Category: Startup Newsletter

The Turnaround Story of Café Coffee Day

August 20, 2023

In the dynamic landscape of business, stories of resurgence and strategic brilliance serve as guiding beacons. The remarkable turnaround of Café Coffee Day (CCD) under the leadership of Malavika Hegde is one such tale. With a staggering debt of INR 7000 crore threatening its existence, her visionary approach not only rescued CCD but also highlighted the path to effective debt recovery.

The journey of Café Coffee Day, founded by V.G. Siddhartha, began as a cultural phenomenon but soon succumbed to financial challenges. By mid-2019, the company was weighed down by an overwhelming debt, casting shadows over its future.

In the face of adversity, Malavika Hegde emerged as the driving force behind CCD’s revival. She was uniquely positioned to understand the company’s struggles and aspirations. She stepped up to lead the charge, determined to secure the legacy and survival of the iconic brand.

The debt recovery strategy was marked by a multifaceted approach that required a combination of financial acumen, strategic partnerships, and a strong resolve to restore CCD’s financial health. Some key components of her approach included:

  • Asset Monetization is one of the first steps Malvika took to identify non-core assets that could be monetized to generate liquidity. This included the sale of real estate, shares, and other assets held by the company.
  • Malvika recognized the importance of forging strategic alliances to infuse much-needed capital. She explored partnerships with investors and organizations that aligned with CCD’s values and vision, creating avenues for capital infusion
  • Operational efficiency to recover from massive debt was paramount. She focused on optimizing costs, streamlining operations, and enhancing the customer experience to ensure the business generated sustainable revenues.
  • A significant portion of CCD’s debt was restructured to make the repayment terms more manageable. This approach allowed the company to alleviate immediate financial pressure while charting a course for long-term debt reduction
  • Recognizing that the people behind the brand were instrumental in its success, she prioritized employee morale and customer trust. By fostering a positive work environment and maintaining consistent quality and service, CCD managed to retain customer loyalty.

Malavika Hegde’s unwavering determination bore fruit as CCD embarked on a transformative journey. The debt that had once threatened its existence began to diminish, illustrating the power of strategic thinking and innovation in navigating challenging circumstances.
As a result, debt was reduced by 93.3% (7000 cr. brought down to 465 cr.).

Malavika Hegde’s saga with CCD exemplifies entrepreneurial spirit. Her approach in rescuing the brand from a colossal debt emphasizes the significance of adaptability and commitment to values. Through partnerships, efficiency, and resilience, Hegde not only rescued CCD but also offered a valuable lesson in overcoming financial challenges.

Startup Funding Summary

Shaktimaan.ai, Bangalore-based AI-driven edtech startup, has raised $2 Mn in Seed funding from YCombinator, Fundersclub, Goodwater Capital, Misbah and Nishchay and other HNIs – Read More

Contiinex, Bangalore-based AI speech startup, has raised $2 Mn in Pre-Series A funding from YourNest and Refex Capital – Read More

Vegapay, Gurugram-based fintech startup, has raised $1 Mn in Pre-Seed funding from Eximius Ventures, DSP HMK, Capri Global, Upsparks Capital, MGA Ventures, Climber Capital, Arun Venkatachalam, Pratekk Agarwaal and other HNIs – Read More

Aretto, Pune-based kids footwear startup, has raised $550K in Seed funding from Hardik Pandya, Abhineet Singh, Shyam Raichura, Raunak Munot, Vermont Advisors, Vinayak Shrivastav and Kunal Sumaya – Read More

Teleport, Bengalore-based travel tech startup, has raised $500K in Pre-Seed funding from Kunal Shah, Vidit Aatrey, Kishore Ganji, Appreciate Capital, Superb Capital, 888VC and The FAAD network – Read More

M&A Snippets

Pune-based logistics firm Xpressbees has acquired Delhi-based supply chain startup Trackon Couriers for an undisclosed amount – Read More

Navigating India’s DPDP Bill 2023: Impact on Startups

August 13, 2023

In a world increasingly driven by technology and data, the need for robust personal data protection has become a paramount concern. Governments across the globe are recognizing the importance of safeguarding individuals’ privacy and controlling the flow of personal data. India’s Digital Personal Data Protection (DPDP) Bill of 2023 is a significant legislative endeavor aimed at achieving these objectives. As this bill takes center stage, it is essential to assess its potential impact on the startup ecosystem, which often thrives on innovation, agility, and data-driven strategies.

The DPDP Bill 2023 is a comprehensive legislative proposal that seeks to regulate the collection, processing, storage, and sharing of personal data in India. With an emphasis on protecting individual privacy, the bill introduces several critical provisions

The bill proposes the establishment of a Data Protection Authority (DPA) to oversee and enforce data protection regulations. The DPA will play a pivotal role in ensuring compliance and addressing grievances.

Organizations will be required to obtain explicit and informed consent from individuals before collecting and processing their data. Moreover, personal data must be collected only for specific and legitimate purposes.

The DPDP Bill introduces the concept of data localization, potentially mandating certain categories of sensitive personal data to be stored within India’s borders. This measure aims to enhance data security and prevent unauthorized access. Organizations transferring personal data outside India will need to adhere to stringent regulations to ensure the data’s protection and privacy rights.

Non-compliance with the DPDP Bill could result in substantial fines, signaling the government’s intent to ensure strict adherence to data protection standards.

While the DPDP Bill 2023 is a significant stride toward data protection, startups, often characterized by their resource limitations and rapid innovation cycles, could face both opportunities and challenges:

  • Implementing the technical and operational changes mandated by the bill may strain startups’ already limited budgets. The costs associated with data protection officers, compliance audits, and data localization efforts could pose challenges.
  • Startups thrive on rapid innovation, agility, and experimentation. Stricter regulations might hinder their ability to quickly adapt and evolve, potentially slowing down their growth trajectory.
  • Startups often leverage user data to refine their products, services, and marketing strategies. The DPDP Bill’s consent and purpose limitation provisions could impede their data-driven decision-making processes.
  • Investors will likely scrutinize startups’ data protection practices more closely, given the potential legal and financial repercussions of non-compliance. Startups that prioritize data protection could gain a competitive edge in attracting investment.
  • For startups eyeing international markets, adhering to different data protection regulations across borders could present complexities and challenges.

While challenges are evident, startups can take proactive measures to ensure compliance and maintain their innovative edge:

  • Startups should anticipate and prepare for compliance with the DPDP Bill from the outset. Integrating data protection principles into their business models can mitigate challenges down the line.
  • Engaging legal experts, data protection consultants, and technology professionals can help startups navigate the complexities of compliance and implement effective strategies.
  • Embracing privacy-preserving technologies, encryption techniques, and secure data-sharing frameworks can enable startups to innovate while safeguarding user data.
  • Investing in educating employees about data protection practices and promoting a culture of privacy can reduce compliance risks.

India’s DPDP Bill 2023 is a milestone in the country’s journey towards ensuring data protection and privacy rights. While startups might face challenges in adapting to the new regulatory landscape, they also have an opportunity to champion data protection practices, fostering consumer trust and responsible innovation. By striking a balance between compliance and agility, startups can not only navigate the complexities of the DPDP Bill but also demonstrate their commitment to user privacy while continuing to drive India’s vibrant startup ecosystem forward.

Startup Funding Summary

Waaree Energies, Mumbai-based green energy firm, has raised $120 Mn in funding from ValueQuest – Read More

Credgenics, Delhi-based financial service platform, has raised $50 Mn in Series B funding from WestBridge Capital, Accel, Tanglin Venture Partners, Beams FinTech Fund and other HNIs – Read More

Disprz, Chennai-based edtech startup, has raised $30 Mn in Series C funding from Lumos Capital and 360 ONE Asset – Read More

Harmony Organics, Pune-based chemical manufacturer, has raised $27 Mn in a funding from Piramal Alternatives – Read More

Stable Money, Bengaluru-based fintech startup, has raised $5 Mn in Seed funding from Matrix Partners India and Lightspeed – Read More

 

M&A Snippets

California-based IT services company Xoriant has acquired Bengaluru-based consulting firm Thoucentric for an Undisclosed amount – Read More

Chat GPT Variants: Exploring the Diverse Landscape of Conversational AI

August 6, 2023

Conversational AI has experienced a meteoric rise in recent years, transforming the way humans interact with technology. Among the pioneers of this revolution are Chat GPT variants. Generative Pre-trained Transformers (GPT) have become synonymous with state-of-the-art language models, capable of generating coherent and contextually relevant responses. In this article, we will delve into the fascinating world of Chat GPT variants, exploring their diverse applications, unique features, and the impact they have on our daily lives.

Before we embark on our journey through the landscape of Chat GPT variants, let’s briefly acknowledge the GPT-3, the trailblazer in the NLP domain. Developed by OpenAI, GPT-3 boasts an astonishing 175 billion parameters, making it one of the largest language models to date. Its large size and diverse training data enables it to perform an extensive array of language-related tasks, including translation, summarization, chatbot functionalities, and more.

One of the exciting Chat GPT variants is Kundali GPT. This variant is tailored to understand and respond to conversations in multiple languages. Trained on a diverse dataset encompassing linguistic variations, Kundali GPT excels in cross-lingual communication, transcending language barriers and providing seamless interactions for users worldwide.

Kundali GPT’s applications are far-reaching, from facilitating international business communications to aiding travelers during their journeys. By accommodating regional languages and idiomatic expressions, Kundali GPT fosters a sense of inclusion and accessibility in the global conversational landscape.

PPT GPT, or Productivity and Personalized Transformer, is designed to enhance efficiency and productivity for individual users. This variant is adept at assisting with personal organization, time management, and task-related endeavors. Through continuous learning from user behavior and preferences, PPT GPT tailors its responses and recommendations to suit individual needs.

As a virtual assistant, PPT GPT can manage schedules, set reminders, provide personalized news updates, and even aid in creative writing or content generation. Its ability to streamline workflows and save time makes it an indispensable tool for busy professionals and individuals seeking to optimize their daily routines.

Emotional GPT is a variant that focuses on incorporating emotional intelligence into conversational AI. This model is trained on vast datasets containing emotional cues and responses, allowing it to understand and respond empathetically to users’ emotional states. The model’s ability to detect sentiment and provide appropriate support enables more human-like interactions.

Emotional GPT finds applications in mental health support, customer service, and educational environments. By displaying empathy and understanding, Emotional GPT builds trust with users and establishes a more meaningful connection.

Codex GPT is a variant specialized in understanding and generating code. Trained on extensive programming languages and code repositories, Codex GPT empowers developers by offering code suggestions, debugging assistance, and code completion services.

This variant accelerates the software development process, reduces errors, and fosters collaboration among developers. With Codex GPT, even those with limited coding experience can efficiently engage with complex codebases.

Chat GPT variants have revolutionized the world of conversational AI, bringing forth a plethora of specialized models tailored to diverse needs. From Kundali GPT’s multilingual prowess to PPT GPT’s productivity-driven approach, and Emotional GPT’s empathetic engagement, each variant enriches the user experience in its unique way.

As the landscape of NLP and AI continues to evolve, we can expect even more sophisticated and domain-specific Chat GPT variants to emerge. However, alongside the excitement, it is vital to address ethical concerns, data privacy, and transparency to ensure these powerful language models are harnessed responsibly for the betterment of society. The journey of Chat GPT variants has only just begun, and the future holds boundless possibilities for the realm of conversational AI.

Startup Funding Summary
Vistaar Financial Services, Bengaluru-based financial service provider, has raised $50 Mn in funding from International Development Finance Corporation (DFC) – Read More
Unstop, Delhi-based community engagement and hiring platform, has raised $5 Mn in a funding from Mynavi, Coursera, Venture Catalysts, 9Unicorns and Caret Capital – Read More
FincFriends, Bengaluru-based digital lending platform, has raised $4 Mn in a funding from Digital Finance International – Read More
The Fuel Delivery, Mumbai-based fuel delivery platform, has raised $2 Mn in Pre-Series A funding from Drake Trade and Investment – Read More
Dil Foods, Bengaluru-based virtual restaurant operator, has raised $2 Mn in Pre-Series A funding from V-cube Ventures and Mount Judi Ventures – Read More
M&A Snippets
US-based conglomerate retail company Walmart has acquired Tiger Global’s stake in Bengaluru-based e-commerce firm Flipkart for $1.4 Bn – Read More

Can you afford to ignore your finances?

July 30, 2023

What might be the most overlooked function in an early-stage startup?

It can’t be product or tech as it shapes the core story of what the startup intends to solve. It can’t be sales as revenue is needed to sustain the operations. It can’t be marketing as consumer facing apps can’t do without it.

Finance is often the most critical-yet-ignored function in early stage startups. While founders are busy in product, sales, team-building and ops, finance is commonly relegated to accountants. Accountants generally are good with the accounting software, most likely Tally in India, but view the finance operations from a traditional business lens rather than the metrics required for a growth oriented startup.

Second, in the early stage of the startup, financial compliance does not receive the attention it deserves. As the famous quip goes – “If you think that compliance is expensive, try non-compliance!” – inefficiently managed books of accounts, compliance related documentation, has the potential of wreaking a hard-won fund-raise deal in future, when large VC funds and seasoned investors start probing deep on financial due diligence.

Third, without the CFO or a financial controller, which is often the case in early stage startups, the founders lack a critical layer of strategic financial planning over and above the accounting team which is primarily manned by junior accountants. This often leads to inadequate cash flow management overlooking unforeseen situations, incomplete debtor & creditor management, unavailability of readily reportable financial data, lack of governance of commercial contracts leading to financial risks.

Ultimately, all this leads to sucking up precious founders’ bandwidth in tactical firefighting tasks, which could otherwise be better utilized in strategic tasks of building the core business.

At ESV, we have found a solution for these entrenched yet easily avoidable startup inefficiencies, which we call FinStack.

FinStack is a full service financial services for business ventures. As investors, entrepreneurs and finance experts, we understand how to truly unlock the power of strategic financial planning, analysis and oversight –in order to help scale the business exponentially.
Our full-stack of capabilities are designed to work as partners, not service providers, in the journey of scalability & profitability. Through FinStack, the founders would not have to worry about the common pain points such as – how to plan for and control money, how to ensure 100% compliance with all regulations, how to balance between growth & profitability, How to optimize financial decisions (e.g.risk-reward, debt-equity, buy-vs-make), and finally how to tie all decisions to financial implications based on the overall business strategy.
To know more about our FinStack proposition, its engagement models, and the stellar team behind it, I invite you to have a look at our FinStack overview deck.

I would be pleased to answer your comments and questions.

Startup Funding Summary

GreenCell Mobility, Mumbai-based EV startup, has raised $41 Mn in a funding from REC Limited – Read More

Wiom, Delhi-based telecom startup, has raised $17 Mn in Series A funding from RTP Global, YourNest, Omidyar Network India, Global Brain, Blume Founders Fund, Alteria Capital, Stride Ventures, Stride One and 9 Unicorns – Read More

Ethereal Machines, Bengaluru-based CNC machines manufacturer, has raised $7 Mn in Pre-Series A funding from Peak XV’s Surge, Blume Ventures, Ganapathy Subramaniam, Mathew Cyriac, Lip-Bu Tan, Finvolve, 9Unicorns, Venture Catalysts and T2D3 Capital – Read More

Kapture CX, Bengaluru-based customer support automation platform, has raised $4 Mn in Series A funding from Cactus Venture Partners – Read More

Varashakti Housing Finance, Chennai-based fintech startup, has raised $4 Mn in Series A funding from Incofin India Progress Fund – Read More

M&A Snippets

Mumbai-based financial services provider Pantomath Financial Services Group has acquired Mumbai-based fintech platform Fundgini for an undisclosed amount – Read More

UK-based SaaS platform InVentry has acquired Krishnapura-based workplace management solutions provider Hipla Technologies for an undisclosed amount – Read More

 

What happens in a founder’s office?

July 23, 2023

What would be the most precious commodity for a growth oriented startup. Is it funds in the banks, dedicated team, access to the best tech, or an inspiring office space?

I would argue that the most precious thing would be – Founder’s time.

How and where the founder(s) allocate their time, based on the size and funding-stage of the venture, differentiates outperforming startups from the lesser successful ones. This becomes even more profound in the case of single founder startups.

Recently, there has been a significant amount of discussion and interest on how to unlock founders’ bandwidth from low priority low-impact tasks to high-priority high-impact ones. This has resulted in creation of a new set of roles, which we commonly referred to as – ‘Founders’ office’ or ‘Strategic Planning and Coordination’.

There can be more than one job description for a founders’ office role, due to the ambiguity and dynamism inherent in the working of any startup. This inevitable ambiguity, conflicting priorites, and everyday fire-fighting is led by the founders themselves. It sounds convincing if there is someone to whom the founder can offload these unavoidable tasks to. Hence, the role of the founders’ office is gaining traction.

There can be three major tasks attributable to the founders’ office role. One of them would be to become the champion of the Eisenhower Matrix (fig below) or to put it in simple words – enabling super-priortization of the founder’s time.

This involves optimizing the calendar for the founder and aligning leadership teams’ bandwidth around it. Clearly, this goes beyond scheduling and coordinating meetings, as decisions would have to be made on prioritization and relevance of calls.

In our informal discussions with founders, we overwhelmingly come across founders claiming to spend around two-thirds of their time on tasks, such as tracking updates, and doing follow ups,  ideally which could have been delegated. Nothing better than an email update over an avoidable meeting, it saves everyone’s time. Moreover, shifting non-planned adhoc activities to planned ones lead to greater productivity.

Second would the cross functional project management role for strategic initiatives. This would require cultivation of excellent working relationships with the functional heads in the startup team. The role again goes beyond taking updates and nudging others as one would have to contribute intellectually in problem solving and get the work done.

Third important function would be to establish and own a proper MIS process and reporting cadence for the startup. Reporting and data gathering is often adhoc, unstructured and incomplete. This is often the case in accounts and financial reporting, which gets overlooked when the scale of operations and revenue is low. But it creates bottlenecks during later fundraise or compliance related issues.

Beyond these definable roles, the founders’ office evolves to become the sounding board for the founders and contribute to shaping the strategy with the leadership team.

The value of a founders’ office increases furthermore if the individual(s) manning it can view the startup from an investor standpoint. He/she can then establish workflows and best practices, keeping in mind all of the key-metrics, which are bound to be asked by the VCs and strategic investors in a large round.

At ecosystem ventures, we prioritize safeguarding investor interests as ultimately it leads to value creation for everyone in the ecosystem. This requires working closely with the founders, like the founder’s office, and ensuring the success of each investment.

Ecosystem Ventures This Week

We are happy to share that Mr. Abhijeet Bhandari (Partner, Ecosystem Ventures) was invited as a speaker in Nath Valley School, Aurangabad. He underscored the significance in the session for students, aiming to assist them in thinking methodically about commencing a new business.

Startup Funding Summary

RenewBuy, Gurugram-based digital insurance aggregator, has raised $40 Mn in Series D funding from Dai-ichi Life Holdings Inc. – Read More

LetsTransport, Bengaluru-based commercial EV aggregator, has raised $25 Mn in a funding from Bertelsmann and other HNIs – Read More

Ati Motors, Bengaluru-based industrial robotics startup, has raised $11 Mn in Series A funding from True Ventures, Athera Ventures Partners, Blume Ventures, Exfinity Ventures and MFV Partners – Read More

Solethreads, Gurugram-based casual footwear startup, has raised $4 Mn in Series A funding from Fireside Ventures – Read More

Jimmy’s Cocktails, Gurugram-based F & B startup, has raised $3 Mn in Pre-Series A funding from Prath Ventures and other HNIs – Read More

M&A Snippets

Bikaner-based F & B company Bikaji Foods International Ltd has acquired 49% stake in Bikaner-based F & B company Bhujialalji Pvt. Ltd for $621K – Read More

Bengaluru-based retail apparel & fashion brand Styched has acquired Bengaluru-based footwear brand Flatheads for an undisclosed amount – Read More

Bengaluru-based fintech API Firm Decentro has acquired Mumbai-based debt collection SaaS platform Neowise Technologies for an undisclosed amount – Read More

India’s Digital Transformation Fuels Hyper Growth

July 16, 2023

India is experiencing a momentous phase of hypergrowth driven by its ongoing digital transformation. The convergence of several favorable factors, including financial inclusion initiatives, a mobile revolution, digital payments, robust infrastructure, a thriving startup ecosystem, and transformative policy reforms, has positioned India as a ripe ground for exponential expansion. As the nation embraces the digital age, it is poised to unlock its true potential and emerge as a global powerhouse.

India’s commitment to financial inclusion, exemplified by the Jan Dhan program, has empowered millions of previously unbanked individuals. Simultaneously, the mobile revolution, facilitated by affordable data plans and smartphone adoption, has connected the masses, opening doors to digital services, information, and opportunities. Mobile connections increased from 302.33 million in 2015 to 851 million in 2023. This combination of financial inclusion and mobile connectivity lays a strong foundation for India’s hyper-growth.

India’s digital payments landscape has been revolutionized by the Unified Payments Interface (UPI), the world’s most extensive digital payment system. UPI’s user-friendly interface, affordability, and compatibility with various applications have made it an integral part of everyday life for Indians. UPI transactions increased from 127 crore in 2013-14 to 12,735 crore in 2022-23. This widespread adoption of digital payments has accelerated economic transactions, driving productivity and efficiency and setting the stage for rapid expansion.

India’s robust digital infrastructure catalyzes hyper-growth, facilitating innovation and connectivity across the country. Digital public goods, such as Aadhaar, Fastag, and DigiLocker, provide a seamless framework for integration and interoperability. This interconnected ecosystem fosters combinatorial innovation, offering entrepreneurs fertile ground to develop new services and solutions. The transition from a cash-driven to a digital-first economy has unlocked immense opportunities, promoting transparency, efficiency, and inclusivity.

India’s startup ecosystem has experienced a remarkable surge, attracting global attention and investment. The convergence of digital technology, supportive policies, and access to venture capital funding have nurtured a thriving innovation ecosystem. Startups are disrupting traditional industries, introducing novel solutions, and driving employment growth. The entrepreneurial spirit and India’s market potential and digital transformation create a breeding ground for hyper-growth in the startup sector.

India’s proactive government has implemented transformative policy reforms to foster hypergrowth. Initiatives, like Make in India, Digital India, and Startup India, have created an enabling environment for businesses, attracting investments and promoting innovation. Streamlined tax systems, such as the Goods and Services Tax (GST), have simplified compliance, enhancing efficiency and ease of doing business. The Atmanirbhar Bharat (Self-reliant India) initiative aims to boost domestic manufacturing and reduce import dependence. These policy reforms demonstrate India’s commitment to unleashing its full potential and accelerating hypergrowth.

In the backdrop of India’s remarkable digital transformation, Ecosystem ventures has emerged as catalysts for nurturing and supporting transformative startups. With their expertise, resources, and network, these ventures empower the next generation of innovators and entrepreneurs, fueling India’s growth. By fostering an enabling environment and providing the necessary infrastructure, Ecosystem ventures is playing a pivotal role in driving India’s growth story and propelling the nation towards a future of unprecedented opportunities and prosperity.

Startup Funding Summary

SmartDukaan, Delhi-based retail tech startup, has raised $10 Mn in Pre-Series A funding from Findoc Finvest – Read More

Clensta, Delhi-based personal care startup, has raised $10 Mn in Pre-Series B funding from TradeCred – Read More

Adcount Technologies, Noida-based supply chain management startup, has raised $2 Mn in Series A funding from Venture Catalysts and Artesian – Read More

Hectar Global, Chennai-based agri commodity procurement platform, has raised $2 Mn in Seed funding from Powerhouse Ventures – Read More

OneStack, Gurugram-based fintech startup, has raised $2 Mn in Pre-Series A funding from GrowX, Stride Ventures, 9Unicorns and Venture Catalyst – Read More

M&A Snippets

Gurugram-based F&B company DSM Fresh Foods has acquired Bengaluru-based retail startup Dr. Meat for an undisclosed amount – Read More

Regulating Online Gaming

July 9, 2023

Humans by nature are competitive beings. But they also tend to be greedy, often giving in to the lure of making a quick buck without any mental or physical efforts.

Since ancient times, the culture of gaming has evolved, channelizing the above two human traits. A lot of games are played across the globe. These different games can be classified into two categories – games of skill or games of chance.

A game of skill is one where success primarily relies on the player’s expertise, knowledge, and strategic decisions. Our popular physical sports such as cricket, volleyball and mental sports such as chess would be good examples of games of skill. One can argue these games provide Intellectual stimulation, challenge, and opportunity for self-improvement.

A game of chance, on the other hand, relies on luck and randomness to determine the outcome. Popular examples include roulette, slot machines, lottery, and bingo. It can be said that these games tend to foster an element of escapism and allure of instant fortune.

But, often the classification of games, as skill-based or chance-based, becomes contested. The classic example is Poker, which is viewed alternately across various jurisdictions. This has major regulatory implications as often games of chance (which include betting or gambling) are strictly regulated with winnings taxed at much higher rates than those applied to the game of skills.

The key question to ascertain a game’s classification is whether skill dominates chance in it? The differentiating factor for a game of skills is that performance is predictable. In a game of chance there would be no correlation in the winnings of players across successive periods, whereas there would be in a game of skill. More skilled players are more likely to win and a less-skilled player, through practice and patience, can better his chances of winning with time.

The problem of classification is compounded when the online variants or spin-offs of popular offline games emerge. There has been a proliferation of many illegal betting/gambling apps/websites with questionable sources of funding or country of origin, which aim to lure users.

In India, betting and gambling is a state subject, with states legislating their specific laws, modeled on the old public gambling act 1867, prohibiting all forms of gambling and betting in their respective states. Only Goa, Sikkim and Meghalaya permit it under specific regulations. Since most of the gambling legislations which have been enacted were done prior to the advent of online or virtual gambling or betting, thus, the gambling legislations primarily refer to gambling activities in physical form.

This regulatory ambiguity often leads to penalizing legitimate online gaming businesses as argued by Mr. Gullapalli (CEO, Head Digital Works, which operates popular gaming apps such as rummy, carrom and pool) here.

As the gaming sector continues to see rapid growth, one can hope that the government would focus on promoting legitimate gaming firms and advocate for increased compliance measures, including the establishment of self-regulatory bodies, will create opportunities and avenues for more online businesses in gaming to flourish.

Startup Funding Summary

Leverage Edu, Delhi-based ed-tech startup, has raised $40 Mn in Series C funding from Educational Testing Service and other HNIs – Read More

Battery Smart, Delhi-based EV startup, has raised $33 Mn in Pre-Series B funding from Tiger Global, Blume Ventures, The Ecosystem Integrity Fund and British International Investment – Read More

GIVA, Bengaluru-based jewellery brand, has raised $33 Mn in Series B funding from Premji Invest, Alteria Capital and A91 Partners – Read More

KaarTech, Chennai-based consulting firm, has raised $30 Mn in funding from A91 Partners – Read More

Smartstaff, Bangaluru-based worker management platform, has raised $6 Mn in Series A funding from Nexus Venture Partners, Arkam Ventures, Blume Ventures and Alteria Capital – Read More

M&A Snippets

Bengaluru-based ed-tech startup Toprankers has acquired Indore-based ed-tech startup The Lex Guru for an undisclosed amount – Read More

Pune-based digital entertainment and gaming company, JetSynthesys has acquired Mumbai-based media company KidzByte for an undisclosed amount – Read More

What is w-commerce?

July 2, 2023

Often opportunities for building a sustainable business are hidden in plain sight. Waste management could be one such sector which is belatedly receiving the attention it deserves.

Waste management in India can be big for the simple reason that waste being generated, by one sixth of humanity, is enormous. More the consumption, more would be the waste generated, more are the opportunities for innovation in waste management, which is unorganised and hyper localized across India.

Simplistically, waste management would involve two sets of parties. On one hand there are waste collectors (neighbourhood kabadiwalah would be one), waste aggregators and then there are recyclers. Recyclers are specialised as each category of waste (such as plastic, glass, metal, electronics) would have its own supply chain. Thus,the acronym w-commerce simply refers to the digitally enabled trade between waste management stakeholders.

Waste management in India differs from the west culturally and economically. In India we tend to extract value out of the waste whereas in the west people would pay for waste management services. It would be surprising for many to know that there might be over 50 lakhs garbage pickers in India and 1.5% of population livelihood is connected to waste management.

With renewed thrust on public awareness on cleanliness through the swatchta abhiyaan in recent years, there exists a possibility of moulding societal behavior on waste management, provided awareness campaigns and incentives are sustained for the long run.

Building on these trends, one of the successful startups in the waste management space is Recykal founded by Mr Abhay Deshpande. Recykal is a B2B waste marketplace. Two interesting concepts from their business model are worth knowing.

First, a relatively new concept in India, is deposit refund system (DRS). DRS is an incentive system aimed at encouraging consumers to bring back their waste for a refundable deposit that is collected at the time of purchase. E.g. If I purchase a plastic mineral water bottle, a depost of Rs 5 is charged, which I get reimbursed when I return the bottle. Advanced economies may have a substantial chunk of their waste recycled through DRS but even a 10% waste collection through DRS in India would be big. Linked to the DRS is the ability to create a network and manage designated collection centres or machines. With DRS hyperlocal partners will collect, process, and sell waste on the platform.

Second, EPR (Extended Producers Responsibility) is an environmental policy approach in which a producer’s responsibility for a product is extended to the post-consumer stage of a product’s life cycle. This entails the shifting of responsibility (physically and/or economically; fully or partially) upstream toward the producer and away from municipalities. Recykal helps brands in achieving their sustainability targets with offerings such as EPR registration and fulfilments, plastic takeback, certified disposal solutions, and awareness programmes, for which Recykal charges a fee.

As per the reported figures, Recykal claims their GWV (gross waste value) traded on their platform is ~ ₹750 Crores, with a 5-8% in gross margins on marketplace transactions between waste collectors and buyers (recyclers). Margins with companies to enable their sustainability targets are upwards of 20%. Recykal had raised $22 million (around Rs 165 crore) in funding by investment funds managed by Morgan Stanley India in 2022.

It would be interesting to see how Recykal grows and achieves their stated target of achieving GWV of over $ 1 Bn in the coming years.

Startup Funding Summary

Lendingkart, Ahmedabad-based fintech startup, has raised $24 Mn in debt funding from EvolutionX Debt Capital – Read More

Scapia, Bengaluru-based fintech startup, has raised $9 Mn in Seed funding from Matrix Partners India, Tanglin Venture Partners and 3STATE Ventures – Read More

Koskii, Bengaluru-based apparel brand, has raised $7 Mn in Series A funding from Baring Private Equity Partners India – Read More

Oben Electric, Bangaluru-based EV startup, has raised $5 Mn in Pre- Series A funding from Stride Ventures, Indian Renewable Energy Development Agency, Mumbai Angels and other HNIs – Read More

BluJ Aero, Bangaluru-based aviation startup, has raised $2 Mn in a funding from Endiya Partners, Ideaspring Capital and Rainmatter Foundation – Read More

M&A Snippets

Secunderabad-based phosphatic fertilizer company Coromandel has acquired Chennai-based drone manufacturer Dhaksha Unmanned Systems for $29 Mn – Read More

Ahmedabad-based pharmaceutical manufacturer Corona Remedies has acquired Paris-based pharmaceutical manufacturer Myoril for $29 Mn – Read More

Nothing angelic about the angel tax

June 25, 2023

The word angel, derived from the Greek angelos, means a spiritual being serving as a divine messenger and intermediary and often as a special protector of an individual or a community. In the startup world it is aptly used for investors at the ‘seed’ or early stage funding round, where investors are akin to special divine protectors, who are betting on the startup idea & team to generate massive returns in the future.

Armed with the angel investments, startups evolve and grow to raise larger rounds through the next set of larger investors. Few startups are exceptionally successful, some are decently successful, and a lot of them plateau or fail after sometime.

Since exceptional returns are possible in a short period of time, it is not unlikely that illicit sources of money may find startup investments as a lucrative way to legitimize their funds. Second, the government loves taxes and never misses an opportunity to deploy a new one.

Angel tax was first introduced in 2012, with the noble intention of curbing illicit gains and taxing the income generated on the returns made on startup investments. It was called angel tax as it applied primarily to Indian angel investors—HNIs and family offices who invested in startups. Despite the name, it was applied to startups and not the investor. The impact was restricted primarily to early-stage as most of the capital in later stages comes from foreign funds. Angel tax is based on the difference between the actual value of shares issued and their fair market value.

Unfortunately, good intentions do not necessarily lead to good outcomes. Since its inception, the rationale of angel tax was challenged by startups and investors, as a speed barrier to the nascent startup ecosystem in India, and few exceptions to it were hard bargained from the government.

Initially, angel tax was limited to investors who are ‘residents’ of india. Budget 2023 expanded it to include ‘non-resident’ foreign investors, despite many such investors being registered and regulated by their securities regulators. In May 2023, a belated amendment was introduced which excludes residents from certain geographies from the purview of the angel tax. Still countries with sizable investor and fund inflow, such as Singapore, Netherlands, Mauritius, and gulf countries have not been included in the list.

Misapplication of angel tax is the critical issue rather than creating post-facto piece-meal exceptions.

The provisions provide arbitrary and discretionary powers to the tax department. Tax officials can literally question any valuations by comparing them to actual performance. Deviations were taken as a sign of money laundering, thus attracting the section. This has disincentivized Investors to invest further as any capital would be used to clear the angel tax liability. Numerous startups have shut down due to this, with entrepreneurs choosing to set up in Singapore or the US instead of India. India has lost job creators due to misapplication of angel tax provisions.

It is understandable to tax the gains made on an investment. We have the short term and the long term capital gains tax. If a startup becomes successful, its profits are going to be taxed. Similarly, the investors who made gains on their startup investments can be taxed.

But taxing the private activity of raising capital between two consenting parties seems far fetched and counterproductive.

Let us hope better clarity emerges on this issue and startups and investors are saved from the bureaucratic misapplication of angel tax in future.

Startup Funding Summary

Digantara, Bengaluru-based space-tech startup, has raised $10 Mn in Series A1 funding from Peak XV Partners, Kalaari Capital, Global Brain, Campus Fund and other HNIs – Read More

Eye Mantra, Delhi-based eye care hospital chain, has raised $10 Mn in a funding from MantraCare – Read More

Good Flippin’ Burgers, Mumbai-based food & beverage startup, has raised $4 Mn in a funding from Tanglin Venture Partners – Read More

Navadhan Capital, Mumbai-based fintech startup, has raised $2 Mn in Seed funding from Varanium NexGen – Read More

Truliv, Chennai-based hospitality startup, has raised $2 Mn in Pre-Seed funding from Conquest Global Ventures VCC and Vara Future LLPs – Read More

M&A Snippets

Bengaluru-based fintech startup CRED has acquired Bengaluru-based micro-savings platform Spenny for an undisclosed amount – Read More

Will other VC funds follow Sequoia’s geographical split strategy?

June 18, 2023

One of the most discussed news from the startup ecosystem has been the geographical split of Sequoia in three entities.

Sequoia Capital, founded in 1972, is one of the most prominent private equity and venture capital firms in the world. Focusing predominantly on technology and innovation, Sequoia औ Capital is a stage agnostic investor that has funded and supported over 1500 companies worldwide.

On June 6, Sequoia announced a split which created three units — Sequoia Capital US and Europe under Roelof Botha; the India and Southeast Asia firm, which has been rebranded as Peak XV Partners, under Shailendra Singh; and the China firm, now called HongShan, under Neil Shen. The profit-sharing agreement between the VC firms would be dissolved which meant the entire sum would now go to the revamped Peak XV team, in the case of India.

Opinion has been divided on the probable reasons for the split. The officially stated reason has been to avoid the potential portfolio conflicts, and operational hassles, across the three major geographies. Shailendra Signh, explaining the strategy behind the move, opined

My team and I believe that we will have parallel ecosystems of software companies, development tools companies, infrastructure, and cloud computing, all built by Indian brands. And that’s our biggest common brand conflict. If it was one or two deals a year, we could deal with the conflict. But if this conflict is a weekly issue for us. It’s a big issue.

Peak XV partners are now hopeful of greater agility and complete freedom in making Indian and global investments. For example, by eliminating centralized legal and compliance functions, Peak XV partners can make decisions on the basis of our nuanced understanding of local regulations, rather than be constrained by regulations that may have no bearing in our region.

On the other hand, a section of VCs was circumspect about the Sequoia split. According to them, delinking China might make sense, but not India. According to them, Sequoia India’s less optimal performance and recent controversies related to management control at a couple of their unicorn portfolio companies, might have led to the move. It is true that the average returns for global VC funds in India has been lower as compared to other major geographies.

It would be interesting to see if the investment thesis of the new entity is radically different from its former self. Peak XV, which will continue deploying its latest $2.85 billion fund, currently manages $9 billion worth of assets in the India and Southeast Asia region. More than 50 companies in its portfolio are valued at $1 billion or more.

As we have argued multiple times in this newsletter, the era of easy money is long dead. Investors and funds, big or small, are likely to graduate towards lesser deals but with far greater due diligence.

At Ecosystem Ventures, we have never played along the common VC investment thesis, wherein, exceptional returns of one of the portfolio companies, subsidize exceptional losses of the rest.

None of the eighteen of our past investments has been written off since we are highly selective in sourcing startups and pride ourselves on our investor risk mitigation strategy. We are in for the long game and sustained results.

Ecosystem Ventures This Week

We are thrilled to share that Ecosystem Ventures hosted the 4th pitch event of 2023 this week, where one of our portfolio startups pitched to angel investors, who joined either remotely or graced our office with their presence.

To view our active deals visit here.

Startup Funding Summary

Indifi Technologies, Gurgaon-based lending platform, has raised $35 Mn in Series E funding from ICICI Venture, British International Investment, OP Finnfund Global Impact Fund I, Omidyar Network India, Flourish Ventures and CX Partners – Read More

AVIOM India Housing Finance, Delhi-based housing finance company, has raised $30 Mn in Series D funding from Nuveen – Read More

Everest Fleet, Mumbai-based fleet management startup, has raised $20 Mn in a funding from Uber – Read More

HomeLane, Bengaluru-based home interiors brand, has raised $9 Mn in a funding from existing investors – Read More

BASIC Home Loan, Gurgaon-based fintech startup, has raised $5 Mn in Pre-series B funding from Ashish Kacholia, Gruhas, Venture Catalysts, Dexter Angels, IIM Indore Alumni Angel Fund and CommsCredible Venture Fund – Read More

M&A Snippets

Ahmedabad-based pathology-focused diagnostic lab chain Sterling Accuris Wellness has acquired Ahmedabad-based pathology service provider VIP Labs for an undisclosed amount – Read More

 

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