanz. Interestingly, all these students have one thing in common — they are all employed but only in their loan documents.

“We don’t even know if the companies where we are shown to be working exist or not. Even the NBFCs or lending partners that closely work with Skill-Lync have failed on multiple fronts while conducting due diligence,” another aggrieved student said.

Note: Our multiple attempts to reach out to Skill-Lync’s lending partners, including the Eduvanz CEO, failed to yield any result. The story will be updated accordingly once they respond.

Notably, Skill-Lync’s saga has a striking resemblance with another upskilling startup, GreekLurn, whose CEO Kamalapuram Srinivas Kalyan was arrested by the Bengaluru police in June this year for allegedly defrauding at least 2,000 students by availing loans in their names.

Students Prepare To Lock Horns With Skill-Lync

At the core of the issue is Skill-Lync’s strategy to target students from middle to low-income households, who are looking to upskill themselves to land suitable job roles.

As of now, the company is being cornered by its students for failing to provide jobs, with many debt-laden individuals in the process of lodging a complaint with the Chennai Police against Skill-Lync for defrauding them under the pretext of providing jobs after the completion of their courses.

Sources close to the development told Inc42 that a group of students is expected to meet Chennai police and file a complaint against the company for duping them, in connivance with an education-focussed NBFC, Eduvanz.

As seen by Inc42, a complaint letter from one of the students at Skill-Lync, addressed to the Chennai Police director, accuses Skill-Lync and Mumbai-based Eduvanz of coercing the student (name withheld upon request) into taking a loan to pursue a PG-level certificate course in car designing.

The student had first enrolled in the course and took a loan from the edtech’s partner NBFC, however, later the complainant’s mind changed and he wanted an exit but couldn’t. Inc42 has a copy of the letter.

“I found the course material and the videos on the platform substandard after I got registered on the platform. Therefore, I changed my mind and asked the company to cancel my candidature. Despite multiple attempts to reach out to the company, all my requests have fallen on deaf ears. I am unable to cancel the registration of the course, and the lender (Eduvanz) continues to raise EMIs,” the complainant told Inc42.

“But for exigencies like medical grounds, there is no prohibition for the enrolled students to opt for course cancellations at any point. The cases of cancellations are dealt with on a case-to-case basis and merits,” the company said in an email response.

What Does Skill-Lync Promise?

After speaking with several students who claim to have completed their courses last year and are yet to get jobs, we decided to take a look at the agreement that the edtech signs with students, along with how it promotes itself.

A recent contract agreement states that for securing a job/placement, students must meet certain terms and conditions. If students are unable to get a job in 180 days even after meeting the terms and conditions, they will be refunded in full.

However, more than a dozen students we spoke with claimed that they have been sitting jobless since last year after completing their courses, the duration of these varied between three and nine months.

Notably, under the terms and conditions in its agreement, Skill-Lync mentions that students will have to appear for various mock interviews and tests, and score a certain percentile during their courses to land a job.

Meanwhile, on the promotional front, Skill-Lync via email marketing promise jobs or money back if students pursue courses in data sciences and analytics.

Interestingly, the internet has many media reports that acknowledge Skill-Lync as an edtech that either guarantees a job or refunds money.

However, it is quite unclear if the edtech changed its strategy later and included multiple competencies to be eligible for a job, even after completing the course.

Explaining Skill-Lync’s side, the CEO told Inc42 that the company has replaced its job guarantee programme with a job assistance programme, which refrains from giving guarantees.

“It is crucial to note that the non-refundable nature of all courses, except for the 25% with a job guarantee, is explicitly communicated during the enrolment process and has been clearly mentioned in the terms and conditions on our website,” PaneerSelvam said.

Meanwhile, students have alleged that the company had to change its policy after it failed to deliver its promise to give jobs.

One of the students who completed a PG programme in Data Analytics and Data Science, which came with a job guarantee, has been waiting to get a job for the past 11 months. Inc42 was given access to an emailed communication from Skill-Lync’s team to this student.

Skill-Lync was also sending out promotional emails to students guaranteeing jobs for courses like PG in Electric Vehicle Design and Development until last year.

Even as Skill-Lync may have moved to a more sensible approach now of not guaranteeing jobs to all the students enrolled, however luring the fresh college students with promises as above and finally not meeting these terms and conditions has backfired for the edtech platform.

Moving on, Skill-Lync charges anywhere between INR 2.5 Lakh and INR 3.5 Lakh for its courses that may stretch anywhere between three and nine months. To make it easy for students to pay the fee, the company has partnered with NBFCs such as Liquiloans, Eduvanz, etc.

Various students told us that the company promised to offer paid internships, with a stipend of INR 10,000 per month, within the first three months of starting their courses so that they could start paying their course fees.

“While some students got lucky, a majority fell prey to the company’s forked tongue,” a student said.

Meanwhile, he said that some students, who approached the director of Chennai police with a plaint, were called by Skill-Lync officials and were directed by them to stay away from raising the issue on social media platforms, including WhatsApp groups, if they wanted refunds.

“Our Maharashtra and Tamil Nadu Chapters are already in the process of approaching the authorities under various sections of cheating and fraud against Skill-Lync,” a student said.

A Flawed Business Model?

The Skill-Lync saga is unravelling at a time when the Indian edtech industry is fraught with the challenges of market overestimation, a decline in users and a pent-up demand for offline learning.

This perhaps explains why many edtech giants, including BYJU’S and Unacademy, are cutting or have cut costs massively.

In Skill-Lync’s case, the edtech promises zero-interest EMIs to students, under which the interest is to be paid by the edtech and the loan amount is borne by students.

On its website, one of Skill-Lync’s partner NBFCs, Eduvanz, mentions that it charges an interest rate of 15-45%, which is to be borne by edtech platforms.

When we asked the Skill-Lync CEO about the edtech’s main revenue streams, PaneerSelvam said that it was the company’s internal matter.

In another question, we requested the CEO to talk about the edtech’s financial performance in FY23 and how it plans to walk on the profitability path, especially when he was recently quoted proclaiming that the startup was on track to achieve operational profitability by Q4 2023.

While PaneerSelvam refrained from divulging details on the company’s FY23 financial performance, his strategy to make the startup profitable is by “providing stellar services and responsible entrepreneurship.”

At a time when the company’s confidentiality clause restricts the CEO from giving insights into how the company performed during FY23, it becomes imperative to highlight that Skill-Lync’s FY22 loss bloated 6X year-on-year (YoY) to INR 140 Cr. Its revenue from operations in FY22 rose 3X to INR 46.7 Cr from INR 15.9 Cr in FY21.

Interestingly, another part of the edtech’s strategy to generate revenue was to take a 10-15% share of students’ income once they get placed after completing the course.

One year after the inception of the edtech, CEO PaneerSelvam said that the monetisation will come from students who will share 15% of their salaries with the company for at least two years.

However, the model hardly seems to have worked given that a majority of students allege sitting jobless even after completing their courses.

Further, the edtech’s decision to lay off 600 employees and shut its offices in Hyderabad and Bengaluru (as per sources) to cut costs and increase its runway has done more harm than good. According to the students that Inc42 spoke with, this has had a negative impact on the quality of the courses and many students now want to drop out.

“There are practically no teachers. Even more frustrating is the fact that there is no one to attend to our cancellation requests,” said a student, who is leading a group of former Skill-Lync candidates in Chennai. Let us reiterate that the company “does not have any cancellation/refund policy”.

The student added that since many employees have been fired, students aren’t sure if the company will be able to complete the tenure of their courses, let alone job ‘assistance’.

Skill-Lync’s CEO has rubbished the allegations by stating that the edtech has a team of 60 full-time teachers who teach over 2,000 students every week.

Students Under A Pile Of Debt 

Despite Skill-Lync’s claims of making the next generation of Indian engineers job ready, the reality is that many fresh-out-of-college engineers have only been tricked into taking loans and are now struggling to pay off the debt in the absence of guaranteed jobs.

While many students have alleged that they have failed to find a job even after completing their course, others are facing continuous harassment from loan agencies and recovery agents for failing to pay EMIs.

“One of the partner NBFCs has threatened legal action against me because of my four pending EMIs,” a student said, requesting anonymity.

Can An Edtech Policy Resolve Such Gaps?

At a time when the Indian edtech sector is stuck between a rock and a hard place to curtail the rise of bad apples in the space, many sectoral experts want the government to weave a fool-proof edtech policy.

Speaking with Inc42, an industry analyst said that under the Reserve Bank of India’s (RBI’s) guidelines, partner lenders are required to conduct due diligence on educational institutes and edtech platforms, the courses they offer, and the associated fee structure before agreeing to disburse loans.

“Unfortunately, we have seen many cases of predatory lending in the edtech space since the pandemic, and this is giving the industry a bad name,” the analyst said, requesting anonymity.

Given that more and more instances of allegations and frauds are coming to the fore in the industry, the blame lies on lenders too, the expert added.

What is more concerning is that the industry has time and again urged the government to regulate the sector, but little has been done so far.

In 2021, the Indian government issued an advisory to the edtech companies and notified them that such firms will fall under the Consumer Protection (e-commerce ) Rules, 2020, but this has not been able to achieve the objective of streamlining the sector like in the case of the fintech industry.

After the government’s intervention, leading edtech companies like BYJU’S, Unacademy, upGrad, and Vedantu got together in 2022 to form an Indian Edtech Consortium for self-regulating the industry.

Ironically, some of the member companies in the consortium have also faced allegations of unethical practices. It is due to such instances that the sector today demands the Centre and state governments to come together in the best interest of students, and formulate regulations that can keep any instances of future fraud or even aberration at bay.

[Edited by Shishir Parasher]

The post How Edtech Skill-Lync Pushed Students Into A Debt Trap With False Promises appeared first on Inc42 Media.

Mumbai-headquartered private equity firm Xponentia Capital Partners is inching towards the final close of its second fund (Xponentia Opportunities Fund II) with a corpus of over $125 Mn (INR 1,000 Cr) said the partner and cofounder of the fund, Perumal R Srinivasan, on the sidelines of the Inc42’s MoneyX conclave held last month.   

In July 2022, the PE firm concluded the first closure of its Xponentia Opportunities Fund II after securing INR 365 Cr ($44 Mn) from limited partners (LPs). For the final close, it was planning to raise an additional INR 750 Cr ($90 Mn) by December 2022.

The veteran investor said that the second fund, which is seeing an increased interest from limited partners, has so far made four investments in the EV, healthcare, and consumer tech segments. 

Xponentia Capital was founded in 2018 by Ajay Relan of CX Partners, Perumal R Srinivasan (the former managing director of Citigroup Venture Capital Partners), and Devinjit Singh (formerly with Carlyle Group). Some of the prominent names in its portfolio are EV startup Alto Green, D2C firm Souled Store, fintech company Auxillo Finserv, and Barbeque Nation, among others.

Speaking with Inc42, the cofounder of Xponentia Capital highlighted how he chooses to invest in a particular founder. He said that he is always eager to understand an entrepreneur’s risk management approach – once impressed, Srinivasan invests.

Inc42: When is Xponentia Capital planning to close its second fund? How many investments is the fund looking at? 

PR Srinivasan: Xponential Capital is a five-year-old investment firm. We concluded our Fund I in 2019 at INR 350 Cr. We are currently raising for Fund II (Xponentia Opportunities Fund II). The first close of the current fund (Fund II) was marked at INR 356 Cr in July last year. We hope to close this fund at INR 1,000 Cr. 

From Fund I, we made eight investments, and from Fund II, we have made four investments so far — two this year and two last year. 

Inc42: Are you witnessing any slump in deal flows? If yes, has it changed anything for you when it comes to looking at growth stage companies? 

PR Srinivasan: We are a growth and mid-market investor. So, we invest in companies that have gone past the proof of concept stage and back the businesses with viable unit economics with the potential to scale. 

Unlike the early stage market, which seldom sees a summer, we are not witnessing any winter in growth stage deals. However, we are back to operating in the same zone and climate as two years ago.

We typically try to do four deals a year, and we have already invested in two companies so far this year. Hopefully, we will end up investing in two more companies by the end of this year.

Inc42: Which are Xponentia Capital’s key investment arenas?

PR Srinivasan: We invest a lot in financial services. We also focus on securing consumer and healthcare deals. Not only this, but we also grab deals outside these sectors.

So, in my portfolio, I also have an EV company, Alti Green. It is a Bangalore-based company that makes electric three-wheelers. We also have one company that doesn’t fit in any of the sectors mentioned earlier. So, we do deals opportunistically. However, a majority of our portfolio comprises startups operating in the financial services, consumer and healthcare sectors. 

Inc42: Many Indian fintech startups were recently seen pivoting to other business models due to regulatory headwinds. How do you look at the current times?

PR Srinivasan: One can argue that the regulator should have allowed the sector some cushion before tightening its noose. You can also argue that the regulator did not give the industry enough time to grow or mitigate its losses, but this is how things are in India. 

I think what is happening in the Indian fintech ecosystem today is that everyone wants to enter the lending business because it is the only place where money is being made, posing both challenges and opportunities before companies operating in the fintech space. 

On the other hand, if startups can figure out how to create a niche, operating on par with large banks or small NBFCs, people will be willing to pay and use your solutions. Unfortunately, many today have failed to create such a niche and have pivoted to lending as a result. 

Inc42: Corporate governance has become a significant focus, particularly for growth and late stage companies. Are you currently proactively engaging with the founders of your portfolio companies on this matter? 

PR Srinivasan: We are not seeing many governance issues emerging at the mid-stage. However, there are always two sides of a coin.

The key problem area is companies engaging in multiple rounds of funding. Now, if a company raises money every six months, it’s easy to hide things. Simply put, new money helps you hide old mistakes. Before an investor gets to know about an aberration in a particular company, the firm has already raised money in multiple rounds — Series E, Fand so on. Interestingly, we recently saw a Series H funding round. 

The trend of multiple funding rounds with soaring valuations put the onus on founders to deliver, breeding corporate governance issues. 

However, the industry too should be blamed for this and not just promoters. Lately the entrepreneurs involved in frauds have been in limelight, but there are many good founders out there who aren’t getting noticed. 

Meanwhile, we also need to understand that during down cycles, it is natural to see skeletons falling out of closets, and this is nothing new. 

Inc42: Despite challenges across the board, you look quite bullish when it comes to investing. How do you play your cards?

PR Srinivasan: We don’t see any problem in deploying the capital that we have raised. We have a lot of deals, opportunities, and mature entrepreneurs who understand this. 

When I meet founders, I am more interested in understanding their approach towards solving risks. If I end up liking a founder’s risk mitigation plan, I invest. 

Inc42: During Inc42’s MoneyX conference, numerous investors discussed the merits of adopting a patient capital approach rather than conforming to the prevailing trend of hastily exiting from loss-making companies. What is Xponentia Capital’s current strategy in light of these times?

PR Srinivasan: If there are problems, we have to wait for the right time to monetise, and I am fully aligned with that. Patient capital is not a buzzword, it is what I’ve been doing for the last 30 years and intend to do for the next 10 to 15 years.

We manage third-party money and have responsibilities. The people who invest in my funds are my customers and not the entrepreneur. However, we really want entrepreneurs to succeed because when they succeed, we succeed and my investors benefit. So, that’s the way we like to engage with these things.

The post It’s Time For Fintech To Look Beyond Lending And Build A Niche: Xponentia Capital’s PR Srinivasan appeared first on Inc42 Media.

India’s edtech industry was once brimming with capital investments as Covid presented multiple opportunities. However, since startups raised millions of dollars of funding on fancy valuations using the country’s billion dollars market size as a bait, every stakeholder has been looking down the rabbit hole.

Reason? Bloated valuations + weak unit economics equals to a scared investor and a funding winter. And we have many examples to prove this point.

Ranging from BYJU’S, the edtech decacorn that is now cornered on multiple fronts, to many others who have shut shops, are on the verge of winding down their operations, or are looking to get acquired, all have been the casualties of the fancy funding and valuation windfalls that they unlocked during the pandemic gold rush.

Since last year, companies such as Udayy backed by Northwest Partners, Lido Learning and most recently FrontRow have shut down operations, ousting hundreds of employees.

Away from media attention and limelight, the former India head of Zynga, Shailesh Chaganlal Daxini, has silently shut down his nearly three-year-old venture, Vah Vah, of course, after slashing several headcounts.

Founded in 2020 by Daxini and two ex-Zynga employees, Akash Senapaty and Muthukaleeshwaran Subbiah, Vah Vah, a vocational training startup, last raised $2 Mn from Sequoia Capital India & SEA (now Peak XV Partners) under its scale-up programme for startups, Surge. Vah Vah also received an additional $1 Mn in a bridge round in 2022, sources informed us.

According to Vah Vah’s website, the early stage venture offers certificate courses in makeup artistry, hair styling and grooming. On the website, the online vocational training platform claims to have its main office in Koramangala, Bengaluru.

When we (Inc42) visited the office, we were surprised to find that the office had long been closed. Sources close to the startup said Vah Vah also invited police intervention after it abruptly sacked 150 employees in April this year.

Daxini’s Well-Decorated Resume

While on the ground, we were told that Daxini, an experienced tech entrepreneur, has a great rapport with top VC funds in India and US. It is on the back of this reputation that Daxini first set up Six Red Guns in June 2017.

Six Red Guns’ core focus was combining robotics with social media gaming. With this playbook, the startup aimed to capture a big share of the burgeoning gaming industry. However, the fate of the venture was short-lived and the startup had to embrace its early demise in just a year.

Daxini has a proven track record of turning around the fortunes of global gaming firm, Zynga in India. However, when it comes to his own ventures, he has already run out of luck, twice.

On his Linkedin profile, Daxini endorses himself for the success of Zynga’s most popular games — Mafia Wars, Farmville, and Farmville 2, among others.

“With annual revenues over $160M and margins over 50%, I have grown it (Zynga) into the most profitable studio for Zynga and drive a significant amount of top line and bottom line for Zynga Inc and created the playbook that doubled the LTV (revenue per player),” Daxini mentions in his LinkedIn profile.

Zynga was acquired by Take-Two Interactive Software, an American video game company, in 2022 for $12.7 Bn, marking the second-largest acquisition in the global gaming industry.

How Did Vah Vah Come Into Existence?

Betting big on the pandemic-led boom, Vah Vah was launched in 2020. Like any edtech player, the aim was to leverage the power of technology and the internet to upskill and train individuals who were forced to stay in the confines of their homes due to multiple pandemic waves and extended lockdowns.

“Under his leadership, Zynga flared quite well. The success he got with Zynga brought him everything — reputation, wealth and a network. And the next thing on his mind was to do startups,” a source said.

“Daxini joined hands with Senapaty and Subbiah and cofounded Vah Vah. They pitched something along the lines of coding and robotics before Sequoia and ultimately zeroed in on vocational training in the beauty segment,” we were told.

The pitch was simple: In the next three years (by 2023), India will need a skilled workforce of over 70 Mn individuals, with the beauty industry alone accounting for 3 Mn new workers. Given that the infrastructure (back then) had the capacity to train about half a million people, Vah Vah was looking at a humongous opportunity to fill the gap of labour shortage in the sector.

It targeted skilling individuals with little exposure to formal education so that they could generate a livelihood for themselves.

A Nobel Cause, But What Went Wrong?

After speaking with several erstwhile employees, one thing was clear — Vah Vah was ailing with what almost all edtech have in common — falling revenues and bloating losses — weak unit economics, largely.

Vah Vah offered online courses on professional makeup artistry, hairdressing and personal grooming in the range of INR 15,000 to INR 45,000. The duration of these courses lasted anywhere between two weeks and two months.

The vocational skilling platform also extended easy EMI options to attract the interest of individuals and aspirants, which proved to be a failure.

“Many who signed up for its courses defaulted on paying EMIs even after finishing their courses. Even though the company’s vocational training courses were reasonably priced, students started faltering on EMIs and soon the company was left with no other way to generate revenue,” a former senior employee said.

Adding to the pressure was Vah Vah’s big sales team, (more than 50 employees) which was only straining the startup’s operational cost.

Finally, it all came down to hardcore sales and recovering EMIs, which remained the startup’s Achilles heel, as all cash taps ran dry with each passing day.

According to Vah Vah’s FY22 financial report filed with the Ministry of Corporate Affairs, the company reported a loss of INR 7 Cr during the year against a mere revenue of INR 3.2 Cr.

“A team of 150 employees, including trainers, salespeople, tech staff, et al., makes no sense when you are burning cash. The cofounders had to ultimately fire 150 people in one go and shut down its offices,” a source said.

The source added this made way for a full-scale drama, and even cops got involved when employees created a ruckus over the non-payment of their final dues by the company.

We (Inc42) have sent a detailed questionnaire to Daxini and his team to tell their side of the story. The article will be updated accordingly.

According to sources, Daxini is in talks to pick funding for his next startup, which could be a mobile gaming venture.

Third Time’s A Charm

Well, there is no doubt about the fact that investors are always more comfortable with second-time founders and entrepreneurs. This is because such entrepreneurs bring loads of experience around on what could and won’t work for them and their next business venture.

In Daxini’s case, investors already know that Zynaga’s India operations grew leaps and bounds under his leadership. Furthermore, Daxini’s third attempt could work as a charm as he is expected to operate in his area of expertise, i.e., gaming.

Moving on, in Vah Vah’s case, even though the founders tried to cash in on the pandemic bull run and the edtech gold rush, things started falling apart, adding much to his chagrin. Given that Vah Vah wasn’t the only casualty of the 2020-21 windfall, much could yet be anticipated to save the venture from meeting its judgement day.

The Indian startup ecosystem currently is way too much exposed to uncertainties, and this is probably the reason why almost 90% of startups are unable to commit to dying another day.

At this point in time, only time will tell if Daxini’s third attempt will prove to be a charm or just another stepping stone to a future venture, paving the way for his fascination to do startups.

The post How Former Zynga India Head Silently Shut His Startup After Slashing 150 Jobs appeared first on Inc42 Media.

Indian startups are going through some of the most precarious times, and the four ‘horsemen’ aggravating their miseries are funding drought, regulatory headwinds, corporate misgovernance, and broken investor sentiments.

At a time when there is a lot of mistrust brewing in the world’s third-largest startup ecosystem, with an increasing number of misgovernance cases coming to light over the last year or so, a raging debate on “whose fault is it anyway?” has sparked between investors and founders.

Recently, Nithin Kamath, the CEO of Zerodha, took to social media to state that VCs and investors cannot wash their hands of the current challenges of corporate governance and they are equally at fault, along with founders. At the core of the issue is “the overestimation of the size of Indian markets” by both, he added.

In response to Kamath’s post, the managing partner of VC firm India Quotient, Anand Lunia, stated that even the founders, whose companies have been accused of wrongdoings in the recent past, were no Robin Hood.

“So VCs overestimated – free markets will take care. Wrong incentives too. But the crooks are no Robinhoods; ‘VC-on-a-high’ does not mean a license to steal. This is not India. A whole generation will be lost if we normalise this,” Lunia tweeted.

Meanwhile, Inc42 spoke with Mark Kahn of Omnivore, an agritech-focussed VC fund, to get his perspective on the overall scheme of things.

We were told that if they (founders) think that there is an escape after creating a mess and running their companies into trouble, they may be highly mistaken.

“The founders and CEOs of startups cannot simply bail themselves out when their companies run into troubles,” said VC firm Omnivore’s managing partner Mark Kahn.

Founded in 2011 by Mark Kahn and Jinesh Shah, Mumbai-headquartered Omnivore funds Indian startups in agritech and food systems. The VC firm has backed more than 40 startups, including DeHaat, Arya, Stellapps, Reshamandi, Ecozen, Aquaconnect and Pixxel.

The Investor Paradox

Speaking with Inc42, Kahn said unless investors have a controlling stake in the company, they wouldn’t know what is happening behind the closed doors of the CEO or founders’ office.

“Even if you set up the best board, have the best auditing practices in place, along with top auditors, only founders can give a clear picture into the company’s performance,” Kahn said.

So, does this make way for doing things as per founders’ whims and fancies, without the fear of being caught or brought to justice?

Not exactly!

This is because, in the recent past, founders have come out in the open, admitting their mistakes, thereby proving Kahn’s point that they ‘cannot simply bail themselves out…’

Moving on, responding to our question about how the instances of financial misreporting often go unnoticed by auditors and later come as a shock to many, Kahn said that auditors seem to have learned their lessons now and are expected to deploy more stringent auditing practices and employ more caution going forward.

Meanwhile, the Omnivore managing partner has a piece of advice for Indian founders — ‘Entrepreneurs today need to build products that people love’. This will help their ventures achieve good unit economics and positive cash flow.

“Build for your bottom line, build a good company, and don’t chase valuations. If you do this, things will be fine,” he asserted.

To our question on what has led to so many corporate governance issues in Indian startups since last year, Kahn said it is the result of running businesses stupidly.

“Unfortunately, a lot of people decided to chase valuation at all costs and run their businesses stupidly. In some cases, I don’t think it’s a corporate governance problem. It is the perverse incentives, like fancy valuations, which drive founders to do incredibly stupid things to their companies,” he added.

Is There Some Respite On The Cards?

Of course!

Reminiscing how Indian startups went through a brief slump in 2015 when funding had paused, Kahn said that the current downturn is also a phase and shall pass too.

According to Kahn, a former economist, the current downturn in the investment cycle across the startup ecosystem is simply a price correction, and we may see more of it this year before finally witnessing an uptick in investments next year.

“Economies boom and then wane. You cannot go forever without having a contraction and you cannot have a boom cycle without a collapse. This is how economies have grown for hundreds of years,” the venture capitalist said.

Omnivore’s India Playbook

As opposed to seed stage and pre-seed stage funding, the agritech-focussed fund has widened its focus and wants to invest in Series A stage startups. With a corpus of $150 Mn, Kahn hopes to fund at least six deals a year through Omnivore’s third fund, the Omnivore Agritech & Climate Sustainability Fund, which was launched in April 2022.

The Mumbai-headquartered venture fund announced the first close of the third fund at $150 Mn on June 28, 2023.

“Over the next few years, we plan to build a portfolio of nearly 25 companies or so. We will continue to be a seed stage investor, however, we also have the flexibility to lead Series A rounds. That is the benefit of the extra firepower,” Kahn said.

Kahn said that the third fund will primarily focus on agritech startups, along with ventures working in areas like climate science, nutrition science, and rural fintech.

“Although agritech startups did not grow at a breakneck speed like many other new-age tech companies, they have not been impacted much by the current market volatility or investment slowdown. Think of agritech startups as an elephant marching forward,” Kahn concluded, explaining his India focus.

The post Perverse Incentives, Like Valuations, Make Founders Do Stupid Things: Omnivore’s Mark Kahn appeared first on Inc42 Media.

Shraddha and Mohit (names changed) always had a penchant for building startups. The couple from a tier II city had experimented with a few ideas before zeroing in on the beauty industry in 2021. Their idea was to introduce reasonably priced beauty tools for the price-sensitive Indian customer.

In 2022, the duo found the perfect platform to pitch this business idea — Shark Tank India. Their goal was to raise more than INR 50 Lakh for a certain percentage of equity in their startup. Their pitch showed how their venture had achieved scale after product testing and garnered promising sales on multiple ecommerce platforms. As expected, the Sharks were impressed.

At least four of the five Sharks on the show told Shraddha and Mohit that their business had potential and that they were ready to invest. Two of the Sharks committed a joint investment, arrived at a valuation and even wrote a cheque in their favour.

This triggered celebrations back home and congratulations started pouring in from all quarters.

Interestingly, one year down the line, there’s no funding, and all they have is an unmet, on-air commitment from Sharks to invest in their business. Months of preparation for Shark Tank India and the subsequent wait for funding have cost them dearly, the duo told Inc42.

Notwithstanding the Shark Tank spotlight, the lack of funding halted new product launches, and while they appeared on various local TV shows post their Shark Tank experience, the whole episode is proving to be a damp squib.

Similar has been the fate of many others, who are waiting for the Sharks to adhere to their commitments, but, so far, to no avail.

In the past few weeks, many Shark Tank India Season 1 and 2 participants told us that the Sharks have been deliberately delaying investments under various pretexts. A WhatsApp group made by these participants, which Inc42 was also given access to, testifies their sorry state.

Meanwhile, Sony Entertainment Television, which hosts the show, claims that the high-profile entrepreneurs (Sharks) collectively invested INR 123 Cr (both Season 1 and 2) in various businesses. However, sources claim that only 20% of the total commitments have materialised so far, while the Sharks happily cashed in on the glitz offered by the reality TV show.

Not to mention, the very foundation on which the show garnered publicity — to provide a platform to entrepreneurs who struggle to raise initial money for their ventures — seems to be weak.

Social media platforms have been inundated with posts from several participants of Shark Tank India, expressing the detrimental effects of the prolonged delay on their business.

Inc42 conducted interviews with more than a dozen startup founders for this article. As requested, we have chosen not to disclose the names of these founders.

Commit, Ridicule And Ghost

It may sound absurd, but this is exactly how Vedika (name changed upon request), the CEO of a services company, described her journey of swimming with the Sharks.

Vedika, who had already secured some initial funding before being featured on Shark Tank India, witnessed a lot of enthusiasm from the Sharks as three of them agreed to invest in her startup.

Unfortunately, Vedika’s happiness was only short-lived. Two weeks after she received funding commitments, she was called by one of the Sharks to his office to discuss the further course of action.

“We did understand that we may have to pitch our business model and financials, and the Sharks would conduct due diligence. We also shared all the documents requested by one of the Sharks who has an office in Mumbai. After months of dilly-dallying, we were finally called to meet the Shark in Mumbai who outrightly called our business model flawed and said there was no market for the services we offer,” the contestant, who appeared on Shark Tank Season 2, said.

Vedika added that surprisingly the celebrity CEO, who appears to be very friendly on television, treated them rudely and made them feel that they should not even think of their venture, let alone investments.

“Not liking an idea is one thing, but being disrespectful is not justified. The Shark made us feel worthless and was extremely impolite. We were appalled by the Shark’s behaviour,” Vedika said.

Similar was the experience of Rohit Jain (name changed), who bagged instant support from one of the Sharks. However, things soon took an ugly turn.

“My venture was at the minimum viable product stage, and I needed some early funding to test the product in a few markets. Almost all the Sharks present on the show liked my idea, and I was able to bag a funding commitment from one of the sharks,” Jain told Inc42.

Jain received an INR 50 Lakh commitment from one of the judges against a certain equity in his venture. However, what followed next was an exchange of inflammatory emails between the Shark’s office executives and Jain, which resulted in the Shark and his office executives ghosting him.

“There were some responses I used to get earlier on due diligence. Then the Shark’s team even emailed a shareholding agreement to me. I signed the same and sent it back. Since then, they have stopped receiving calls and responding to emails. Further, meeting this Shark at his office in Mumbai only invited distress, loathe and self-doubt,” the participant said.

Inc42 also spoke with a team of cofounders who are pass-outs from India’s top engineering college and received an investment commitment from two judges for their venture. However, it has been more than a year since they have been chasing the Sharks for the same.

“We are tired of chasing them and have now started to focus on building our products. We are lucky that a lot of investors come to our college campuses and incubation centres to offer funding and mentoring,” the cofounders said.

A few participants mentioned that Sony TV crew members train participants on how to stage a perfect show.

“Before we appear on TV, we are trained for months to look interesting on TV. The participants who lack flamboyance do not get aired,” the founders said.

Is There A Legal Recourse?

Surprisingly, the entire process of Shark Tank India does not entail signing any legal documents from any parties involved, making it challenging for the participants to seek legal recourse.

Speaking with Inc42, a Delhi-based corporate lawyer said that although the video clips, which have been aired and are present on Shark Tank India’s website, make for evidence, the absence of a legal contract or an agreement works in favour of the Sharks.

Another challenge that these participants are facing is Sony Television’s lack of involvement in making sure that the promised investments are made in a timely fashion once an episode gets aired.

“They won’t even react to your questions after the broadcast because they work closely with the Sharks,” one Shark Tank India winner quoted above said.

Another participant said that Sony Entertainment Television only communicates with contestants via phone or emails, which again cannot be contested in the court of law.

In addition, Sony TV only assures of providing a platform, and there are no terms and conditions to protect our interest if judges renege on their pledge.

“There are only verbal assurances from judges and nothing in black and white until due diligence is completed and a term sheet or a shareholding agreement is signed by both parties. Sharks play this game very smartly,” a participant said.

Besides, a majority of Shark Tank India winners are young entrepreneurs, who claim that fighting the big-shot entrepreneurs will cost them a fortune.

Inc42 also sent a detailed questionnaire to Sony Entertainment Television Limited, requesting its stance on investment delays and their alleged minimal involvement in addressing the participants’ issues. We did not receive any response from Sony TV until the time of publishing this story. The article will be updated once the broadcaster responds.

Sources added that many commitments made by the Sharks were not even aired due to various reasons. In such a scenario, the participants are left with little evidence to have a strong case.

Indian Sharks Can Definitely Do Better Than This

India’s startup journey has been fabulous for the past several years, with the country emerging as the third largest startup ecosystem globally — although many argue this growth story has come mostly from India’s metros and cosmopolitan cities.

Notably, the focus is slowly shifting towards the country’s hinterland, tier II towns and beyond, where the younger generation is spearheading innovative endeavours and combining them with the growing digital adoption.

At this crucial juncture, the next wave of startup growth story in India is likely to emanate from its small towns, where aspiring entrepreneurs are keen to move away from conventional government and corporate jobs and embark on their entrepreneurial journey.

Therefore, in addition to garnering support from the government and large corporates, these entrepreneurs seek handholding and financial aid from those who have been at the forefront of the first wave of startup growth in India.

Akshay Shah, the founder and CEO of vertical SaaS company  with a student discovery platform, iWebTechno whose winning pitch was not even aired during Shark Tank Season 1, said that his research over the last couple of years revealed that even in developed economies like the US, more than 60% of the Shark Tank deals that are committed on TV do not materialise.

However, the difference lies in the fact that young entrepreneurs are not made to wait for months or years.

“It is either a Yes or a No. No in-betweens or prolonged delays like India,” he added.

Shah, who is also putting together a forum of all the Shark Tank India Season 1 and 2 winners who have yet to receive the promised funding, pointed out that in mature startup economies, investors or Sharks are willing to forego their profits, take risks by betting on very young startups, and provide mentorship to help them scale their ideas.

On the contrary, in India, Sharks have been very defensive when it comes to investing, even after commitments and sometimes post the due diligence processes. They are reluctant to engage in the long-waiting game of supporting the growth of a fledgling business.

“Unfortunately, some of these successful and bright entrepreneurs of India, who are now the CEOs of billion-dollar companies, have forgotten that they also have similar origins and needed support to grow,” Shah added.

A young woman entrepreneur, who is now seeking alternative investments after waiting for the Sharks to release funding, expressed her concerns. She mentioned that even new investors are hesitant to invest in ventures that have not received funding from the Sharks, suspecting flaws in the business models.

“If the Sharks have not followed up on their words, why would an average investor be confident about our business? The least we expect from the Sharks is mentorship and network opportunities, even if they have failed to keep their promises,” she said.

The allegations from these founders come at a crucial juncture when entrepreneurship in the country is undergoing a significant transformation. On one hand, we witness the government’s strong support through initiatives like Startup India, while on the other hand, Shark Tank India, too, has served as a profound source of inspiration for countless individuals embarking on their entrepreneurial ventures.

Despite receiving love and support across the nation, the emergence of such allegations have the potential to dampen people’s sentiment. Nevertheless, considering the current circumstances, it is unlikely that anyone would willingly subject themselves to the arduous experiences endured by some participants of Shark Tank India.

[Edited by Shishir Parasher]

The post Committed And Ghosted: Why Young Founders Are Losing Faith In Shark Tank India? appeared first on Inc42 Media.

The poster child of India’s edtech industry, BYJU’S, seems to be reeling under many pressures that have enveloped it all at once. After thousands of associates and junior-level executives have been laid off from many departments since last month, Inc42 learnt from credible sources that senior-level employees, including senior managers, associate vice-presidents, and vice-presidents, are allegedly being asked to resign or face termination.

Sources privy to the matter said that BYJU’S shut down its training department two months ago, which led to the resignations of at least 100 senior-level employees. As per sources, the edtech has also cut the training period for junior-level employees. The training department engages thousands of executives across the country to support BYJU’S edtech business.

Associates were earlier provided with 1.5 months of training, which has allegedly been reduced to two weeks now.

“Salary packages of these associates have also been drastically reduced from INR 10 Lakh per annum (INR 8 Lakh fixed and INR 2 Lakh variable) to INR 7 to INR 5 Lakh and even lesser,” sources added.

In addition, the edtech giant has also scaled down its pre-sales division, with only 10% employees now running the show.

“However, the company after terminating the services of junior-level business development associates (BDAs) is forcing the senior managers to resign and not terminating them. This is being done to avoid paying them huge severance packages and ESOPs,” a source with knowledge of the matter said.

The source added that some senior managers have been retained, however, the ones that are being asked to resign are being handled ‘unprofessionally’.

Another source mentioned that recently BYJU’S shut one complete department at one of its loss-making businesses and laid off all junior-level employees.

“There is literally no work in the office. All the projects are shut. At this point, they just want to frustrate us mentally so that we tender our resignations,” a senior employee said.

BYJU’s meanwhile declined to comment when Inc42 sent a detailed questionnaire to the company on above queries.

No Cash To Run The Business?

According to our sources, the edtech decacorn’s survival is at stake. “Even the employees know of the current cash crunch and how desperately management has been chasing investors, but to no avail. Their edtech business is in shambles,” a senior-level employee said.

There are also concerns about the company’s FY22 losses, its rising expenses and the $1.2 Bn Term B loan default.

Sources said that there seems to be no near-term respite for BYJU’S when it comes to striking negotiations with the lenders in the US. Also, there are fears that the edtech giant may be slapped with higher interest rates.

Meanwhile, audit firm Deloitte Haskins & Sells has stepped down, with immediate effect, due to the delay in the company’s filing of financial results.

“The financial statements of the company for the year March 31, 2022, are long delayed… we have not received any communications on the resolution of the audit report modifications in the respect of the year ended March 31, 2022, the status of the audit readiness of the financial statements and the underlying books and records for the year ended March 31, 2022 and we have not been able to commence the audit as on date,” the auditor said in a statement.

After the resignation of its auditor Deloitte, BYJU’S announced the appointment of BDO (MSKA & Associates) as its statutory auditor.

“Under this appointment, BDO will cover the holding company — Think and Learn Pvt Ltd, its material subsidiaries Aakash Education Services Limited, and the overall group consolidated result,” the company said in an official statement.

The development has come close on the heels of three non-executive board members tendering their resignations. These members include GV Ravishankar, the MD of early-backer Peak XV Partners; Russell Dreisenstock of Prosus, and Chan Zuckerberg’s Vivian Wu.

BYJU’S has, however, denied the media reports on the resignations of the board members and said that any significant developments or changes within the organisation will be shared through official channels and announcements.

However, top sources informed Inc42 that there was discontent brewing over negotiations with the lenders, which led to the three board members calling it quits.

As per Inc42 layoff tracker, the startup has handed out pink slips to over 4,000 employees since last year, excluding the current layoffs. Not just that, it has also been marred by ballooning losses. Its net loss surged nearly 20X to INR 4,588 Cr in FY21 from INR 231.69 Cr in FY20.

Besides, the startup is once again late in filing its financial statements and is yet to release its financial numbers for FY22.

It has also come under fire for lax corporate governance guardrails and raids by the Enforcement Directorate on premises linked to it for allegedly flouting foreign exchange norms.

The company has also faced the ire of investors. Earlier this year, investor BlackRock slashed the valuation of the edtech juggernaut on its books by 62% to $8.3 Bn.

The post Forceful Resignations At BYJU’S? After Associates, Senior Managers Being Asked To Put In Papers appeared first on Inc42 Media.

Shikha (name changed upon request), a mid-senior level employee at ZestMoney, once a leading buy-now-pay-later (BNPL) fintech startup, eagerly anticipated some positive news around appraisals in April this year. However, the HR department’s invitation to a town hall meeting brought an unexpected turn of events.

During the brief six-minute meeting, which was initiated by former CEO Lizzie Chapman, Shikha and her colleagues were taken aback when they learnt it could be their last gathering at the company. Chapman announced that ZestMoney would need to downsize the workforce by 20%, resulting in the termination of nearly 100 employees, due to the annulment of the fintech firm’s acquisition by PhonePe.

“It was the shortest town hall in ZestMoney’s history, followed by one of the most disorganised and unprofessional layoff exercises,” Shikha, the former ZestMoney employee said.

She further mentioned that the whispers about the company’s struggles and other issues, including a cash crunch, suddenly started making sense. The employees were left to bear the consequences as ZestMoney’s dream of a $300 Mn acquisition fell apart.

As per the latest updates, top sources told Inc42 that the ailing BNPL firm’s largest non-promoter shareholder PayU has also stopped integration of its payment gateway services with the ZestMoney, which has impacted the BNPL firm’s EMI business revenues from the major ecommerce marketplaces.

Besides, we were told, many lenders have revoked their partnership with ZestMoney, and the BNPL firm’s endeavour to forge new alliances with banks and NBFCs have failed to bear any fruit.

 No endorsements here, but ZestMoney’s journey was better than this when it started out.

The fintech’s path to success once stood synonymous with India’s tryst with the BNPL market, which witnessed significant growth during the pandemic. As new-age companies lured young Indians with the option to make purchases and repay them in no-cost instalments over the following months, the BNPL sector soared. The timing was opportune, given that the purchasing power of many had been hit, presenting a ripe opportunity for disruption.

Hence, foreign investors started looking at fintech firms offering BNPL products as key investment bets. ZestMoney, too, leveraged the opportunity by raising funds at a valuation of $450 Mn.

However, since its Series C funding round in September 2021, in which it raised $50 Mn, ZestMoney has been facing a series of setbacks. These challenges have also led to the departure of the company’s three cofounders, Chapman, Priya Sharma, and Ashish Anantharaman, who handed over the reins of the company to new management.

Moving on, now that ZestMoney plans to be readying itself for the next round of funding under the new leadership, we (Inc42) have endeavoured to bring forth the challenges that have plagued the company since last year.  

From incurring a 3X rise in losses to seeing the annulment of significant deals, along with regulatory hurdles and an alleged toxic corporate culture, ZestMoney, once an investor darling and a promising fintech firm, seems to be sitting on many daunting challenges. 

With that said, let’s take a closer look at the issues that have afflicted the company, tarnishing its reputation.

Gaps In ZestMoney’s Biz Model 

Adjust nahi Zest Karo. If you plan to visit ZestMoney’s mobile app or website, you may encounter many such taglines and slogans, which will make you feel that your next purchase is just a click away, with no upfront payments, easy instalments and no extra interest.

However, this playbook hardly proved beneficial in ZestMoney’s case, even though the company’s business model captured the interest of many investors as people queued up to avail small-ticket loans. 

When reality hit, ZestMoney was already in a debt trap, triggered by multiple waves of loan defaults.  

Well, just like many other players in the BNPL space, including LazyPay, Simpl, and axio, ZestMoney, too, was in the race to onboard millions of users, promising them easy finance, no interest payment and a hassle-free shopping experience.

Last year, the company claimed to have 17 Mn registered users, one of the largest networks of merchants and over 10,000 online partners. But these nifty numbers hardly helped the company tap any long-term sustainability, as, despite its seriousness to scale the user base, the loan default rate soon got out of hand.

According to several reports, ZestMoney incurred a bad debt rate of above 13% against a healthy BNPL loan default rate of 2-3%. Sources told us that ZestMoney had some delinquencies when it came to checking the creditworthiness of borrowers, which led to defaults. 

However, the chief business officer (CBO) of ZestMoney, Mandar Satpute, has rubbished these reports, stating that the company’s NPAs have always been under 2.5%. 

It is pertinent to note here that ZestMoney’s FY22 loss bloated 3X YoY to INR 398.8 Cr due to a sharp rise in expenses. The expenses were led by service deficiency charges, which jumped 3X to INR 233.4 Cr from INR 63.3 Cr in FY21. Interestingly, service deficiency charges denote the cost of bad loans, according to the company filings.

Additionally, the BNPL firm’s marketing and advertising expenses grew significantly by 2.3X to INR 97.8 Cr in FY22 from INR 41.3 Cr in FY21. Its EBITDA margin further worsened to -278.98% from -143.86% a year ago.

Sources with knowledge of the matter said that ZestMoney’s customer acquisition cost (CAC) in the form of cashback and other perks, too, skyrocketed to as much as INR 1,000 per customer.

“The company promised cashback, however, ZestMoney stopped offering the same to its customers as cash flow became a concern. As a result, it has been facing at least 2 to 3 consumer complaints slapped by borrowers, on a daily basis since last year for failing to fulfil the terms and conditions under its loan service agreement,” revealed a former third-party collection agent, who used to handle ZestMoney’s loan default cases. 

He added that the cashback feature ZestMoney offered was part of its association with marketplaces like Nykaa, Amazon and Flipkart and could be availed at the end of the loan tenure. 

Responding to our question about the number of consumer complaints, Satpute said that the BNPL firm was not facing any consumer cases. “These are only wild speculation,” the CBO said.

While there is no way to ascertain consumer complaints at the district level through online resources, a cursory glance at various online consumer complaint forums suggests that a majority of complaints against ZestMoney pertained to cashback.

ZestMoney’s loan model is dependent on its partnerships with various lenders, including banks and Non-Banking Finance Corporations (NBFCs), which underwrite loans basis on the credit risk evaluated by the BNPL firm. 

Interestingly, most loans serviced by ZestMoney were on the books of its lending partners and not Nahar Credits, the NBFC it had acquired in 2019 for over INR 17 Cr.         

Why Did ZestMoney Lose Its Key Partnerships?

Given that ZestMoney raised $50 Mn in its last round in 2021 and was burning more than what it was generating in revenues, it soon saw itself staring at the need to raise capital to keep itself afloat. 

Hence, the BNPL fintech started looking for funds, even if it meant a potential acquisition. The troubled firm was in discussion with various fintech unicorns, including BharatPe and Pine Labs, for its acquisition, but the talks could not be walked. 

It was then that ZestMoney prepared itself to take a valuation cut of more than 50% just to get acquired but to no avail, sources said.

Finally, Walmart-backed PhonePe reportedly pegged the ZestMoney acquisition deal at $200 Mn-$300 Mn, including its non-performing assets, lending service tech stack and the NBFC licence, which it had procured after acquiring Nahar Credits. 

In November 2022, PhonePe offered an emergency credit line of $18 Mn to ZestMoney, including the option of a likely waiver as part of the acquisition deal.

However, PhonePe decided to part ways on account of due diligence concerns. Despite this, the fintech unicorn bought ZestMoney’s tech stack and absorbed 150 of its employees. This agreement also included paying an additional $8 Mn to ZestMoney.

Various reports suggest that the major reason why the PhonePe-ZestMoney deal did not pan out was because of its rising bad loans. However, sources close to the development alleged that PhonePe, during the due diligence, found that ZestMoney had inflated its FY23 revenue numbers and doctored customer acquisition costs, among other discrepancies involving loan disbursal numbers.

“ZestMoney’s EMI business was on the backfoot because of sub-par collections, therefore it could not even fetch the PhonePe acquisition deal,” a source said.

Inc42 sent a detailed questionnaire to ZestMoney on the PhonePe and ZestMoney deal failure. While ZestMoney negated all the claims made by our sources, it refused to comment on the reasons behind the failed acquisition, citing legal reasons.

Queries sent to PhonePe over the above inputs did not elicit any response at the time of publishing this story.

Meanwhile, nearly a dozen of its lending partners, including ICICI Bank, SBM Bank, IIFL and Northern Arc, stopped giving the BNPL firm any more credit exposure, according to an ET report.

This happened after PhonePe withdrew its acquisition offer and the three cofounders quit the company.

This reportedly also led to a decline in loan disbursals from INR 600 Cr at its peak in 2021 to INR 200 Cr annually a few months back. 

Sources told Inc42 that ZestMoney even tried partnering with Kotak Mahindra Bank earlier this year to keep its lending business afloat, but the talks failed to see the light of day.

Responding to this, the ZestMoney CBO said that the company constantly remains in talks with banks and large NBFCs in the country for lending partnerships. 

“A deal happens or doesn’t happen based on commercials and terms… Whether a deal happened with Kotak or not is not even newsworthy when ZestMoney has worked with over 30 lending partners, NBFCs, and banks, including ICICI and Tata Capital,” Satpute said. 

Finally, PayU proved to be the last straw to break the camel’s back (in this instance, ZestMoney) as the payments processing partner ceased its collaboration with the BNPL firm across ecommerce marketplaces, including Amazon, Flipkart, Myntra and Nykaa, according to sources. “Although, the company is still working with Razorpay,” they added.

ZestMoney boldly claims on its website and mobile app that it partners with major etailers, including a clutch of D2C brands, merchants and offline stores, to offer no-cost EMI options on product purchases.

We tried to cross-check the company’s claims and found that even though its EMI payment option was available on various ecommerce marketplaces, we were unable to avail its service at the time of checkout while making a purchase a couple of days ago.

Requesting anonymity, a fintech analyst said that ZestMoney’s future and business model is in shambles, especially when PayU, which holds a 15.5% stake in ZestMoney, has stopped working with the BNPL firm.

 In response to Inc42’s query, Satpute said, “Yes, we can confirm that PayU temporarily paused its partnership with ZestMoney. We are working on restarting the relationship with PayU. We would like to add that the other payment gateways and direct merchant relationships are business as usual.” 

Meanwhile, a statement received by Inc42 from PayU read, “At PayU, we remain committed to offering the most comprehensive and convenient payment methods, including affordability options such as cardless EMI, to our valued merchant base. Currently, we are in discussions on various partnership areas with the ZestMoney leadership team.”

Notably, PayU became the lead investor in ZestMoney’s $6.5 Mn Series A round in February 2017.

To date, ZestMoney has cumulatively raised $110 Mn from the likes of Ribbit Capital, PayU, Xiaomi, Omidyar Network, Quona Capital, and Goldman Sachs, among other investors. 

ZestMoney’s Employees Pay The Price As Funding Taps Run Dry  

At a time when the company is struggling to keep itself buoyant amid multiple acquisition talks and a bleak funding hope, its corporate culture has allegedly taken a hit. Nearly half a dozen former and current employees that we spoke with pointed out that there is a lot of imbalance inside the company since last year due to favouritism and job insecurity. 

It is a well-known fact that startups do not offer typical 9 am to 5 pm jobs, as they require more energy and dedication to build and scale than any other established venture.  

However, ZestMoney, according to its several employees, has taken this culture to an extreme by subjecting its workforce to toil for more than 15 hours a day.  

 “The company’s corporate culture is in a muddle right now. Team leaders are clearly told to make employees work for longer hours. Even the HR department doesn’t have a say in this. Further, things have become tougher ever since ZestMoney stopped hiring in April 2022 due to the paucity of funds. Teams have thinned down and the workload has increased. Many have additional responsibilities on the same compensation and are slogging due to the fear of losing their livelihood,” an ex-employee with knowledge of the matter said. 

He further claimed that despite calling 2022 a no-appraisal year, some employees closer to the leadership team got fancy pay hikes. 

“We expected that the performance metric will be the same for everyone, but there was no performance metric for some,” the ex-employee, who was associated with the firm for the last two years, said.

Responding to the allegations, ZestMoney’s Satpute said that there is no documentary evidence to suggest that the company engages in making its employees work for tediously long hours.

Meanwhile, the ex-employees we spoke with said that there was a lot of negativity brewing within the company, and no senior leader, including ex-CEO Lizzie and COO Priya Sharma, was accessible to address their concerns, except for erstwhile CTO Anantharaman. 

“Whenever we approached the leadership, we were directed to the HR department,” they said.  According to our sources, these growing issues have forced many employees to leave the company since last year.   

Moving on, ZestMoney had to let go of more than 100 employees in April when the management addressed employees in a town hall saying that an email from HR means the end of employment.

“They simply ghosted us. But when we put up a strong face in front of the HR department, we were given a two months pay as full and final settlement and allowed us to keep our laptops,” another former senior employee at ZestMoney said.

However, Satpute claimed that on the retrenchment day (in April), the company held several town hall meetings with different teams, and senior management and HR personnel were available to provide counselling and support.

“We immediately offered placement support (as evidenced by the 130 people who went to PhonePe), and we helped place 90% of the remaining affected people within one month in over 50 organisations. All impacted employees were provided two months of compensation as well as full health care benefits for six months,” according to ZestMoney’s official statement.

What’s ZestMoney’s Rescue Plan?

At the time when ZestMoney’s rivals, Lazypay, Simpl, and KreditBee, have restructured their businesses to cut operational costs and curtail their losses, ZestMoney’s earliest backers, including Quona Capital, Australia-based Zip, and Omidyar Network, are looking to invest in the company.

ZestMoney’s CBO told Inc42 in an official statement that the company is expected to receive a capital infusion of $5 Mn-$10 Mn soon.

The focus for the business going forward will be on core digital EMI and personal loan products. We are not doing any SaaS and we have stopped the insurance business, the CBO said. 

In an official statement, ZestMoney said it was expecting to raise funds in the next few weeks, and once it is done, the company will use the fresh capital to support its growth plans and boost profitability.

Satpute, also a former banker, has been closely working with banks and is looking at some lending partnerships. Besides, senior vice-president Abhishek Sharma and vice-president of finance and operations Mohit Chhajer have been promoted to leadership roles at ZestMoney. 

At a time when there is so much happening in the company to keep it afloat, turnaround exercises and top-level rejig, ZestMoney cannot afford to ignore its workforce, which continues to serve in a highly uncertain corporate culture.  

Also, the erstwhile cofounders continue to hold an 18.5% stake in the fintech, which raises questions if their departure was voluntary or not.

Whatever may be the case, ZestMoney’s new leaders seem to be glaring at several challenges on their long bumpy road to success.

[Edited by Shishir Parasher]

The post What Broke ZestMoney – How India’s BNPL Poster Child Lost Its Zest appeared first on Inc42 Media.

Government-backed Open Network For Digital Commerce (ONDC) is likely to venture into the financial products and services segment in a few months, CEO Thampy Koshy told Inc42 in an exclusive interaction.

The open protocol has established a working committee consisting of fintech industry experts. Their objective is to define a standard/protocol for the onboarding and integration of sellers and industry players. Additionally, the committee will decide which fintech players will be onboarded, the ONDC chief said.

At a time when the fintech industry has seen tighter regulations from the Reserve Bank of India (RBI), Securities Exchange Board of India (SEBI), and Insurance Regulatory (IRDAI), T Koshy maintained that ONDC will enable only those players who provide products and services within the established regulatory framework.

While the ONDC chief refrained from providing specific details regarding the financial products, credible sources suggest that the open protocol is actively considering to onboard insurance, mutual funds/stocks, and personal loan services providers.

Notably, payment giants, Paytm and PhonePe (via Pincode) have emerged as two major buyer-side applications, which are fulfiling thousands of orders for ONDC sellers currently.

ONDC is currently offering services in the grocery, food, fashion, electronics, and mobility segments.

“Before foraying into each one of these segments, we constituted specialised committees to outline the protocols for seamless integration of network participants,” Koshy said.

The open protocol is currently available across 235 cities in India. The network, which aims to cross 1 Lakh orders in a few months, registered 50 transactions a day in January across food and groceries categories.

“The networking partners have also been fine-tuning their services for the past few months, and we have now improvised on many fronts,” Koshy said.

Reliance, Tata To Join The ONDC Grocery Segment

Reliance and the Tata Group, India’s two major conglomerates, are in the final stages of integrating their grocery applications, JioMart and StarQuik, respectively, with ONDC, the network’s CEO told Inc42.

While Tata’s StarQuik is expected to go live in a few days, JioMart is also in the final stages of integration, he said.

In April, ONDC also onboarded Tata-backed BigBasket as a seller to strengthen its hyperlocal grocery play.

Both the corporates are joining the open protocol at a time when Walmart-backed PhonePe launched its ONDC-specific buyer app, Pincode, and Paytm has improvised its consumer-facing app that lists ONDC offerings to gain customers.

Meanwhile, ecommerce giants Amazon and Flipkart are yet to formally reach out to ONDC for onboarding the network as a buyer-side application.

“These etailers have expressed their intentions to join ONDC but have not formally come forward, even though they have integrated some of their services with ONDC,” Koshy said.

Addressing concerns of the sellers who believe that the inclusion of Amazon and Flipkart may undermine the goal of democratising digital commerce, potentially jeopardizing the interests of small retailers, the ONDC CEO clarified that, unlike Amazon and Flipkart, the purpose of ONDC is not to create a captive ecosystem of consumers through discounts or being loyal to a specific set of sellers.

“Even right now, the buyer-side applications, Paytm and PhonePe, have no loyalty to sellers nor are they gaining advertising revenue from retailers like Flipkart, and Amazon. Their main motive is to scale up the level of transactions on the respective platforms,” the ONDC CEO said.

Discounts Won’t Stop Immediately

ONDC’s discount strategy is something that differentiates it from food aggregators like Swiggy, Zomato or other hyperlocal grocery platforms. The ONDC CEO told us that the network will never maximise profits like other companies and the focus will be only on ensuring maximum participation from buyers and sellers.

“We are a Section 8 Private company with 19 institutions that have invested in the ONDC for equity. Under the regulations of Section 8 of the Companies Act, the equity shareholders are not entitled to dividends, hence there will be no profit squeezing. It is more of a utility service, which, on scaling up, will benefit the shareholders since they can strengthen their lines of business if ONDC gains traction,” the CEO said.

Koshy also dismissed the reports which suggested that the government may be funding the discounts on the network.

“There is no budgetary allocation from the government or any financial assistance from the ministry towards ONDC. The discounts are collectively funded by the equity shareholders of ONDC, buyer-side applications like PhonePe and Paytm as well as sellers. Moreover, we are continuously tweaking the discounts depending on the order volumes targets and even geographies where the network goes live,” he added.

The ONDC CEO further said that being reliant on discounts will not be sustainable; however, the incentives will not stop immediately.

It is pertinent to note that the network recently revised its incentive programme, capping the discounts for a buyer at INR 100 on a minimum average order value of INR 200 for food and beverages, and INR 300 for other categories.

The move has come when ONDC said it was averaging around 9,000 orders per day, around 64% down from the peak of 25,000 orders achieved earlier this month.

Meanwhile, Koshy stated that the initial idea of giving discounts was to generate demand and achieve scale.

“The end user may not be fully aware of the business model, and, initially, it is the discounts being offered that attract him. Eventually, as the operational efficiency of the network and logistics capabilities enhance, we are hoping to improve user stickiness as well as new sellers who are willing to announce new offers and schemes specific to ONDC buyers,” the ONDC CEO concluded.

Founded on December 31, 2021, as a private non-profit company by the Department for Promotion of Industry and Internal Trade (DPIIT), the network launched its pilot phase in April 2022 across five cities — Bengaluru, Delhi NCR, Shillong, Bhopal and Coimbatore. ONDC has also started its beta pilot in Bengaluru and some tier 2 cities.

Touted as the UPI of ecommerce, ONDC aims to curb the digital monopolies of a few players and aims to increase the visibility of India’s small and medium enterprises on its open network.

The post ONDC Set To Venture Into Fintech Services, Discounts Won’t Suddenly Disappear: CEO Koshy appeared first on Inc42 Media.

In the face of fierce competition from players like Dunzo, Blinkit, Zepto and Instamart, who had been encroaching on his share of the hyperlocal grocery market within a 1-2 km range, Deepak Khemani, a Bengaluru-based shopkeeper, onboarded the government-backed ONDC (Open Network for Digital Commerce) last year. 

Although it took him 12 months to stabilise the market share he had been losing to the delivery giants, Khemani believes that joining ONDC was a step in the right direction.  

“From three to four orders per day a year ago to 30 orders a day now, I think the decision to onboard ONDC has started yielding positive results,” the retailer said.

If one could recall, grocery and essentials was the first category to go live on ONDC, almost a year ago, when the network was trying to onboard small shopkeepers directly via seller apps. 

“The order volumes did not pick up pace last year, but with the government strongly backing the open protocol, slight changes are now apparent,” said the grocery store owner that Inc42 spoke with.

While the situation may seem to be improving for now, it doesn’t address the larger question of whether these changes are sufficient to ensure the long-term sustainability of kirana store owners, particularly when tech platforms like Amazon, Flipkart, and Big Basket, along with quick delivery players, are striving to dominate the hyperlocal grocery space with their convenience-led offerings.

Having said that, let’s take a closer look at what industry experts have to say about the fate of traditional grocers, especially when ONDC is being seen as a saviour.

What’s In The ONDC Store For Small Retailers?

Many small retailers in India have been unenthusiastic about the ecommerce wave that swept the country, especially during and after the Covid pandemic. They believe that major etailers like Amazon and Flipkart have favoured their own sellers through exclusive agreements, manipulated prices and discounts, and imposed high commissions on retailers.

Furthermore, the emergence of cash-intensive quick commerce startups, offering rapid grocery deliveries, has only added to the existing challenges faced by local neighbourhood stores.

According to the Retailers Association of India (RAI), which has been at the forefront of mobilising its members to onboard ONDC, a key advantage of joining an open protocol for sellers is enhanced visibility and access to wider markets.

“Still 95% of the retail market is present offline despite the ecommerce adoption. The fragmented retail market has the opportunity to be more visible and accessible through ONDC which was not possible via traditional marketplaces,” CEO of Retailers Association of India Kumar Rajagopalan told Inc42.

Citing an example, the RAI CEO said that a buyer would remember buying products from Amazon or Flipkart but not the seller.

“As a result, customer loyalty is lost in that process. We hope that ONDC will be a game changer on that front as consumers would tend to focus on the retailer rather than the platform,” he added.

He pointed out that besides the democratisation of commerce, if the order volumes scale, sellers/retailers could think of absorbing delivery costs and offering cash back.

“It is only a matter of time. Right now, we can say that sellers are working closely with tech service providers for onboarding and trying to understand how the network operates,” Rajagopalan said.

The RAI CEO added that there could be a probability of click and collect offerings in near future on ONDC since the experiential shopping is in demand.

Notwithstanding the enthusiasm, various sellers that we spoke to expressed concerns like a tedious onboarding process, which may discourage non-tech savvy retailers from joining ONDC.

Meanwhile, sources said that ONDC has set up a template of holding online briefing sessions every week for various onboarding steps. However, these sessions may not be accessible to everyone. The onboarding steps involve business briefing sessions, developing a minimum viable product for ONDC, signing network policy documents, compliance, and more, which can be challenging for merchants and sellers.

For the reader’s understanding, a minimum viable product is a product tested in the pre-production phase on ONDC before it goes live on a buyer’s app. 

Some sellers are also wary of ecommerce giants like Amazon and Flipkart onboarding ONDC, which again have the potential to put small retailers at a disadvantage and create an uneven playing field.

“Although ONDC has a governance policy, there is no control on the price parity, which has added to our apprehensions,” a seller told Inc42, requesting anonymity.

As of now, apart from Big Basket, ecommerce platforms like Amazon, Flipkart, Dunzo, Zepto, Swiggy Instamart, and Blinkit have steered away from onboarding ONDC as a buyer app but whenever they do, the interests of small sellers would be at stake, making way for regulatory intervention.

Is ONDC Compensating For A Jerky Buyer Experience? 

Industry experts opine that factors like the value for money or the quality of products and services, besides costs, is where the kirana neighbourhood stores can pip the online marketplaces in the grocery segments. 

In addition, the overall industry sentiment is that supermarkets/neighbourhood stores still process large order values in grocery/essential items compared to the average order value in ecommerce.

“Retail shopping is still driven by bulk family purchases compared to ecommerce platforms. Hence, a large base of the market still lies with physical retail. This is how brick-and-mortar retail shops enjoy high customer loyalty, thereby building the bedrock of retail shopping,” Khemani explains.

“While price is a major factor, value for money is crucial for determining consumer preference. With ONDC, we hope to reach out to wider markets via buyer apps on these foundations,” Rajagopalan said.

Buyer apps are consumer-facing apps from where one can place orders and connect with sellers. On the other hand, seller apps serve as platforms for merchants and service providers to list their offerings on the network. 

On the logistics and price front, ONDC partners are revisiting their plans, with the network having recently floated its incentive policy for sellers but keeping subsidies intact for buyers. 

The incentive programme that is being floated by ONDC provides a subsidy of INR 50 to a consumer on every transaction above INR 100. In addition, ONDC also subsidises consumers with up to INR 40 on every transaction, explaining cheaper or no cost deliveries.

The programme also entails awarding buyer applications after the first 1,000 orders with a payout of INR 50 per order for a minimum order value of INR 100 (including shipping charges). For the networking participants on buyer side (aggregators) who have at least 50,000 successful orders during the programme duration will be awarded a payout of INR 5 Lakh. 

Meanwhile, we (Inc42) ordered some grocery items from ONDC via Paytm, and Instamart, and this is what we found.

We ordered a 100 gm packet of instant coffee from an ONDC seller and Instamart. Although the ordered item cost us 28% cheaper on ONDC compared to Instamart, we had to wait for six hours for the item, which otherwise was showing a delivery time of 59 minutes on the buyer/Paytm app. 

After waiting for a few hours for the coffee, we called the seller. To our surprise, the seller hadn’t received any notification on the app. While the seller was able to accept the order after a few hours and deliver, the order placed via Paytm remained pending for a long time on the app. 

Moving on, when enquired, the delivery partner told us that he earned INR 16 on the delivery. We could not avail a second INR 50 discount on the ONDC that day.

 Has ONDC Forayed At The Right Time?

One of the emerging trends in the ecommerce industry is the increasing focus on quicker deliveries, with players like Amazon, Flipkart, Tata-backed Big Basket, and hyperlocal startups such as Dunzo, Zepto, Blinkit, and Swiggy Instamart entering the fray. 

According to Redseer research, India’s quick commerce market, focussed on groceries and essentials, is projected to grow 10X to 15X by 2025, reaching a market size of around $5.5 Bn. This growth is expected to outpace other markets, including China, in terms of quick commerce adoption.

However, since 2022, the quick commerce industry has faced challenges such as drying up of venture capital funds, startups prioritising profitability and unit economics, and market saturation.

The quick commerce business model, which aims to change consumer behaviour and provide convenience at an additional cost, has resonated with middle and high-income groups in metros and tier 1 cities but has struggled to expand beyond that. 

Additionally, the average order value from quick commerce platforms has stagnated, leading to difficulties in increasing order volumes, which in turn has affected the revenues of these companies.

Mumbai-based quick commerce platform Zepto incurred a loss of INR 390.3 Cr on a standalone basis in its first year of operations in the financial year 2021-22 (FY22). The Nexus Venture Partners-backed startup’s total revenue stood at INR 142.3 Cr in FY22. Zepto, which began operations in April 2021, had total expenses of INR 532.7 Cr in FY22.

Reliance-backed Dunzo’s consolidated loss rose 2X YoY to INR 464 Cr in FY22 on the back of a steep rise in expenses.

Blinkit, which was integrated with Zomato in August 2022, registered a 6% decline in its average order value (AOV) to INR 522 in Q4 FY23 from INR 553 in Q3 FY23. The quick commerce platform’s AOV stood at INR 568 in the quarter ending September 2022. While, its revenue surged nearly 21% to INR 363 Cr in Q4 FY23.

Amid rising losses and fluctuating order values of these players, sustaining the 5- to 15-minute delivery model has become a tedious task. This creates an opportunity for a third ecommerce player in the Indian market, leveraging government support, offering better margins to offline retailers, and providing incentives to buyers.

However, even with the right intentions, the success of an open protocol player would depend on market unbundling, building consumer trust beyond discounts, and improving technology to coexist alongside established players to dominate the majority share of the $8 Bn grocery market. 

The post Can ONDC Outpace Blinkit, Dunzo, Zepto In The Grocery Delivery Space? appeared first on Inc42 Media.

At a time when the country is debating whether the government-backed Open Network for Digital Commerce (ONDC) will eliminate the Zomato-Swiggy duopoly, magicpin, which is backed by Zomato, has emerged as the net gainer. 

As of now, the Gurugram-based discounts and discovery platform is seen enjoying the first-mover advantage of joining the ONDC and assisting sellers and restaurants in adopting the open protocol. 

In March, magicpin announced that it integrated its tech platform with the ONDC and successfully onboarded 22,000 restaurants from Delhi NCR and Bengaluru onto the open network. 

Inc42 was the first publication to report on the brewing discount war between the ONDC and other food tech players, such as Swiggy and Zomato, in the food delivery space.

Read: Swiggy-Zomato Killer In The Making? Can ONDC End The Foodtech Duopoly?

The momentum gained pace in April when the transactions suddenly spiked in the grocery and food delivery categories. Sources privy to the development have said that magicpin has outshined payments giant PhonePe’s ONDC-specific buyer app, Pincode, with nearly 90% share in the network’s order volumes.

This has been made possible due to magicpin working on three critical aspects within the ONDC — seller side apps, buyer side apps and third-party logistics players, which has made it a darling of big tech players joining the ONDC bandwagon. 

In an exclusive interaction, the cofounder and CEO of magicpin, Anshoo Sharma, told Inc42 that the startup is in talks with the leading tech platforms who will use the existing tech infrastructure of magicpin and its hyperlocal retail reach to gain scale on the ONDC.

Despite Walmart’s PhonePe launching the first ONDC-specific buyer app, Sharma believes that magicpin’s offerings in an open protocol like ONDC are unmatchable. 

Sources told Inc42 that even PhonePe will be leveraging magicpin’s last-mile connectivity features to fulfil orders on the ONDC.

magicpin has also been roped in by Paytm to develop a more user-friendly interface for ONDC deliveries, opening another revenue stream for the startup.

“We are in talks with various big tech companies who will be joining the ONDC soon,” magicpin CEO said. He, however, refrained from revealing much.

“Within the first four weeks of joining the ONDC, magicpin scaled from 100 to 10,000 orders a day. In the fifth week, we saw a massive leap to 20,000 daily orders. This represents a 200-fold growth in ONDC’s daily orders through magicpin. We are thrilled to take the network to another level by enabling customers to shop at their favourite local businesses or other retailers on the ONDC,” Sharma said in a statement. 

An interesting facet, however, remains that Zomato has a 16.6% stake in magicpin and the food aggregator was a lead investor in its Series D round last year. Even Zomato’s CEO Deepinder Goyal is part of the board at magicpin as an independent director.

To our question of whether Zomato’s stake in magicpin will create a conflict of interest now that the savings platform has charged up the food delivery orders on the ONDC, Sharma said that magicpin’s access is to sellers/merchants beyond the food delivery category. 

He added that segments like fashion, quick-service restaurants, night-life, pharmaceuticals, and electronics also have commanded a fair share of revenue for the platform over the past few years. 

magicpin is also building a Software-as-a-Service (SaaS) platform for the ONDC initiative. With this SaaS platform, magicpin aims to offer its proprietary technology stack, including tools for digital payments, customer engagement and loyalty programmes to SMEs, thus enabling them to compete with larger players in the market. 

This initiative is expected to drive greater adoption of digital commerce among small businesses, contributing to the growth and development of the Indian economy, according to magicpin. 

Upping The Hyperlocal Game

Hyperlocal commerce adoption has been quick since the onset of the Covid-19 pandemic, but it is only ecommerce that has garnered much traction, with corporate giants like Tatas and Reliance foraying into the space. 

However, the magicpin CEO believes that the real growth lies in harnessing the potential of the $1 Tn offline retail market, which is highly fragmented. It is this hyperlocal physical retail market that the Gurugram-based startup is trying to gain an increased access to with its unique propositions of discounts and discovery. 

Sharma added that unlike pay-per-click models, magicpin offers a pay-per-conversion model, which basically refers to drawing commissions from sellers/merchants only after an order is placed by the end user.

Founded in 2015 by Sharma and Brij Bhushan, magicpin claims to have 10 Mn active users and 9,00,000 merchant partners across 50-plus cities in India. Having raised close to $100 Mn, magicpin counts Lightspeed, WaterBridge, among its investors.

In FY22, the startup reported a 1.6X surge in revenue. Overall, its revenue from operations stood at INR 232.78 Cr with INR 144.96 Cr in losses.

The company claims to have witnessed a 4X rise in the number of users, whereas 2.5X growth in GMV since last year.

Sharma said that his startup banks on referrals, which has proven to be a key customer acquisition strategy in addition to the platform-specific discounts that consumers can avail from various brands and outlets. In addition, the payment feature available on magicpin also enables users to avail more discounts. 

In terms of average commissions, the magicpin CEO said that the platform makes 20% commission on any order placed on its platform. The asset-light business model, under which the company spends only on marketing campaigns, customer acquisitions, human capital and building its tech stack is an added advantage, according to Sharma, who sees the company becoming profitable by next year.

“We aren’t in a hurry to raise the next round of capital or public listing but we are surely heading in the right direction,” the magicpin CEO added.

With that said, by the time the ONDC scales to topple some market giants Anshoo Sharma believes that magicpin would have already spun its magic.

The post ONDC’s Secret Sauce: Why Zomato-Backed magicpin Is The Silent Winner appeared first on Inc42 Media.

Precisely one year ago, the National Restaurant Association of India (NRAI) was seen urging its member restaurants to stop onboarding food delivery platforms Swiggy and Zomato. The idea was to end the overarching influence of these food aggregators and, in turn, put an end to the price monopoly that the association claimed these platforms had created. 

In its endeavour, the association launched various drives, including Swiggy, Zomato logout campaigns, Order Direct, etc., but failed to fetch any desired outcome. 

In fact, the order volume of both Zomato and Swiggy, according to their annual reports, grew substantially in CY22 compared to CY21.

One year on, the restaurants under the banner of NRAI have reunited to find an alternative way to capture a juicy pie of India’s online food delivery space. However, this time, they have the backing of the Open Network For Digital Commerce (ONDC).

Founded on December 31, 2021, as a private non-profit company by the Department for Promotion of Industry and Internal Trade (DPIIT), the network launched its pilot phase in April 2022 across five cities — Bengaluru, Delhi NCR, Shillong, Bhopal and Coimbatore. ONDC has also started its beta pilot in Bengaluru and some Tier 2 cities. 

Many restaurant owners and industry players believe that the platform has the potential to kill the duopoly that Swiggy and Zomato have created in the segment over the years. 

As of now, NRAI is providing training and partnering with technology players to help restaurants join ONDC to end the dominance of Swiggy and Zomato in the space.

ONDC has also roped in various restaurant networking partners. Zomato-backed savings and discount platform Magicpin, for instance, has already partnered with 22,000 restaurants across Bengaluru and Delhi NCR, with plans to soon expand to other cities. Meanwhile, DotPe, another restaurant aggregator, too, is helping restaurants join the network (ONDC).

Interestingly, this is not the first time that the Swiggy-Zomato dominance in the $50 Bn food services market is being challenged. 

Earlier, global ecommerce behemoth Amazon and mobility unicorn Ola tried to bag a market share in the segment but failed due to the dominance of the two players.

According to various reports, while Swiggy is the market leader in southern India, Zomato is the king in the north, of course, in the food delivery space.

However, this dominance could be short-lived with ONDC in the scene now. This is because the platform has been built to increase healthy competition in the market, provide a level-playing field to small merchants and end the dominance of a few players.      

So, How Can ONDC Resolve Issues Denting The Foodtech Space? 

Almost every player working in the F&B industry is slapped with heavy customer acquisition and retention costs, according to the analysts Inc42 spoke to for this story. 

Over the past few years, industry experts have observed that Zomato and Swiggy have taken advantage of this situation by significantly increasing the commissions they charge their partner restaurants. Previously, these commissions ranged from only 2-5%, but have now inflated to 18-24% of the average order value.

The underlying reasoning behind this lies in the fact that both Zomato and Swiggy have amassed a massive database of millions of users, which they choose not to share with their restaurant partners.

In simple terms, your favourite restaurant does not know that you are one of its recurring customers.  

This becomes a major pain point for restaurants because even though they are sitting in the market for years, they are hardly aware of who their end consumer is. 

Another pressing issue is the rating mechanism, which is a crucial metric for customer retention for these food aggregator platforms.

According to Pranav Rungta, the director of Mint Hospitality Ltd and the head of NRAI’s Mumbai chapter, “The ratings system of online aggregator platforms is flawed. Although the customers are the ones who give ratings, the algorithms on Swiggy and Zomato change the game, putting restaurants at a disadvantage.”

According to industry experts, ONDC could solve the aforementioned challenges to some extent. 

For instance, CAC (customer acquisition cost) that is usually passed on to the restaurant by the aggregator, even after the same customer is repeatedly ordering, may not exist at all on a network like ONDC.

This is because ONDC has many buyer-side apps like Paytm, PhonePe, Meesho, Pincode, and Magicpin, among others, which already have millions of users, hence there will not be additional cash-burn to acquire customers. 

This, in turn, gives a natural advantage to the restaurants listed on ONDC since they are now accessible to millions of users using these apps too. 

To understand how online food delivery aggregators attract customers, a recent McKinsey report points out that platforms, besides spending on marketing, advertising and discounts, are also chasing faster deliveries and acquiring cloud kitchens, which are included in their CAC.

Unlike Swiggy and Zomato, the data of the customers ordering food on ONDC will also be shared with the merchants/restaurants, which will help them know their target market, customer behaviour and ordering patterns. 

NRAI’s Rungta said that the rating systems of restaurants would not be directed by platform algorithms but by customers, ensuring more transparency in the space.

All these factors put together are expected to benefit restaurants; however, the most crucial of them all would be profits earned by eateries and the pricing of food items. 

A Win-Win For Eateries & Customers?

Right now, in most cases, Swiggy and Zomato control the entire funnel in the space — from pricing, logistics, discounts, payments, etc. 

This, as per NRAI and other industry bodies, has resulted in a captive ecosystem where restaurants have no say. 

Furthermore, ONDC’s food delivery foray also assumes significance at a point when the valuation of both food delivery giants, Swiggy and Zomato, have taken a hit. 

While Swiggy’s earliest backer Invesco has marked down its valuation by a significant 25% to $8 Bn, rival Zomato’s market capitalisation on stock exchanges is hovering around $5 Bn, down 50% from its highest market cap since its listing.

To counter this, Swiggy and Zomato have been optimising their costs and introducing changes to their pricing strategies — ranging from increasing delivery charges and commissions from restaurant partners to curbing deep discounts and free deliveries.

Recently, Swiggy started charging a platform fee of INR 2 per order, irrespective of the cart value. 

In addition to this, the two players have loyalty programmes, Zomato Gold and Swiggy One, which help customers avail free deliveries and discounts. 

Zomato Gold, which was relaunched by Zomato earlier this year, charges INR 149 from customers in exchange for free deliveries within a 10 km radius, VIP access during peak hours and cashbacks for three months.

Similarly, SwiggyOne offers a range of services, including free deliveries across Instamart and Genie platforms, for INR 299.

To counter this, restaurants, too, are rethinking their pricing strategies and offering free deliveries to woo more customers. 

On an average order value, buyer and seller side apps will charge 2-3% commissions each, and restaurants will also have to give a commission to third-party logistics players. Cumulatively, it won’t be even half of the commissions that the restaurants are right now paying to Swiggy and Zomato, sources within ONDC and NRAI told Inc42.

Meanwhile, industry experts estimate the platform commissions and third-party logistics charges to be nearly 8% of the average order value on ONDC, which is still way less than 18-24% in commissions charged by Swiggy and Zomato. This will enable restaurants operating on ONDC to pass on the benefit to customers and retain them.

“The restaurants may even look at absorbing the delivery costs and pay third-party logistics players instead of passing on the whole delivery charges to their customers, which is the case with Swiggy and Zomato right now,” Pranav said.

To get a deeper understanding of the commissions in question and see if restaurants on the ONDC platform were offering free deliveries, we tried ordering food from both Zomato and ONDC via Paytm. To our surprise, a burger from the nearest McDonald’s cost us 158% cheaper via the ONDC route than Zomato.

Another price comparison between ONDC and Swiggy — key metrics, location and time being the same — revealed that Swiggy, even after discounts, was 95% more expensive on the pocket compared to ONDC. 

Interestingly, both Swiggy and Zomato are charging the delivery fee, which they claim goes to their delivery partner, whereas on ONDC most deliveries were free. 

Another interesting aspect is discounts. We know that initially, Swiggy and Zomato were offering deep discounts to acquire customers, but as they built their user base, the discounts offered slowed down drastically while the commissions charged from restaurants increased.

According to industry experts, this has forced many restaurants to increase the prices of their products.

Meanwhile, ONDC has emerged as an alternative where restaurants can offer better discounts than Swiggy and Zomato and absorb some delivery costs, thereby passing benefits to the end consumer and retaining them.

Hence, the network has now become a new ray of hope for many restaurants that want the ongoing duopoly in the space to get eliminated.

However, The ONDC Needs To Jump A Few Roadblocks 

Right now, an increasing number of ecommerce platforms, payment aggregators, and logistics companies, along with brick-and-mortar stores and restaurants, are joining the ONDC bandwagon. 

However, the model is operational only in select cities. The actual challenge will emerge when ONDC scales to cities and towns beyond metros. This is because the platform may find it difficult to onboard smaller players with little technical know-how. 

ONDC is expected to rope in aggregators and industry bodies for the same, but looking at the pace at which the network has been able to scale in the last one year, the same appears to be a time-consuming exercise.

Right now, the awareness of the government-aided ONDC is low, and the platform needs to up its game when it comes to onboarding more merchants.

Another challenge for the platform is to resolve the discoverability of food menus on the buyer-end apps, which the network seeks to address in the coming months. 

While PhonePe has launched an ONDC-specific buyer-side app, Pincode, for better user experience, Paytm, as per sources, is working on UI/UX designs to help customers navigate ONDC offerings. 

Coming back to the food delivery segment, another crucial factor will be logistics. Both Swiggy and Zomato have been quickly able to capture a large pie of the online food delivery market because of their in-house logistics capabilities and various acquisitions, which have helped them in increasing their operational efficiency. 

To expect restaurants to compete with them will be unreasonable. So, there would be a natural dependence on third-party logistics players like Dunzo, Shadowfax, Delhivery, and Loadshare to help with deliveries.

Given the scenario, how ONDC will enable these platforms and restaurants to work in tandem will be interesting to see.

Nevertheless, unlike Amazon and Ola, which failed to sustain in this market beyond a point because of high customer acquisition costs, and unsustainable discounts, ONDC may do better if it is able to onboard more players like Paytm and PhonePe.

The post Swiggy-Zomato Killer In The Making? Can ONDC End The Foodtech Duopoly? appeared first on Inc42 Media.

At a recently held networking event in Bengaluru, an Inc42 team met several mid-rung executives working at global tech giants such as Google and Amazon. During our conversation with these executives, we realised how concerned they were about losing their jobs, for which they have been upping the ante by sharpening their skills for many years.

As we opened up with these executives to understand their fears, an angel investor joined the conversation, saying: “Welcome to the startup world!”

Well, it appeared that the gentleman was taking a potshot at the big tech giants for going down the startup way of doing things — the route that often meets but one destiny whenever any crisis occurs — layoffs.

Although everyone at the event welcomed the comment with a smile, their unanimous nod was enough to confirm the fact that the big tech has started doing what many Indian startups are infamous for — first hire with obnoxiously high pay packages and then resort to layoff under the veil of cost-cutting measures.

As we spoke with more executives working at MAANG (Meta, Amazon, Apple, Netflix, and Google) companies, we were able to get a better understanding of what’s really happening at these US-based tech companies.

We learnt that after dishing out fancy packages during the pandemic to hire employees, the tech giants have put them on performance improvement plans (PIPs), made project deadlines stricter, rolled back several tasks, and cut down on yearly appraisals.

As per several media reports, global tech layoffs, which started late last year have so far impacted nearly 2 Lakh employees across the globe.

Even though many CEOs of these tech giants humbly apologised in their emails before issuing pink slips, almost everyone we spoke with for this story confirmed that the work culture of these tech behemoths has become nerve-racking, with managers constantly hovering over their heads and sounding alarms to deliver or depart.

“The fact of the matter is India is no longer considered as a cost-effective destination for US-based tech firms that today are paying their Indian workforce on par with what they pay to their employees in the US,” said Pareekh Jain, a Bengaluru-based senior tech consultant.

This, in turn, has created a ripple effect of layoffs, and the Indian workforce is in the line of fire, too.

Though, what is interesting to note here is that several executives Inc42 spoke with, said the companies were bluffing on the number of employees laid off, as the impacted number of employees could be much more than they claim to have fired.

According to the data compiled by Inc42, which we collated from various HR tech platforms, layoffs in India account for nearly 10-15%, or 25,000 job losses, of the total pink slips shown (about 2 Lakh) across the world by these tech giants since last year.

While we cannot decipher the exact number of people that will be impacted by the ongoing churn at these tech companies, experts foresee multiple waves of job cuts by big techs in India in the next 18 months.

Who Will Be At The Receiving End?

Seemingly, according to experts, US-based tech giants are expected to keep on firing people at least in 2023, even though we are already past the first major layoff wave.

“Our estimates suggest that the number of people who will now lose their jobs, especially in India, will be lesser compared to last year. The huge talent pool and the cost arbitrage may act as cushions for India, which will make the US-based companies move their projects to India from the US and Europe and, hence, people will be required. Meanwhile, many advanced technology projects by Google, Meta, Amazon and Microsoft, which included blockchain and Artificial Intelligence, have been revoked, leading to job losses,” Sunil Chemmankotil, CEO, TeamLease Digital said.

He added that these companies will still go on reassessing some of the projects that they invested in during the pandemic, and, hence, the demand for several roles, especially in marketing, sales and customer servicing, may get impacted.

Meanwhile, the CEO of Greyhound Research, Sanchit Vir Gogia, noted that the first wave of workforce rationalisation is over; however, small rounds of firings by these big techs may be pointed towards those products that have failed to achieve business outcomes.

Gogia added that although it is likely that every part of the business function will be impacted, the roles that will be under scanner include sales, pre-sales, marketing and entry-stage developers.

Further, the MD and CEO of CIEL HL Services, Aditya Narayan Mishra said, “The employees were let go mainly based on how the projects were performing and whether they were adding value to the company, rather than individual performance.”

According to a TeamLease analysis, the year (2023) could see a major drop in hiring activity within the tech industry, with a nearly 60-70% decline in fresher and lateral hiring.

This, in turn, will create a challenge for the uptake of fresh engineering graduates who might have to wait for a year to fetch a job in their dream companies.

Employees: The Scapegoat?

In the last leg of 2022, the CEOs of Amazon, Google and Meta wrote emails to their employees, apologising for taking tough calls and letting many people go due to reasons such as businesses undergoing recalibration, volatile capital markets and uncertain geopolitical and macroeconomic situations, among others.

Interestingly, an analysis of the quarterly results of the tech giants revealed that some of their major investments (to the tune of billions of dollars) in advanced technologies like Metaverse, Blockchain, and Open AI backfired and their stocks started losing value.

In a bid to control the damage impacting shareholders’ sentiment, these companies resorted to cost-cutting measures at the expense of their employees.

The investments in these advanced technologies further swelled due to the aggressive hiring of technologists, marketing and sales personnel, and HR executives.

Experts argue that the companies then realised that the adoption of such technologies could take longer time than expected, and, hence, decided to cut back on spending more on these roles, amid slackening post-COVID demand.

Highlighting a few other factors, Gogia of Greyhound Research said the destabilisation of the US economy and the emergence of the banking crisis in the region impacted infrastructure and utility business and the automation taking place in these industries.

“These changes were rapid and started impacting big tech companies. The gradual shift in the power from the US to other countries, including China, Russia and India, has also hit the businesses of tech firms headquartered there,” Gogia said.

“Basically, COVID accelerated the adoption of many tech projects, which would have normally taken another 4-5 years to be accepted. Take the case of the cloud, this has been in existence for several years before COVID. But the pandemic resulted in quicker adoption of the cloud, which, in turn, created a demand for talent. However, since 2022, although cloud deals are still happening, tech giants and small companies have been reassessing their cloud spending,” Pareekh Jain said.

Big Tech Layoffs: Who’s In The Line Of Fire, Anyway?

Unfortunately, there is no way to predict the specific roles that will be axed in the upcoming quarters. A lot, though, will depend on the ability of business verticals to generate revenue for companies, thereby securing jobs in these business functions.

Meanwhile, analysts are positive about a lot of work moving to India as more organisations in the US go remote, realising the cost efficacy of such models.

“That is a unique opportunity the Indian talent could look for. There is a gap in demand and supply in cyber security and AI verticals. I can confirm that there are 45,000 such jobs available in the market right now. However, the supply side is a challenge,” Sunil said.

Despite the current trend of saving costs by churning the meat in organisations, the CEO of CIEL HL Services sees a silver lining for Indian employees. As these companies seek to maintain their projects and operations, they will require resources to do so.

“Given that India has a large population of young graduates in engineering and other relevant fields, global tech companies may choose to transition some projects and jobs to India where the cost of employees is comparatively lower. This could potentially provide new job opportunities for Indian workers in the coming quarters of 2023,” he added.

While experts see hiring sentiments improving in the near future, employees Inc42 spoke with are jittery about their current job roles, future employment prospects and the skills they need to tap future opportunities.

Meanwhile, amid uncertainties, they suspect a correction in salaries and promotion delays — although none of them believes that their performance has anything to do with the current wave of layoffs.

The post Big Techs’ India Layoffs: Is The Worst Over Yet? appeared first on Inc42 Media.

Ankiti Bose, the former CEO and the cofounder of Singapore-based fashion ecommerce startup, Zilingo has filed a $100 Mn (INR 820 Cr) defamation suit against the high-profile angel investor and Seedfund cofounder Mahesh Murthy.

The suit was filed over an article authored by Murthy in the March 1st issue of Outlook Business magazine, according to sources with knowledge of the development. Sources told Inc42 that Bose has filed a defamation suit in the Bombay High Court through law firm Singhania and Co LLP alleging that Murthy’s piece is “a continuation of the three-year-old vendetta” against her.

The case is in the pre-admission stage and was filed on April 20. Inc42 has accessed the case filing number on the court website, which mentions Ankiti Bose as the petitioner.

The defamation suit pertains to an article titled, “From Vulture Capital to Victim Capital” and authored by Murthy. In the column, the investor takes a strong dig at various startup founders without naming them and holding them responsible for the current significant drop in funding in the Indian startup ecosystem.

Without naming Bose in his article, Murthy wrote, “One lady ran a popular fashion portal and took Sequoia’s money. She got her firm to pay her lawyer Rs 70 crore as fees and it is rumoured got a lot of that amount directly back to herself as cut. She also got her firm to pay a public relations agency Rs 10 crore a year to have her profile appear as a glamorous CEO.”

Meanwhile, in a statement, Bose said that the article comprises a “litany of lies, distortions, and venomous claims”.

“Mr Murthy’s piece is a continuation of the three-year-long vendetta against me. This malicious media campaign launched against me has harmed my reputation, caused significant financial losses, and is entirely based on fiction, with not a shred of evidence against me,” the former Zilingo CEO said in a statement. 

“I have always believed that having the privilege of a public platform should come with a sense of responsibility and probity. Mr. Murthy’s ‘opinion’ piece only goes to reinforce the sexist attitudes and gossipy innuendo that hold back more women founders from achieving their true potential,” she added.

Inc42 has sought a comment from Murthy on the above development. The story will be updated as and when the Seedfund cofounder responds.

Bose was suspended by Zilingo in April 2022 following a series of allegations about impropriety raised by anonymous whistleblowers in the company. Even as she was suspended, more reports showed that Zilingo’s cofounders Ankiti Bose and Dhruv Kapoor were also at odds when it came to business decisions. 

Following her suspension, Bose also alleged that the Zilingo board and Sequoia Capital India in particular were on a witch-hunt to remove her from the company. However, thus far, these allegations are yet to be proven or detailed by Bose’s side. 

Even as it faced some problems with the leadership, Zilingo’s revenue situation had already turned grave. Despite a tussle between Bose and the shareholders to wrest control of the situation, eventually the company went into liquidation in January this year. 

Over the course of the past few months, Inc42 has been able to unearth more details about the company’s messy financial reporting as well as alarming information about over $10 Mn in unexplained payments and more, with Bose allegedly being in the thick of it. Here’s our latest detailed investigation on the Zilingo case, just over a year after controversy derailed the company.

The post Former Zilingo CEO Ankiti Bose Files $100 Mn Defamation Suit Against Mahesh Murthy appeared first on Inc42 Media.

Google-backed proptech unicorn NoBroker is likely to soon join the Open Network for Digital Commerce (ONDC), becoming the first proptech platform to onboard the government-backed network, top sources privy to the development told Inc42.

The proptech startup is currently working on technical issues and will onboard ONDC as a buyer side app in a week or so, the sources added.

NoBroker and ONDC declined to comment on Inc42’s queries on the development. 

The development comes more than a month after NoBroker raised $5 Mn in an extended  Series E round from tech giant Google. Tiger Global, General Atlantic, and Moore Strategic Ventures are among the other marquee investors which participated in NoBroker’s Series E round. 

NoBroker joining ONDC’s buyer side apps will further the platform’s user base by bringing in people looking to rent, lease, buy, sell properties without the involvement of brokers. 

As a majority of workplaces have now returned to work-from-office mode after the pandemic-led disruption, property prices and rentals have spiked substantially across the country since last year, especially in metro cities, as per an analysis by another proptech platform MagicBricks. This in turn translates to more demand and business for platforms like NoBroker. 

Founded in 2014 by Saurabh Garg, Akhil Gupta and Amit Agarwal, NoBroker claims to be the largest real estate platform in India with a user base of 250 Mn and more than 10 Mn property listings. It also has tertiary real estate offerings, including packers and movers, rental agreement services and painting and cleaning for houses. 

NoBroker also operates a residential community management platform, NoBrokerHood, which offers services such as visitor management, financial management, home services, and community management, among others.

The startup became India’s first proptech unicorn in 2021 after raising $210 Mn in its Series E round.

ONDC Gathers Steam

Nearly a year after ONDC began its pilot phase in select cities, the network has expanded to multiple cities and is growing rapidly, having onboarded tech platforms across various industries in quick succession. 

Walmart-backed PhonePe recently launched hyperlocal commerce delivery app Pincode on the platform. In February, Amazon also announced that it would integrate its SmartCommerce services and logistics network with the ONDC.

According to a recent report, Axis Bank was also in talks with ONDC to launch a consumer-facing ecommerce platform on the network. However, the move has not materialised so far, the sources told Inc42.

In the mobility category, ONDC has onboarded Bengaluru-based auto booking app Namma Yatri. 

Besides, ONDC has also onboarded various logistics players like Shiprocket, Delhivery, Shadowfax, Loadshare, and Reliance-backed Grab. 

The sources also said that many other tech players across industries are lining up to join ONDC as it plans to expand to more cities in future.

The government has been touting the ONDC platform as the UPI for the ecommerce industry. It aims to democratise ecommerce in the country by enabling small businesses and retailers to become part of the growth in the sector. 

Riding on increasing internet and smartphone penetration, the ecommerce sector in the country has grown by leaps and bounds over the last few years and is estimated to become a $400 Bn opportunity by 2030.

The post Exclusive: Google-Backed NoBroker To Become The First Proptech Platform To Onboard ONDC appeared first on Inc42 Media.

OYO is going through a makeover. Synonymous with budget hotel stays, the SoftBank-backed startup is betting big on onboarding and providing booking for premium hotels along with setting up its properties.

Sources close to the development told Inc42 that the Ritesh Agarwal-led tech-first hotel chain is talking to premium 3- and 4-star hotels in India and setting up properties to get a juicy chunk of the country’s premium hospitality market.

Betting big on the post-Covid surge witnessed in business travel, OYO, in February, said that it was planning to add 1,800 more premium properties to its platform in 2023.

Bullish on expanding in the premium segment, which is dominated by a few players in India, the move can be seen as a major strategic shift by OYO, which was primarily founded as a budget hotel chain in 2012.

Interestingly, the reports of OYO’s plans to transition from the budget category to the premium segment have come at a time when industry experts are anticipating at least a few straight years of pent-up demand in travel, hotels and tourism verticals, after the Covid-19 lull that battered the hospitality industry.

By all means, OYO’s Agarwal wants to ride this wave, either by setting his eye on acquisitions for rapidly expanding into the premium segment or setting up OYO-owned properties. However, this effort will require moving to an asset-heavy business model and a lot of capital infusion. Well, that clears much air around the SoftBank-backed firm’s IPO plans.

OYO entered the premium segment in mid-2022 and added 400 properties to the platform in India alone. Since then, the Gurugram-headquartered firm’s revenue has shown steady growth, with the company posting its first EBITDA positive quarter in Q1 FY23.

What Fuels OYO’s Big-Ticket Bet?

According to industry experts, India’s hotel and travel segments are moving towards a natural progression of more demand and growth in the premium segment in both the inbound and domestic categories.

The CEO and founder of the Federation of Associations of Indian Tourism and Hospitality (FAITH), Ashish Gupta, told Inc42 that the travel and tourism, and hospitality industries are witnessing aggressive top-line growth for premium and mid-scale segments as India assumes a significant position globally.

“While the demand for budget hotels and cheaper stays has been high over the past several years, the luxury segment is now gaining a lot of traction as consumers look for better services, are ready to pay more in the name of leisure travel, adventure sports, culture tourism, etc. The growing market in the high-end segment will mean the entry of more players even as the vertical is largely dominated by a few players,” Gupta said.

In a recent note, ICICI securities reiterated a positive outlook for the luxury hotel segment in India. “FY23 began on a strong note for the hotel sector in terms of growth and margin expansion. With the full re-opening, corporate demand and MICE segment (meetings, incentives, conferences and exhibitions) joined the growth bandwagon in Q1FY23 while leisure continued to perform well,” the note read.

It added that many hotels have also raised room tariffs, without disturbing demand, which has led to a sharp revenue rise of over 24% versus pre-Covid levels.

Hospitality unicorn, OYO at the time of the announcement of its foray in the premium segment in 2022, had said that a lot of its corporate customers, conducting business over virtual meetings was a stopgap and sub-optimal solution.

“Such customers are leading the business travel revival. Meetings, incentives, conferences, and exhibitions are the other key use cases fuelling the growth of business travel,” Ankit Gupta, CEO, OYO.

Replicating Overseas Model In India

After scaling down its operations during the pandemic in some high-growth geographies like the UK, Europe, Malaysia, Indonesia and the US, OYO is back in these markets, with its focus on premium hotels and holiday homes.

The company also reported growth in its annual revenue run and gross booking values in these markets in 2022, after the impact of the Covid-19 pandemic waned.

The company said that it has recorded a 15x rise in the Indonesian market since 2018 when it started its operations there. In addition, the hospitality startup claims that its platform is the biggest hospitality tech aggregator in the region.

In the US, the firm has recorded a 46% increase in revenue per room ever since the pandemic hit the world. For the UK market, OYO claims to have received a 110% jump in revenue per room in 2022 versus 2020.

Last year, OYO acquired Danish vacation home Company Bornholmske Feriehuse for an undisclosed amount and Croatia-based hospitality service provider Direct Booker for $5.5 Mn.

The model that the Indian hospitality startup is focussed on in these markets is identifying the premium properties across key regions, equipping them with technological tools, increasing their visibility by onboarding them on its platform and helping them get an increased footfall.

“OYO will likely plan the acquisition model in India, too, against its minimum revenue guarantee strategy. The spurt in revenge travel and hotel bookings in the premium segment has led OYO to move towards this segment where the margins are also better compared to budget accommodations. However, this could also lead to an asset-heavy model, something which wouldn’t be cost-efficient,” a hospitality sector analyst said.

OYO’s premium hotel stay brands include Townhouse Oak, OYO Townhouse, Collection O, and Capital O.

While Townhouse is an amenity for millennial travellers with modern facilities, Townhouse Oak is a 4-star level accommodation provided by OYO’s partner hotels. Further, Collection O is a luxury hotel accommodation mostly for business travellers and Capital O offers 3- and 4-star accommodations.

Further, as part of its efforts to cut costs to become profitable, OYO quashed its minimum revenue guarantee plan last year. Under the plan, OYO would pay a fixed share from its gross revenue to its partner hotels.

“This was among some of the steps undertaken to cut costs and avoid litigations from hotel owners,” a source quoted above said.

There were challenges like violating the terms of the agreement, commissions share, etc. when OYO was earlier partnering with budget hotels, which attracted a lot of legal headache for the company as many hoteliers accused OYO of violating the clauses of its agreement with them.

However, the cost-cutting and re-strategisation efforts now seem to be bearing fruits. Last month, CEO Agarwal said that OYO was on its way to closing FY23 with a revenue of over INR 5,700 Cr as against INR 4,780 Cr in FY22.

He also added that the company was poised to achieve an EBITDA of nearly INR 800 Cr in FY24.

Can OYO Stand Neck And Neck With The Industry Mammoths?

Despite lucrative opportunities in the premium hotel segment, OYO’s attempt at grabbing a market share is fraught with challenges.

As per the ICICI Securities research note, the premium to midscale hotel sector is capital intensive, with higher operational costs. Furthermore, the segment is dominated by legacy players like Indian Hotels (which owns brands like Taj Vivanta and Ginger), EIH (Oberoi Hotels), and Lemon Tree Hotels in hospitality, and EaseMyTrip (EMT) in the online booking segment.

These players have been able to grab a maximum market share because they are cash rich and have the bandwidth to raise substantial capital to expand their operations.

“In particular, EaseMyTrip’s foray into hotel bookings will be an interesting thing to watch out for. Right now more than 90% of their revenue comes from air tickets booking, but hotel booking is a comparatively high margin business, so they may focus on the same,” a source said.

Therefore, Agarwal may have to raise money, achieve break-even, minimise operational costs quickly to focus on the next leg of growth and invest his money for the long term in India’s premium hospitality sector, an area where market gurus predict the growth to come from.

As of now, sources say that despite the headwinds that the public markets have faced, OYO still wants to try the IPO route to raise at least INR 4,000 Cr to fund its ‘premium’ ambition and pay off debts, including a $600 Mn Term B loan that the firm secured in July, 2021.

The post OYO Wants To Upgrade To Premium, But Does It Have Enough Gunpowder? appeared first on Inc42 Media.

Beema, Berozgaari, Beemari – these are not election slogans but something which the CEO and founder of insurtech startup InsuranceDekho Ankit Agrawal claims are the current challenges in the country that he is determined to resolve.

Agrawal, who hails from Begusarai, a town in the northern part of Bihar, and hits the road every few weeks, believes that the growth story of the county lies in its hinterlands – areas where InsuranceDekho bets big.

Although it may sound like a difficult task to convince people in the rural parts of the country about the importance of insurance, Agrawal says this market is ripe and awaiting a disruption.

The strategy seems to be working wonders for InsuranceDekho, which has reported a 61% YoY rise in its FY22 revenue and narrowed its losses, according to Agrawal.

Meanwhile, what has visibly helped the company is its LIC-like playbook of having a strong network of on-ground agents. According to Agrawal, the importance of in-person sales should not be underestimated.

Further, it is pertinent to note that the insurance platform recently joined India’s soonicorn list, after raising $150 Mn in one of the biggest Series A funding rounds in the ongoing funding winter. Interestingly Agrawal told Inc42 that he wasn’t a big fan of fancy tags like unicorn, soonicorn or decacorn.

“I am a Marwari by origin and do not believe in burning cash, rather building strong business fundamentals, with cost efficiencies – something that has helped me shape many of my business decisions,” InsuranceDekho’s boss said.

Incorporated as the insurance arm of CarDekho, an online car marketplace, in 2017, InsuranceDekho received $20 Mn from its parent firm Girnar Software in 2020. From there, it hived off to function separately.

In a Linkedin post, following the round, Praveen Sridharan of TVS Capital (one of the major investors of the funding round) mentioned that various features of InsuranceDekho, including its quality team, focus on sustainable growth, digital DNA, make the VC firm bullish about the startup.

Agrawal, who is quite fascinated with the way cockroach startups function and survive various business cycles, says that he started the organisation to simplify the insurance buying experience and serve customers by offering holistic solutions – a market disruption exercise that has brought him many fortunes.

Sharing his aspirations with Inc42, the founder said that he wanted his venture to outlive him and thrive as an industry leader, transforming the insurance space.

“The success of InsuranceDekho is a testimony that one does not need to invest millions in attracting customers. I want this organisation to outlive me, and become an industry leader that continues to transform the insurance sector into a customer-centric space for decades to come,” Agrawal said, adding that his venture has significantly disrupted the insurance market with limited resources – a lesson that only cockroach startups can help you learn.

“In the current environment, only cockroach startups can win – the ones that are frugal and can truly withstand the market turbulence and dwindling demand,” he added, lauding the series of articles on ‘The Year Of Cockroach Startups’ that Inc42 published in January and February.

All Eyes On The Insurance Pie

The insurance sector is going through a paradigm shift, thanks to the rise of insurtech players in the country, which are changing the conventional way of buying insurance policies by helping people explore opportunities that otherwise remained hidden via traditional sources.

According to the Insurance Regulatory and Development Authority (IRDAI) data, life insurance premiums are expected to reach a size of INR 24 Lakh Cr ($317.98 Bn) by FY31.

Further, Inc42 estimates that the insurtech space is growing at a CAGR of 57%. This means that between 2021 and 2025, the market opportunity for insurtech players is expected to rise by 6X.

Various factors like the insurance penetration of a mere 4.2% in India (according to IRDAI) and an increase in the disposable income of Indians have paved the way for more insurtech players to enter the space.

Despite the entry of soonicorns, unicorns and decacorns in the segment, an increasing number of players are eyeing this ripe market.

Some of these names include PolicyBazaar, Acko, Digit (unicorns), Turtlemint (soonicorn), and PhonePe (a decacorn that plans to enter the space).

Many insurtech companies, including Digit, Acko, and TurtleMint, primarily act as tech platforms to sell policies from various insurance firms. Acko most recently acquired the IRDAI licence to become the first tech startup to sell life insurance.

While PhonePe recently said that it will focus its investments towards offering insurance services, the erstwhile founder of Flipkart, Sachin Bansal, has become one of the first tech entrepreneurs to have ventured into the insurtech space through his financial services firm, Navi. Most recently, BharatPe’s former CEO and MD Ashneer Grover, too, hinted at his plans to venture into the space, in an exclusive interview with Inc42.

These are just a few of the many names that crop up when you scratch the surface and do not include conventional players like LIC or retail banks that are focussed on amping up their digital capabilities to capture a chunk of the burgeoning market.

The COVID-19 Boost

According to Agrawal, insurance was synonymous with LIC until a few years ago and was only looked at as a tax-saving measure by salaried folks.

But the COVID-19 pandemic changed this equation. The pandemic expedited the adoption and awareness of insurance among Indians in a way no marketing campaign could do so far.

This is particularly true for health insurance, which has seen a spurt in the number of claims being filed and premium collections since 2021. Vehicle insurance has also seen an uptick lately.

According to General Insurance Council statistics, the gross premium collections for health insurance in India (by only health insurance providers) for FY23 (until February, 2023) stood at INR 22,103 Cr, up 27.2% YoY from INR 17,370 Cr in FY22.

Similarly, gross premium collections for health insurance by general insurance providers stood at INR 59,892 Cr, up 22.7% YoY, in FY23 (until February 23) compared to INR 48,788 Cr in FY22.

For motor insurance, the gross premium collections grew 15.6% YoY to INR 72,860 Cr in FY23 (until February 23) from INR 63,05 Cr in FY22, according to the GIC data.

InsuranceDekho’s CEO wants to tap this sweet spot in the growing insurance industry. However, the approach of his new-age tech company is almost similar to that of LIC, which has over the decades sold its products via its network of agents.

Just like LIC, InsuranceDekho has partnered with 80,000 point of salespersons (PosPs) to sell non-life insurance across 98% of the pincodes in India.

In 2015, the IRDAI came up with a new distribution model of Point of Sales Persons (PoSPs), which allowed firms to hire people from various backgrounds and give them basic training to allow them to sell pre-underwritten insurance products to their customers.

InsuranceDekho had the first-mover advantage here, as it acquired the broking licence in 2017. PB Fintech, the parent firm of PolicyBazaar is one of the insurtech firms that obtained the broking licence in 2021.

Agrawal hates to draw parallels, and says that his seven-year-old startup is basically aiming to fill the voids, which the old insurance firms in India have not been able to.

“Even if we are deploying the field workers or our sales agents to sell policies, we are a tech-first company and hence that gives us an edge over the legacy firms when it comes to deploying technology right from premium collections to claims settlements. And the numbers speak for themselves,” he added.

Besides, the CEO said that when it comes to Tier 2 and 3 towns, the importance of in-person sales cannot be underestimated.

“I have been travelling widely which led me to believe that although smartphone penetration in the country is massive, people essentially use it for entertainment and content purposes and not investments, which puts the onus on traditional sales channels to convince them to pay for insurance,” the CEO said.

Is InsuranceDekho On The Right Track?

Despite its losses ballooning 56% to INR 72.29 Cr in FY22, the startup is aiming to break even by the end of the next financial year.

“The company’s operating revenue for the year ended March 2022 grew ~60% YoY to over INR 100 Cr (~$12 Mn). We have also managed to reduce our loss margin by more than 3 percentage points in the period. We are expecting to hit the premiums collection at an annual run rate of INR 3,500 Cr (~$427 Mn) in the year ending March 2023,” the CEO said.

In FY22, InsuranceDekho’s premium collections stood at INR 1057 Cr, so if the company hits the target, that would be a solid 3x jump in premium collections.

We did a comparative analysis of the premium collections of InsuranceDekho with some legacy insurance firms and its competitors and observed that the startup has actually better premium collection numbers compared to its counterparts in the space.

According to the InsuranceDekho chief, this could be attributed to the underpenetrated insurance market in India’s heartland and remote villages that the startup is trying to tap through its PoSP agent network and where the leading players do not have a significant presence.

Besides, the insurtech startup claims to provide employment to more than 80,000 people, including housewives, college students, and retired professionals.

Agrawal told Inc42 that, with his venture, he is trying to solve real problems of the country like unemployment and making people aware of the importance of health insurance.

Meanwhile, when we asked if the company faces challenges in collecting premiums from people based in the country’s smaller towns and regions, Agrawal said that the statistics portray a positive picture.

Fighting Goliaths Of The Insurance Space?

The insurance sector has attracted a lot of attention in the post-COVID era, with conglomerates like Reliance, cash-rich startups like PhonePe and many entrepreneurs planning their foray into the space.

Experts say that in the next five to seven years, the non-life insurance vertical is expected to see a huge inflow of capital, especially in Tier 2 towns and beyond where the market is still in its nascent stages.

Earlier, research firm Jefferies had said that Reliance aspires to foray into non-lending financial businesses – life, general insurance and AMC – where it can even take the inorganic route and benefit from recent regulatory changes that allow banks to have up to nine insurance partners.

While the government has eased sectoral regulations by allowing PoSPs to sell policies from multiple insurers, it will now tax individuals, on the maturity amount of life insurance policies, whose aggregate annual premium exceeds INR 5 Lakh.

InsuranceDekhho CEO, however, says that the number of insurance buyers who pay premiums in the range of INR 5 lakh and above is very less.

When asked if the entry of new players poses a threat, Agrawal said that the market is large and there are enough opportunities for all, including the big players.

“Besides, we are not even competing with LIC or other insurers. We are simply partnering with them and helping in speedy disbursals of policies and claim disposals,” he added.

One may argue that the PosP network deployed by InsuranceDekho, which works on a commission basis, looks cost heavy; however, Agrawal says that he has taken very calculated decisions on marketing, hiring spends and raising funds. Further, according to him, his venture has enough cash runway and they are a clear path to profitability, despite the competition getting intense.

The post How InsuranceDekho Mirrored LIC’s Agent Network Playbook To Disrupt India’s Non-Life Insurance Space appeared first on Inc42 Media.

BharatPe cofounder and former MD Ashneer Grover’s latest venture Third Unicorn Private Limited which he had claimed will be a “market-shaking business” is all set to launch an umbrella of products, following the rollout of the fantasy gaming app CrickPe.

In a no-holds-barred interaction with Inc42, Grover revealed why he’s bullish about the CrickPe model and said Third Unicorn has already raised $5 Mn (INR 40 Cr) at a valuation of close to $36 Mn (INR 290 Cr). He claims this is one of the highest valuations received by a seed-stage startup in 2023.

Launched in January 2023, Third Unicorn has been backed by celebrities such as musician Badshah as well as food giant Haldiram’s family office (reported previously) and early stage fund Venture Catalysts.

But CrickPe is just the first of many products being planned by Third Unicorn. The outspoken entrepreneur revealed that the company will also enter the insurance space in the near future (more on this below).

Further, Grover claimed CrickPe is aiming to become profitable by the end of this year’s IPL season. And despite the heavy competition in this space including unicorns such as Dream11, Games24x7 and MPL, Grover insisted that CrickPe will not spend lavishly on marketing campaigns or brand endorsements with cricketers.

Of course, it’s hard to look at anything Grover does without the BharatPe lens. CrickPe’s launch comes at a time when Grover is caught between multiple lawsuits filed by his former company and its cofounders. The company and its former MD have been embroiled in a public drama for the past year over alleged irregularities in operations and financial reporting.

Subsequently, a public row erupted, Ashneer’s wife Madhuri Jain Grover was also ousted from BharatPe, and the company is now looking to claw back the shares that Ashneer held.

There’s the INR 88.7 Cr defamation suit filed by the fintech unicorn and two other cases filed by BharatPe’s other cofounders Bhavik Koladiya and Shashvat Nakrani. Grover said he is only a call away when it comes to settling these legal disputes, but with conditions for whom he will talk to.

In his characteristic blunt style, Grover opened up about why he believes CrickPe will succeed, the Third Unicorn product roadmap, and of course the legal tussles with his former company.

Edited excerpts:

Inc42: You are launching CrickPe at a time when the fantasy gaming space is already crowded with so many major players. Do consumers really need another such app in the market?

Ashneer Grover: You never know what consumers need unless they try the product.

When I started BharatPe, Paytm was valued at $16 Bn. In 2018, when I launched BharatPe’s QR code we had competitors such as Paytm, PhonePe and Google Pay. The top five payment companies in India were backed by global tech giants. Everyone had raised good money and had great backers. But that didn’t stop me from building a business. Ultimately, it is the product that matters.

I am very clear in my life that I don’t have to prove anything to anyone. It is not a comeback as many are saying. What do I have to prove? I am doing things now which according to me will create a bigger impact.

Not necessarily societal impact. I don’t claim to be a mahatma or bhagwan ka aadmi (godman). But the impact is fundamentally about what is missing in the market and what creates value.

Inc42: How will CrickPe be any different than any other app though?

Ashneer Grover: CrickPe is a simple fantasy game at its core. While we are starting with IPL, I am very clear that I am going to restrict my app to only games where India is playing.

Fantasy as a space is big and it is becoming bigger. I don’t believe too much in card games, poker, rummy. I am focussed on cricket. On the revenue side, cricket has over 80% share in fantasy gaming.

I want a share of this huge market, and I am not going to foray into other gaming.

In general, in cricket fantasy apps, from a pot of INR 100 Cr, INR 20 Cr is reserved by the platform and INR 80 Cr is distributed in the prize pool. My core question is why are cricketers not being paid from this total.

So we have tried to do it this way: INR 80 Cr as winnings for users, INR 10 Cr will be kept as a profit pool by the app and INR 10 Cr will be distributed to cricket bodies and cricketers.

Out of INR 10 Cr, 1.5% is given to the Board of Control for Cricket in India (BCCI), another 1.5% to two participating teams and rest will be distributed to the cricketers on the basis of their performance.

We want to bring the fans closer to the cricketer through the platform and also make it a monetisation tool for cricketers.

Inc42: One can argue that cricketers don’t need another monetisation tool given they earn crores from other endorsements and for playing for their teams

Ashneer Grover: Yes, cricketers earn more through endorsements, but this is also a negative.

As a nation we are cricket crazy. By rewarding cricketers for their performance, we are removing one point of friction between fans and cricketers.

For instance, in the IPL, a player is auctioned and his salary is fixed before he actually performs. But if he does not perform, he is trolled in the public. Similarly, cricketers get criticised for making money through ads, especially when they aren’t performing on the field.

What I want to do is bring positive change in this regard i.e. reward cricketers on the basis of performance. I want to make sports meritocratic – the money goes to the player who performs best in sport, not the one who acts best in front of the camera.

CrickPe users will also be able to see how much each cricketer is winning or won at the end of each match. This way the user feels closer to the game. They see their name against their favourite cricketers, which adds an element of relatability which is currently missing in fantasy games.

The Supreme Court said it is a game of skill, but many people still consider it similar to betting, because the prize money is getting distributed among anonymous users, but the moment you add the idea that cricketers are also getting paid, it changes the game.

Inc42: Before we move ahead, what is your obsession with the suffix ‘Pe’? CrickPe sounds very similar to BharatPe.

Ashneer Grover: I actually fought cases and ensured that there is no monopoly on the word ‘Pe’, including against PhonePe. Secondly, this is about what CrickPe will offer — i.e. we pay cricketers.

Inc42: But why would international cricketers who are playing leagues like IPL need the money from a fantasy gaming app?

Ashneer Grover: It is like saying why would Mukesh Ambani need more money. He has billions already. Do you go around asking him why he needs more money?

Let’s say you are an ugly looking cricketer, so you don’t get ads. You can’t just survive on what you earn on the field. Even they need more sources of income, especially if they perform well.

Doing ads has become the default source of money. It is not the additional money, but the nature of the money. It is for the first time a cricketer will believe that I am being paid more money for actually doing good work. Over time, this prize money can become much higher than the ads money,

I will give you the maths. India has the world’s largest fantasy gaming market. It’s a INR 40,000 Cr opportunity in cricket alone.

There are roughly 100 days of cricket in a year which involves Indian players as per our estimates. So each INR 400 Cr of fantasy gaming for every day that cricket is played.

If at all I am able to move a majority of the cricket fantasy gaming to my app and If I pay INR 40 Cr or 10% of that INR 400 Cr to the cricket boards and cricketers, that’s so much more than what they earn from a single match day.

I am happy to see what people can’t see. For instance, if Virat Kohli wins the player of the match award, he gets something like INR 20 Lakh. But with CrickPe, he could even earn INR 20 Cr from the same match.

Eventually, I will make sure Dream11, MPL will move to this.

Inc42: But where does this money pool come from?

Ashneer Grover: The money pool comes from users who join the contest and make their fantasy teams. The first contest for any player worth INR 50 will be provided by the CrickPe. But later, the money pool comes from the people.

Inc42: Fantasy gaming or real money gaming has invited regulatory attention and there are litigations going on in various states. Many have also banned online gaming. The industry is fraught with challenges. How do you plan to deal with that?

Ashneer Grover: I come from the fintech world, where regulation is everything.

Regulations have not banned real money games but allowed us to operate within limits. The challenge here is that lawmakers, politicians consider fantasy gaming as gambling when the Supreme Court says it is a skill game. For the last 10 years, the gaming industry including Dream11 have fought the battle that fantasy gaming is a skill game and ensured that app stores at least list these apps.

I have done enough research on BCCI’s anti-corruption norms and hired the best lawyers to ensure that there is no confusion with unethical practices.

What I am essentially giving to the BCCI, any state cricket board and cricketers is a gift from my platform. I would not enter into any direct contract with anyone. It is simply an independent reward from us. We are also going to have TDS for such payouts. BCCI regulations require the cricketers to disclose gifts they have received from third parties, which I will be doing on my app anyway.

Unethical practices like match-fixing arise when one pays cricketers before matches are played to influence the outcome of the game. But in this scenario, there is zero contact with any cricketer. I also don’t intend to employ or hire any cricketer as a brand ambassador of CrickPe since I want to maintain the sanctity of the platform.

Inc42: There are challenges related to advertising real money games in a few cities. How are you going to go about marketing CrickPe?

Ashneer Grover: I am not even doing a TV campaign. We will purely rely on social media campaigns that we can restrict via geography. I want to make a profitable business. I want to come out of the first IPL with profit with fewer costs. I am trying to do something audacious.

What Dream11, MPL spends in one marketing campaign is what I have just raised so far. So I am going to compete with these companies through innovation and not capital.

The moment the first match happens and people learn that a cricketer has won an award through CrickPe, it will create intrigue. When a match ends, the users will want to know two things: How much I won and how much the cricketer won?

What was Shark Tank? At the end of the day, we Indians want to see money moving hands. I am trying to do exactly the same thing with this fantasy app.

Inc42: How will you tackle the high customer acquisition costs in fantasy gaming where platforms have to burn money to add users?

Ashneer Grover: I am in a privileged situation. I am utilising my personal brand. If I have a strong social media game, it is a good thing. You will see me in CrickPe’s ad campaign as well. I am a strong believer in creating a personal brand.

I went to Shark Tank to create my personal brand. It is a stupid thing that you are investing INR 8 Cr every year without anything to show against it.

I have no qualms in accepting I am one of the strongest personal brands in the country now. Of course, I am going to leverage this to expand my business. And CrickPe pe will not be the only product coming out of Third Unicorn

Inc42: So what’s next? And who are the people building these products? In what capacity is Madhuri Jain Grover associated with Third Unicorn Ventures?

Ashneer Grover: Madhuri is the cofounder. I don’t want to reveal right now what the next product is going to be, but if you are in the insurance space you should be very scared. If you are a VC and you are investing in the insurance sector, be scared.

That is all I can say at this point.

Inc42: And what about the fundraising for Third Unicorn? You had earlier said that the capital raised will be from homegrown investors.

Ashneer Grover: We have raised INR 40 Cr ($5 Mn), the pre-money valuation is INR 250 Cr and the post-money valuation is INR 290 Cr. This will be utilised in CrickPe and other products that Third Unicorn launches. I want to go down the path of raising limited capital. For the development of CrickPe, we have spent zero rupees.

While raising INR 40 Cr, there was a dilution of 13-14%. In fact, it is one of the biggest seed rounds in terms of the post-money valuation in current times. I am also not going to raise any VC money that come with terms attached. I have made it clear in my book Doglapan that Third Unicorn is going to be run by my wife and I as cofounders. One more cofounder will become the director, if he wishes to. No one else will have a board seat.

I have raised money from some very solid people in India. These include Venture Catalysts, Haldiram family office, rapper Badshah, cricketer Shikhar Dhawan’s venture capital fund Da-One Ventures and Mumbai-based content creator firm Super Fat Studios.

These are people who have earned money through their own work. I am actually happy talking to businessmen in the country who want to invest small amounts.

When you are starting a startup, you want to scale up, and hire in mass. But this is the third startup I am building and I am very clear that I will not be a mass employer. The whole CrickPe app has been created by a team of less than 10 people including me. In any other startup, you will find ten people at the reception desk alone.

We also aren’t going to give ESOPs to employees. I think the Indian ESOP system is completely broken. It needs an overhaul. Till that happens, I am not going to subject my employees to losses.

Employees haven’t made any gains on ESOPs, even during IPOs, because of the taxes they have to pay. But I will surely give cash bonuses and rewards to my employees.

Inc42: This sounds similar to what you had said as BharatPe MD that you will give BMW bikes to employees.

Ashneer Grover: Everyone in my company is aligned to making profits in terms of cash rewards. We aren’t hiring anymore. There are lakhs of CVs in my inbox.

There is a lot of disguised employment in the Indian startups which is now coming out as layoffs in the downturn. I don’t want to do that.

Inc42: You are battling court cases against BharatPe, Shashvat Nakrani and Bhavik Koladiya. Quite hectic at your end! Will you finally arrive at a settlement with BharatPe?

Ashneer Grover: It is not hectic at my end at all. It is hectic for those who want to drive an agenda.

I cannot comment on anything which is in court. Everyone in the market knows my narrative. Just adding one case after another doesn’t make you truthful. The more cases you file, the more frivolous this looks. I haven’t taken them to court.

If anyone wants to talk to me, I am a phone call away. I am not going to file any litigation. I don’t want to waste my time.

Inc42: So the phone call offer is for BharatPe’s Rajnish Kumar or Koladiya and Nakrani?

Ashneer Grover: No, I don’t talk to puppets.

Update | 27th March, 22:50

Names of the celebrity investors have been updated on company’s request.

The post Exclusive: Inside Ashneer Grover’s Third Unicorn – CrickPe’s Funding & Future, Insurance Play & More appeared first on Inc42 Media.

As a CEO when you wake up to a phone call from your chartered accountant (CA), you know that something is amiss somewhere. This is exactly how Pranav Ahuja, the CEO of Delhi-based SaaS startup Xeno, shared his experience after he heard the news of the Silicon Valley Bank (SVB) collapse from his CA on March 10.

Ahuja had high exposure to SVB. More than 60% of his startup’s funds were parked in the US-based startup and tech-focused bank, SVB. Not only this, the amount was more than the Federal Deposit Insurance Corporation’s (FDIC) insured limit of $250,000.

When a business that you have nurtured over the years looks like it is on the brink of shutting down, you can only do what is in your control, Ahuja said.

“Caught in the eye of the SVB storm, I spent the entire weekend making calls to the bank’s customer care executives, who directed me to a link to settle the claims for depositors with more than $250,000 in the bank. But the link wasn’t working. I then thought that the regulator, FDIC, must be working on operational efficiencies to address customer grievances,” Ahuja said.

Daunted by concerns of running the show over the next month, Ahuja said he started making frantic calls to his investors. “I pretty much thought that we may have to wind up,” he added.

Speaking with Inc42, the CEO said that he knew at least five to seven CEOs of Indian startups who, too, had all their funds parked in the bank.

“The situation was worrying and the livelihood of both employers and employees hung in the balance,” he added.

Ahuja’s harrowing experiences of the weekend were almost similar to the cofounder of edtech firm RISE, Mubeen Masudi, who told Inc42 that 100% of his company’s funds were parked in SVB.

“We never felt any need to put our money in any other bank because banking with SVB had always been smooth. The rapport that SVB held with the startup ecosystem and among investors was excellent. So, it never occurred to us that the bank would collapse,” Masudi said.

He added that there were many failed attempts by founders like him to wire the money to other bank accounts on Friday, but by then the FDIC took the reins of SVB and it felt like the game was over.

“In the hope to salvage their funds, some founders got themselves registered on US-based fintech platforms like Mercury and Brex but to no avail. At the first opportunity that emerged from the crisis, these US-based fintechs lept on grabbing new users, however, couldn’t do much as the money remained stuck,” the cofounder added.

It is pertinent to mention here that a few startup founders, even with lesser exposure to SVB, are still facing the issue of wiring their money back to India.

The CEO and cofounder of Indian agritech startup Harvesting, Ruchit Garg, panicked when he heard about the SVB collapse on March 10. Fortunately, he did not have high exposure to the bank.

“Luckily, my company’s exposure to SVB was not 100%, and we only had some deposits in the bank. Incidentally, on Thursday, I transferred the money to my Indian bank accounts, and although the SVB website showed that the money had been wired, I didn’t receive any. But there was nothing we could do but to keep a close watch on the developments panning in the US over the weekend,” Garg told Inc42.

For someone like Vinayak Sharma, the founder of Hyderabad-based Byteridge, although the exposure to SVB may not be high, he has been on his toes for the last eight days to get his money wired back to India.

“We have made many calls to our SVB relationship manager, and while the funds are accessible right now, they can only be transferred within the US and not to India. We have written to the bank authorities seeking clarity on this,” Sharma said.

When Y Combinator Startups Stood On The Verge Of Collapse

According to several industry sources, hundreds of Indian startups backed by Y Combinator have high exposure (at least 60% of their funds) to SVB. The same is true for many Indian SaaS companies and some early and mid-sized organisations.

A veteran VC investor told Inc42 that all reports that suggested a minuscule impact of the SVB collapse on the Indian startup ecosystem were incorrect.

“If the situation wasn’t brought under control, at least 1,000 startups from India would have taken a hit, impacting their cash runways, operations, and employee salaries, or even worse,” the investor, who did not wish to be named, said.

A poll on Y Combinator’s WhatsApp Group, after the SVB collapse, indicated that 40 founders in that group had funds in the range of $5 Mn – 10 Mn each.

Sources added that the challenge was particularly high for Y Combinator-backed startups because of an undertaking signed with the accelerator that they will have their base in the US and deposits in US banks.

“These contracts cannot be executed in India,” a startup founder said. According to our sources, even growth to late-stage startups like Khatabook, Filo, Zepto, and Meesho have high exposure to SVB.

“There were rumours that Meesho alone had $300 Mn worth of deposits in SVB, and given that Y Combinator is a major stakeholder in Zepto, the probability of them having hefty deposits in SVB is quite high,” a source with knowledge of the matter said. Inc42 couldn’t independently verify these rumours.

In a response to Inc42, Meesho’s CFO Dhiresh Bansal clarified that the company is not impacted by the SVB closure. “On the day of the SVB closure, we did not have any outstanding deposits or other exposure in SVB,” he said.

Interestingly, Y Combinator changed its model of investing last year. The accelerator now invests a minimum of $500K, which means that most startups in its portfolio likely had deposits of more than $250,000 in SVB.

On Sunday, Y Combinator had nearly 20,000 founders sign a petition seeking urgent relief for small businesses and startups. The plea was addressed to Treasury secretary Janet Yellen, FDIC chairman Martin J. Gruenberg, Senate Banking chairman Sherrod Brown, and chairman of the House Financial Services Committee Patrick McHenry.

Among those who signed the petition were Zepto’s CEO and cofounder Aadit Palicha and many other Indian founders operating in the US, Canada and the UK.

Sources privy to the matter said that a WhatsApp group was constituted overnight by several Y Combinator-backed startup founders who were panicking amid concerns about raising emergency funds to somehow pay the salaries for the month of March.

Some founders in the WhatsApp group were inquiring about the duration of the waiting period to access their deposits of more than $250,000. And there were discussions around how 95% of bank deposits were not even insured, sources said.

“I also know of a self-help group that came into being on Friday where founders were willing to offer emergency funds to those who had their funds stuck in SVB,” Masudi said.

Founders Laud A Prompt Regulatory Intervention

At a time when many founders like Garg were expecting some clarity on Monday (March 13), the US government and the FDIC swung into action and released a statement announcing that the deposits, including those beyond the standard insurance sum of $250,000, were secure and would be made accessible.

Garg says that this came as a pleasant surprise because founders and investors were not expecting 100% of their deposits back that early.

“The regulator’s stance should be appreciated by one and all. The constant communication by the FDIC and the US government did calm the nerves of many as the prompt action followed,” Garg added.

The founder of ByteRidge, Vinayak Sharma, said, over the years, both the US and India have developed strong regulatory bodies to oversee any financial crisis and hence the action by the FDIC was on the expected lines.

Masudi of RISE said, “If you look at the history of US banking collapses, you will find that the government has always come to the rescue of depositors first.”

Diversify, Diversify, Diversify!

If there is one lesson that Indian startup founders and investors should learn from this entire episode, it is all about the diversification of funds – a key teaching that is being preached over and over again by social media abbots on platforms such as Linkedin and Twitter since the SVB saga has unfolded.

In his candid conversation, Ahuja told Inc42 that while networking with other founders, he would often talk about opening alternative accounts in Indian banks and availing tax benefits announced for the GIFT City.

But it is only after the SVB grind that many are realising this. Many were seen opening accounts in Indian banks after the SVB fiasco.

In fact, a fintech investor told Inc42 that one of the largest private banks in India, ICICI, had a waiting list of 200 accounts to be opened on Friday from startup founders.

“A sense has grown that diversification of investments is key in avoiding any major spillovers of a financial crisis that one bank or a country may go through,” the investor added.

“Not just this, founders have suddenly become interested in turning towards the GIFT IFSC and parking their money there. This makes sense since it involves smooth transfers and the regulations have also been eased,” Vikram Chachra, the founding partner of 8i Ventures, said.

For now, as the nightmare has ended for many on the back of the prompt intervention by the US authorities, one thing that stood out the most was many founders and investors came forward to each other’s rescue.

Read More: Will SVB Collapse Accelerate Reverse Flipping Of Startups To India?

Two of the biggest names in the global VC ecosystem, Open AI CEO Sam Altman and venture capitalist Vinod Khosla, offered personal capital to startups that were on the verge of shutting down due to the SVB collapse.

Meanwhile, analysts the Inc42 spoke with have unanimously highlighted the need to build sustainable startups as industries and businesses today are vulnerable to financial crises that can be triggered anywhere in this hyper-connected world.

Update | 20th March, 18:20 IST

The story has been updated to include Meesho’s statement.

The post A Weekend Of Terror: How Indian Startup Founders Endured The SVB Collapse appeared first on Inc42 Media.

The maxim goes there’s no such thing as a free lunch. But late last year when ShareChat announced its decision to revoke daily issuance of Zomato coupons worth INR 250 to its roughly 2,800 employees, the response was a three-ring meme circus on the company’s Slack channels. 

The memes were one way for employees to speak out on the company’s decision to suddenly end the daily meal perk. However, perhaps no one anticipated the tide of misfortune lurking ahead. ShareChat’s decision to keep its workforce on a diet (pun intended) was just the beginning.   

“It reminded us of what Elon Musk did when he acquired Twitter. He stopped the free lunches at the Twitter headquarters,” a former ShareChat employee told Inc42.

Guffaws soon turned into frowns, triggering an era of palpitations. ShareChat put several employees on performance improvement plans (PIPs), which eventually resulted in the reduction of the workforce by 10%. This included layoffs at Jeet11, which was subsequently shut down in December 2022.

But that was not the end of the downsizing. The 10% layoffs in December were followed by another 20% of the workforce being asked to leave in January, as per sources close to the development. 

ShareChat denies that the PIPs led to large-scale layoffs. “Last year, we introduced a company-wide ‘raise the bar’ programme. This is common for all large organisations as a mechanism to improve productivity within the company. This programme resulted in less than 2% involuntary attrition from our total employee base. Claims of a reduction of 10% in the workforce are absolutely incorrect,” a company spokesperson said.

Despite this, there are questions about the social media unicorn’s splurging on employee benefits and other perks, which led to a series of cutbacks that have left the company reeling. But the problems run deeper than just meal coupons, layoffs or the PIP issue.

To make matters worse, many of ShareChat’s acquisitions have not exactly fit in well or added value to the business as expected. With its user base and engagement also shrinking, ShareChat’s story is fast unravelling. But how did the company lose its way so badly?

The Exodus At The Top

The fact that the layoffs happened amid a string of top-level exits at ShareChat in November and December 2022 only made things worse for the startup. The high-profile exits included the chief commercial officer Ajit Varghese, head of commerce Nishad Shah, and other key roles such as senior directors of AI, ML, monetisation and live commerce, and content head at Moj. 

Despite reassurances from cofounder and CEO Ankush Sachdeva and CFO Manohar Charan about the company’s cash runway, things did not seem to be going well.

And then two of the company’s cofounders – chief technology officer Bhanu Pratap Singh and chief operating officer Farid Ahsan – also moved on from their respective roles, bringing the limelight on ShareChat’s work culture, operations, and financial state.

A former executive at the company told us that Singh and Ahsan had already stepped away from ops even before the announcement of his exit. “Bhanu stopped involving himself in day-to-day operations. In fact, we would hardly see him in meetings. Farid was not as active as he was earlier. It was more like Ankush and Manohar (the current CFO) were running the entire show,” a former ShareChat executive said.

The ShareChat Fairy Tale 

With the emergence of the work from home model during the peak pandemic time, the Indian startup ecosystem witnessed aggressive hiring trends. As VCs pumped in dollars, many new-age tech firms went ballistic on attracting top talent, offering fat pay cheques and big bonuses for several roles. 

Between 2020 and 2021, ShareChat hired more than 50% of its workforce and offered competitive salaries to many across various job roles, sources told us. 

While the company declined to share its hiring numbers from that time, a former employee at ShareChat said, along with an array of employee benefits, the bonuses offered by the company were unparalleled. 

ShareChat also hired data scientists from the UK, Russia and the US to build an artificial intelligence lab in the US, sources said. Some top executives who were hired last year include head of FMCG vertical Prasanna Raman (earlier with Snap); head of agency business Rabe Iyer (earlier with Wavemaker & Reliance), and chief product officer Amit Zunjarwad (the head of engineering at Flipkart earlier).

As per HR platform Levels.FYI, ShareChat offered salaries to the tune of INR 39.7 Lakh a year to software development engineers, INR 36.8 Lakh a year to product managers and INR 60.5 Lakh per annum to data scientists. 

As the company expanded its workforce pool, it tied-up with coworking firm WeWork to provide workspaces to its employees outside Delhi, Mumbai, and Gurugram— the cities where the company has its offices. 

Former employees we spoke to said that the measures were definitely progressive, but not sustainable. For instance, since most of these new engineers were hired for remote roles, the company arranged for a work retreat or offsite in Udaipur.

There were other employee engagement measures as well. In March 2022, the startup said it would give special leave allowances and packages for childcare, fertility, and adoption to its women employees. ShareChat also said that it would pay INR 7,000 a month as nanny expenses to women employees that have children under the age of six. 

“At the time of laying off, the company let us keep the laptops and smartphones that it had issued. Plus, the range of salaries that they offered was unmatchable. Now that I am hunting for a job, no company is offering me what ShareChat once did,” a former content strategist said.

The Pandemic Shot In The Arm 

ShareChat’s growth story picked up momentum during the peak pandemic year of 2021, with the highest-ever funding ($913 Mn) raised by a startup in that year. Soon, in 2022, the company joined hands with investors such as Google, Temasek, and Times Internet to raise another $255 Mn at a 5x valuation jump to $5 Bn.

The pitch that ShareChat gave investors was simple: India is a daily active user (DAU) factory, and if the company onboarded millions of users, monetisation will be the next logical step. 

The user base claims were somewhat justified. ShareChat was sitting on a huge user base of nearly 400 Mn in 2022, including the users on short video apps Moj and MX TakaTak, which the company acquired from Times Internet.

Despite these millions of users, ShareChat’s ambition of being India’s answer to Meta or Twitter did not really work out. This unicorn aimed to target the segments beyond metros i.e in Tier 2 and 3 towns and beyond with regional language content, which has been something of a challenge for Facebook and Twitter.

Experts argue that the targets in terms of revenue and user monetisation weren’t realistic enough, as they were influenced by the boost witnessed during the peak of the pandemic.

“The pandemic-induced lockdowns made people spend more time online. But as the pandemic waned, social media platforms started experiencing degrowth in engagement and revenue,” a Delhi-based social media content strategist said.

Data sourced for engagement and downloads highlight this slowdown. In January 2021, ShareChat had a daily active user (DAU) base of 8.2 Mn, which fell to 5.9 Mn in January 2022 and then to 5.3 Mn in January 2023, according to app intelligence platform Apptopia. Further data for average monthly downloads shows a 50%-plus decline between January 2021 (6.8 Mn) and January 2023 (3.1 Mn). 

But besides splurging on employees and acquiring users, ShareChat also went the inorganic route for growth, and this too has complicated the situation for the unicorn. 

When Acquisitions Cost You Dearly

While reports indicate that ShareChat acquired six companies to bolster its content to commerce businesses in the past two years, there are some gaps in this narrative too. 

The acquisitions include short video app Clip; fashion peer-to-peer marketplace Elanic; news and information platform Circle Internet; meme sharing app Memer; artists and brands distribution platform HPF Films, and short video platform MX TakaTak. 

Except for MX TakaTak, ShareChat has not disclosed the financial details of the acquisitions. As per sources, ShareChat spent close to $1 Bn for these acquisitions, with the MX TakaTak buyout being a cash-and-stock deal worth $700 Mn.

When asked about the acquisition costs, ShareChat declined to comment on the financial details of the deals, and also completely denied acquiring HPF Films and Circle Internet. 

The spokesperson insisted that the company has only made four acquisitions — Clip, Elanic, Memer and MX TakaTak. 

This was contrary to announcements of the acquisitions of HPF in September 2020 and Circle Internet in August 2020. So the question is why ShareChat was distancing itself from two acquisitions which are clearly in the public record.

Regardless of the official stance, there are indications that these acquisitions happened. For instance, HPF Films’ cofounder and COO Navin Lalwani’s LinkedIn profile claims the company was ‘Acquired by ShareChat’.  

The story behind the contested acquisition of Circle Internet is perhaps even more interesting.

At the time of the announcement in August 2020, Circle Internet’s CEO and cofounder Shashank Shekhar was quoted as saying, “I am doubly excited to start my second innings at ShareChat.”

According to Shekhar’s Linkedin profile, he worked at ShareChat as the head of content from December 2016 to May 2018, and in June 2018 launched Circle Internet. Currently, he claims to be the cofounder and CEO of Circle Internet, and a senior director of content strategy & operations at ShareChat.

Even if we go by the company’s latest statement that these two acquisitions never happened, there are many red flags about the merit of these acquisitions and integration into the core ShareChat platform. 

No Country For Cashburn

The idea was to integrate the features of the acquired platform into the Sharechat app to enhance its social commerce and short video play, but this did not work out as smoothly as expected. “The employees from these companies were absorbed by ShareChat. However, some of the experiments failed, which resulted in an added cost burden for the company,” a former employee said.

For instance, introducing features like in-app rewards or coins failed because of the transaction size. “Features like live chat rooms where creators and influencers would receive cash rewards from other users were unique. But the transaction size was too low to keep creators glued to the platform,” the source added.

As the experiments failed, ShareChat shuttered its fantasy gaming app Jeet11 and the live commerce vertical. Earlier, we had exclusively reported that the Google-backed Sharechat shut down its social commerce vertical in December 2022, but the company described this as a temporary scaledown.

Other sources say that the issues related to monetising content on Moj and MX TakaTak still persist, especially amongst audiences in northern India. This is in line with the overall decline in engagement and downloads for the short video segment.

“Moj has got them reasonable traction in some parts of southern India. Much will depend on how the MX TakaTak acquisition will play out in the coming months. They have come up with experimentations like Moj Plus and Moj Lite+ to create new monetisation avenues,” a source with knowledge of the matter said.

Inc42 has learnt that after downsizing the workforce, ShareChat also cut off ties with some marketing agencies to save costs. “In a way, the MX TakaTak acquisition was aimed to conquer the influencer universe and was expected to help in user growth and monetisation,” a source said.  

But monetisation remains an elusive goal for Google-backed ShareChat and other Indian social media apps. ShareChat and Moj parent Mohalla Tech Pvt Ltd reported a 4.3X jump in revenue to INR 419.2 Cr  in FY22, but its loss surged 2.1x YoY to INR 1,183 Cr on the back of business development and employee expenses.

While responding to Inc42’s questions on cost-cutting measures, ShareChat said, “Every well-run company operates that way. Have we become more frugal in our spending? Yes! We are indexing more on growth through organic means and retention improvements.”

Of course, this is a standard response by many companies in the current downturn. There’s little doubt that ShareChat is not the only company that has seen rough times since 2022. 

But ShareChat’s track record of haphazard acquisitions, the exodus of leaders and founders, splurging on employee benefits and streak of failed product experimentation leave the unicorn exposed to the brutal elements of the startup winter. 

The post Dud Acquisitions, User Attrition & Founder Exits: How Google-Backed ShareChat Is Faltering appeared first on Inc42 Media.

Pune-based fitness startup Fittr has laid off nearly 11% of its workforce, the company told Inc42 in an email statement, responding to a related query.     

Though, as per the company, the number of laid off employees stands at around 30, sources close to the development informed us that the startup has laid off nearly 60 employees, including coaches/trainers, since last year.

“The layoffs have happened across marketing, sales, client servicing and tech teams,” a source said.

In the statement, the cofounder and  CEO of Fittr, Jitendra Chouksey, said the company had to let go of people due to role redundancy (11% of the total workforce in a span of 6-8 months). “Meanwhile, we did hire to backfill certain critical positions,” Chouksey added.

Chouksey further claimed that the startup saw a surge in hiring post-COVID on the back of hyper-growth in the business.

Founded in 2016 by Jitendra Chouksey, Sonal Singh, Jyoti Dabas, Bala Krishna Reddy and Rohit Chattopadhyay, Fittr (previously SQUATS) was launched as a fitness community platform on WhatsApp. The community-driven application helps people attain their fitness goals — gaining or losing weight or generally keeping fit.

In a freemium model, services such as resolving queries about individual fitness regime is free. At the same time, it charges a fee for offering fitness coaches, who will create personalised diets and exercise regimes.

“Now, in the stabilisation phase, it is prudent to realign a few roles with the future growth plans of the company, new benchmarks and skill sets. Therefore, we have had to let go of a few employees who were hired during this hyper-growth period. We are always happy to see our employees finishing 5 and 6 years with us. In fact, we have a good number of employees who have completed more than 5 years with us. They are part of our journey,” the Fittr CEO said. 

“Addressing role redundancy and having focus-driven employees will help us create a more performance-oriented team. It is pertinent to note that some of those employees have resigned voluntarily as they had received better offers and were looking for a career shift,” he added.

Digital wellness platforms received a temporary setback during the initial phases of the pandemic, but it recovered sharply after users flooded online platforms as physical training centres/gyms remained closed. 

According to Fittr’s MCA filings, it slipped into losses in FY22. The startup registered a loss of INR 25.2 Cr in FY22 against a profit of INR 49.04 Lakh in FY21, even though its revenue from operations rose to INR 83.05 Cr in FY22 from INR 52.7 Cr in FY21.

In an interview with the Hindu BusinessLine in July 2022, Fittr cofounder Jyoti Dabbas had earlier said that the company closed FY22 with revenues to the tune of INR 100 Cr. She also claimed that the healthtech startup is aiming to double its revenue to INR 200 Cr in FY23 and expand operations by onboarding 1,000 additional coaches.

The fitness startup last raised $11.5 Mn in September 2021 from Dream Capital and Elysian Park Ventures. It also counts Sequoia Capital India’s Surge amongst its investors. 

Fittr joins the long list of Indian startups who have trimmed their workforce since the onset of funding winter. Overall, we have seen over 22,900 employees being impacted amid layoffs at 79 startups. In the healthtech sector, seven healthtech startups have conducted layoffs impacting over 1,735 employees.

The post Exclusive: Fittr Lays Off 11% Workforce After Slipping Into Losses in FY22 appeared first on Inc42 Media.

Marking its second acquisition, payments solutions firm Cashfree has acquired one-click checkout company Zecpe. Although Cashfree hasn’t disclosed the financials involved in the deal, sources told Inc42 that the deal may have valued Zecpe at $10 Mn – $12 Mn.

As part of the deal, the founder of Zecpe, Hriday Agarwal, will join the Cashfree Payments team as the head of ecommerce checkout. The employees of Zecpe will also join Cashfree Payments to help scale the product.

Cashfree, which competes with Razorpay, has recently received an in-principle approval from the Reserve Bank of India (RBI) to operate as a payment aggregator.

Last month, SBI-backed Cashfree reportedly laid off 13% of its workforce, or around 80 employees. However, the fintech firm said that it had downsized 6-8% of its employee base as part of its retrenchment plan.

Zecpe enables ecommerce businesses to improve checkout conversion by making the process quick and seamless for customers. Zecpe will now operate as a wholly-owned subsidiary of Cashfree Payments, according to a statement issued by the company.

The CEO and cofounder of Cashfree Payments, Akash Sinha, said that Zecpe’s acquisition will be an addition to the company’s D2C Payments Suite enabled for ecommerce businesses.

“We are certain that this acquisition will strengthen our D2C one-click checkout capabilities and elevate our leadership position in the SMB space,” Sinha said.

Faster checkouts have increasingly become a strong proposition for payment solutions firms to offer to their enterprise customers. Razorpay, for instance, has Flash checkout, which increases conversion rates for customers.

Last year, Tiger Global, too, made a seed investment in ecommerce enabler Shopflo to tap into the growing market.

Meanwhile, Cashfree said that the acquisition will further enhance its D2C checkout capabilities and give its merchants an elevated end-to-end checkout and payment experience.

Zecpe helps merchants increase conversion rates, supporting incremental monetisation and scaling. This acquisition will also enable Cashfree Payments to offer additional value-added services like Return to Origin (RTO) reduction, fraud detection, and address pre-filling, among others.

“D2C space is exploding in India and presents a fantastic opportunity to help ecommerce players increase their conversion rates and reduce COD fraud and returns. Since we have one of the largest networks of prominent brands working with us, we know this space very well. Businesses across different industries use our solutions today,” Agarwal said in a statement.

Founded in 2015 by Akash Sinha and Reeju Datta, Cashfree Payments operates a full-stack digital payments solution platform that enables businesses to collect payments and offers API banking solutions.

In 2021, Cashfree raised funding from SBI at a post-money valuation of $200 Mn and acquired UAE-based payment solution provider Telr.

The post SBI-Backed Cashfree Acquires Zecpe For $10 Mn To Enhance D2C Checkout Capabilities appeared first on Inc42 Media.

Mohalla Tech Pvt. Ltd., which owns the social media platform ShareChat and short video platform Moj, has shut down its live commerce business, sources close to the development told Inc42. 

The social media giant took the decision in December 2022, nearly two years after the Google-backed firm forayed into the burgeoning live commerce space, a source said.

Some of the key positions, including the head of live commerce at Sharechat and Moj, were impacted due to the business restructuring exercise, another source added. 

The social media unicorn was extremely bullish on its live commerce business, which was expected to be a good revenue source in addition to advertisements, gamifications, and rewards, which the Google-backed company was experimenting with, as per a source.

“However, they exited quietly because the live commerce business couldn’t do much,” he added. 

The development likely took place at the time when ShareChat announced to lay off 20% of its workforce, or nearly 500 people, for business restructuring. 

However, a ShareChat spokesperson said that the live commerce business has been scaled down, however, the company continues to be bullish on the sector.

“We are razor-focussed on our monetisation efforts going into 2023. As part of our 2023 plans, we’ve realigned resources on projects with higher weight on immediate wins either in the form of increased revenue or reduced costs,” the spokesperson said.

The spokesperson further added, “Live Commerce is an important long term strategic bet for us and we shall continue to invest in scaling it over time. However, in the immediate terms we have calibrated the budget outlay on this area. That said, it’s far from being shut down. We continue to remain bullish on this space in India.

“Ecommerce continues to be a very big market and we believe that social commerce can be a large play in India in the longer term.  As part of these efforts, there has been an org-wide restructuring of our teams. We cannot however comment on individual roles that may have been affected as part of this,” the spokesperson said.

Flipkart-ShareChat Deal In Limbo?

In October 2021, Walmart-owned ecommerce major Flipkart announced a multi-year strategic deal with ShareChat. At that point in time, short video platforms like Chingari, Trell, Roposo, Josh, and Taka Tak were moving in the direction of influencer-led live commerce space to increase monetisation avenues and creators.

At the time of the deal, Mohalla Tech’s chief financial officer Manohar Singh Charan had noted that the creator economy-led revenue streams were seeing a massive upsurge globally. He also saw the collaboration with Flipkart as a step towards developing a concrete revenue stream for creators in India.

“The seamless amalgamation of content and commerce will push brands to reimagine how they connect with their consumers and ignite the digital social commerce revolution in India,” Charan had said.

ShareChat continued its live commerce push by partnering with B2B SaaS platform Dukaan in September 2022. It enabled Dukaan’s merchants to collaborate with creators present on ShareChat and Moj to promote their products through video and live content.

The company had raised $913 Mn in 2021, the highest-ever funding by a unicorn in the year.

During a press conference in April 2022, ShareChat’s CEO Ankush Sachdeva said that the company had set a target for its creators to earn $450 Mn in revenue by 2025 through virtual gifting, social/live commerce and ad revenues.

The company raised another $255 Mn from new investors like Google, Temasek and Times Group in 2022, with valuation surpassing $5 Bn.

ShareChat CEO had told BusinessLine in an interaction that the investments raised would be utilised in building social and live commerce capabilities apart from other businesses.

ShareChat, Moj, and Taka Tak, which the company had acquired earlier, aimed to reach out to a combined user base of 400 Mn in India through its various offerings. 

Meanwhile, the company posted a loss of INR 2,498.6 Cr for the financial year 2021-2022, up 2.1X from INR 1,183.6 Cr in 2021. Including the non-operating expenses, its loss stood at INR 2,988.6 Cr. In FY21, the startup had incurred a loss, including non-operating expenses, of INR 1,460.9 Cr.

The development of it scaling down operations for live commerce comes just a few weeks after, ShareChat shut down its fantasy gaming platform Jeet11, resulting in 100 people losing their jobs.

Despite live commerce flourishing in countries like China, the business is yet to achieve a sustainable scale in markets like India and the US. 

Facebook-owned Instagram has also decided to pull the plug on its live commerce feature, which allows users to tag their products during live broadcasts, from March 16, 2023. 

Meanwhile, the government is planning to introduce a set of regulations to govern live streaming/commerce practices in the country. 

The post Exclusive: ShareChat Shuts Down Live Commerce Biz; Firm Calls It A Temporary Scale Down appeared first on Inc42 Media.