When it comes to exiting a startup, each founder finds themselves in a unique position. However, Prabhkiran Singh, the CEO & cofounder of D2C brand Bewakoof, firmly believe that founders should possess a clear understanding of their priorities when it comes to their startup and whether they align with the company’s board.

“You, as a founder, should have clarity on what you are optimising for to decide on the key value additions you seek in a future deal. It could be financial gain or the commitment to continue building, which would require patient capital,” Singh said.

Singh shared these insights during a panel discussion titled “The BIG Exit – How D2C Brands Can Develop an Exit Strategy” at the fourth edition of Inc42’s D2C Summit 2023. The session was moderated by Angshuman Bhattacharya, National Leader of the Consumer Products & Retail Sector at EY India. Joining Singh on the panel were Pranav Malhotra, the founder of Trunativ; Rishubh Satiya, the CEO & cofounder of Plix; and Mohit Sadaani of The Moms Co.

Incorporated in 2012 by Prabhkiran Singh and Siddharth Munot, the Mumbai-based D2C brand Bewakoof specialises in selling casual wear and accessories, including theme-based clothing, notebooks, and backpacks, through its website.

In December 2022, Aditya Birla Group’s house of brands business, TMRW, invested INR 200 Cr in Bewakoof.

Deliberating upon another aspect of the exit strategy, Singh said that founders must gauge the strategic value of the deal. He added that it is essential to understand whether the acquisition will genuinely benefit the company or if it’s merely a perceived benefit.

Additionally, one must consider the perspective of the D2C platform, assessing whether the other party recognises the valuable skills that the brand brings to the table.

“There must be a willingness to make the acquired entity a corporate brand custodian and delegate authority in key areas or to the founders, as the brand requires independence to thrive,” he added.

During the discussion, Singh emphasised that no founder starts a startup with a pessimistic view of getting acquired. He cited several past partnerships where acquisitions proved highly beneficial to the success of companies such as Flipkart and PhonePe, CaratLane and Tanishq, MakeMyTrip and ibibo, Disney and Pixar, and Facebook and WhatsApp, among others.

He also stressed that some truly transformative and substantial ideas require significant capital. Therefore, a startup must decide whether to pursue this path independently or collaborate with a like-minded company where both parties are mature and can create something meaningful for consumers.

The post Bewakoof’s Founder On The Checkboxes D2C Brand Ticked Before Getting Acquired By TMRW appeared first on Inc42 Media.

There is no denying the fact that India today has firmly established itself as one of the largest global hubs for innovation and entrepreneurship.

Not to mention, the country’s burgeoning startup ecosystem, which saw the launch of over 68K startups between 2014 and June 2023, has played a pivotal role in catalysing the nation’s reputation as the hotbed of innovation, and revolutionary ideas and technologies.

The surge in the number of startups being churned out can be attributed to several positive factors, including a tech-savvy youth population, an expanding middle class, and a favourable regulatory landscape.

And it is on the back of these key elements, along with an ever-increasing battalion of Indian startups, including unicorns and soonicorns, India’s Gross Domestic Product (GDP) is projected to experience a surge of 5-10% by 2030, outlines the 2023 edition of Inc42’s “The Ecosystem” report.

With a GDP growth rate of 6%, India’s economy is expected to outpace the growth of the United States (4%) and the European Union (1%), trailing only behind China (9%) in the next decade.

Indian Startups To Become Key Drivers Of Growth

Indian startups have transitioned from being primarily service-oriented to becoming leaders in product innovation, demonstrating their technological prowess across various sectors. This transformation has elevated India’s stature on the global tech stage, drawing parallels with more established economies.

Further, the increasing annual household income has contributed significantly to this growth. Projections show that approximately 50% of households are set to have an annual income exceeding INR 5 Lakh by 2030, up from 33% in 2019.

This rise, combined with over 23 Mn households expected to earn more than INR 20 Lakh by 2030, will boost consumer spending.

Other factors expected to give India’s GDP a booster dose are

• The number of tech startups is predicted to grow 2.6X from 68K in 2023 to 1.8 Lakh in 2030, resulting in a substantial rise in job opportunities. The startup ecosystem has already generated over 768K jobs since 2014.
• India holds the position of the world’s largest consumer internet market, with tech giants like Google, YouTube, WhatsApp, and Facebook amassing millions of Indian users.
• Emerging tech startup hubs in Tier II cities, such as Jaipur, Kolkata, and Chandigarh, are fostering a new wave of entrepreneurship and innovation.
• As deep-pocketed global investors recede, domestic investors are entering the ecosystem, leading to increased investments and cash flow within the economy.
• Investor engagement is set to grow by 46% by 2030, with Indian high-net-worth individuals (HNIs) and family offices demonstrating strong enthusiasm for the Indian startup ecosystem.
• The number of Indian HNIs is projected to reach 1.7 Mn by 2027, growing at a CAGR of 16%, outpacing growth rates in other major economies.

Notably, the startup-led disruption will not only result in job creation but also transform consumption patterns, with new-age ventures addressing many challenges across sectors and industries.

Furthermore, India’s relatively untapped market offers burgeoning startups the chance to enter uncharted territories and address significant real-world issues, contributing to the nation’s economic upliftment.

Marching Ahead Despite Headwinds

Despite the optimism that the Indian startup economy is the third-largest in the world today, challenges persist.

One of the primary pain points is the need for sustained funding access across various growth stages of startups, which right now is the bone of contention between investors and founders. Regulatory complexities and bureaucratic obstacles, too, have impacted the operations of many startups working in specific sectors — one such example is the online gaming industry.

Today, the need of the hour is to streamline processes and cultivate a startup-friendly regulatory environment to sustain the momentum that the country has received from the startup boom. This is especially crucial at a time when Indian startups have a key role to play in the evolution of technologies like AI, blockchain, and IoT, among others.

Additionally, Indian startups have not only expanded within the country but also globally, with a significant surge in exports and the success of the D2C startup ecosystem in international markets. According to an Inc42 analysis, more than 20 digital-first brands have already made their foray into international markets like the UAE, the US, and the UK, just to count a few.

The startup surge in India heralds a new era of economic progress and innovation. With a potent blend of youth, tech prowess, supportive policies, and real-world problem-solving strategies, Indian startups are set to play a pivotal role in boosting the nation’s GDP.

As startups continue to drive job creation, introduce disruptive technologies, and reshape consumer behaviour, the influence of startups on India’s economy is destined to solidify going ahead, paving the way for the country to become the world’s biggest startup powerhouse in the years to come.

The post Startup Boom Poised To Drive 5-10% Surge In India’s GDP By 2030 appeared first on Inc42 Media.

The D2C startup ecosystem has been thriving in recent years, boasting of over 50K digital-first brands. In this rapidly evolving landscape, consolidations are becoming increasingly inevitable, with investors placing their bets on potential exit opportunities. When it comes to acquisition, timing is the most crucial factor, according to Rishubh Satiya, the cofounder of D2C nutrition brand Plix, which was acquired by Marico.

Satiya emphasised the significance of timing, saying, “I’ve witnessed this scenario frequently. People tend to underestimate their current situation. You need to discern when it’s the right moment to exit and when it’s best to stay and reserve the option to exit.”

He shared these insights during a panel discussion on “The BIG Exit – How D2C Brands Can Develop an Exit Strategy” at the fourth edition of Inc42’s D2C Summit 2023. The session was hosted by Angshuman Bhattacharya, national leader of consumer products & retail sector at EY India. Joining Satiya on the panel were Pranav Malhotra, founder of Trunativ; Prabhkiran Singh, CEO and cofounder of Bewakoof; and Mohit Sadaani, cofounder of The Moms Co.

Satiya said founders often prefer to raise funds at a higher valuation rather than pursuing an exit. However, during such moments, they should reflect on whether they have the capacity to increase their valuation from ‘X’ to ‘3X’ or ‘4X’, as venture capitalists would anticipate. Therefore, once again, timing plays a critical role.

Founders must decide whether it’s the right time to stay invested, secure funding at a potentially lower valuation to allow the team to focus less on metrics and grow at their own pace, or to pursue an exit and find comfort in that decision.

Established in 2020 by Satiya and Akash Zaveri, Plix is a Mumbai-based D2C startup that offers a diverse range of plant-based nutrition products, including workout supplements, ingestible sunscreens, hair growth serums, and skincare items.

In July 2023, Marico, a leading FMCG company, acquired Plix, marking a strategic move to expand its presence in the nutrition segment and enhance its position in the health and wellness category. The plant-based D2C brand now plans to leverage Marico’s extensive resources to strengthen its offline presence over the coming years.

Earlier, Plix secured $5 Mn in its Series A funding round from Guild Capital and RPSG Ventures in December 2021. Since its inception, the startup has consistently increased its turnover. In the financial year 2019-20, it reported a turnover of INR 10.92 Cr, which surged to INR 41.58 Cr in FY21. The company closed FY22 with a turnover of INR 106 Cr.

Competing with brands like OZiva, Setu Nutrition, and Fast&Up, Plix offered more than 60 SKUs across six categories at the start of the year. These products were available through the company’s website, ecommerce platforms, and physical stores, catering to over 1.5 Mn customers nationwide.

The post Marico Owned Plix’s Cofounder On The Role It Plays In Startup Exits appeared first on Inc42 Media.

Today, India has more than 50K digital-first brands. Many of these emerging brands are now exploring offline strategies. However, Chaitanya Ramalingegowda, the director & cofounder of Wakefit, believes that in today’s landscape, it’s no longer feasible for D2C brands to have separate online and offline budgets for marketing, distribution or customer acquisition costs.

“Now, it’s about sales and distribution costs, and evaluating the performance of each channel in terms of revenue,” he added.

Ramalingegowda shared his insights during the fourth edition of Inc42’s D2C Summit 2023, as part of a panel discussion featuring Harsh Modi, the cofounder & CEO of Mulmul; Shreedha Singh, the CEO & cofounder of The Ayurveda Company; and Gaurav Khatri of Noise. The session was moderated by Dipanjan Basu, the cofounder & Partner at Fireside Ventures.

The Bengaluru-based D2C furniture and mattress brand was founded in 2016 by Ankit Garg and Ramalingegowda. Initially, Wakefit focussed solely on mattresses until 2018 and then started expanding its product categories.

Presently, Wakefit offers around 500 SKUs across 15-20 sub-categories. Approximately two-thirds of its sales are generated through its website, app, and offline stores, with the remainder coming from online marketplaces such as Amazon and Flipkart.

In FY22, the company witnessed a substantial increase in total losses, which surged to INR 101.8 Cr compared to INR 37 Cr in FY21.

However, its operating revenue jumped nearly 55% YoY to INR 632.8 Cr in FY22.

In January 2023, the startup secured $40 Mn in a funding round led by Investcorp, with participation from existing investors Sequoia India, Verlinvest, and SIG. This brought Wakefit’s total funding raised to date to $145 Mn.

Ramalingegowda reminisced about Wakefit’s journey to venturing offline, noting that they always believed in establishing themselves as a digital-first brand. They saw online as a means to achieve non-linear growth and greater control over the consumer experience.

“We never had the conviction to go offline until we expanded into furniture. That’s when factors like the rent-to-revenue ratio and ROI period started making sense. When we noticed that at our pilot store, the average order value nearly doubled, and repeat customer behaviour was more prevalent, we realised that customers also craved this offline experience,” he added.

Ramalingegowda emphasised that marketing strategies across online and offline channels are progressively merging, making it challenging to calculate customer acquisition costs (CAC) differently for each channel. This shift underscores the importance of how a brand manages its business across various channels.

He also shared valuable insights and advice for D2C startups, emphasising that entering a new channel involves more than just launching products. It requires a fundamental shift in how a brand approaches product development, packaging, pricing, supply chain, and measuring outcomes.

“It’s not merely about introducing a product; it’s a profound change in how we perceive our business when entering a new channel,” he added.

Furthermore, Ramalingegowda stressed the importance of owning customer relationships and the complete customer experience. This entails engaging with customers who purchase products through various channels, ensuring their needs are met, and addressing any concerns.

“In our philosophy and belief system, it’s about taking care of the customer, regardless of where they make their purchase,” he concluded.

The post Wakefit Cofounder On Why Brands Need To Have Cohesive Online & Offline Go-To-Market Strategy appeared first on Inc42 Media.

India’s thriving D2C landscape has garnered significant interest from investors, entrepreneurs, and corporations alike. However, according to Prashanth Aluru, the cofounder & CEO of TMRW – House of Brands, the term D2C is more closely associated with digital-first brands. 

Elaborating his viewpoint during the fourth edition of Inc42’s virtual D2C Summit 2023, he said that to tap into the broader ecommerce opportunity in India, D2C brands must focus on being digital-first.

“As a D2C brand, you could be selling on marketplaces, your websites, or eventually adopting an omnichannel approach. However, fundamentally, you are a new-age brand catering to a new-age consumer,” Aluru said.

The Aditya Birla Group ventured into the realm of house of brands with TMRW in June 2022, with plans to build a portfolio of fashion and lifestyle brands by acquiring and incubating over 30 brands in the next three years. Their current portfolio includes names such as Berrylush, Bewakoof, Juneberry, Natilene, Nauti Nati, Nobero, Urbano, and Veirdo.

At a time when many D2C brands are enthusiastic about expanding offline and some are questioning the online demand, Aluru believes in ‘being digital first’. 

He acknowledged that ecosystems experience cycles of challenges and opportunities. While growth may appear slower compared to the Covid-19 era, the macro opportunity lies in building a new-age brand that starts as digital-first and gradually expands its presence offline and into omnichannel.

He stated, “There is still immense potential in the digital realm, so there’s no need to rush into the offline space, especially considering the complexities of scaling up offline operations from 10 to under 300 stores, which is an entirely different challenge.”

Furthermore, as a digital-first brand, the approach to offline expansion should differ from traditional brands like Louis Philippe or Allen. 

Aluru further stressed the importance of integration between the two channels, where one channel complements the other.

Understanding the consumer and ensuring a seamless experience across channels is essential. A digitally native consumer expects innovation in physical stores, such as having a complete catalogue available or offering an infinite aisle experience.

For D2C offline brands expanding into marketplaces, focussing on the products consumers prefer offline is key. 

“For instance, if you identify a best-seller in D2C, how can you bring it to the offline space or on platforms like Myntra or Amazon more efficiently? This is where we see the channel’s capability,” Aluru explained.

He reiterated that a brand can leverage multiple channels, but they all must be unified and seamless.

Aluru concluded the session by highlighting lessons learned from global and Indian examples, such as Lenskart, CaratLane, and Firstcry, which began as digital-first brands and have successfully demonstrated what an omnichannel presence should look like in the digital age.

The post TMRW’s CEO On Why D2C Brands Should Start Digital And Think Omnichannel Later appeared first on Inc42 Media.

Product-market fit is a dynamic concept that’s never set in stone, especially in the world of direct-to-consumer (D2C) brands, said the cofounder of WOW Skin Science, Manish Chowdhary, at the fourth edition of Inc42’s D2C Summit.

Speaking with Rajiv Srivatsa, partner, Antler India, during a fireside chat, Chowdhary deliberated upon how WOW began its journey as a dietary supplement brand, but it soon recognised a shift in consumer preferences toward skincare and haircare.

“We recognised that the majority of our customers were gravitating towards skincare and haircare. This realisation prompted us to pivot and innovate. A decade ago, we could never have imagined becoming top sellers in the haircare segment,” Chowdhary said.

Founded in 2014 by Manish and Karan Chowdhary, WOW Skin Science boasts a diverse range of products spanning skin, hair, bath and body, wellness, nutrition, and health.

Competing with industry giants like Nykaa, Mamaearth, SUGAR Cosmetics, and mCaffeine, the startup secured $48 Mn in funding from Singapore’s GIC in June 2022, bringing its total funding to $125 Mn across multiple rounds.

However, it’s worth noting that WOW Skin Science reported a significant increase in its net loss, jumping to INR 135.83 Cr in the financial year 2021-22 (FY22) from INR 8.78 Cr in FY21. This surge in losses outpaced the growth in revenue.

Nevertheless, the total revenue of WOW Skin Science’s parent company, Body Cupid Private Limited, skyrocketed by 3.4 times to INR 343.94 Cr in FY22 from INR 99.83 Cr in FY21. Operating revenue also mirrored this growth, reaching INR 340.37 Cr from INR 99.83 Cr in FY21, according to Body Cupid’s filings with the Ministry of Corporate Affairs.

Chowdhary emphasised that their commitment to building a digital-first brand was clear from day one. To stand out in a crowded market, they implemented various strategies, including a unique packaging choice. While most products in India are packaged in white, WOW opted for amber and gold packaging to stand out among other products being searched by customers online.

The founders discovered that gold, in particular, held consumers’ attention for a few extra seconds, making it a valuable addition to their packaging.

“In our category, there’s no shortage of imitators who emerge within six to twelve months. Currently, there are over 5,500 skincare companies, and more brands are realising the untapped potential in this sector. Competitors may try to replicate your success, but you must stay on the constant treadmill of innovation,” he added.

Chowdhary also underscored the significance of marketing innovation as both a differentiator and a challenge for D2C brands. Many brands fail in the early stages, but even those that achieve initial success can’t rest on their laurels.

“You need to continuously recalibrate. What worked to take you from zero to 10 won’t necessarily take you from 10 to 100 or 500. Therefore, you must keep evolving your strategy along the way,” he emphasised.

The fireside chat delved further into WOW’s strategies for omnichannel and cross-border expansion, their vision for capitalising on future opportunities, and the invaluable lessons learned in the world of skincare.

The post WOW Skin Science’s Manish Chowdhary On Why Founders Need To Constantly Stay On The Innovation Treadmill appeared first on Inc42 Media.

The global cross-border ecommerce market is projected to surpass $2.1 Tn in sales by 2023 and cross the $7.9 Tn mark by 2030, and it is this thriving growth opportunity that the country’s direct-to-consumer (D2C) brands wish to capture.

India is now home to 50K+ digital-first brands — a mix of new-age startups and legacy retail giants going D2C with four unicorns – boAt, Mamaearth, Licious, Lenskart and several deep-pocketed players like Pepperfry, Wakefit, Sugar, Country Delight, and Bluestone, just to count a few.

Admittedly, this explosion of brands and D2C brands has created a feeling that this segment is hitting a saturation point of sorts. As a result, the country’s D2C sector, supported by more than 650 investors, is poised to expand internationally.

According to Zaiba Sarang, the founder of iThink Logistics, the sector will get a significant boost from homegrown brands exporting their products.

The Indian D2C landscape has further evolved with the introduction of dropshipping, effectively lowering entry barriers in foreign markets. Sellers can now send shipments worth up to $800 to the US without incurring taxes or duties.

The implementation of the National Logistics Policy, along with initiatives by marketplaces like Amazon, Flipkart, and Walmart, led India’s merchandise exports to achieve a record-high value of $40.38 Bn in March 2022, a 14.53% YoY jump from $35.26 Bn.

This success has motivated numerous players to explore international markets. According to Inc42’s Q2 2023 ecommerce report, over 20 notable Indian D2C brands have already established their footprints in Gulf Cooperation Council (GCC) countries, the US, the UK, Canada, and Europe. Companies like Bombay Shaving Company, Mamaearth, FreshToHome, Paper Boat, boAt, and Wakefit are some of the examples that have now crossed the Indian borders.

Industry interactions have revealed that the top three product categories Indian D2C players excel in within the aforementioned markets are artificial and fashion jewellery, beauty and personal care products, and handicrafts.

As Akshay Ghulati, the cofounder, Strategy and Global Expansion Shiprocket highlights, GCC countries are the preferred destination of many Indian D2C players, largely due to the Indian diaspora there. While the US holds greater demand, it’s notably competitive, especially in areas like beauty and personal care.

“Additionally, although ethnic fashion wear enjoys popularity, the differing sizes between India and the US pose a challenge for brands aiming to develop products solely for the US market,” he added.

Cross-Border Ecommerce Challenges

Despite securing a significant market share within India, numerous D2C brands witness hurdles while planning their international expansion.

When D2C brands venture into global markets, they encounter challenges like adhering to local regulations, managing payments, handling delivery logistics, inventory management, dealing with returns, effective marketing, and localising their offerings.

Here’s an overview of a typical cross-border ecommerce value chain:

Take the case of FreshToHome, for instance. The D2C brand’s founder Shan Kadavil took more than two years to establish a footprint in the UAE against their projections of six months.

Similarly, the founder of Bombay Shaving Company, Deepak Gupta, took 18 months to establish their presence in markets of Nepal, the UAE, Singapore, Malaysia, and Bangladesh. Each of these markets demanded a distinct strategy to navigate their unique operational intricacies.

“Obstacles like the unfamiliarity with local regulations in various countries – including packaging requirements and market-approved ingredients – coupled with the search for suitable partners capable of managing distribution and comprehending consumer preferences, have the potential to significantly delay the international debut of a D2C brand by several months,” Gupta said.

Here are some crucial challenges encountered by D2C brands:

• Opting between a marketplace strategy and establishing independent operations.
• Weighing the merits of an exclusive online presence versus venturing into omnichannel endeavours.
• Pinpointing the optimal market and ascertaining the flagship products to launch under the brand’s banner.

However, today, D2C brands benefit from a growing ecosystem of technology facilitators in India and worldwide. Here is a quick look at the cross-border enablers that are empowering startups to seamlessly manage their Indian and global operations through unified dashboards and a single point of contact.

While speaking with several D2C brands and enablers, we learned that opting for marketplaces is the easiest and most favoured strategy among D2C players. It serves as a platform for gauging consumer preferences and generating brand buzz. Similarly, it’s advised that D2C brands should venture into offline operations once they’ve built brand recall and generated demand in the region.

However, the most pressing challenges lie in logistics and payments for D2C brands, highlighting the crucial role of the growing cross-border ecommerce enablers ecosystem in addressing these issues.

Cross-Border Logistics Challenges

Two critical challenges for D2C brands in cross-border ecommerce are rapid and affordable deliveries and managing returns.

Traditional players like India Post usually take 15-20 days to deliver to the US. For a small 50 grammes packet, India Post charges INR 139. On the other hand, established courier services like DHL and FedEx may take 5-7 days, but they require a minimum package size of 500 grammes and could charge 10X more than India Post to deliver the same product.

New-generation players like Locus, iThink Logistics, and Shiprocket are bridging this gap while tackling other logistics challenges for D2C brands.

For example, iThink Logistics allows shipments starting at 50 grammes, delivering products to the US in under 7 days at competitive pricing. Shiprocket, on the other hand, may ship 50 grammes to the US at a cost of approximately INR 300 in 8 to 10 days.

Another challenge is that, Presently, many D2C platforms are struggling to provide cross-border returns due to high import duties. Sometimes, sellers refund customers to maintain relationships, yet this results in a loss for the seller. Furthermore, most D2C players are hesitant to store inventory at foreign locations due to uncertain sales projections. Consequently, products are shipped directly from India upon order.

As Shiprocket’s Ghulati points out, setting up warehouses is a pivotal strategy to address these challenges. Shiprocket, for instance, operates a warehouse in the US. In the case of returns, products are directed to the warehouse, enabling swift delivery to other customers within 2-3 days without import duties.

Cross Border Payment Challenges

Just like in the realm of logistics, D2C brands encounter three pivotal challenges in the payments domain when going cross border. These challenges are transaction speed, payment gateway costs, and compliance requirements for international transactions.

In earlier times, players such as PayPal held an advantage in cross-border payment transactions due to their global network and ability to facilitate seamless foreign currency exchange.

Nonetheless, recent years have witnessed a surge in digitalisation and the emergence of numerous fintech startups from India like Cashfree, Razorpay, and PhonePe, among others. These players have been offering an array of features and facilities at affordable rates to support cross-border ecommerce.

“Today, nearly 15% of our overall revenues, and likewise, 15% of our businesses, rely on cross-border payment services. As pioneers in domestic payment services with a substantial network of connected merchants, we’ve come to understand and address a multitude of challenges that merchants face when opting for cross-border sales of goods,” shared Reeju Datta, the cofounder of Cashfree.

Here are key initiatives within the payment ecosystem to alleviate cross-border payment challenges for D2C brands:

Joining Hands With Local Payment Providers: The primary task is to maximise the availability of payment methods even before considering costs. This cultivates global acceptance and reduces payment decline rates. Moreover, ensuring seamless interoperability among payment partners enables merchants to view payments on a single dashboard, irrespective of the chosen payment platform by the customer. Various regions have their own local payment methods that tend to be more cost-effective compared to cards or PayPal.

Reducing Costs: Cost sensitivity is paramount for Indian businesses. While India’s merchant discount rate (MDR) ranges around 1-2% for domestic payments, it could be nearly three times as much or even higher in international markets. Digital payment evolution has also alleviated costs. For instance, earlier wire transfers from the US to Indian banks incurred $30-$40 per transaction. While global players might charge around 10-12% per transaction, Indian payment providers have optimised costs to 7%-8%. ACH transfers are 75%-80% cheaper, and card transactions are around 30%-50% cheaper.

Compliance Solution: International transactions necessitate a foreign remittance advice or certificate for reporting, compliance, and tax purposes. Payment platforms like Cashfree have integrated this into the payment flow, offering real-time foreign remittance advice. Streamlining compliance around the Foreign Contribution Regulation Act (FCRA), documentation, and GST is also a priority. Automation has transformed what used to take months into a process that happens within seconds.

Merchant Safeguarding: Cross-border transactions entail risks like fraudulent activities and currency fluctuations that can severely impact D2C sellers, especially concerning refunds. International transactions often see higher levels of fraud and disputes than domestic ones. Payment platforms like Razorpay have developed sophisticated tools and controls to mitigate these risks and safeguard merchants’ interests.

“As we scale up and expand to a larger audience, managing risks on both ends – consumer and merchants – is crucial,” said Rahul Kothari, chief business officer, Razorpay.

The Global Road Ahead For D2C Brands

The emergence of the cross-border tech enablers ecosystem has facilitated the global expansion of even small-scale companies.

“What was previously achievable only by a handful of large companies has now been democratised, enabling even small businesses to engage. This transformation is primarily driven by automation and a customer service mindset,” Kothari of Razorpay pointed out.

Nonetheless, challenges persist. Shiprocket’s Ghulati underscores that the Indian government could enhance the establishment of bilateral trade corridors to alleviate dropshipping and import duties.

The payment ecosystem is concurrently working on reducing transaction costs, minimising decline rates, and simplifying regulatory complexities. Also, noteworthy fintech brands have an advantage in their respective regions. Building a mutual sense of trust represents a pivotal challenge as we venture into new territories.

Nevertheless, Indian D2C brands have already embarked on their cross-border journeys. With the growing demand for Indian products and technology enablers propelling D2C brands, the trajectory of cross-border ecommerce is poised for growth that will know no bounds.

The post How Indian D2C Brands Can Fix Cross-Border Pains Points To Enter Uncharted Territories  appeared first on Inc42 Media.

The inaugural wave of modern entrepreneurs or new-age ventures (startups), spanning from pioneers like Flipkart to various enterprise tech startups, opted to set up their bases overseas. Between 2010 and 2020, a multitude of startups, including the likes of Freshworks, Innovaccer, Glance, 5ire, Uniphore, and Druva, alongside numerous others, adopted foreign frameworks in accordance with international regulations.

Inc42’s latest “Decoding India’s Unicorn Club Report 2023” reveals that 18% (20) out of 110 Indian unicorns currently have their headquarters outside India. Notably, 83% (13) of these foreign-based unicorns belong to the enterprise sector, with the United States being the most favoured international destination. The remaining seven unicorns operate across domains like ecommerce, media and entertainment, travel tech, and clean energy.

Extending beyond the realm of unicorns, a palpable exodus of startups has become conspicuous, especially within the fintech sphere and, more recently, in the crypto space.

In the mid of 2022, a multitude of Indian crypto startups relocated to regions like Dubai, Delaware, and the British Virgin Islands (BVI). A confluence of factors — ranging from India’s intricate regulatory landscape and the allure of foreign capital to tax efficiency, international stock exchange listing prospects, global expansion possibilities, and exit avenues — have propelled this trend.

Chirag Shah, Senior VP – Fundraising and Strategy at Blacksoil Capital highlights that despite India’s endeavours to attract enterprises and enhance its business environment, persistent obstacles dissuade many entities from establishing their headquarters within its borders.

“Foremost among these challenges is the complex international tax structure, with its intricate regulations and comparatively elevated corporate tax rates serving as deterrents. The unpredictability of tax regulations and the spectre of dual taxation further dampen the enthusiasm for business investment,” he added.

Nevertheless, the green shoots of the trend reversal have begun to show. In October 2022, fintech unicorn PhonePe relocated its headquarters from Singapore to India in the run-up to its IPO plans, even though the transition incurred a substantial INR 8,000 Cr expenditure.

“We have about 20-odd unicorns that have already reached out to us asking how do we get this changed,” mentioned PhonePe CEO Sameer Nigam during a YouTube conversation with CTO Rahul Chari.

Notably, industry titans such as Razorpay and Groww are now contemplating shifting their respective headquarters to India.

Reshaping Tax Policies: A Blueprint To Attract Unicorns Back To India

Call it the ‘Desh Wapasi’ or ‘Reverse Flipping’ trend, India’s taxation policies stand as a pivotal determinant that could potentially entice Indian unicorns to return home.

In recent years, the Indian government has implemented a range of measures aimed at mitigating tax-related challenges faced by companies. Notably, these measures encompass a decade-long exemption from capital gains tax for investments originating from angel investors and venture capitalists to a three-year tax respite extended to freshly established startups.

Despite these progressive steps, India continues to uphold one of the loftiest corporate tax rates, compounded by a tiered structure instead of a uniform flat rate.

Today, the country has the opportunity to embrace a more competitive and stable tax framework as a solution. This can be achieved through the further reduction of corporate tax rates and the strategic application of targeted tax incentives tailored to specific industries, thus creating a conducive environment for companies to establish their central operations within the nation. Equally vital is the establishment of a transparent and efficient tax administration coupled with measures that thwart double taxation through the implementation of bilateral tax treaties.

Moreover, the synergy between the government, industries, and international organisations becomes imperative for the overhaul of the international tax architecture. The integration of global best practices and alignment with international standards can significantly enhance India’s attractiveness to potential investors.

“By creating a business-friendly tax ecosystem that emphasises simplicity, predictability, and competitiveness, India can encourage more companies to establish their headquarters in the country, boosting economic growth and global investment,” Shah added.

Why Reverse Flip Now?

It’s widely believed that once a startup is registered abroad, navigating through regulatory and other issues can create obstacles when attempting to bring them back to India.

However, Rajeev Suri, a partner at Orios Ventures, holds a different viewpoint. He asserts that startups primarily focussed on the Indian market would benefit from relocating their operations to India. This shift offers several advantages, including streamlined registration and jurisdiction processes, better access to banking, lending, and funding services, as well as a synergistic relationship between financial and market news.

He further emphasises that maintaining banking operations in a foreign country, with exposure to currency risks, inflation, and interest rate fluctuations, isn’t prudent in today’s volatile economic climate.

He cites the SVB (Silicon Valley Bank) incident in March 2023, when trading was suspended due to takeover rumours, leading startups to withdraw and transfer their funds, causing the bank’s collapse.

Investors and financial experts contend that the Reserve Bank of India (RBI) and the Indian government now possess a compelling incentive to enhance the ‘ease of doing business’, particularly in terms of banking regulations and taxation related to capital flows for Indian startups.

The January 2023 Economic Survey outlines six pivotal steps to achieve this goal:

• Simplifying the process for obtaining “inter-ministerial board (IMB) certification” for startups
• Streamlining taxation on employee stock options (ESOPs)
• Addressing complex layers of taxation and the uncertainties arising from tax litigation
• Facilitating capital flows with reduced restrictions on inflow and outflow and treating hybrid securities
• Fostering collaborations with established private entities to cultivate best practices and mentor startup founders
• Enhancing India’s startup incubation and funding landscape in emerging domains like social innovation and impact investment.

In addition, infrastructural advancements such as Bharatmala, smart cities, and GIFT City, along with efforts to enhance global competitiveness and bolster the skilled workforce, are likely to play a pivotal role in attracting businesses.

Notably, after the International Financial Services Centres Authority (IFSCA) formed a panel in March 2023 to promote the reverse flipping of Indian startups, the committee’s mandate included identifying challenges faced by local startups abroad and recommending measures to catalyse the growth of GIFT City into a global fintech hub.

While the one-size-fits-all strategy isn’t applicable, it’s clear that the government is earnestly exploring avenues to prevent the migration of Indian businesses. The domestic investor ecosystem has also gained momentum, with over 240 funds established by Indian investors from January 2021 to August 2023, amounting to more than $30 Bn, according to Inc42 analysis.

This trend is likely to encourage Indian startups to consider raising funds in Indian rupees and maintaining their operations within the country. However, given the intricate nature of the Indian ecosystem, expecting a significant number of startups to reverse flip in a short period could prove to be a bit too ambitious.

The post Rethinking Policies: Can A More Friendly Tax Regime Lure Unicorns To Reverse Flip? appeared first on Inc42 Media.

The Indian startup ecosystem is experiencing an unprecedented boom. Between 2021 and 2022, India saw the birth of 67 unicorns, propelling the total count to 110.

Although the ongoing year (2023) has yet to reignite the pace of unicorn creation, projections from Inc42’s latest report, “Decoding India’s Unicorn Club Report, 2023”, indicate that by 2030, India could witness the rise of more than 280 unicorns.

Amid this, we tried to delve into the academic backgrounds of Indian founders, and we were surprised to find that over 50% of unicorn founders are not IITians, Inc42’s latest reveals based on the analysis of 278 unicorn founders.

Some of these prominent names include:

• Freshworks: A NASDAQ-listed cloud-based customer relationship management (CRM) software company established by Girish Mathrubootham, an alumnus of Shanmugha Arts, Science, Technology and Research Academy, Tamilnadu
• BYJU’S: An edtech platform launched by Byju Raveendran, who completed his bachelor’s degree in mechanical engineering from Government Engineering College, Kannur.
• Icertis: An enterprisetech platform launched by Monish Darda, who completed his bachelor’s degree in mechanical engineering from Savitribai Phule Pune University

According to the Inc42 analysis, only 42% of unicorn founders are IITians, with IIT Delhi emerging as a hotbed for nurturing the highest number of founders who built billion-dollar enterprises. IIT Bombay and IIT Kanpur follow closely as the next institutions on the list for breeding a significant number of unicorn founders.

Although this is a considerable shift from the earlier trend (when the startup ecosystem was still in its infancy) when the fundamental decision of pouring funding into any startup was determined by the founder’s academic pedigree.

As Pearl Agarwal, founder and managing director of early stage VC firm Eximius Ventures highlights, those were the times when the only data point to consider investing in the riskiest asset class such as startups was the tag of IIT and IIMs, which reflected the founder’s determination, will and grit to become successful.

However, the change that we are witnessing today reflects a shift in investors’ focus towards a broader range of skills beyond technical and managerial expertise.

As Ankur Bansal, cofounder and executive director at Blacksoil Capital highlighted, creating and running a successful business takes more than an academic pedigree. The recent trend of a higher number of startup/unicorn founders not belonging to the premier educational institutes of the nation, like IITs, showcases precisely that. Entrepreneurs from diverse backgrounds contribute unique perspectives, often inspired by their life experiences, specialised knowledge and innovative thinking — all crucial elements for startups to succeed.

Moving Beyond IITs and IIMs: Influential Factors

Moving away from an exclusive fixation on IITs and IIMs signifies a significant shift in the mindset of all key stakeholders of the startup ecosystem, including investors. Initially, the Indian startup ecosystem, exemplified by companies like Flipkart, Snapdeal, Paytm, Zomato, MobiKwik, and Ola, was dominated by entrepreneurs from the country’s most prestigious schools and colleges.

The allure of degrees from elite institutions, coupled with venture capitalists’ intense focus on founders’ educational backgrounds led to a proliferation of copied business models and concepts from the US and China.

In contrast, recent times have witnessed a growing recognition for founders from non-IIT, non-IIM, and non-engineering institutions.

Moreover, while investors initially favoured tech-savvy founders due to the tech-driven nature of startups, the evolving ecosystem acknowledged the potential value of non-engineering backgrounds as well.

Today’s startup landscape exemplifies this all-inclusive shift, with successful enterprises steered by founders boasting diverse expertise, spanning fields from medicine and business to the arts.

For instance, Hypd thrives in the creator economy space despite its founders not hailing from the IIT background. Similarly, Elda Health features a doctor as a cofounder and brands like Mamaearth underscore the importance of melding marketing and meticulous ingredient attention over sheer technology.

“Graduates from varied disciplines, including commerce, economics, MBA programmes, and those with global exposure and considerable work experience, have entered the Indian entrepreneurial landscape. They are propelled by emerging startup models such as D2C, B2B platforms, fintechs, Agri, healthtech, and the creator economy. These models have been established by non-IIT and non-engineering founders,” said Anup Jain, managing partner at Orios Venture Partners.

Other factors contributing to this shift:

• Non-IIT and non-IIM educational institutes have upped the game: The quality of education at non-IIT and non-IIM institutions has undergone significant change. Many of these institutions have invested heavily in faculty and infrastructure and are now offering world-class education.
• Maturity of the startup ecosystem: As the Indian startup ecosystem has matured, numerous successful startups founded by non-IIT/IIM graduates have demonstrated that success can be achieved even without prestigious degrees from premier institutes.
• Evolution of the investor mindset: Investors have become more open-minded, looking beyond conventional academic pedigrees. They now prioritise founders’ execution capabilities, irrespective of their educational backgrounds.
• Ex-startup employees turning entrepreneurs: With many former tech employees of startups becoming cofounders themselves, the ecosystem has compelled investors to consider experience as the basis of evolution, moving beyond solely relying on top-notch degrees.

The Future Of Entrepreneurship In India

The emergence of unicorn founders from non-IIT and non-IIM institutions augurs well for the Indian startup ecosystem. It also highlights a treasure trove of untapped talent and potential that lies beyond the confines of IITs and IIMs.

This development holds particular promise for aspiring entrepreneurs who might not have had the privilege of attending these esteemed institutions. Concurrently, this trend compels IITs and IIMs to elevate their offerings.

The evolving market landscape demands specialised insights and industry-specific expertise, attributes often possessed by non-traditional founders. This transformation underscores the growing significance of identifying distinctive market needs across diverse consumer segments and delivering fitting solutions.

Consequently, an increasing number of investors are rallying behind companies that adhere to sustainable and profitable business models, demonstrating growth potential irrespective of founders’ academic backgrounds.

Richa Bajpai, founder of the student-focussed venture firm Campus Fund, sheds light on the shifting mindset within the student community. According to her, students, who were previously inclined towards government jobs, are now embracing entrepreneurship.

It is also worth mentioning that the success stories of unicorn founders, many of whom did not emerge from elite institutions, have taken entrepreneurship as a subject of discussion at people’s dinner tables while watching shows like Shark Tank. Today’s youth draws inspiration from the achievements of these founders, with many recognising that elite institutes are not the sole breeding grounds for entrepreneurs.

“The people of this country [India] want to make a difference and create an impact, and this phenomenon is not confined to metropolitan areas or limited to IITs, IIMs, or NITs. With increasing awareness and greater accessibility to venture capital, entrepreneurship is spreading beyond the exclusive circles of elite institutes in our nation,” Bajpai added.

Looking ahead, this trend will reshape the startup ecosystem, fostering inclusivity, interdisciplinary collaboration, and new prospects for aspiring entrepreneurs. Ultimately, this shift enriches the entrepreneurial landscape, ushering in innovation and resilience for a vibrant and dynamic future.

The post How Non-IIT Graduates Are Spearheading The Great Indian Unicorn Show appeared first on Inc42 Media.

If there is one thing besides the investor dry powder that has fuelled the growth of the world’s third-largest startup economy, it is, without a doubt, consolidations, which have happened in the ecosystem over the last decade or so.

Embarking on their respective merger and acquisition (M&A) journeys, Indian startups have not only entered new markets but also fostered new technologies and widened their access to newer and bigger TAMs (total addressable markets). In this race to grow at a break-neck speed, bolstered by hand-holding, joint ventures, or even acquiring and merging with peers and rivals, Indian unicorns, too, seem to have aced the M&A game.

Consider this: Between 2014 and 2023, the Indian startup ecosystem witnessed 1.2K acquisitions by Indian startups. Of these, 110 unicorns led over 400-plus acquisitions, according to Inc42’s latest report on ‘Decoding India’s Unicorn Club’.

Further, of the total 110 unicorns in India, as of August 10, 2023, ecommerce unicorns have spearheaded the maximum acquisitions. In ecommerce, rollup unicorns together acquired more than 40 firms. In edtech too, BYJU’S and Unacademy acquired 30 companies – accounting for more than half of total M&As in the sector.

Cure.Fit, BYJU’S Lead The M&A Graph

Interestingly, 33% of the total acquisitions in the country’s startup space have been led by a handful of unicorns, with Cure.Fit, a fitness and health platform, at the helm.

Cure.Fit was launched in 2016, following the acquisition of two Bengaluru-based fitness studios, Cult and Tribe. Today, the unicorn has acquired a total of 28 startups.

Other prominent names leading the M&A charts are Mensa Brands with 21 acquisitions, Flipkart with 19 acquisitions, BYJU’S at 18, and Zomato and GlobalBees at 16 acquisitions each.

In terms of individual (disclosed) deal value, BYJU’S is an undisputed winner. Four of its biggest acquisitions include Aakash Educational Services Limited (at $1 Bn), Great Learning (at $600 Mn), Epic (at $500 Mn), and WhiteHat Jr (at $400 Mn).

The Saga Of Shaky Acquisitions

While acquisitions are certainly a great strategy for growth and scale, it can also create issues for a company. Overvaluation, incompatible cultures, failure to realise synergies, regulatory challenges as well as unrealistic expectations in terms of growth can put the acquirer company at risk.

For instance, BYJU’S acquisition spree has backfired by multiple degrees, and the company has been at a crossroads for the last two years. The edtech is already contemplating shutting down Whitehat Jr, while Aakash Educational Services Limited (AESL) has been cornered in a legal battle.

Similarly, Snapdeal acquired fintech startup Freecharge in 2015 for an estimated $400 Mn. However, as the talks regarding its merger with Flipkart failed to take off, the company sold the digital payment app to Axis Bank for mere $60 Mn in July 2017.

Another unicorn Unacademy, too, has experienced a series of downturns since it embarked on its acquisition journey in 2020. The Bengaluru-based company acquired more than ten startups, including Rheo TV, PrepLadder, Mastree, Spayee, CodeChef, SwifLearn, Kreatryx, and TapChief, and launched an array of products to serve the edtech space.

However, its journey is now fraught with challenges, be it exiting the K-12 segment, layoffs, or even unwinding its US operations, subjecting the company to some of the most turbulent times since its inception in 2015.

What’s Next?

With the ongoing funding winter and markets undergoing corrections, the overall M&A trend is expected to accelerate further in the Indian startup ecosystem.

With examples like Zomato turning profitable, it is anticipated that more unicorns will emerge in the black, triggered by a wave of M&A deals. Looking at the profitable ones, many other unicorns may find themselves on the acquisition route to strengthen their tech, teams, and product line or even expand their footprints into untapped geographies.

However, according to the managing partner at Orios Venture Partners, Anup Jain, most M&As will take place between Series A and C stages, where funding has slowed down, and many will choose to retain as much value as possible via the consolidation route.

He further predicts that startups operating in high-cash burn sectors such as ecommerce, edtech, content and media, healthtech, B2C lending, and fintech payments will see more M&A deals than others.

With the number of unicorns expected to cross the 280 mark in the next five years, there will be no dearth of startups taking the consolidation route. Amid this, various funds that have already started to explore secondary asset purchase opportunities at lower valuations will continue to strengthen their play. This will likely trigger investors to look for more merger and acquisition deals for their portfolio companies, thereby paving the way for more unicorns in the county.

Update – August 23, 2023: The table on biggest acquisitions has been updated with the logo for Leisure Group – a European vacation rental operator (that has been acquired by Oyo), which was earlier misrepresented with that of Leisure Hotels Group.

The post What’s Inside The M&A Treasure Trove Of Indian Unicorns appeared first on Inc42 Media.

The world’s third-largest startup economy is going through some of the most precarious times and any respite from the ongoing funding winter seems to be only on the cards. As a result, not even a single startup has emerged to claim the unicorn title so far this year.

The state of the funding in the ecosystem is such that in the first seven months of 2023, Indian startups could only raise $5.9 Bn against $19.7 Bn and $21.2 Bn during the same period in 2022 and 2021, respectively.

According to data compiled by Inc42, late stage startups raised $3 Bn across 52 deals between January and July 2023, down a staggering 75% from approximately $12 Bn raised in the same period a year ago, and 82% from $16.6 Bn raised between January and July in 2021.

Adding to this are the ongoing market corrections and roiling global economies that have only made investors embrace more caution. Companies are now grappling with increased scrutiny of their business models and are being pressed to showcase profitability over pursuing rapid strides.

Consequently, once-promising ventures that were destined to become unicorns are today facing limited investment opportunities, while existing unicorns are struggling to sustain their current valuations.

Recently, renowned Indian startup names such as OYO, BYJU’S, Swiggy, PharmEasy, PineLabs, Meesho, and Ola saw substantial valuation markdowns on the books of their investors due to their never-ending tryst with losses and cash burn.

BYJU’S, which has not reported its FY22 financials, witnessed a nearly 20X YoY increase in its consolidated FY21 loss to INR 4,588 Cr. Similarly, Swiggy’s FY22 consolidated net loss doubled to INR 3,628.9 Cr, and PharmEasy incurred losses to the tune of INR 2,731 Cr in FY22 compared to INR 641 Cr in FY21.

Nevertheless, India’s position as the ecosystem with the third-highest number of unicorns globally, after the US and China, remains undisputed. The collective valuation of the 110 startups exceeding $1 Bn valuation stands at over $347 Bn+, backed by total funding of $99 Bn. Further, as of April 11, 2023, the homegrown unicorn ecosystem employed more than 4.5 Lakh individuals, according to Inc42’s ‘Decoding India’s Unicorn Club Report 2023’.

Now, before we dive deeper into the findings, let’s quickly look at some unique facts from our latest report.

• Time Taken To Become A Unicorn Has Reduced Significantly: Unlike companies like Fractal, Pine Labs, MapmyIndia and IndiaMART, which took more than 20 years to become unicorns, names like Mensa Brands, GlobalBees and 5ire ended up cherishing the coveted tag within just one year of their inception.
• Startups Founded Post-2015 Are Becoming Unicorns Faster: Startups that came into existence after 2015 ended up with the fancy unicorn tag in just 3.5 years. Names like Ola Electric, CRED, MPL, and Zetwerk took not more than 3 years to become unicorns.
• Sectors With The Highest Number Of Unicorns: The country’s ecommerce sector boasts 25 unicorns, with Flipkart (now acquired by Walmart) being the most-valued unicorn at $37.3 Bn. Close on the heels are fintech and enterprise tech sectors, which foster 23 and 22 unicorns, respectively.
• US Is The Most Preferred Destination For Indian Unicorns: According to the report, 83% of Indian unicorns that are headquartered outside India are from the enterprise tech sector. Overall, 18% of Indian unicorns are headquartered outside India, with the US being their most preferred destination.
• Most Unicorns Lack Gender Diversity At The Board: Of the 110 unicorns in the country, only two unicorns, Open Bank and Good Glamm Group, have more than one woman cofounders.
• Investors Are Now Looking Beyond IIT And IIMs: 51.8% of unicorn founders are non-IITians.

Profitability Still A Distant Dream For Most Unicorns 

Out of the total 89 unicorns that disclosed their financials in FY22, only 23 were profitable. This number is slightly lower compared to FY21 when 29 unicorns boasted healthy profits.

Over the years, a combination of factors inherent to the startup ecosystem and specific market conditions have propelled unicorns towards aggressive growth strategies, often resulting in cash burn and financial losses.

An ever-intensifying competition and rapidly evolving technologies have pushed company founders to prioritise rapid expansion over achieving positive unit economics. Concurrently, the inflow of continuous funding from the investor ecosystem, driven by inflated valuations based on exaggerated total addressable market (TAM) estimates, led founders to bloat their fixed costs, including human resources, manufacturing facilities, and office spaces.

Consequently, when the funding stream dwindled, many of these startups found themselves in precarious situations.

According to Inc42’s Layoff Tracker, more than 100 startups have laid off 28,000-plus individuals in the past 20 months. Prominent unicorns like BYJU’S, Ola, Unacademy, and Blinkit have been among those resorting to significant workforce reductions. This period has also been marked by controversies, impacting unicorns like PharmEasy, Swiggy, BYJU’S, and BharatPe.

It is due to these setbacks, including amplified market volatility, that many startups are deferring their plans to go public. Further, what has cornered Indian startups, including unicorns, on all fronts has been desperate attempts to cut costs by laying off employees and their tryst gone wrong with Indian regulators on multiple occasions, throwing them off the growth path and subjecting them to uncertainties.

Is There Light At The End Of The Tunnel?

Even though the prevailing funding dry spells pose a severe challenge to Indian startups, these are also acting as a crucible to forge resilience and innovation among companies. In the absence of any major funding support, these startups are expected to not only stay laser-focussed on being profitable but also build sustainable business models.

The latest example in this context is of foodtech giant Zomato, which has finally reported a net profitable quarter. In the first quarter of the financial year 2023-24 (FY24), the company recorded a consolidated profit after tax (PAT) of INR 2 Cr. Further, its acquired unicorn entity Blinkit is targeting to break even on an adjusted EBITDA basis in the next few quarters.

Meanwhile, Meesho, too, has also reported a consolidated profit after tax (PAT) as of July 2023. However, it has yet to file its financial results.

Furthermore, the fintech heavyweight Paytm’s Q4 FY23 net loss plummeted 78% YoY to INR 167.5 Cr, accompanied by a remarkable 51% YoY surge in operating revenue to INR 2,334.5 Cr in Q4 FY23.

As of now, industry experts foresee a temporary improvement in financials, given the widespread adoption of cost-cutting measures by companies in FY23. However, valuations are expected to remain under consistent pressure.

Concurrently, the quest for exits might drive several funds to explore potential merger and acquisition opportunities for their portfolio unicorns. Currently, Tiger Global Management and Peak XV Partners possess the highest number of shares in unicorns at 39 and 37, respectively.

Nevertheless, in the ebbs and flows of business cycles, hope persists. Inc42 projects that India will be home to over 280 unicorns by 2030. Notably, between January 2021 and August 2023, 240+ India-focussed funds emerged, collectively wielding $33 Bn in dry powder to bolster the future of the world’s third-largest startup ecosystem.

The post Unicorn Dry Spell: Decrypting The Current State Of India’s Billion-Dollar Startups  appeared first on Inc42 Media.

With consumer preferences experiencing a significant shift, the popularity of ayurvedic products has been steadily rising, particularly in the beauty and personal care industry. The Indian herbal cosmetics market is expected to reach $4.7 Bn by 2026. Launched in 2021 by Shreedha Singh and Param Bhargava, a Gurugram-based D2C brand, The Ayurveda Co. (T.A.C) is looking at ruling this space and emerging profitable by the next financial year.

However, the journey of this D2C beauty and personal care brand has not been without twists and turns. Suffering severe skin allergies in 2014, Singh started looking for remedies and her search led her to Ayurveda, which healed her within six months. It was then the idea of floating an Ayurvedic brand first flickered in her head.

After years of research, the founders, Singh and Bhargava, started building The Ayurveda Co. However, much to their chagrin, the husband-wife duo witnessed a lot of scepticism along the way. Despite this, the couple remained hell-bent on changing the perception around Ayurveda as a remedy that takes time to show effects and is now old and obsolete.

To change people’s perception around the 5,000 years old science of healing, the couple made it a mission to make their brand appealing and affordable for all age groups. Thus, The Ayurveda Co. was born, giving Ayurveda direct entry into the lives of people who have now largely separated themselves from its benefits.

Presently, the D2C brand offers a diverse range of natural and ayurvedic beauty and personal care products such as face washes, cleansers, serums, moisturisers, hair care products, and makeup. All products are made from ayurvedic ingredients, which are clinically proven and derma tested for being free from sulphates, parabens, and other harmful chemicals.

T.A.C sells its products through its website and its kiosks, along with select retailers and online marketplaces like Nykaa and Amazon. The startup displays and sells its products at 30 departmental stores in Dubai, which it plans to scale up to 300 this year.

In India, The Ayurveda Co. has 20 exclusive outlets, while its products are available across 3,000-plus multibrand outlets across the country.

In terms of its financial performance, the D2C brand claims to have witnessed 4X revenue growth in FY23 to INR 45 Cr from INR 12 Cr in FY22. This growth can be attributed to the significant expansion of their customer base, which has grown 10X over the last two years, from just a few thousand individuals to an impressive 5 Lakh customers.

In FY24, the founders aim to generate revenues to the tune of INR 150 Cr. To fuel this, the D2C brand recently raised INR 100 Cr in a Series A round.

Brand Positioning Is Most Critical In The Early Days

For T.A.C, establishing trust and fostering brand recall with customers was paramount. As a D2C brand centred around traditional Ayurveda, it was crucial to align with the preferences of millennials and GenZ. To achieve this, Singh personally oversaw surveys and managed customer care, as the sole point of contact, during the initial 15-18 months.

The founders also realised that for T.A.C to truly disrupt the market, a shift in perception around using ayurvedic products was essential, and the young generation must spearhead this transformation.

“Listening to the customers helped us understand the core proposition we can offer. While Ayurveda is traditional, we positioned ourselves as a young and modern brand,” Singh added.

Unlocking The Omnichannel Route With Beauty Advisors (The ‘Snipers’) 

T.A.C targets individuals between 18 and 35 years of age. Among them, customers in the age group of 18 to 25 years buy mostly from online channels. This is why the brand was only selling online in 2021 and 2022 via its website and marketplaces such as Amazon, Nykaa, Flipkart, and Blinkit, and with the help of influencers on Instagram.

However, the founders soon realised that the TAM they were targeting was too small. As a result, in May 2022, the T.A.C team embarked on their offline journey to expand their market share. However, there were quite a few unforeseen challenges.

“To go offline, we first went to stores like Nykaa and Shoppers Stop, however, they demanded a 50% margin on our products and a monthly display rental of INR 20,000. It was a huge cost to bear,” Bhargava said.

This paved the way for three key strategies that the founders adopted: 

Setting Up An Experienced Team

The founders appointed a team of sales executives from companies such as  L’Oreal, HUL, ColorBar, Biotene, and Lotus, Colgate, and Palmer. The new team was experienced in offline strategies like sachet-size products, smaller price points, and larger distribution, giving the brand a much-needed penetration boost.

Exclusive Stores

Instead of putting the products directly on the shelves of retailers, the founders focussed on opening their exclusive stores in areas with heavy footfall. This not only created a buzz in the market but also helped them negotiate better deals with retailers as the brand name was already built.

Training ‘Snipers’ In-House

The founders also decided to appoint beauty advisors (BAs) and gave them training to help customers choose the right products according to their skin type and requirements.

“It’s a very sniper kind of approach. And for our teams to become proper ayurvedic snipers, we kept on brushing up their skills. Today, we have 20-plus T.A.C exclusive stores and 3,000-plus offline retail touch points across India, along with more than 600 beauty advisors building brand awareness and trust among consumers,” Singh added.

Quality Conscious Super Supply Chains

Speaking with Inc42, Bhargava highlighted the importance of supply chains for global expansion. He also cautioned founders against compromising product quality during business growth.

“T.A.C’s success can be attributed to three key strategies — Maintaining an in-house R&D team of doctors and experts; sourcing high-quality ingredients from the Himalayan region through partnerships with key retailers; and investing in machinery and quality checks at outsourced manufacturing units to ensure product excellence,” the cofounder said.

Although The Ayurveda Co. outsources its manufacturing, the founders are laser-focussed on investing in machines and quality-control processes at regular intervals. This allows them to stay abreast of new technologies. Also, the D2C brand’s quality-control teams make sure that their vendors are committed to maintaining high quality.

“Also, we are the first of the few brands that have been able to enter the Middle East in less than six months after completing all formalities. We were able to get the products approved and on the shelves in Dubai because we have been focussed on building a super supply chain that is quality conscious and scalable,” Bhargava added.

Is Profitability A Distant Dream?

In the financial year 2021-22, the D2C brand’s total expenses amounted to INR 16.6 Cr, resulting in a net loss of INR 2.7 Cr. Although the founders didn’t disclose the total expenses incurred in FY23, they could increase significantly due to a 4X rise in revenues and a strong focus on marketing and brand promotion. It is pertinent to mention here that T.A.C also serves as the title sponsor for reality shows like MTV Roadies and Splitsvilla.

However, according to Bhargava, these expenses are important for the growth of the company. He claims that the company maintains a positive contribution margin.

“We are investing in promotion and marketing and not incurring losses here. The losses primarily stem from our distribution and operations side as we work with an in-house team of 600+ beauty advisors engaged in direct selling with attached incentives. So, the losses are not on the selling side and we expect to recover with scale,” he added.

Interestingly, even though the primary goal of the founders is to thoroughly explore the beauty and personal care market by adding more products and categories to their portfolio, they have no plans to set up a manufacturing unit.

Meanwhile, the husband-wife duo are planning to make inroads into the health and wellness markets. The founders are looking to break even by the end of FY24 and turn profitable by FY25.

However, the segment which The Ayurveda Co. aims to become the leader in requires high cash burn and is crowded with deep-pocketed players. According to Inc42 data, there are approximately 130+ beauty, personal care, cosmetics and men’s grooming D2C brands in India.

Some of the notable names in this segment are Mamaearth, The Moms Co., mCaffeine, Biotique Nykaa, Sugar, Mamaearth, Wow Skin Science, JustHerbs, The ManCompany, MyGlamm, Skinkraft, Plum, and Beardo, among others.

While Nykaa has already become a listed beauty marketplace, others like Mamaearth, Wow Skin Science, Bombay Shaving Company, mCaffeine, MyGlamm have already established presence in many international markets. Therefore, it would be interesting to witness how The Ayurveda Co. cracks the profitability code by FY25 with its ayurvedic playbook and well-trained beauty ‘snipers’.

[Edited by Shishir Parasher]

The post How D2C Brand The Ayurveda Co. Grew Its Customer Base 10X In Just 2 Years  appeared first on Inc42 Media.

It was July 3, 2023, and probably one of the busiest afternoons at Leverage Edu’s Noida office. The news of the company’s $40 Mn Series C funding round got leaked, piquing media interest, and the founder & CEO, Akshay Chaturvedi, who wanted to keep a low profile, couldn’t avoid his phone that kept ringing back-to-back.

The milestone, as many would say, was truly remarkable, considering the state of a majority of the Indian edtech players post-pandemic. Despite this, Chaturvedi managed to secure funding twice, totalling $62 Mn, in the last 18 months, with the company’s valuation now soaring to $150 Mn.

However, the journey wasn’t without its challenges. Launched in 2017, Leverage Edu is a study abroad platform that helps students apply to universities abroad. During the first 10 months of the pandemic in 2020, the startup faced a significant setback when people were forced to stay in the confines of their homes. This particularly hit Leverage Edu, as travel restrictions gave the startup’s revenue stream a sudden death.

Against all odds, the company persevered, retaining its 80-member team and forming valuable alliances with international universities, which laid the foundation for the success that was yet to come.

With his passion for travelling and forging new partnerships, Chaturvedi has been able to join hands with over 700 universities across the globe since the inception of Leverage Edu. Some of the key universities in the startup’s portfolio include University of Liverpool, Queen Mary University of London, University of Illinois Chicago, Macquarie University, St Lawrence College, Nipissing University, among others. Notably, Canada Apply Board stands as the only other platform, which boasts more than 1,200 universities in its network.

Other notable companies in the sector are Leap Scholar, which offers end-to-end solutions to students ranging from personalised guidance on top universities, IELTS coaching, and visa services, among others, and Eruditus, which is mostly focussed on executive education from top business schools.

With a dedicated team of over 950 members, of which 200 people hold ESOPs, and an impressive 0.7 Mn downloads across three apps – Study Abroad With Leverage Edu, LeverageIELTS, and the recently launched LeverageTOEFL, Leverage Edu claims to serve a strong community of 8 Mn-plus students aspiring to study abroad.

Like many other edtech startups, Leverage Edu did incur losses at the outset and until a major part of the financial year 2023. However, the tides seem to be turning now as the company claims to have turned profitable in the fourth quarter (Q4) of FY23 (January to March 2023). The company is yet to get its filings audited for the quarter. Furthermore, the edtech plans to double its revenues, setting its eyes on a full year of profitability in FY24 (April 2023 to March 2024).

Chaturvedi’s Humble Beginnings

Speaking with Inc42, Chaturvedi said, coming from a lower-middle-class family, his parents wanted to see him excel in studies and become fluent in English to secure a good job, which he did.

Before starting his career, Chaturvedi was involved in many side hustles, and it’s hard to imagine a single field that he may not have pursued before commencing his Leverage Edu journey.

Chaturvedi has tonnes of experience under his belt, ranging from working with two of the Big Four accounting firms, KPMG and EY, to being a writer, a mentor, a researcher and an investor with multiple firms.

However, Leverage Edu came into being only after he left his job at EY in 2014 to pursue MBA, setting his eyes on Oxford University. Even though he got selected, he did not have the funds to embark on Oxford avenue to pursue his plan, adding much to his chagrin.

As a result, the undeterred young Chaturvedi took a parallel route that led via the Indian School Of Business (ISB) to quench his thirst for higher studies (MBA) from a top-notch business school. Since then, he has not looked back.

Although what nudged him to pursue MBA is a story worth listening to from the horse’s mouth.

“During my stint at EY, I learnt that one out of every four Chinese kids in America studied with New Oriental Education, a Nasdaq-listed company worth a staggering $22 Bn-$23 Bn. The founders also have a movie on their journey — ‘American Dreams in China’. This moment proved to be a turnaround of a lifetime, as somehow I was able to connect with the idea of establishing a venture that would someday be worth millions of dollars if not billions,” he said.

The Point Of No Return

Two pivotal events unfolded while Chaturvedi was pursuing his MBA at ISB. First, he built ISB’s internal app, Leverage, where students could connect with higher-education experts for advice. And hardly did he know back then that the app will one day mature to become a full-fledged edtech business.

Second, his dream of studying abroad turned into reality when he received an offer letter from Draper University in the US, granting him a fully funded scholarship for the DFJ Fellowship program, a prestigious entrepreneurship boot camp.

But, the only roadblock was that he did not have sufficient funds to sponsor his travel and accommodation.

“I was puzzled and instinctively wrote a cold email to Kunal Bahl of Snapdeal. Surprisingly, he replied with an INR 85K cheque,” the founder reminisced with a smile. “Moreover, TiE supported with INR 1.25 Lakh that took care of my accommodation.”

Chaturvedi Still Had Miles To Go…

The fellowship programme fuelled his desire to create something impactful, something that can add value. It was then he realised how challenging it was to study abroad. With his experience, he was able to relate to the headwinds that many students, who do not have adequate resources, face in their pursuit to study in foreign lands.

Back then (2015-2017), the industry was highly unorganised, and there was a notable absence of a strong brand dedicated to serving students aspiring to study abroad.

Furthermore, there were glaring gaps in this space, crying to be fixed. While many students lacked access to proper guidance on higher education choices, several others received misleading bits of advice that led them astray. And then, there are unscrupulous agents in this sector who take advantage of students.

Loathing how the sector operated, Chaturvedi envisioned a structure that can be trusted to provide accurate career advice to students, the vision that eventually gave birth to Leverage Edu in 2017. Interestingly, the seed of his vision had been sown during his ISB days with Leverage.

After saving up INR 8 to 10 Lakh, he launched the ‘Study Abroad with Leverage Edu’ mobile app.

“I kickstarted my journey from there. Although I never intended to be an entrepreneur, I landed up becoming one because I understand the student DNA,” he said.

Leverage Edu’s Playbook To Stay Ahead Of The Curve

Chaturvedi claims Leverage Edu to be the third-largest player globally in sending Indian students to the UK for higher education. In FY24, the founder is aiming to up the ante and has his eyes set on entering the US and bagging Series C funding. The startup is also looking at strengthening its product portfolio by adding loans and English language training courses to the startup’s overall kitty.

“Since we have started to build our channels, the costs have come down. However, it takes time to see a visible effect, and we are hopeful of seeing some of these having a positive impact in our FY24 financials,” the founder said.

The biggest learning for Chaturvedi has been to understand his customers and build the right value proposition for them at the right cost.

“We have done everything in the last six years and we believe we have only scratched the surface as we still have miles to go. And now, we are focussed on building and rebuilding our corporate culture. In addition, my goal is to create incremental cash flows because being profitable is not enough,” the Leverage Edu founder said.

A Paradigm Shift: From Burning Cash To Curbing CAC 

Until a larger part of FY22, Leverage Edu burnt a lot of cash. The efforts were towards acquiring 2-3% of the approximate 1.1 Mn students aspiring to study abroad every year from India and investments towards building value-added products and content machines for future organic acquisitions. However, just before the funding winter kicked in, a mentor flagged the amount of cash the company should be burning to acquire new users.

Following this, the edtech startup shifted its focus towards a more sustainable data-led approach. The strategy that it adopted is as follows:

Identifying The Core Serviceable Market: In a matter of months, the team pinpointed 144 micro markets with the lowest cost per lead, highest conversion rates, and strong brand recall.

“We understood that we did not want to win the entire country but only certain micro markets. This helped us in keeping customer acquisition costs at bay,” the founder said.

Enhancing Processes On The University Front: To do this, the Leverage Edu team launched Univalley, an OS for universities to streamline payments and manage applications. Additionally, value-added products like Univalley Admit, Univalley Pay, and Univalley Cred were introduced, aiding quick conversions.

Fixing Loopholes On The Student End: To bring more transparency to their work, the startup created UniConnect, an online student community that engages in open discussion forums involving universities, alumni, and applicants. The startup also employed data analytics to effectively match students and universities.

“Today, we have over 120 Mn visitors on Wings, a content platform, and receive 3K to 4K posts/comments daily on study abroad with Leverage Edu mobile app community with prompt responses from university representatives,” Chaturvedi said.

Building Multiple Value Propositions On Both Supplier and Demand Side: Recognising the comprehensive needs of students going abroad, Leverage Edu developed a range of in-house products catering to various requirements.

Some of these products include Fly Finance (Fly Loans and Fly Forex), Fly Homes (student accommodation), LeverageLive (live learning platform for international edtest prep and English language learning, hosting 1 Mn-plus hour of classes every month), and Ivy100 (boutique premium consulting services for Ivy-league & equivalent universities), among others. This helped the company increase the conversion rate and reduce conversion costs at scale.

“In 2021, we provided loans worth about INR 30 Cr. In 2022, the loans reached INR 270 Cr, facilitated through banks, lending partners, and NBFCs. With an RBI license to remit, our credibility increased, and this year we expect loans to reach almost INR 700 to 800 Cr,” he added.

Ensure Team Productivity: The entire student journey is divided into 36 touch points, each equipped with multiple FAQs answered through the Leverage Launchpad feature. This enhances the student experience, reducing effort throughout the process. The company heavily invests in training and assessment, ensuring team members spend at least six weeks on soft and hard skill training and gaining expertise on multiple universities. This has armed Leverage Edu’s content team of 60 to serve a large student pool with unmatched efficiency.

Leveraging The Market Opportunity

According to Chaturvedi, 15 months ago they would spend about INR 6 Cr a month on performance marketing, which today has come down to nearly INR 15 Lakh. “When you talk about non-variable expenses that we kind of make in the usual day-to-day, I can confirm that we are building the company out of the cheapest place in Noida compared to Bengaluru, Mumbai, or Delhi,” he said.

“Even our marketing costs in hindsight have gone down from $2,400 to $800 per student against the $4,200 we make on each student. Also, now 66% of all our acquisitions are organic/non-paid and 21% are referrals. This led to profitability from December 2022, and the reason we’ve been able to raise funds in the ongoing funding winter is because we were profitable,” the founder said.

Chaturvedi has many plans for the current financial year, and he is hell-bent on boosting the market share of his venture. However, more important for him is to create incremental cash flows as just being profitable is not enough to become a one-stop destination for millions of students who aspire to study abroad.

The post How Leverage Edu Cracked The Profitability Puzzle In Cash Guzzling Edtech Market appeared first on Inc42 Media.

The Indian startup ecosystem has been grappling with a funding winter for the past 18 months. However, that has not stopped VCs from raising funds. According to Inc42 data, between January 2021 to June 2023, the investors have floated 230+ funds with $32 Bn capital.

Family offices and ultra-high networth individuals (UHNIs) have been a key source of this capital for VC floating these new funds. However with the global economic meltdown, falling value of rupee to dollar and other macroeconomic events, the LPs have become much more cautious. Indeed family offices or LPs are evaluating VCs in the same way that VCs evaluate founders and startups.

As highlighted by Vinod Murali, Managing Partner & Cofounder, Alteria Capital, while approaching family offices during the Covid years, the venture debt fund was asked questions about how much of its portfolio was distressed and the recovery timelines for the slowdown. “You can answer questions around processes, strategies, but those around macros are tough to answer,” he added.

Murali was speaking during a panel discussion on “Navigating The LP Landscape In 2023: Fundraising Strategies For PE-VCs” during the first edition of Inc42’s MoneyX conclave. The panel discussion was moderated by Shanti Mohan, Cofounder & CEO, LetsVenture, and also featured Rohit M A, Managing Partner, PeerCapital; Karan Mohla, General Partner, B Capital; and Varun Laul, Partner, Investcorp.

One of the big questions was about how VCs convince LPs about their differentiation strategy. For instance, LPs are beginning to ask questions about liquidity, returns and exits, IPO potential and frameworks for investments. Limited partners are also wondering how VCs who have board seats are verifying the accuracy and authenticity of revenue figures and sales, given the several corporate governance problems in recent months, said Laul.

Peer Capital’s Rohit MA indicated that being an entrepreneur-turned-VC, he is also often asked what value he brings to the table and why he entered the field of investment. LPs are becoming sharper about asking VCs about not just the capital deployment but also about the value they add to the portfolio.

B Capital’s Mohla highlighted that any investor in today’s market cannot just rely on passion of innovation, but have to align strategies with the competitive landscape, regulations and have to make right decisions for the long run. .

“It’s important to build that confidence in LPs because you cannot do high valuation rounds every three months any more. Fund managers and GPs who are backing startups building for the long-term are really standing out. But this has to be put across to fund investors clearly,” Mohla added.

Investcorp’s Laul also highlighted that more and more family offices are beginning to understand that VCs are not treasury managers. But at the same time, he applauded family offices on their grasp for strategy, which is getting stronger and clearer in recent times.

“They are immediately able to recognise where the white spaces are, where the potential lies. In fact, we find them to be good due diligence partners,” Laul added.

Presented in partnership with Peak XV Partners, supported by Venture Catalysts, JSA, Samsung, IVCA Associates, Indian Angel Network, JIIF and Marwari Catalysts, MoneyX is aimed at bringing the driving forces of the Indian startup ecosystem under a single roof. 

The post VCs On Synergies With Family Offices And Facing Tough Questions From New-Age LPs appeared first on Inc42 Media.

When it comes to investing in startups, family offices have their share of challenges. According to Soumya Rajan, the founder & CEO of Waterfield Advisors, one of the key things that family offices need is a good fund manager who can access and raise domestic capital.

“At Waterfield, we are able to track 90+ PE/VC funds but we find that not many best fund managers are accessing the domestic capital,” she added.

Rajan was speaking on “Family Offices Going Startup-First: The Shift Towards Private Investments” at the first edition of Inc42’s MoneyX conference in a fireside chat hosted by Ankur Pahwa, managing partner, PeerCapital.

Waterfield Advisors is India’s leading independent Multi-Family Office and Wealth Advisory Firm. Established in 2011, it advises more than 100 business families.

Rajan has worked for almost two decades with Standard Chartered Bank. She recognised the need to deliver holistic services to the ultra-high-networth individual (UHNI) community, without any conflict of interest. Thus, Waterfield Advisors was set up as India’s first pure play financial advisory company.

During her session, she highlighted that private market investments by family offices have grown from almost 1% to 12% in the past few years. She also highlighted that there has been a major change in the way family offices invest these days.

“Where, earlier, the idea was to invest the capital back into the businesses, the new generation is now looking at giving back to the ecosystem. Also, newer investment trends are sitting in the private market rather than the public market,” she added.

Further, she underlined the fact that, in the current scenario, investor education is most crucial for the family offices as startups are an illiquid and risky asset class. However, she also believes that structural changes are happening in the ecosystem, which are offering good exit opportunities to the investors.

In an earlier interaction with Inc42, Waterfield Advisory’s managing partner Rohan Paranjpey emphasised the fact that a multi-office is able to speak on behalf of more investors as they are able to work more in a sector agnostic manner with a deep insight into each sector.

Presented in partnership with Peak XV Partners, supported by Venture Catalysts, JSA, Samsung, IVCA Associates, Indian Angel Network, JIIF and Marwari Catalysts, MoneyX is aimed at bringing the driving forces of the Indian startup ecosystem under a single roof. 

The post India Needs Good Fund Managers To Unlock Domestic Capital: Waterfield Advisors’ Soumya Rajan appeared first on Inc42 Media.

Despite India emerging as an attractive destination for global investors, the participation of domestic capital is low in the country’s startup ecosystem and it needs to increase, Paytm founder Vijay Shekhar Sharma said.

“We need both (international and domestic) capital, but domestic capital has an obligation to participate,” Sharma added.

He was speaking during a session titled, Founders Backing Founders — Supercharging Startup Growth, during the first edition of Inc42’s MoneyX conference.

Sharma also said that he would have liked to raise capital for Paytm from India, however, the domestic capital resides in very few pockets.

“… it’s always better to have domestic capital and access to a domestic network of investors, especially founders supporting founders,” he added.

The Paytm founder also said that a lot of founders of other startups, including Zomato’s Deepinder Goyal, bought shares of his fintech company after the stock reached its lowest levels on the bourses.

Besides being an entrepreneur, Sharma is also an active investor. He has invested in over 50 startups, including the likes of Raaho, GoQii, People, Hood, Upraised, Innov8, InnerChef, Zapr, and Hiver.

Talking about his first investment, Sharma said, “My first investment was in my friend’s chocolate company. I stand by my reason – I help my friends.”

Sharma advised startups to build products to solve the problems of Indians, irrespective of whether they are from urban areas or rural areas. He also said that while it is believed that most Indians won’t pay for products, customers are more than willing to pay for the right product.

Speaking about domestic capital at MoneyX earlier in the day, WaterBridge Ventures’ Mainsh Kheterpal also said that the participation of this capital is less than 5% in the Indian startup ecosystem.

The comments come at a time when the Indian startup ecosystem has been hit hard by the ongoing funding winter, leading to layoffs and many startups shutting operations. However, Peak XV Partners Rajan Anandan said at MoneyX that there is no funding winter and there is no lack of capital for Indian startups.

Presented in partnership with Peak XV Partners, supported by Venture Catalysts, JSA, Samsung, IVCA Associates, Indian Angel Network, JIIF and Marwari Catalysts, MoneyX is aimed at bringing the driving forces of the Indian startup ecosystem under a single roof. 

The post Need More Domestic Capital To Participate In India’s Startup Ecosystem: Vijay Shekhar Sharma appeared first on Inc42 Media.

In recent years, family offices have emerged as prominent players in the startup investment landscape within the country. According to Catamaran Ventures’ Deepak Padaki, this growing prominence can be attributed to a significant shift in the mindset of family offices.

Rather than solely focussing on wealth preservation, family offices are now actively seeking returns on their investments, he notes.

Padaki said this while speaking on “Elevating Investment Potential: Unleashing The Power Of Family Offices In Startups” at Inc42’s MoneyX conclave on July 20 (Thursday).

The panel also included Dr Aarti Gupta, CIO, DBR Ventures & Family Office DM Gupta and Munish Randev, founder & CEO of CERVIN Family Office. The session was hosted by Nitai Utkarsh, single family office lead, Hero MotoCorp.

“In the bay area, family offices are focussed on philanthropy or moonshots. In India, family offices have been investing in angel or around the business of family where they are comfortable. But now they are looking at series A and beyond for investing,” he added.

Apart from talking about the challenges that family offices face across areas such as portfolio management and deal flow, the panelists discussed in detail key pointers around family offices’ wealth allocation strategies, factors driving the rising startup investments from family offices and finding the right pathway for exits at the right time.

According to Inc42 Media’s latest Investor Landscape Report 2023, India currently has 300 family offices. Between January 2014 and June 2023, this investor class has invested in approximately 200 startups.

In the last three years, their favourite bets have been seed stage startups, mushrooming from fintech, ecommerce and enterprise tech sectors. Further, our estimates show that the number of family offices actively taking part, on an annual basis, in startup investments will likely increase 5x to 735 by 2030, from 123 in 2023.

Presented in partnership with Peak XV Partners, supported by Venture Catalysts, JSA, Samsung, IVCA Associates, Indian Angel Network, JIIF and Marwari Catalysts, MoneyX is aimed at bringing the driving forces of the Indian startup ecosystem under a single roof. 

The post A Paradigm Shift Being Witnessed In The Mindset Of Family Offices, Says Catamaran Ventures’ Deepak Padaki    appeared first on Inc42 Media.

Despite the rise in funding raised by India-focussed funds over the last few years, domestic capital accounts for less than 5% of the funding in the startup ecosystem, according to WaterBridge Ventures founder and managing partner Manish Kheterpal.

Speaking during a session, The Rise Of India’s Domestic Capital – Fueling The Next Wave Of Venture Capital, at MoneyX by Inc42 and Peak XV Partners, Kheterpal said it is challenging to raise domestic capital in the country.

He, however added that the situation seems to be changing now and that he was ‘excited about the India opportunity.’

The session’s panel also included International Finance Corporation’s Ruchira Shukla, Fireside Ventures’ founder & managing partner Kanwaljit Singh. It was hosted by Amit Pandey, VP, Indian Venture and Alternate Capital Association (IVCA).

Talking about family offices, which are now increasingly looking at the startup ecosystem for investments, Kheterpal advised, “… if a family office has an objective of purely financial risk diversification based investments – they can move with fund managers. If they can invest and forget, they can go with the thrill of direct investing.”

However, he said that a lot of family offices are now also aiming to understand how innovation can disrupt their business.

The panelists also shed light on the current state of domestic capital in India’s PE and VC industry, and the role of regulations in encouraging or hindering domestic capital investment.

The comments come at a time when the Indian startup ecosystem has been grappling with the funding winter since last year. Compared to $19 Bn funding raised in H1 2022, the startup funding dropped by 68% ($6 Bn) in H2 2022 and 71.5% to $5.4 Bn in H1 2023.

Compared to 900 deals in H1 2022, the number of deals fell 31.4% fall to 617 in H2 2022 and 48.6% to 462 in H1 2023

Even the mega deals have fallen to 4% of the total disclosed deals in H1 2023. It has been nearly a year since the Indian startup ecosystem minted its last unicorn in September 2022, Tata 1mg, which raised $40 Mn at a valuation of $1 Bn from its parent entity Tata Digital.

Recently, Zepto has emerged as a ray of hope and could become the first unicorn of 2023 with its $150 Mn Series E Funding on the cards.

Presented in partnership with Peak XV Partners, supported by Venture Catalysts, JSA, Samsung, IVCA Associates, Indian Angel Network, JIIF and Marwari Catalysts, MoneyX is aimed at bringing the driving forces of the Indian startup ecosystem under a single roof. 

The post Domestic Capital In Startup Ecosystem Less Than 5% But Excited About India Opportunity: WaterBridge’s Kheterpal appeared first on Inc42 Media.

The evolution story of Indian family offices as an investor class is quite interesting in the startup context. Despite their decades long existence, which can be traced back to the times when India was still under the Zamindari system, it was not until 2005 that they gained prominence as investors.

Notably, the Indian family office landscape witnessed a paradigm shift just a decade ago, with the advent of the startup culture and the entrance of ultra-high-net-worth individuals (UHNIs) as limited partners (LPs) in Indian funds.

Shedding light on the on the evolution of Indian family offices, the founder and CEO of Cervin Family Office, Munish Randev, told Inc42 that this class of investors originally aimed to de-risk the family businesses by creating a separate kitty of wealth, facilitate proper inheritance transfer, and plan for succession.

Cervin Family Office is a multi-family office, whose founding team has counselled more than 105 family offices, collectively managing over $4.5 Bn in financial assets, according to Randev.

He emphasised that family offices were initially risk-averse and primarily focussed on wealth preservation with some growth rather than only wealth creation. As a result, their entry into the startup ecosystem remained slow. However, in recent times, they have become more prominent and actively involved.

At present, India is home to more than 300 family offices, and according to Inc42’s Investor Landscape 2023 report, these offices have invested in over 200 startups since 2014.

“Until 2010-2011, in the VC funds, most bigger LPs were offshore investors with some sourcing from domestic investors. There weren’t many Indian investors. An eight or 10year old fund with no liquidity and no guaranteed returns was not something that appealed to the family offices a lot. But then the perception changed,” Randev said.

Indian Family Offices & The Three Waves of Change

The Indian family office landscape has undergone three distinct waves of change, each marked by shifts in investment strategies and generational influences.

The first wave occurred in 2005 when family offices transitioned from only investing in direct real estate, some listed equity and gold to exploring real estate funds and venture capital funds..

The second wave emerged when second or third generations of family members took over family businesses or control of wealth. This generation, with many having professional degrees from Indian & international universities, gained exposure to the startup ecosystem and the promising opportunities it offered. Consequently, around 2014-16, family offices began to pivot towards venture capital funds — a high-risk, high-return investment approach centered around new sectors and unestablished business models.

The third wave of change materialised with the arrival of third and fourth generations of ultra-high-net-worth individuals (UHNIs). Some of them veered away from entering the family business, seeking to transform their family office into a wealth creation platform while delegating certain family business responsibilities to professionals.

For instance, Eragon Ventures serves as a noteworthy example of a single-family office that took flight after its founders sold their stake in the family business, J.B. Chemicals, when the global investment firm KKR acquired the company in 2020.

“We have seen many family business owners selling out in the last few years and this trend is here to stay,” he added.

Overall, the evolution of family offices in India has been influenced by changing investment preferences, generational dynamics, and exposure to newer investment opportunities.

“So, once they started understanding what a family office is, they started setting up structures, very initially a CFO kind of person to lead (along with his/her main job of corporate finance), analysts and associates to understand and make deals. Hence the allocation story started,” Randev said.

Direct Investing Vs Venture Funds: The Core Dilemma Of Family Offices

For every family office, investment strategies revolve around risk management, weighing the potential impact on their lifestyle. According to Randev, inflation takes on a different meaning for ultra-high-net-worth individuals (UHNIs), encompassing additional costs like travel expenses, luxury purchases, and club memberships.

“We refer to it as luxury inflation which is much higher than the usual parameters like Consumer Price Index (CPI) etc,” he said.

The primary goal is to ensure their total portfolio yields a certain returnin the long run according to the goals and risk appetite of the family. Consequently, around 75% to 90% of the UHNI wealth remains invested in safer options such as fixed income, listed equity, real estate, and gold, while only 10-25% finds its way into startups, either through direct investments or venture funds. This is because family offices encounter several challenges in this domain.

Lack of Historical Data: Unlike traditional investments like stocks and debt, startup space lack extensive historical data which can help the family offices in making comparisons and devising strategies. Valuations in the startup space can be highly diversified with no fixed assessment rules. That makes this asset class a bit risk to enter.

Fear of Missing Out: With startups becoming the talk of the town, family offices fear missing out on opportunities in this domain. The aftermath of the pandemic and the market downturn further fueled this fear, leading to hasty startup investment bets and decision making.

“This is a major issue and a risk in any new asset class which becomes a buzzword not only in the investing circles but also social and family gatherings” said Randev.

Inability To Track Deals & Investments: The startup investing journey may open the floodgates to increased deal flows, which could lead to mistakes due to difficulty in saying no to potential opportunities. Also, due to multiple small ticket individual investments, the portfolio can quickly accumulate, leading to a larger pool of holdings which gets hard to keep a track of in the long run. Family offices need a proper mechanism of keeping an eye on their unlisted investments and also make sure their rights as investors are properly prescribed and adhered to.

Amid these challenges, Randev advises family offices to consider the venture fund route if they want to invest in startups without being directly involved. However, for those interested in understanding the startup space, direct startup investing provides more exposure and opportunities.

“Direct investing in Startups also needs a proper plan and structure so that the family office doesn’t enter the market rudderless. This is the most important phase for a family office,” he added.

Families looking to enter this segment must invest time in learning, strategising, and tracking their investments. Proper planning will pave the way for informed and fruitful decisions in the dynamic world of startups.

The post Cervin’s Munish Randev On How Indian Family Offices Have Evolved To Pound The Startup Cap Table appeared first on Inc42 Media.

It was early 2015 when Mastercard acquired ElectraCard Services, a global payment solutions firm based in Pune. The takeover also prompted five senior employees of ElectraCard to quit their corporate jobs and venture into the world of entrepreneurship. India was already flooded with creative startups.

But the five of them – Jose Thattil, Tushar Shankar, Anil Sharma, Rajesh Londhe and Ramkumar Subbaraj – decided to explore the fintech space further and came up with Phi Commerce to democratise digital payments and make them seamlessly accessible across the country.

It was a bold step, as India was still a robust cash-based economy, and neither ‘demonetisation’ nor the subsequent influx of digital payments had swept the country at the time. But during their 15-year stint with ElectraCard, the founders deployed digital payment solutions to as many as 23 countries and knew that Indians would soon follow suit.

“We also realised that payment platforms and payment processors continue to work in silos almost everywhere. There was no one-stop solution for organisations to process, reconcile or track payment transactions from multiple channels,” said Thattil.

Identifying The Pain Points Of India’s Digital Payment Ecosystem

India’s digital payment industry is estimated to become a $10 Tn opportunity by 2026, according to a joint report by the Boston Consulting Group (BCG) and PhonePe. From prepaid instruments and credit/debit cards to NEFT/IMPS/RTGS, UPI, QR code, PoS and Aadhaar-based payments – more than 15 digital payment systems are now active in India, as per the RBI’s 2022-23 annual report. These systems allow businesses to receive payments through multiple channels, be it online, mobile or in-store transactions.

By and large, such diverse payment options have benefited both customers and businesses. But enterprises are still struggling to incorporate and integrate all available payment options in a simplified, cost-effective way.

Moreover, businesses today are increasingly adopting an omnichannel approach (an online-offline hybrid model) to maximise their reach and RoI, while tech-savvy customers are leveraging the same to cash in on best deals and other benefits. However, keeping track of multiple payment touchpoints and locations via a single dashboard remains a key pain point, especially for mid-to-large enterprises without any core expertise in digital payment technologies.

“No business can become big by solely focussing on the developed cities, particularly in India. They must go across the length and breadth of the country, serving a wide range of customers. And digital payments will be the backbone for such seamless operations,” emphasised Thattil.

Pune-based Phi Commerce aims to solve these glitches with its end-to-end digital payment processing platform and full-stack omnichannel solutions for businesses, banks and payment networks like Visa, Mastercard and UPI. It currently caters to more than 10 industry sectors, including fuel, telecom, utilities, real estate, education, retail, ecommerce, logistics and travel, among others.

In simple terms, Phi Commerce aggregates all payment systems available in India and provides access to merchants across sectors, with several value additions.

The platform has so far onboarded close to 1,200 mid to large institutions, which has helped the company to build a network of 16K merchants and facilitate 4 Bn transactions. Thattil also claims that the startup has partnered with the top three private sector banks in India and recently bagged a contract from the Bengaluru airport. Phi Commerce will manage the payment operations of all airport businesses as part of its integration and deployment services.

Finding A Blue Ocean For Go-To-Market

When Phi Commerce was launched in late 2015, Thattil knew that building an omnichannel payment stack for enterprises would take at least four to five years.

“But we could not wait that long as the opportunity cost was too high. So, we decided to find a blue ocean for our go-to-market strategy. To be precise, it was cash on delivery (CoD),” he chuckled.

At the time, more than 80% were CoD orders on major ecommerce platforms, and customers were paying in cash after doorstep deliveries. Again, companies like Amway, specialising in direct sales and multi-level marketing or MLM, were bound to accept cash payments. Overall, it was quite chaotic, and for months, the founders travelled with sales and delivery executives across cities to understand the key issues enterprises faced while handling CoD orders.

“A key issue was the non-availability of customers who should be present to pay for their CoD orders. Sometimes, people forgot to keep the money at home as orders were expected later. Others forgot their credit/debit card PINs even when delivery executives had card machines with them for convenience. In most of these cases, orders were returned to the companies concerned,” explained Thattil.

It turned out to be a golden opportunity for Phi Commerce.

By December 2016, the team introduced PayPhi Doorstep Payments and empowered delivery executives with a software kit that allowed them to generate payment links even at locations with no mobile internet connectivity.

Subsequently, the PayPhi platform was enhanced to cater to other payment methods like wallets, credit and debit cards, dynamic UPI QR codes, biometric, netbanking, IMPS, RTGS and NACH for a truly seamless experience. For the first time, all fragmented payment options were consolidated into a convenient, user-friendly interface.

With the UPI rollout in 2016 and the demonetisation drive in November of that year, the module was further improved, and another API was added to generate dynamic QR codes. This allows delivery executives to collect doorstep payments digitally without an internet connection.

Fast forward to 2023, and one will find more feathers in Phi’s cap. It has now expanded to a 120-strong team and rolled out seven products for the doorstep and B2B payments, subscription, lending, tokenisation, split collect, split settlement and more.

In FY22, the startup clocked an operating revenue of INR 27.54 Cr, more than a 5x rise from INR 4.28 Cr in the previous financial year, according to company filings. Phi Commerce has not filed its FY23 financials yet.

How The Payment Platform Of Phi Commerce Works

The fintech startup’s payment platform helps enterprises in three major areas: Payment collection across online and offline channels, payouts and reconciliation. As most businesses have adopted an omnichannel approach, they need to manage and monitor online and offline payments around the clock. To ensure a seamless experience across channels, payment options must be consistent across all channels and implemented appropriately. It will be unfair if online shoppers have exclusive access to BNPL/EMI options, but in-store customers fail to benefit from these schemes.

When it comes to collecting payments from distributors or dealers, enterprises deal with the added complexity of split payments and matching with against invoices, among other activities.

“Tracking and reconciling payments is a big pain point for businesses. That’s why we wanted to create a platform which would be flexible enough to not only cover all payment modes and channels but also provide value adds like APIs for accounting thereby creating huge efficiencies for our customers” said Thattil.

Service-oriented framework: The team has built the platform aligned to a service-oriented framework. Thus, instead of hard-coding the application and feature set for each payment mode, services can be configured across payment flows to ensure uniformity in solution offering across channels and payment instruments, without impacting the platform’s core code base.

Payment reconciliation via Phi Commerce NEFT: National Electronic Funds Transfer (NEFT) is a popular mode of online transfer introduced in November 2005. But Thattil identified a critical information gap as payee names, purpose of payment and other details are rarely available when merchants receive the money via NEFT.

“This can be confusing, especially when you receive several NEFT payments every day. Most merchants use a manual reconciliation process, which is often error-prone and time-consuming,” said Thattil.

Phi Commerce launched its unique virtual account number (VAN) solution to address this problem and ease out operations and reporting challenges for such transactions.

As the VPN generated is unique for each customer, the startup can automatically track and update all related payments in real time due to its seamless integration with merchant systems. This eliminates the need for manual payment reconciliation, while customers/payers are no longer required to provide their unique reference numbers (URNs) as proof of payment. Phi Commerce also provides summary settlement reports, which can be used to reconcile payments.

With built-in dashboards offered by Phi Commerce, merchants can also easily and efficiently track settlements.

On the revenue front, it follows a typical payment aggregator model, with the merchant discount rate (MDR) serving as the primary source of revenue. Additionally, its platform technology is deployed to businesses as a white-label solution, and Phi Commerce charges an annual subscription for the same.

Can Phi Commerce Outshine Competition, Iron Out Regulatory Glitches?

The fintech’s closest competitor is Razorpay, which provides a similar suite of enterprise payment solutions. However, several other players like Lyra.com, MONEI, Fiserv, Pinelabs, FSS Tech, Airpay, Cashfree, CCAvenue and Instamojo also offer a few services, which match some of Phi’s offerings.

Nevertheless, Thattil is confident about the fintech’s cutting-edge offerings.

Phi Commerce has strategically designed its platform architecture to offer cost-effective solutions, adding significant value to existing payment systems and helping resolve the challenges many businesses face today.

For instance, it will soon introduce Soft PoS, allowing merchants to use their mobile phones as PoS devices.

“Usually, merchants have to pay a monthly rent of INR 500-600 for a PoS terminal. Therefore, this all-new feature [soft PoS] is bound to disrupt the digital payments space, particularly in Tier II and III locations,” said Thattil.

Phi Commerce plans to expand globally in two to three years, starting with Southeast Asia and eventually moving to the Middle East and the EU. The fintech aims to process 5 Bn transactions via its platform in FY24 and triple the value of transactions from the previous year.

As the world marches towards a less-cash society, payment rails will be pivotal in driving innovative enterprise solutions and widespread financial inclusion. The ultimate in this value chain could be the blockchain technology and decentralised finance (DeFi), guaranteeing data fidelity and secure operations.

But this is easier said than achieved as the sector struggles to cope with regulatory compliance and funding crunch. According to Inc42’s Fintech Report (Q2 2023), payments startups raised $213 Mn or 25.4% of the $838 Mn funding in fintechs in Q2 2023, while lendingtech startups bagged the most – 67.1% or $562 Mn, to be precise.

Moreover, the RBI introduced a series of stringent measures for prepaid and credit card players, and nearly every fintech sub-sector has been under its scanner ever since. Not without reasons, though. According to the central bank’s 2022-23 annual report, Indian banks saw the highest number of fraudulent transactions in the digital payment space in FY23.

Additionally, the rollout of a government-backed digital currency (CBDC) instead of validating in-circulation private cryptos or the growing popularity of neobanks with advanced technology features may force payments startups to rework their playbooks to avoid roadblocks.

Although Phi Commerce aims to lead India’s digital payment revolution, ever-growing regulatory challenges can be a big hurdle going forward.

It is pertinent to note here that the company burnt its fingers in 2022 when it was about to go live with a large business prospect. The RBI had then introduced a new policy mandating all payment data to necessarily reside within the country, giving Phi Commerce a surprising blow and putting its plans on the back foot.

“One of our partners was a multinational company, which processed payments from its data-centre in Europe. Just a week before the big launch, we went back to our customer, took him into confidence and we were able to convince them to push the launch by a month to enable compliance with the mandate. Our transparency with our customer ensured that our relationship, built on this foundation of mutual trust, prospered in the years to come,” recalled Thattil.

Thattil is optimistic, though, about the road ahead. After all, a vast segment of India’s 1.4 Bn population remains outside the digital realm, although individuals and businesses in this space must be empowered with secure and efficient tech solutions. But given the size of this still untapped market, no single player can capture it all, and there will be enough growth opportunities for Phi Commerce and its ilk.

The post How Phi Commerce Aims To Power 5 Bn Transactions Via Its Omnichannel Payment Platform For Enterprises appeared first on Inc42 Media.

India’s enterprise tech startup ecosystem has seen remarkable growth in recent years, attracting significant investments from both domestic and global investors. Since January 2014, these startups have raised a staggering $13 Bn across more than 1,600 deals. The sector reached its peak in 2021 and 2022, securing an impressive $7.2 Bn in funding in over 500 deals.

What sets this sector apart from other sectors such as consumer services, ecommerce, edtech, and fintech, among others, is its profitability quotient, as 50% of the total 14 unicorns in this sector are in the black. This high profitability percentage highlights the sector’s potential for sustainable growth and return on investment. This paved the way for investors to remain bullish on the sector in the first half (H1) of 2023.

According to Inc42’s Indian Startup Funding Report H1 2023, the enterprise tech sector saw the maximum acquisitions during the period under review. Of the total 67 acquisitions in H1, one-third, or nearly 23 acquisitions, were from the enterprise tech sector alone.

“This is good. Getting exits only proves that solutions which have been built by founders and supported by investors are real solutions and are in demand. In a way India is moving away from just consumer tech businesses to real businesses,” said Anil Joshi, Managing Partner of Unicorn India Ventures.

Key Reasons Triggering Consolidations In The Space

Since the onset of the pandemic in 2020, the wave of digitalisation and technology adoption has made 64 Mn Indian MSMEs a lucrative market both for tech leaders and investors. As a result, the domestic enterprise tech ecosystem in the country has created a number of business opportunities for startups at all stages.

The rising investor ecosystem supported this bandwagon of emerging startups, giving the founders the freedom to create innovative solutions. Earlier there were just a handful of VCs who would invest in the core enterprise tech space, however, today 2,000-plus investors, including domestic investors like Blume Ventures, Indian Angel Network, Better Capital among others consider enterprise tech as a high-potential bet.

Despite this, the experts that Inc42 spoke with believe that much is to be done to make the solutions, emerging from this space, scalable if we want to see more soonicorns and unicorns in this realm.

Even if an enterprise is flush with funds and resources, it still makes sense for it to join hands with a larger organisation to grow faster, we were told.

“Both investors and founders are aware that an exit at the right time can make them get good returns, as beyond a point, a company becomes non-viable,” Anil said.

Further, most of the tech-enabled businesses were groomed much faster during the pandemic because they were able to render services remotely and capture foreign markets.

A clear example of this is Indian enterprises acquiring international startups. It is pertinent to note that a few years ago most acquisitions that took place in the Indian enterprise tech space were mostly led by US investors or companies, but this trend is now changing.

In the last six months, we have seen many Indian startups acquiring US-based startups in the sector. For instance, Noida-based RateGain acquired US-based Adara in January 2023. Similarly, Bengaluru-based BetterPlace acquired Jakarta’s MyRobin in February 2023. These are just two of the many examples of Indian enterprise tech startups championing the acquisition arena.

How Good Or Bad Is This For The Indian Enterprise Tech Sector?

Mergers and acquisitions is a common business strategy. Given that markets are tight, funding and payment cycles have become longer and the macroeconomics landscape is uncertain outside of India, there is no better time to consolidate.

“In this situation, if a startup does not have enough cash runway to support the business functions and is looking to raise funding, then it’s high time to think about an acquisition opportunity,” said Monish Darda, CTO and cofounder of enterprise tech unicorn Icertis.

One of the positive sides of consolidation is that it helps create many serial entrepreneurs as well as investors in the sector. Once the acquisition lock-in period expires, which usually takes one to three years, entrepreneurs are free to deploy their golden parachute in any way they please — either to become an investor or start a new venture.

While Mukesh Bansal launched Cure.Fit, now a healthtech unicorn, in 2016 after selling Myntra to Flipkart in 2014. Similarly, Flipkart founders Sachin and Binny Bansal announced to set up VC funds worth $1 Bn and $400 Mn, respectively, after Walmart bought Flipkart for $16 Bn in 2018.

Also, when an entrepreneur joins a startup’s board as an investor or starts a new venture, they immediately gain credibility from the ecosystem because they have already gone through the churn and have proven their mettle before.

Can India Grow As An Enterprise Market?

India’s potential as an enterprise market has evolved significantly. Previously, challenges such as cheap labour, lack of automation, price sensitivity, and low technology adoption pushed Indian enterprise tech startups to seek markets beyond the country’s borders.

However, the ecosystem is now optimistic about various verticals such as health tech, AI, ML, blockchain, and cybersecurity. The focus on efficiency, digital transformation, contract lifecycle management, and cost-saving solutions has positioned Indian startups to address global enterprise needs effectively. Furthermore, the advent of new technology is expected to revolutionise how enterprises operate.

“Apart from that, within the application of technology, creating a robust and frictionless user experience as well as switching to a low code/ no code approach, allowing users to do more in the platform without needing help from tech on it, will be the two key things the ecosystem will need,” Icertis’s Darda said.

In the investor ecosystem, established venture capitalists are increasingly recognising the potential of enterprise tech startups. They now understand that startups in this sector can address global demands while maintaining predictable revenue streams and lower cash burns. This allows investors to take calculated risks and informed decisions while investing.

Finally, with many global VCs looking at India as an opportunity, we are likely to see more investments and deals in the sector even in the second half of the year, purely due to low risks and decent returns.

The post Indian Enterprise Tech Sector Witnesses Surge In M&As: H1 2023 Report appeared first on Inc42 Media.

Angel networks are one of the oldest investor ecosystems in India. As a foundation stone to India’s 60K+ strong startup ecosystem today, the angel networks have played a key role in organising India’s unstructured angel investing landscape since 2006.

Despite this, much is yet to be done and there are challenges galore for this class of investors.  This is especially when an increasing number of other investors, such as PEs and VCs, are tweaking their investment thesis to get their hands on every possible bet in the promising startup realm.

Not so long ago, angel investing was all about inviting three to four startup founders to pitch over a Sunday breakfast.

However, this changed as the Indian startup ecosystem started to grow at a breakneck speed, and the fear of missing out on high-potential startup deals pushed many angels to venture out for their next big bets, deferring Sunday breakfast or brunch appointments with friends and startup founders.

The days of operating in silos were soon over, and it was time to expand horizons.

“Post-2016, we were forced to push ourselves through a massive change. We realised that if we continue to work as a group of friends investing with limited focus, we will not survive,” Mumbai Angels’ cofounder Nandini Mansinghka said.

According to FAAD Network’s cofounder Dr Dinesh Singh, before starting an angel network in 2019, he had to learn extensively about the startup ecosystem via networking events, connecting with startup founders and investing at his own risk.

“We were not even aware of the existence of the Indian Angel Network for a long time, which could have saved us from the first few risky bets,” Singh said.

Such are the stories of change that many angels had to go through this litmus test to stay relevant, and Singh and Mansinghka are just two of many examples.

In the face of rising challenges currently, such as VCs dominating the early stage investing and the growth of ‘informal’ investor groups, the time seems ripe to up the ante in the angel investing arena once again.

Speaking with several angel networks, we learnt more about the challenges that are stacked up against these investors, and this is what we comprehend:

• Micro VCs Have Started Dominating The Early Stage Startup Game: A growing number of micro VCs have started making a strong headway into the pre-seed to seed stage funding segments, writing smaller first cheques between $100K and $500K, which angel networks too offer to startups. In a bid to stay relevant, angel investors will now have to act sooner than required.
• The Growth Of ‘Informal’ Investor Groups: After the funding bull run of 2021, smaller groups of angels or closed private networks have started to breed. These groups lead deals on WhatsApp via syndicates, thereby crowding the ecosystem and impacting the credibility of deals.

These key headwinds have significantly impacted the angel deal participation.

Nevertheless, India currently fosters over 125 angel networks, which is expected to cross the 200-mark by 2030, according to the Inc42 Investor Landscape Report 2023.

Further, angel networks in India are estimated to grow at a forward CAGR of 7% between 2023 and 2030. And as far as the number of deals is concerned, angel networks, platforms and syndicates have backed 470-plus startups since 2014.

The Rise Of Angel Networks In India

In the early 2000s, angel networks not only positioned themselves as the first external source of capital for new or emerging entrepreneurs but also bridged the funding gap between individual angels and institutional venture capitalists (VCs).

As the torchbearers of angel investing in India, these networks also encouraged HNIs and successful entrepreneurs to enter the world of startup investing by giving access to good startup deals at relatively smaller amounts.

“I started my angel investing journey in 2014 when I joined Indian Angel Network. At that point in time, there were only two networks, IAN and Mumbai Angels, …and probably every big CXO who understood investing or had some exposure to the US markets were part of the ecosystem,” Abhishek Agarwal, founder & managing partner of Rockstud Capital told Inc42.

As angel networks gained weightage, another class also gained attention during this period. This class of investors acted as a syndicate to help individual angel investors, informal angel groups and even recognised angel networks manage deal flows, due diligence, and transactions for a small fee.

Another big step was taken by the Securities Exchange Board of India (SEBI) in 2013 to organise the scope of angel investing in India. The market regulator added angel fund as a sub-category to invest via registered AIF CAT I angel fund. This structured the entire angel investing process and added a layer of transparency to the deal process.

“In the last few years, a lot of people started forming groups in every nook and corner of the country, calling themselves angels. The segment is so crowded that it has become difficult to track all of these investments. The steps taken by SEBI were much-needed to protect investors’ interest and increase credibility in the ecosystem,” said Pooja Mehta, chief investment officer, JITO Incubation and Innovation Foundation.

Some of the key angel networks, platforms and angel syndicates that have opted for SEBI CAT I AIF Licence (VCF/Angel) are Ah! Ventures, AngelList India, Indian Angel Network, Lead Angels, LetsVenture, Climate Angels Fund, and FAAD Network, among others.

Prior to 2016, most VCs chased startups with established product-market fit and looking for growth capital. For instance, logistics tech startup Loginext raised its seed cheque of $600K in 2014 from Indian Angel Network and others, while top VCs such as Tiger Global Management and Steadview Capital only entered at Series B stage.

Also, most startups were more keen to have individual angels who can mentor and guide them. For instance, LogiNext had 12 individual investors on its cap table, apart from IAN, Singapore Angel Network and GenNext Innovation Hub.

However, post-2016, both startups and investors have become more mature. While VC funds have started to catch them (startups) young, the Indian accelerator and incubator ecosystem, too, has evolved to offer mentorship and networking capabilities to startups.

In addition, startups now want their cap table largely clean, with fewer stakeholders. This has pushed angel networks to adopt a more structured approach of taking end-to-end responsibilities like a VC firm.

The Story Of A Rigorous Change

As it is evident by now that Indian angel networks have gone through a number of transitions since 2006. Here’s how they have now evolved to pound the Indian startup cap table with a bigger bang.

Speaking with Inc42, multiple angel networks have highlighted these changes:

A Change In The Mindset: The first change angel networks embraced was to assert themselves that they were not just aggregators to connect angels to startups but rather platforms that take end-to-end responsibility from deal sourcing to finalising them. Further, they started to focus on becoming asset managers, managing a specific asset class — startups— thereby working to earn returns for their members. This led them to charge an entry fee for every deal, similar to institutional investors.

Rewriting The Definition Of Investing: Even though the Indian angel network ecosystem maintained the positioning of being the source of the first external cheque for startups, they rewrote the definition of investing from ‘investing to help startups survive’ to ‘investing to build a future asset class that can forge great returns for all stakeholders’.

Changing The Angel Way Of Investing: Initially, angel investments were largely based on references and their relationship with other angels. However, this has now changed as an increasing number of angel networks today put emphasis on making individual angel investors learn about the risks associated with their startup investments to make informed bets.

A Sea Change In The Investment Thesis: Earlier, there was no fixed process for investing in startups. However, soon angel networks started to change this, asking members to commit a certain percentage of funds towards the startup portfolio they are looking to create.

“At Mumbai Angels, we recommend individual investors to allocate anywhere between 2% and 10% of their overall portfolio to the early stage and then invest money in 30 to 50 companies,” Mansinghka said.

This ensured that the members diversified their portfolios and put funds in a disciplined manner rather than exhausting all of it on a few companies.

What Will New LPs Choose — Micro VCs Or Angel Platforms?

Both angel platforms and micro VC funds don’t have much difference in their investment thesis. Both invest at a pre-revenue and bootstrapped stages, with small ticket size and offer value additions to startups such as network capabilities and mentorship.

This poses a big question for LPs and new investors entering into the ecosystem – which side to pick?

According to Rockstud Capital’s Agarwal, micro VCs are a better choice for experienced investors as they can avoid over-diversification and earn good returns with minimal involvement. On the other hand, new investors looking to meet new startups and understand the ecosystem should look towards angel platforms for better exposure.

However, FAAD Network’s Singh and JITO Angel Network’s cofounder Mehta believe that both will go hand in hand and mostly there will be collaborating and co-investment opportunities.

“This will further improve the Indian early stage startup ecosystem with huge capital infusion and help founders build businesses and make entrepreneurs settle for right valuation,” Singh added.

What’s Next?

The angel networks that Inc42 spoke with unanimously agreed that angel investing, either individually or as part of a network, is not for everybody.

With the booming startup ecosystem of India, it is expected that large investors and HNIs will start allocating a certain part of the overall portfolio to angel platforms. That’s when the multiplier effect is expected to happen.

However, angel platforms must ensure that the rules of the investing game are of global standards. Also, anybody who enters into this has to have the stomach and the financial muscle for two things – the risk of getting zero returns and the ability to play the waiting game to get an exit.

Not just this, Rockstud’s Agarwal believes that angel networks need to evolve further in terms of improving their operational bandwidth and use tech to resolve issues emerging from deal flow and tracking.

Finally, anyone who finds angel investing lucrative will also have to understand that behind the glaze of one successful startup, there is a graveyard of 90 unsuccessful ones. Therefore, much caution is advised before stepping into the world of angel investing.

The post Decoding The Rise Of Angel Networks In India appeared first on Inc42 Media.

The funding winter has continued to tether Indian startups and investors in a tight spot. Among global economic meltdown, both the number of deals and funding amount have continued to plunge since the beginning of 2022. This has pushed startups to look for alternative ways to secure funds. One of these alternative routes is debt funding.

According to Inc42’s H1 2023 Startup Funding Report, Indian startups raised a total of $260.7 Mn in debt funding between January and June 2023 (H1 2023). This is more than double than the $89.3 Mn debt funding raised in H2 2022.

Moreover, the percentage of debt funding in total funding (equity+debt) raised by startups has also jumped this year. Debt funding accounted for 4.81% of the total $5.4 Bn raised by the Indian startup in the first six months of 2023. This is a big jump over 1.48% of the total $6 Bn raised by startups in H2 2022.

One of the major debt funding deals observed in H1 2023 was neobank startup Stashfin, which raised $100 Mn from Innoven Capital and Trifecta. Some of the other top deals include Mensa Brands ($36.2 Mn),  LEAD School ($19.2 Mn), and PocketFM ($16 Mn), among others. 

According to Ankur Bansal, the cofounder and director at Blacksoil Capital, the drying up of venture capital (VC) money has played a significant role in the current preference for debt financing among startups. 

“With VC funding becoming more scarce or highly competitive, startups are exploring alternative avenues to secure capital for their growth and operations,” he added.

According to Inc42’s half-yearly analysis of funding trends, Indian startups raised a total of $5.4 Bn between January and June 2023, down 10% sequentially and 55% yearly. Further, most debt funding has been raised by late stage startups. While the late stage equity funding deal count (Series C & above) fell a massive 70%, debt funding deals rose 80% YoY. 

This comes at a time when many debt funds have been announced in the last 18 months, including Lighthouse Canton ($67.3 Mn), Stride Ventures Fund III ($100 Mn), AIF Grand Anicut Fund II ($110 Mn), and Alteria Capital ($122 Mn), among others. 

Besides venture debt there has been a substantial rise in revenue-based financing, wherein investors receive a regular share of the businesses income until a predetermined amount has been paid. Some of the popular platforms helping startups raise revenue-based financing are GetVantage, BHIVE Investech, Klub, and Velocity, among others.

Is Choosing Debt Over Equity The Right Thing To Do?

Debt financing caters to raising a sum of money from a bank or a non-bank lender basis the loan servicing capacity of a company through its revenues or assets.

According to logistics tech startup COGOS’ cofounder and CEO Prasad Sreeram, an early stage startups may prefer to opt for an equity financing route. This is because at this stage many startups do not have a strong revenue stream or assets to service a loan. However, when startups begin to head towards profitability, they are advised not to liquidate too much.

“Equity money is expensive money. You could be loosing control of your company and may sign up for a lower valuation in haste. With debt financing, you can build more value for the existing investors,” he added.

In comparison to equity, debt financing offers a viable solution, allowing companies to access funds without diluting their ownership stake or giving up control. Additionally, in situations where startups anticipate a potential decrease in valuation or down rounds, they may be hesitant to raise equity as it could further erode their valuation. 

Companies that have a solid track record, established operations, and predictable cash flows are often well-suited for debt funding. Lenders are more willing to provide debt financing to companies with a proven ability to generate consistent revenue and meet debt repayment obligations.

Further, debt financing is commonly used to finance mergers and acquisitions (M&As). By raising debt, companies can quickly access funds to facilitate the acquisition or merger process, leveraging the assets or future cash flows of the target company as collateral for the loan. 

“When interest rates are low or competitive, it can be an opportune time for companies to seek debt funding. Lower cost of borrowing allows companies to take advantage of cost-effective capital,” added Bansal.

However, COGOS’ Sreeram advises startups to be cautious when going for debt funding. “Often, debt providers not only look at a startup’s revenues but also their existing fund availability, assets and existing pool of equity money they have. But for startups, until and unless they are sure whether they will be able to service the loan in future, it’s not a right path to take,” he added.

Also, in certain situations, startups may fail to follow the terms and conditions of the lender, putting the founders in a bind. The recent BYJU’S debt crisis is a clear example of this. The edtech unicorn raised a term loan B (TLB) of $1.2 Bn in 2021. BYJU’S has been trying to negotiate with the creditors of its TLB to restructure the loan amid financial difficulties. However, the lenders sought a prepayment of $200 Mn, along with a higher interest rate, as a precondition to restructure the TLB.

In another event, BYJU’S has not yet received the entire $250 Mn (about INR 2,000 Cr) of debt funding committed by the US-based alternative investment firm Davidson Kempner.

A Similar example is of healthtech unicorn PharmEasy. The company borrowed INR 2,280 Cr ($285 Mn) from Goldman Sachs in August 2022 to pay off an earlier debt it had incurred from Kotak Mahindra Bank to buy Thyrocare, a chain of diagnostic labs. The loan was said to be a five-year arrangement, attracting an annual interest rate of 17-18%. However, it was unable to keep its loan terms, resulting into a dispute.

The last 18 months have been tough for Indian startups, especially the ones that are sitting on heavy losses and have seen valuation markdowns, layoffs, consolidation, and shutdowns. In addition, there seems to be no immediate respite from the ongoing funding dry spell. 

In such a scenario, debt funding could seem to be a lucrative option to many founders. However, caution is advised as debt funding should not be made the substitute for non-availability of equity-based funding.

The post Indian Startups Queue Up For Debt Funding As VCs Tighten Purse Strings appeared first on Inc42 Media.

Despite witnessing unprecedented growth in the last few decades, India has a long way to go in solving challenges such as curbing pollution and food wastage, addressing gaps in urban planning and offering affordable healthcare to its citizens.

Even though the list is long and poses headwinds to the country’s prospects and potential, the cofounder of Bharat Innovation Fund (BIF), Ashwin Raguraman, is optimistic that Indian deeptech startups are more than capable of resolving most of these blazing issues not only for India but also for the world.

“As civilisations evolve, things are bound to become complex. The more complex the problem, the deeper the technology you need to resolve them. I’m certain that the deeptech built by talent from India is going to play a big role in solving complex global problems,” Raguraman said.

Bengaluru-based Bharat Innovation Fund was launched in 2018 as a $100 Mn deeptech-focussed thematic fund by three partners — Ashwin Raguraman, Kunal Upadhyay and Shyam Menon. They were also joined by Sanjay Jain and Som Pal Choudhary at the outset.

The fund is part of CIIE.CO’s innovation continuum and operate as an autonomous initiative. It also runs another fund, Bharat Inclusion Seed Fund, which invests in innovative tech startups at idea, seed or Pre-Series A stage.

In 2010, Raguraman set up a deeptech micro vc fund, called India Innovation Fund, the portfolio of which get sold off in 2017. The other partners had also set up a cleantech micro vc fund, called infuse ventures, which they exited successfully around the same time.

He believes that Bharat Innovation Fund is one giant leap that the founders have taken. With their initiative, the founders of the fund are betting big on the country’s deeptech startup ecosystem, which is growing at a pace never seen before.

The Rise Of India’s Deeptech Startup Ecosystem

As Raguraman reminisces, the term deeptech was not even coined when he started his first fund a decade ago. People used to identify their ventures as IP driven startups, cloud computing startups or data driven startups.

However, a lot has changed today on the back of a significant rise in the number of deeptech startups from India. Before 2014, India had less than 100 deeptech startups. Between 2014 and 2022, this number increased more than 4x to 400-plus startups.

Not only this, the ecosystem has become more structured and today embraces new sub-sectors such as defence tech, dronetech, spacetech, IoT & hardware, and robotic process automation, among others.

These startups are now utilising advance technologies such as artificial intelligence (AI), augmented reality (AR), virtual reality (VR), cloud computing, machine learning (ML), big data analytics and more to solve the complex problems of the world with innovative solutions.

A deeper thrust to the success of India’s deeptech startups was given by the booming investor trust and funding support ecosystem. Between January 2014 and June 2023, Indian deeptech startups raised $2.6 Bn in funding across 490-plus deals.

Some of the notable deals in the ecosystem include Grey Orange, which raised $110 Mn in May 2022; Smartron’s $200 Mn funding commitment from GEM in January 2022; FanCraze’s $100 Mn funding in March 2022, and 5ire raising $100 Mn in July 2022.

Bharat Innovation Fund’s Deeptech Investment Thesis

Raguraman believes that deeptech startups have the ability to develop innovative solutions for different sectors and combat an array of challenges that plague the world today.

In fact, deeptech is much more stable as a thematic play then any other consumer-facing sector. Further, compared to ventures in other segments, the sector does not demand much capital infusion to scale and offers better profitability prospects, we were told. This is because startups operating in the deeptech space burn way little cash compared to consumer-focussed ventures.

A deep understanding of this burgeoning segment allows BIF’s founders to act as a sounding boards. Being high-touch investors, the fund managers believe in leading startup founders in the right direction and helping them get access to the right network, customers and resources.

Also, they help startup founders to raise follow-on rounds from VCs like Bessemer Venture Partners, Elevation Capital, and Accel, et al.

For instance, the fund managers helped FireCompass raise $7 Mn from Cervin Family Office and Athera Venture Partners in February this year. During this time, Entropik, too, raised $25 Mn in a round led by Bessemer Venture Partners and SIG Venture Capital. Similarly, Detech Technologies raised $28 Mn in a round led by Prosus Ventures precisely a year ago.

“But then every VC can do this, right? But if I am able to bring clarity to a startup founder’s thinking on business direction or get him a $15 Mn follow-on round that he cannot do himself, I feel that’s a bigger contribution,” Raguraman said.

Here Are Some Core Areas Of BIF’s Investment Thesis:

• Business model in focus: The fund typically invests in B2B deeptech startups, which address global markets. Either these startups already have a global customer base or the potential to address global customers.
• Stage focus: The fund primarily invests in pre-Series A and Series A rounds. Raguraman emphasises that they largely invest in early stage startups because they have done that in the past.
• Investments: The fund has so far invested in 10 startups and has two term sheets in process. The founders are looking to invet in two or three more startups from the existing fund. It looks to invest in follow-on rounds as well as help its portfolio companies scale. Some of the notable startups in its portfolio include Playshifu, Entropik Tech, CreditVidya, Detect Technologies, and Human Edge, among others.

Key Differentiation Offered To LPs

According to Raguraman, there are many funds focussed on marketplaces, direct-to-consumer and SaaS startups but just a few in the deeptech space. This is the key differentiator that BIF offers to its LPs.

Having experience in the deeptech domain, it gives BIF’s fund managers the opportunity to enter, evaluate and tap quality deals. This, in turn, helps them gain the trust of their LPs as they get good returns on their investments.

“When a deeptech startup goes past the initial stage of product creation and achieves product market fit, follow-on generalist investors are willing to come in because there’s tech acting as a differentiator, thereby offering strong moats and better opportunities to scale,” he said.

Also, he believes that following the 2021 funding influx and volatilities thereafter, the LPs are now a lot more cautious. They understand that the current market is prone to fluctuations and they need fund managers who are stable, consistent and can deliver returns.

“So between a 25% return with a volatile fund manager and 20% return with a consistent fund manager, the choice is obvious,” he added.

A Lukewarm India Approach?

Notably, Bharat Innovation Fund primarily bets on deeptech startups that majorly cater to clients outside India. Further, even though Indian markets seem to have embraced maturity post-Covid, India-focussed deeptech startups is still a far-fetched priority for the fund, according to Raguraman.

This is because Indian enterprises are tough customers, and deeptech startup are marred by two key challenges in India — velocity and volume. While velocity is related to how quickly enterprises are willing to deploy a deeptech solution, volume concerns their readiness to pay for the effort and the technology.

“An INR 1 Cr customer account in India becomes $1 Mn in the US for the same effort, same product and same technology. That changes the whole equation. However, Indian enterprises are catching up and becoming more mature adopters, and we will soon have a very strong domestic enterprise market for deeptech startups,” he added.

Startup Governance: Another Pain Point For VCs

Compared to a decade ago, the Indian startup ecosystem has a lot more startups and availability of funds. The good part is that the ecosystem is now very active, vibrant and more open to taking risk. However, the negative side of this is there is a lot of noise in the ecosystem, making it harder to identify startups with right values and fundamentals.

A lot of compliance issues have emerged in the past few months, leaving many VCs with a bad taste.

According to Raguraman, around 5% of Indian startups have questionable governance practices, and as a result, 95% startups are suffering. So, governance is one of the key challenges for VCs in the Indian startup space.

“I think role models are very important in our industry and if we have good role models, a lot of high quality entrepreneurs will emerge. The entrepreneurial and tech talent in India is phenomenal and is creating huge value and it’s great to witness this evolution,” he added.

Another key challenge for VCs is the lack of strong and mature exit frameworks or pathways. “LPs these days don’t look at the total notional value of the portfolio but the returns. However, sometimes, even if my portfolio company has done well, as a fund manager, I am stuck with limited routes to exit,” Raguraman said.

Further, the key questions investors struggle with on a daily basis are related to how much to govern, how much to question a promoter without creating trust issues, how often to ask for company reports, how much to intervene in daily operations, etc.

The Road Ahead

With digitisation and technology playing a pivotal role in India’s development, the country’s deeptech startups have even bigger role to play.

According to a report by Future Market Insights, a market research firm, the global deeptech market revenue totalled $431.1 Mn in 2021 and is expected to reach $3.7 Bn by 2032.

Banking on this potential, Bharat Innovation Fund is now planning to raise its second fund soon. However, this time, Raguraman is optimistic that they will be able to add more India-focussed deeptech startups as well as domestic LPs.

Edited by Shishir Parashar

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