Tag: M&A

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

 

AI Neeti-Shastra

June 11, 2023

With the proliferation of user-friendly generative-AI apps, people are realizing, contemplating, and predicting the scale and timeline of transformative impact, AI is likely to unfold, in our economy or society at large.

Would AI lead to massive job cuts in the near future? If yes, which sectors are going to be affected more and by when? If we increasingly depend on algorithms for decision making, who is accountable when AI falters? Wouldn’t AI be increasingly used to deepen the fragile fault lines embedded in our societies by those who stand to gain the most by it?

Such questions on the potential contours of AI regulation, with no easy answer, are on the minds of tech leaders, governments, and thoughtful internet users, like this newsletter community.

All major nations of the world, including India, started to engage deeply with AI, a few years back, and have come out with their respective preliminary vision documents. India can play a decisive role in navigating the global AI discourse, provided it evolves a thoughtful framework of AI within the country.

Simplistically, key issues to be addressed in an equitable yet robust AI regulation are the following –

First, democratize AI technologies and enable access to clean curated data. This would lead to sector-specific, demographically-diverse AI solutions, critical for addressing public issues in health, education and finance.

Large quantities of data alone does not translate into better results. Accuracy and curation are necessary prerequisites. There are two major sources of such curated data. One can be open-access government data and second is private data. There is a need to explore different models of enabling access to private sector data while ensuring and protecting users rights and company IP.

Second, ensuring adequate government funding and investment in AI R&D, enabled through industry and academia collaboration. As of now, AI is expensive, it is the prerogative of few corporations who can make long-term strategic bets on it. Public funding for AI would enable creation of a talent pool outside of big corporations.

Third, it is critical to develop an AI focused intellectual property framework that encourages innovation. AI systems are trained by reading, viewing, and listening to copies of human-created works. These resources such as books, articles, photographs, films, videos, and audio recordings are all key subjects of copyright protection. How does the regulation minimizes unauthorized infringement and incentivizes creator-led access to the copyrighted human generated data, would be a challenging task.

Fourth, enabling and strengthening the complementary legal framework, where AI technologies may impinge the most. This includes – data protection laws, competition laws, consumer protection laws, and non discrimination laws.

Lastly, beyond any policy document, however nuanced it may be, unlocking prosperity through latest AI technologies, is contingent on the desire and collective awareness of the society it is deployed in.

We all, as individuals and citizens, would have to play our part in increasing awareness and prioritizing ethical use of the latest technologies.

Ecosystem Ventures This Week

We are happy to share that Mr. Abhishek Sanghvi (Partner, Ecosystem Ventures) was invited as a Speaker & Moderator of Startup and IT Conclave on the occasion of “Indore Gaurav Diwas”.

Startup Funding Summary

HealthifyMe, Bengaluru-based health-tech startup, has raised $30 Mn in Pre-Series D funding from LeapFrog Investments, Khosla Ventures, FinnFund, Van Lanschot Kempen, Unilever Ventures, Blume Ventures, Chiratae Ventures and Healthquad – Read More

Lentra, Mumbai-based cloud lending company, has raised $27 Mn in Series B funding from MUFG Bank and Dharana Capital – Read More

River, Bengaluru-based EV startup, has raised $15 Mn in a funding from Al Futtaim Group, Lowercarbon Capital, Toyota Ventures, Maniv Mobility and Trucks VC – Read More

Genwise, Delhi-based elderly focused startup, has raised $4 Mn in seed round funding from Matrix Partners India, DBR Ventures, Climber Capital, Kunal Shah, Suhail Sameer and Achal Mittal – Read More

TradingLeagues, Bengaluru-based fantasy stock gaming startup, has raised $4 Mn in Pre-Series A funding from Leo Capital, Jeejeebhoy Family Office and KP Balaraj Family Office – Read More

M&A Snippets

Delhi-based Fintech startup CredFlow has acquired Kenya-based business management startup TechBiz for an undisclosed amount – Read More

Foraging Finfluencers

June 4, 2023

We are evolutionarily programmed to be lazy. We would rather spend the least amount of mental effort and expect maximum output in return. This could be one of the reasons for our fascination with schemes or claims promising quick money in no time.

This age-old human weakness is exploited in newer ways by enterprising individuals. The latest being the rise of the tribe of ‘Finfluencers’.

Influencer is a person who commands a sizable audience on social media platforms, and makes money through monetising his large follower base through affiliate marketing & brand collaborations with companies. While influencers generally operate in segments such as beauty or lifestyle, finfluencers operate in a very niche area — finance. They offer unauthorized financial advice and tips, on a range of topics such as stock market trading, personal finance, and mutual funds.

Finfluencers make the boring and complex jargons of finance relatable through their engaging content. In this way, they can be credible enablers of financial education in a country where financial literacy is estimated to be ~27%. But they have been in the news for all the wrong reasons.

SEBI on May 25 penalised and barred popular youtuber and options trader Mr PR Sundar from trading for a year over alleged violation of investment adviser’s norms. There have been reports, since last November, that SEBI would formalise rules for this growing group of financial influencers, with SEBI chairman Ms Buch, cryptically acknowledging the same at an event related to the Mutual Fund industry.

Contrary to Registered Investment Advisors (RIA) who are regulated by SEBI to safeguard investor interests, finfluencers aren’t in the regulatory ambit yet. There exists a clear conflict of interest and public risk. Conflict arises as finfluencers typically have revenue sharing arrangements with the stock brokers or fintech companies with whom they have an affiliate relationship. Thus, their advice, wrapped in the package of engaging content, may not be objective.

Nehal Mohta, founder of Finnovate Financial Services, summed up the inherent public risk succinctly –

Money and health are two areas of our life that have a lot in common. In both, the gap between what we know and what the experienced practitioners know is very vast.

Finfluencers are to financial advice what health websites are to managing illness. They are good to consume as long as one is not treating oneself based on the advice one receives online,

Suggestions on regulating finfluencers include creation of a self-regulatory body or by setting up a standard operating procedure (SOP) for financial content creation and distribution.

Social media, by design, doesn’t have a barrier to entry. This further complicates the issue around regulation as lifestyle influencers, not finfluencers, have been increasingly found to indulge in affiliate marketing and collaboration with trading platforms, reproducing the platform’s sales script without acknowledging their vested interests and risks involved for the viewers.

Perhaps a similar trend has emerged in the startup ecosystem as well, where articulate self-styled content creators often end up misleading people on startups, for want of likes and views.

At ESV, we pride ourselves on our due diligence, where every startup which comes to us, is evaluated meticulously on its merits, before being shared with you.

It is a slow and a grueling process, but it is effective.

Ecosystem Ventures This Week

We are happy to share that Mr. Shailesh Jain (Partner, Ecosystem Ventures) has participated in a panel discussion on “Opportunity for startup in Central India and perspective toward funding” at WIRC OF ICSI event, held in Indore.

Startup Funding Summary

CleanMax, Mumbai-based renewable energy company, has raised $360 Mn in a funding from Brookfield Renewable – Read More

Atomberg Technology, Mumbai-based consumer appliances brand, has raised $86 Mn in Series C funding from Temasek, Steadview Capital, Trifecta Capital, Jungle Ventures and Inflexor Ventures – Read More

Pixxel, Bengaluru-based spacetech startup, has raised $36 Mn in a funding from Google, Radical Ventures, Lightspeed Venture Partners, Blume Ventures, growX, Sparta, and Athera Venture Partners – Read More

NewTrance, Bengaluru-based climate technology startup, has raised $6 Mn in a funding from Sequoia Capital India, Aavishkaar Capital, Speciale Invest, Micelio Fund, Ashish Goel and IKP Knowledge Park – Read More

KarmaLife, Bengaluru-based fintech startup, has raised $6 Mn in Pre-Series A funding from Krishna Bhupal’s family office, Artha Venture Fund, Net Graph Investments, Singularity Ventures, LogX Venture Partners, Balesh Sharma, Amit Jain, Vikram Kailas and Shaji Kumar Devakar – Read More

M&A Snippets

Mumbai-based proptech platform Aurum PropTech has acquired Bengaluru-based online home rental startup NestAway Technologies for $11 Mn – Read More

Taste of profitability in the food delivery space

May 28, 2023

Food delivery has been a hotly contested space in India over a decade. It has now evolved into a duopoly between Zomato & Swiggy.

Last week, Sriharsha Majety, CEO of Swiggy announced in an official blog post –

 ‘Our sharp focus on innovation, coupled with strong execution has led to yet another milestone- As of March 2023, Swiggy’s food delivery business has turned profitable (After factoring in ALL corporate costs; excluding employee stock option costs). This is a milestone for food delivery globally, not just for us, as Swiggy has become one of the very few global food delivery platforms to achieve profitability in less than 9 years since its inception’

Swiggy’s announcement follows a similar news from Feb 23, where Zomato’s Co-founder Deepinder Goyal, had tweeted –

 Zomato hit a milestone in January 2023 – becoming EBITDA +ve (ex Blinkit). We are on track with our path to profitability by Q2FY24.

It is a significant milestone which has been achieved after years of effort. In order to contexualise the news let us recap the strategies deployed by players in the food delivery space.

There are two sides to the food delivery business. First is the demand – characterized by users like you and me, who enjoy food but with varying tastes and preferences. Second is the supply – characterized by the local restaurants who can cater to those varying tastes & preferences. Platforms like Zomato match them efficiently and create value for both.

Zomato & Swiggy, through their relentless focus on seamless user-experience and delivery logistics, were able to acquire a substantial user base, with an expectation of unlocking the value of acquired aggregate demand in future. But profitability was hard to arrive from the demand side. There is an upper cap to increasing ARPU and offering discounts is the expected norm. Other players in the food-tech either shut shop or were acquired.

In search of profitability, Zomato & Swiggy, both tried to focus on the supply aggregation as a next step. Zomato started Zomato Infrastructure services (ZIS) and Swiggy started Swiggy’s Cloud Kitchens. ZIS was described as a service (physical kitchen) where current business owners can expand their business to new locations without the hassle of investing in kitchens or infrastructure. These kitchens were equipped with the most sophisticated amenities.

But both Zomato and Swiggy have closed their supply aggregation businesses. Perhaps the only food tech player which has been able to achieve supply aggregation at scale is Rebel Foods – which owns popular brands such as Fassos, Behrouz Biryani, Oven Story, Firangi Bake etc. As a next step, Rebel foods launched an exclusive app Eat Sure for users to order from their set of owned brands, signifying the shift in its focus from supply to demand aggregation, where it faces stiff competition from established might of Zomato & Swiggy.

Thus, it appears, if one had demand aggregation at scale, then supply aggregation efficiencies are missing and if a player had supply aggregation at scale, then demand (user) aggregation efficiencies are absent.

One of the successful and profitable examples in the food delivery space at scale is Jubliant food works better known by the brand name Dominos. Jubilant foodworks has the advantage of extracting efficiencies from both the supply and demand side as Domino’s started as a chain of physical outlets spread across all over the country with a delivery fleet of its own. It would be interesting to see if Jubilaint food works can add and service more brands successfully through their network strength.

For Swiggy & Zomato, it appears they are geared towards making their quick commerce businesses efficient, by leveraging their acquired user base over the years, as an ultimate path to company-wide profitability, not just limited to food delivery.

Startup Funding Summary

PhonePe, Bengaluru-based fintech company, has raised $100 Mn in a funding from General Atlantic – Read More

Chalo, Mumbai-based bus tracking and ticketing startup, has raised $57 Mn in a funding from Avataar Ventures, Lightrock India, Waterbridge Ventures, Amit Singhal, Trifecta and Stride Ventures – Read More

Infinite Uptime, Pune-based software development company, has raised $19 Mn in Series B3 funding from GSR Ventures, VenturEast, Mayfield and THK – Read More

Walko Food, Pune-based food and beverage manufacturer, has raised $11 Mn in a funding from Jungle Ventures – Read More

XFlow, Bengaluru-based financial services and infrastructure company, has raised $10 Mn in Pre-Series A funding from Square Peg Capital, Moore Strategic Ventures, Lightspeed and General Catalyst – Read More

M&A Snippets

Mumbai-based financial services provider Capri Global Holdings has acquired Delhi-based new-car selling platform CarLelo for $18 Mn – Read More

Chennai-based fintech company Yubi has acquired Mumbai-based digital credit analytics company FinFort Infotech LLP for an undisclosed amount – Read More

Manufacturing-led vs Service-led Growth

May 14, 2023

Couple of days back the External Affairs minister, S Jaishankar, at a book launch, made an interesting statement –

“I have always believed that this focus on services was actually an elegant excuse for being incompetent in manufacturing…There is no major country in the world which has sustained or enhanced its global position without some commensurate build up of manufacturing’’

The debate between manufacturing-led and service-led growth has been a contentious one in the context of India’s economic development. While some argue that India should focus on boosting its manufacturing sector to create more jobs and increase its exports, others contend that India’s strength lies in its services sector, which has shown remarkable resilience and innovation in the face of global challenges.

Manufacturing-led growth is based on the premise that industrialization is the key to economic transformation and poverty reduction. By producing more goods domestically, India can reduce its dependence on imports, improve its trade balance, and generate more income for its workers. Moreover, manufacturing can create positive spillovers for other sectors of the economy, such as infrastructure, logistics, and research and development. Manufacturing can also foster technological learning and innovation, which can enhance productivity and competitiveness. Some of the advantages quoted in favor of manufacturing-led growth argument are –

It can create more employment opportunities for low-skilled workers, especially in labor-intensive industries such as textiles, garments, leather, and footwear. According to a recent report by McKinsey Global Institute (MGI), India could create up to 90 million jobs in manufacturing by 2030 if it raises its share of manufacturing in GDP from 17% to 25%.

It can increase India’s export potential and diversify its export basket. Currently, India’s exports are dominated by services (38%) and low-value-added products (28%), while high-value-added products account for only 15%. By expanding its manufacturing base, India can tap into new markets and increase its share of global trade.

It can boost India’s domestic demand and consumption. As more people earn higher incomes from manufacturing jobs, they will spend more on goods and services, creating a virtuous cycle of growth.

But unfortunately, these decades old arguments haven’t been translated into actual outcomes, which necessitates deeper reflection of structural challenges to manufacturing-led economic growth in India. Some of the structural challenges to manufacturing opined by experts are –

Manufacturing requires significant investments in infrastructure, skills, technology, and innovation. India lags behind many of its peers in terms of physical infrastructure (such as roads, railways, ports, power), human capital (such as education, training, health), and institutional quality (such as governance, regulation, ease of doing business). These factors affect the cost and efficiency of production and deter private investment.

It faces stiff competition from other countries that have already established themselves as manufacturing hubs. Countries such as Vietnam, Bangladesh, Indonesia, and Thailand have also emerged as attractive destinations for manufacturing, beyond China, due to their low labor costs, favorable policies, and strategic location.

This leads to a different growth strategy, propounded by leading economists such as Raghuram Rajan, which prioritizes doubling down on India’s strength – which are service exports. Economists argue that the positive impact of liberalising services offers massive potential in reducing inequality in industrial economies and also contributing towards climate action. Services, unlike manufacturing, can be distributed across a country and reduce pressure on megacities.

The debate between manufacturing and service led growth strategy is here to stay. India would do well not to create unfair disadvantages for one at the expense of others as both growth strategies are ultimately expected to lead to economic prosperity for all.

Startup Funding Summary

Ripplr, Bengaluru-based logistics platform, has raised $40 Mn in Series B funding from Fireside Ventures, Bikaji and Neo Foods, 3one4 Capital, Zephyr Peacock India, Sojitz Corporation, Stride Ventures, Alteria Capital, Northern Arc Investment and Trifecta Capital – Read More

PropertyPistol, Mumbai-based proptech startup, has raised $6 Mn in a funding from ICICI Bank and Baring Private Equity Partners – Read More

Zyngo, Gurugram-based logistics service provider, has raised $5 Mn in Series A funding from Delta Corp Holdings and LC Nueva Investment Partners LLP – Read More

TagZ, Bengaluru-based snack brand, has raised $2 Mn in Pre-Series A funding from 9 Unicorns, Dexter Angels, Agility Ventures, Venture Catalysts, Klub, Indifi and Rannvijay Singha – Read More

Soptle, Gurugram-based B2B marketplace for FMCG producers and retailers, has raised $1 Mn in pre-seed funding from Kube VC, We Founder Circle, Iceland Venture Studio, Nyra Ventures, Ankur Agarwal, Jar, Bijak and Rocketship.vc – Read More

The Social Entrepreneurship Talisman

May 7, 2023

I recall my school textbooks’ inside cover page, where one of Gandhiji’s message used to be printed –

“I will give you a talisman. Whenever you are in doubt, or when the self becomes too much with you, apply the following test. Recall the face of the poorest and the weakest man [woman] whom you may have seen, and ask yourself, if the step you contemplate is going to be of any use to him [her]. Will he [she] gain anything by it? Will it restore him [her] to a control over his [her] own life and destiny? In other words, will it lead to swaraj [freedom] for the hungry and spiritually starving millions? Then you will find your doubts and your self melt away.”

It is only after considerable life experiences, one is able to appreciate the empathic depth of Gandhiji’s ethical decision making framework, and the courage and resilience of those who embark on a lifelong journey, of enabling lives of the less privileged in our society.

These enabling initiatives are often structured as social entrepreneurship or social impact ventures. One must not conflate social entrepreneurship as necessarily a non-profit enterprise. Non-profits are typically structured as charitable organizations, while social impact ventures can take on a variety of legal structures, including for-profit corporations. In terms of revenue model, non-profits rely on donations and grants to fund their operations, while social impact ventures generate revenue through the sale of goods or services. Social impact ventures measure their success based on both financial returns and social impact.

The key metric for social entrepreneurship is the number of people impacted positively by the innovative solutions of the social enterprise.

One of the most successful examples of non-profit social entrepreneurship in India is Akshaya Patra, a non-profit organization that provides quality mid-day meals to over 1.8 million children in government schools across 12 states. A few months back Rashmi Bansal (author of Stay Hungry, Stay Foolish) visited our office and gave us her book God’s Own Kitchen. It’s a fascinating read – highly inspiring, especially the bits about highly accomplished leaders finding far greater satisfaction in driving social change than in their next corporate promotion.

Similarly, there are for-profit social enterprises such as Vaatsalya healthcare (affordable healthcare), Indian School Finance Company (education), VBHC Value Homes (affordable housing), Suminter Organics (agriculture), Ankur Scientific (energy), Waterlife (water & sanitation), Grameen Financial Services (financial inclusion), Goodera (Corporate Volunteerism) and Rangsutra Crafts (livelihoods promotion).

In the end, going beyond operational and financial metrics, grants, and government support, the secret ingredient for a successful social enterprise invariably boils down to the indefatigable passion of its founders. How steadfastly and how long could they adhere to Gandhiji’s talisman?

We at ESV would love to leverage our network to contribute to the success stories of such inspiring social entrepreneurs.

Ecosystem Ventures This Week

Key Highlights – Events

We are thrilled to share that Ecosystem Ventures hosted the 3rd pitch event of 2023 this week, where one of our shortlisted 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

Ace Turtle, Bengaluru-based e-commerce platform, has raised $34 Mn in Series B funding from Vertex Growth, SBI Investment Co Ltd, Farglory, Lesing Nine, Stride Ventures, Tuscan Ventures Trifecta Capital, Vertex Southeast Asia and India and Innoven Capital – Read More

Pando, Chennai-based logistics platform, has raised $30 Mn in Series B funding from Iron Pillar, Uncorrelated Ventures, Nexus Venture Partners, Chiratae Ventures, Next47, David Dorman, Scott Kirk, Tom Noonan, Baskin-Robbins, Neiman Marcus, Nick Mehta and Amar Goel – Read More

THB, Gurgaon-based healthcare SaaS startup, has raised $20 Mn in a funding from Filter Capital, Edelweiss Discovery Fund, Cornerstone Venture Partners Fund, Healthquad and Other HNIs – Read More

Pocket FM, Gurgaon-based audio OTT platform, has raised $16 Mn in a funding from Silicon Valley Bank – Read More

ZestIOT, Hyderabad-based IoT & AI enabled aviation platform, has raised $7 Mn in Series A funding from IvyCap Ventures and Loyal VC – Read More

M&A Snippets

Mumbai-based proptech platform Aurum PropTech has acquired Mumbai-based neo-realty investments platform Myre Capital for an undisclosed amount – Read More

Dailyhunt’s hunt for your attention

April 30, 2023

In April last year, VerSe Innovation, the parent firm of news aggregator app Dailyhunt and short video app Josh, created news in a difficult funding environment, by raising $805 Mn at a whopping valuation of $ 5Bn in their Series J round. This was a significant jump from the last raise at $3 Bn eight months before.

VerSe Innovation, through the dailyhunt app, has built one of the largest ad-tech businesses in India. Dailyhunt, formerly Newshunt, has been in existence since 2009, and has over the years built significant traction, through their early mover USP of aggregating and personalizing snackable byte size news & content in over 14 Indian languages. In a way Dailyhunt broke the chasm of non-english vernacular audiences being non-monetisable.

The company claimed back then to have a creator ecosystem of over 100,000 content partners, 350 million users, with significantly higher monthly view time per user than Youtube & facebook.

Dailyhunt’s financials & traction, was analysed critically at the time of fundraise last year, as this article from The Ken suggests, to be circumspect about the daily active users (DAU), the operating revenue, and average time spent by user on platform.

Even if the quoted traction numbers are revised on a lower side, the platform has been an undisputed market leader in the vernacular internet space. This led to the choice of strategic path, as discussed in this article – whether Dailyhunt can beat Facebook in India?

Google and Facebook have globally dominated the ad-revenue model with ~ 80% market share. India’s digital advertising market is pegged at $2.8 Bn in 2021, compared to $70 Bn in China and $140 Bn in the US, with mobile ads accounting for 60% of the total ad spend. The Indian market is growing at ~30% per annum.

Vernacular internet content consumers were projected to cover half of INdia’s population (~560 Mn) by 2021, with a growth rate of 120% between 2016-21, whereas English language users were forecasted to grow by just 14% reaching close to 200Mn.

Facebook started as a ‘social’ aggregation platform which means content on FB was primarily driven by user networks. Over the years, the social content has moved on to whatsapp & Instagram, facebook’s most ubiquitous and powerful feature ‘newsfeed’ has transformed from ‘socially aggregated content to ‘interest’ aggregated content. This has been termed as the platform convergence where networks with social origins – Facebook/Linkedin – are increasingly gravitating towards interest driven networks for ads.

Dailyhunt by design is a localised ‘interest’ driven newsfeed network for running ads. The prime currency of such a network is capturing the lion’s share of user ‘attention’. The limited daily amount of which is being contested by content platforms, social networks, print & electronics media.

Capturing user attention has its pitfalls which bring us to the fundamental paradox inherent in platforms like Dailyhunt. The paradox is that to obtain maximum user engagement, the content strategy drifts towards churning click-bait articles or news.

Out of curiosity I installed the dailyhunt app and selected the Hindi language. The content on the feed, though sourced from hindi newspapers or digital publications, tends to be sensational, often provocative, and geared towards entertainment rather than serious news.

User attention obtained through click-bait news extracts a significant personal and societal cost. We should all be mindful of this phenomenon.

Startup Funding Summary

XPRESSBEES, Pune-based logistics startup, has raised $40 Mn in a funding from Khazanah Nasional Berhad – Read More

LOKAL, Bengaluru-based life services and hyperlocal news platform, has raised $15 Mn in Series B funding from Global Brain, Sony Innovation Fund, India Quotient and other HNIs – Read More

Niro, Bengaluru-based fintech company, has raised $11 Mn in Series A funding from Elevar Equity, GMO Venture Partners, Rebright Partners, Mitsui Sumitomo Insurance VC, InnoVen Capital and other HNIs – Read More

ASL, Mumbai-based edtech startup, has raised $5 Mn in a funding from Cornerstone Ventures and other HNIs – Read More

HerKey, Bengaluru-based career engagement platform, has raised $4 Mn in a funding from Kalaari, 360 ONE Asset, Zia Mody, Puneet Dalmia, Pramit Jhaveri, Aditi Kothari, Shuchi Kothari, KP Balaraj, Ranjan Pai, Neeraj Bajaj and Akash Bhansali – Read More

M&A Snippets

Singapore-based edtech startup BrightChamps has acquired Hyderabad-based learning platform Metamorphosis Edu for an undisclosed amount – Read More

Who wants a 10-minute delivery?

April 23, 2023

Quick commerce is always up for a quick debate on social media. Some outrightly question the utility of providing FMCG products or groceries in less than 10 minutes terming it as inhuman. Others argue for habit altering shifts in Indian FMCG consumers and pitch select use cases where quick commerce has penetrated online retail space.

Last week, delivery partners of Zomato owned Blinkit, across Delhi NCR, went on a strike to protest against the revised pay-out structure. Company shifted from a flat Rs 25 per delivery (plus Rs 7 during peak hours) to a minimum of Rs 15 for each delivery with a distance-based component. As per reports, around 100 Blinkit dark stores were shut temporarily because of the strike. The company has around 400 dark stores, almost half of which are in the Delhi-NCR region.

Unlike food-delivery services, where gig-workers are free to transport across regions, riders working with quick-commerce platforms are linked to certain dark stores that they have signed on with.

As this post traces the evolution of quick commerce since the dot com boom of the late 90’s, it has remained a challenging space, with a profitable startup yet to emerge. In the US this has been tried multiple times and failed miserably. The challenge arises from the optimisation of three key metrics in an inherently low margin business of quick commerce – Average Order Value (AOV), appropriate SKU selection at the ‘dark stores’ (localised mini warehouses), and delivery fees. (typically within a range of <2 Km)

It has been a hotly contested space in India too with Instamart (Swiggy), Blinkit (Zomato), Dunzo (backed by Reliance), Big Basket (backed by Tatas) vying for a pie. Zepto was the latest addition in 2021.

Zepto championed its entry through brand postioning itself as the fastest quick commerce platform by claiming ‘less than 10 min delivery’, much shorter delivery time than those offered by the competition. Naturally, it led to a lot of social media chatter, with consumers debating the merits of such a service. Here is an exchange between twitter savvy Anand Mahindra, circumspect about 10 min promise, being engaged by the Zepto founder Aadit Palicha. Zepto and others have later abandoned marketing communication around delivery time.

The most visible aspect of quick commerce are the delivery partners. There have been numerous reports of delivery partners cutting corners on traffic rules, in order to make quick incentive payouts, at huge personal risks. Given the condition of roads and traffic in most of the metro cities, there exists a strong case for partner safety. Companies have periodically addressed these concerns through their MarComm. They have retained customers and delivery partners through a mix of free deliveries and higher fixed payout to partners respectively.

It is in this context of prolonged growth focused operations of quick commerce players, one should read the Blinkit delivery partners strike as the company shifts the focus to unit economics.

It appears certain use cases for quick commerce have been established in metro and tier 1 cities. Invariably these come from high income households, who are most likely to trade convenience, and break a fortnightly/weekly trip to a nearby store or a supermarket into multiple unplanned instantaneous purchases. But in all likelihood quick commerce would continue to be an additional service offering of a larger ecommerce platform.

Startup Funding Summary

PURPLE STYLE LABS, Mumbai-based D2C platform, has raised $14 Mn in Series C funding from ValueQuest scale fund, Singularity growth opportunities fund I, ValPro, Masaba Gupta and other HNIs – Read More

Tricog Health, Bengaluru-based healthtech startup, has raised $9 Mn in Series B2 funding from Omron Health Care, Sony Innovation Fund and other HNIs – Read More

SwitchOn, Bengaluru-based Vision AI startup, has raised $4 Mn in Series-A funding from Axilor Ventures, pi Ventures and other HNIs – Read More

Mesa School, Bengaluru-based edtech startup, has raised $4 Mn in a funding from Elevation Capital and other HNIs – Read More

Two Brothers Organic Farm, Pune-based agritech startup, has raised an undisclosed amount in Pre-Series A funding from Akshay Kumar, Virender Sehwag and other HNIs – Read More

M&A Snippets

Kuala Lumpur-based hospital IHH Healthcare has acquired New Delhi-based hospital Medeor for $27 Mn – Read More

Noida-based medical service provider HCAH has acquired Bengaluru-based medical service provider Nightingales for an undisclosed amount – Read More

California-based data analytics platform ThoughtSpot has Acqui-Hired Bengaluru-based data analytics platform Sagas IT Analytics for an undisclosed amount – Read More

Arizona-based IT services provider Nextiva has acquired Bengaluru-based social media analytics startup Simplify360 for an undisclosed amount – Read More

« First‹ Previous678910Next ›Last »