Tag: M&A

World’s Biggest Funding Event turned out to be a Hoax

April 2, 2023

In this edition, we will discuss the widely publicized news on “World’s Largest Startup Funding Fraud.”

A three-day convention in Noida, was marketed extensively as the “World’s largest startup-funding event”. Hundreds of unsuspecting people from the startup ecosystem spent large amounts to be a part of it, but it turned out to be a sham.

Assume you are a founder with an amazing idea, the funding market is subdued, or your startup is running out of funds to scale.

In such a case, one is tempted to believe that you only need one chance to get in front of the VCs. Suddenly you come across a polished social media post from a credible-sounding “World Startup Convention” with an attractive caption “World’s Biggest Funding Festival Ever”. This is accompanied by images of prominent ministers, corporate leaders such as Sundar Pichai, and global tech visionaries such as Elon musk, as part of the invited dignitaries, to create an impression on unmissable networking opportunities.

A quick look at the website statistics further enhances the FOMO factor. It claims the event to have an attendance of 1,500 venture capitalists, 9,000 angel investors, and more than 75,000 startups around the world.

Legitimacy is further established by claiming access to government grants. The event is endorsed by popular Indian Influencers’ like Ankur Warikoo, Raj Shamani, Prafull Billore, and Chetan Bhagat through their promotional videos – selling the proposition that you can get funded in just three days at this conference, and why should you attend?

Invariably, a lot of folks trust the influencers’ word and end up signing up for the event even if the event charges a premium (INR 5-10K) because it may be the only chance to meet with so many VCs at once.

D-day finally arrives on March 24, and you arrive at the convention to find an empty hall. No Elon Musk, Gautam Adani, or large VCs. And then, realization dawned upon the audience that they have been shortchanged.

The “World’s Biggest Funding Festival Ever” was no less than a scam, with select business founders paying substantial amounts to put up a stall and pitch to “10,000+ Investors,” as advertised. On the event day, not even 10% of the promised number of investors were identified. The quality and professionalism of those in attendance were suspect.

Incidents like these create an atmosphere of mistrust in the startup ecosystem. This has a spiraling effect on new investors who view startups and investments with suspicion. At ESV, we aid businesses with ever-vigilant decision-making and partnerships. We nurture in the founders we work with, the invaluable ethic that entrepreneurship is a journey with ups and downs, where there are no shortcuts.

We must stay focused on our goals, be tough in the face of obstacles, and pursue our passion with unshakable zeal.

Startup Funding Summary

Fashinza, Gurugram-based fashion supply chain startup, has raised $30 Mn in a funding from Mars Growth Capital and Liquidity Group – Read More

The Souled Store, Mumbai-based lifestyle product startup, has raised $16 Mn in Series C funding round from Xponentia Capital Partners, Elevation Capital and RPSG Capital – Read More

Vitraya Technologies, Mohali-based healthtech startup, has raised $5 Mn in Series A funding from StartupXseed Ventures, Season Two Ventures, Cactus, Xceedance and other HNIs – Read More

EazyDiner, Gurugram-based horeca startup, has raised $5 Mn in a funding from DMI Alternative Investment Fund’s Sparkle Fund – Read More

Nimbbl, Mumbai-based payment gateway solutions startup, has raised $4 Mn in a combined Seed and Pre-Series A funding from Groww, Sequoia Capital India, Global Founders Capital, Amara VC, Kunal Shah, Amrish Rau, Jitendra Gupta, Prajit Nanu and Srinivas Rao – Read More

M&A Snippets

New Delhi-based automotive component manufacturer Lifelong India has acquired Gurugram-based car care platform GoMechanic for an undisclosed amount – Read More

Bengaluru-based health insurance third-party administrator Medi Assist has acquired Faridabad-based healthcare Insurance provider Raksha Health Insurance for an undisclosed amount – Read More

Are debt mutual funds now equivalent to fixed deposits?

March 26, 2023

In this edition let us look at the widely discussed news about the recent amendments to the income tax rules as part of the Finance Act 2023.

On Mar 23 the Parliament passed the finance bill (annual budget) with some notable amendments which would impact the relative tax advantage of certain investment products, effective from 1 April 2023.

Debt mutual funds are a category of mutual funds that invest in debt and money market instruments such as commercial papers, certificates of deposits, treasury bills, non-convertible debentures, government bonds, G-Secs, and other. They generate returns by lending your money to the government and companies.

Highly liquid Debt Mutual Funds were tax-advantageous due to following reasons –

First, unlike FDs, debt MFs enjoyed indexation benefits to account for the cost of inflation. Second, the holding period for debt MFs was three years, after which the gains from the sale were taxed at the Long term capital gains (LTCG) tax rate of 20% whereas FDs are taxed at a slab rate of 30% (the most likely tax slab of the readers of this newsletter)

For example, with an ROI of 8%, an investment of ~1 lac would have accrued gains of ~26000 at the end of the holding period of three years. In case the investment was an FD, tax outgo would be 30%(26k), which comes out to be ~7800. Whereas, if the investment was in debt MF, indexation benefit (taking 15% as cost inflation index) would reduce taxable gains to ~13k. Then, applying a 20% LTCG rate would have resulted in tax outgo of 2600, which is much lower than 7800, as in the case of FDs.

With the latest amendment, this tax arbitrage which made debt MFs lucrative over FDs and bonds, has been nullified. Gains from debt MFs would be charged at the taxpayers slab rate of 30% without indexation benefit.

Understandably, the amendment was criticized by the MF industry, as it is likely to drive a section of investors away to FDs and bonds in the medium to long term. Though, experts mentioned that in the short term, debt MFs are likely to remain the preferred investments from a liquidity perspective. Moreover, investments made upto 31 Mar 2023, would not come under the new taxation rule.

The amendment must be seen as a step towards making the complex taxation regime simplified in coming years. Currently, the income tax rules in India are incentivised for the non-salaried high income taxpayers, who have more options to manage the effective tax liabilities.

Ideally, investment decisions should primarily be based on the future goals, reward expectations, and the risk appetite of an individual. The gains on such investments should be taxed as minimally and uniformly across different asset classes as possible.

But due to differential tax rates, differential holding periods for computation of gains for different asset classes often result in locking investment capital in unproductive assets, as individuals make those decisions based on the differential tax benefit for that asset.

For example, like in the case of debt MFs, indexation benefits also exist while calculating capital gains on selling real estate and physical gold. How many homes and how much gold can an individual consume beyond which the marginal utility of possessing one doesn’t make sense? A lot of capital in India gets locked in these assets, which might be productively channelized  to alternative investments, such as funding innovation and making futuristic long term bets on scalable startups, the returns on which would far surpass any taxation advantages.

Ecosystem Ventures This Week

Key Highlights – Events

We’re pleased to share that Mr. Abhijeet Bhandari (Partner at Ecosystem Ventures), participated in the Yourstory Techsparks Event 2023 in Mumbai.

Startup Funding Summary

Charge+Zone, Vadodara-based EV charging company, has raised $54 Mn in Series A1 funding from BlueOrchard Finance and other HNIs – Read More

Sukino Healthcare, Bengaluru-based continuum care provider, has raised $6 Mn in Series A funding round from Stakeboat Capital – Read More

IndusGo, Ernakulam-based self-drive car rentals platform, has raised $12 Mn in a funding from Indus Motors – Read More

FretBox, Pune-based SaaS platform for hostels, has raised $10 Mn in Pre-Seed funding from JSS STEP, India Accelerator and other HNIs – Read More

Uravu Labs, Bengaluru-based water technologies startup, has raised $2 Mn in Series A funding from JITO Angel Network, Anicut Capital, Speciale Invest, Rocketship.vc., Vesta, Spectrum Impact, ZNL Growth Fund, VERSO, Echo River Capital and other HNIs – Read More

M&A Snippets

Noida-based edtech firm PhysicsWallah has acquired UAE-based edtech startup Knowledge Planet for an undisclosed amount – Read More

Why Silicon Valley and other Banks’ collapsed?

March 19, 2023

In this issue of Venture Pulse, we would be analysing the widely discussed news of the week, about the collapse of the Silicon Valley Bank, Signature Bank, and Silvergate Bank.

Signature Bank, a New York-based regional bank that became a leader in cryptocurrency lending, closed suddenly last Sunday. Silvergate Bank, which also collapsed last week, is well-known for offering banking services to the crypto industry. Silvergate created a platform that enables crypto exchanges and other businesses to retain deposits in multiple cryptos that could be used to facilitate trades and other activities.

Silicon Valley Bank (SVB) was started in 1983. Over the decades it had become the 16th largest bank in the USA, synonymous with the startup ecosystem as a significant number of major startups and VCs, around the world, had become its customers. It positioned itself as the tech-centric new-age bank for futuristic startups. The bank had the potential upside by partnering in the growth story of the unicorn startups, leading to industry-defying returns.

Simplistically, a typical bank has two main functions. Take deposits and make loans based on the deposits to make a profit. Generally, the customer base making the deposits is diversified across industries, geographies, income range, and customer type (corporate vs individual).

Banks, or the modern financial system in general, is based on one word – Trust. We have a reasonable amount of trust to park our cash/earnings as deposits in a bank of our choice, convinced that we would be able to withdraw when we deem fit. For example, let us assume all readers (startups & investors) of this newsletter have INR 1 lac deposit with a fictitious Marine Drive Bank (MDB).

Now MDB, as custodians of the trust, takes credit bets, reasonably convinced that all venture pulse readers aren’t going to turn up at the same time to demand their deposits back. If they do, that’s the classic case of ‘Bank-run’, which is exactly what happened with SVB. Customers turned up simultaneously and SVB did not have the requisite liquidity to service them.

There are three major contributing factors attributed for this bank-run on SVB.

First, it has been argued, since the last decade has been an era of low interest rates, customers of SVB, mostly VCs and startups, were flush with funds, which they had parked with the bank. But these customers did not need loans in the traditional banking way. Hence, rather than making loans, the deposits were used by SVB to purchase treasury bonds. Crudely simplifying, corporate loans tend to have floating interest rates and shorter terms, while bonds have fixed interest rates and longer terms. The end result was SVB had substantial exposure to interest rate risk. In traditional banking, when interest rates are hiked by the central bank (Federal Reserve in US), banks would cover higher deposit rates by hiking corporate lending rates on their loans. But over 56% of SVB assets were locked up in fixed-rate securities rather than floating-rate loans. Comparable figures for Bank of America would be ~28%. Chris Kotowski of Oppeheimer summed it up succinctly – “SVB is a liability-sensitive outlier in a generally asset sensitive world.”

Second, as the era of low interest rates came to an end, investors have started looking at cash flows stringently. This has led to downsizing of ‘obtaining liquidity through liquidity events such as IPO, secondary offerings, SPAC fundraising, acquisitions etc’ for startups. In SVB’s case this would have led to reduction in new and existing deposits as startups kept taking money out of the bank for their working capital needs.

Third contributing factor, as argued by Matt Levine, is the extremely networked nature of SVB’s customer base of VCs’ and startups, which led to panic among them, as it was reported that quite a few of prominent VCs, such as Peter Thiel’s Founders Fund, had advised their portfolio companies to withdraw their money. If VCs’ hadn’t decided all at once to pull their money, SVB probably would not have collapsed.

The Federal Deposit Insurance Corporation (FDIC) & Biden Administration swung into action to assuage market fears about the stability of the financial system, assuring that taxpayers’ money would not be used to bailout the bank.

SVB is likely to be handed over to a ‘healthier bank’ but the critical negotiating question is about what happens to the ~$165 Bn uninsured deposits of the customers, which amount to ~95% of total deposits. Legally, as per FDIC mandate, deposits upto $250K are insured. But it would be nearly impossible for FDIC to wind-up a prominent bank in a way that causes significant losses to its uninsured depositors. Market sentiment of an impending loss of uninsured deposits may lead to bank-runs on other banks.

Ecosystem Ventures This Week

Key Highlights – Events

We are thrilled to share that Ecosystem Ventures hosted the 2nd 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

PhonePe, Bangalore-based digital payments platform, has raised $200 Mn in a funding from Walmart – Read More

HealthPlix, Bengaluru-based health-tech startup, has raised $22 Mn in Series C funding round from Avataar Venture Partners, SIG Venture Capital, Lightspeed Venture Partners, JSW Ventures, Kalaari Capital, Chiratae Ventures and Blacksoil Capital – Read More

Gynoveda, Mumbai-based femtech platform, has raised $10 Mn in Series A funding from India Alternative Fund, RPG Ventures, Wipro Enterprises, Fireside Ventures and Alteria Capital – Read More

Jumbotail, Bangalore-based wholesale and food grocery platform, has raised $9 Mn in a funding from Alteria Capital and Innoven Capital – Read More

Aerem, Mumbai-based solartech platform, has raised $5 Mn in Pre-Series A funding from Avaana Capital, Blume Ventures and other HNIs – Read More

M&A Snippets

Mumbai-based online insurance platform Acko has acquired Bangalore-based digital health platform Parentlane for an undisclosed amount – Read More

What are Stock Appreciation Rights (SARs)?

March 12, 2023

Wish you a very happy Holi and hope you had a good one. In this edition, we will be talking about Stock Appreciation Rights (SAR), one of the remuneration schemes for employees which are getting popular these days.

SARs are a way for businesses to reward the management or employees with a bonus if they perform financially well. Under the SAR’s scheme, an employee does not receive any shares but is instantly entitled to a stake in the company’s growth and the right to compensation equal to a rise in the price of the company’s common stock over a base price. For instance, a worker with one stock and a $15 exercise price for stock appreciation rights could exercise those options at $20 and receive $5. The employer makes a payment to the employee in the form of cash or equivalent stock awards.

SARs are a way for companies to motivate employees to be more productive. With SARs, an employee receives a percentage of the company’s ownership. As a result, if the company’s shares rise in value, their share value rises as well. Hence, SARs are a method of establishing a loyal partnership with employees.

A notable benefit of SARs is that there is a minimum cash outflow from the employer side. An employee receives the shares without having to pay for the cost of the shares. And the greatest benefit of SARs is they are flexible. Companies can design their SARs in a way that best suits the needs of various people. The amount of these bonuses, the liquidity of the SARs, and the vesting procedures can all be determined by the company. Despite their many benefits, SARs are a high-risk form of employee compensation. If the company’s stock does not appreciate, SARs often expire worthless.

With SARS, you don’t need to buy shares of stock to benefit from an increase in the stock’s value. On the other hand, Employee stock options (ESOPs) require you to exercise your right to buy company stock in order to profit from any appreciation. So, cash outgo is required in order to exercise ESOPs but no cash outgo is required for SARs.

At ESV, we help create the startup a business model in a way that is advantageous to both the entrepreneur and fellow team members. SARs is also a better way to take advisory equity and we are exploring that with our portfolio companies.

Ecosystem Ventures This Week

Key Highlights – Events

We are pleased to announce that Mr. Abhishek Sanghvi (Partner, Ecosystem Ventures) has participated in a panel discussion on “Catalyzing Digital transformation in smaller cities and new cities” at MeitY Startup Hub event, held in AIC Prestige Institute, Indore.

Startup Funding Summary

Mintifi, Mumbai-based supply chain financing platform, has raised $110 Mn in Series D funding from Premji Invest, orwest Venture Partners, Elevation Capital and International Finance Corporation – Read More

Fantasy Akhada, Gurgaon-based fantasy gaming platform, has raised $11 Mn in a funding from Florintree Advisors, Mukul Agrawal and Varalakshmi Enterprises – Read More

Bira 91, New Delhi-based premium beer company, has raised $10 Mn in a funding from MUFG Bank – Read More

GIVA, Bangalore-based jewellery startup, has raised $5 Mn in a funding from Alteria Capital – Read More

Off Duty, Mumbai-based apparel and fashion brand, has raised $500 K in a funding round from Angel Investors – Read More

Holy Grail of HR

February 19, 2023

One of the most critical aspects of business is talent acquisition. Talent acquisition strategies are expected to evolve as a business grows in size and scale. An early stage startup’s talent requirement is drastically different from a growth stage one.

One of the biggest recruitment & staffing firms in the world – Randstad, pegs the highly fragmented global HR services market at € 475 Bn. The HR services industry is divided roughly into three main segments: staffing, professionals, and executive search.

Given the complexity and volume of the recruitment industry, quite a few startups have emerged, in India and beyond, which can be termed as talent acquisition (TA) technologies. TA technologies aim to deploy tech enabled intelligent decision making to drive efficiency between the talent demand and its supply.

But TA specialists are part of the larger ambit of HR tech space. HR tech is dominated by legacy talent/HR management systems (TMS). For hygiene HR functions such as attendance, payroll, leave management, employee compliance etc; organizations have been using Talent management systems. Often, in big organizations, TMS is a module of their company-wide ERP.

Thus, the majority of the TMS have evolved for a purpose other than talent acquisition. This has led to the proliferation of other set of solution providers, invariably used by all organizations, known as ATS. ATS stands for application tracking system. ATS refers to a software application used to receive, filter, shortlist, track progress of the applications on a job requisition.

ATS is a hygiene functionality now. Every TMS is likely to have an inbuilt ATS or an integration support with popular ATS applications. But ATS in themselves have not been designed for making intelligent talent acquisition decisions, rather they evolved to manage the logistics of the hiring funnel.

Thus, a complex competitor/collaborator ecosystem has emerged in the larger HR tech space. TA technologies and TMS vendors compete with each other, also at the same time, these providers need to offer robust integration with third-party applications that may offer similar services.

A critical question for buyers of talent acquisition technologies is whether or not the solution needs to be part of a broader suite of capabilities, such as learning and performance management, or if the route of a TA specialist vendor is the right path?

In such a complex ecosystem, it is imperative for a new startup in TA technologies to deploy appropriate GTM strategies. The approach to be followed for large clients, with a likely TMS already in place, has to be different for smaller companies or startups. With larger clients, the new TA technology has to augment their existing recruitment process. Whereas, for early stage startups and smaller clients, the new TA technologies have to establish their product’s value addition along with price competitiveness.

At ESV we have been following the trends in the HR tech space for quite some time. In fact, we have recently onboarded a startup in the talent acquisition space with a stellar team spread across three geographies.

Keep following this space for the latest updates on interesting startups in our portfolio.

Startup Funding Summary

InsuranceDekho, Gurugram-based insurance company, has raised $150 Mn in Series A funding from TVS Capital Funds, Goldman Sachs Asset Management, Investcorp, Avatar Ventures and LeapFrog – Read More

Garuda Aerospace, Chennai-based drone startup, has raised $22 Mn in Series A funding from SphitiCap and other HNIs – Read More

Venwiz, Bengaluru-based industrial services provider, has raised $8 Mn in Series A funding round from Sorin Investments, Accel and Nexus Venture Partners – Read More

Prozo, Noida-based supply chain management startup, has raised $5 Mn in Pre-Series B funding from Sixth Sense Ventures, JAFCO Asia and other HNIs – Read More

HireSure.ai, Bengaluru-based HR tech platform, has raised $3 Mn in Seed funding from Y Combinator, Three State Capital and Pioneer Capital – Read More

Google’s Bard vs OpenAI’s ChatGPT

February 12, 2023

Big tech companies have their dedicated cult followership. There are those who swear by Google and would have purposely stayed away from Microsoft technologies. Similarly, Apple loyalists would not venture beyond their ecosystem.

Brand loyalties were tested this week with two major announcements by Google & Microsoft respectively, which happened in close succession. But first, let us recap the context.

Earlier in Nov 2022, ChatGPT (a dialogue-based AI-chatbot developed by OpenAi), took the world by storm by its intuitive human-like conversational ability and the inherent potential to transform businesses and industries. The most talked about application of chatGPT was the Internet Search, which Google has single handedly lorded over for close to two decades. Google possesses a market share of ~92% in Internet Search whereas Microsoft’s Bing has ~2%.

Appreciative posts trickled in about the strategic foresight of Microsoft to invest $1 Bn in OpenAI, the benefits of which the company can now reap. It was reported in Jan 2023 that Microsoft is planning to bring chatGPT in its Office Suite and the search engine Bing.

On Monday 6th February, Google announced – Bard, an AI chatbot to take on the potential threat posed by the chatGPT.

Bard, so named because it is a storyteller according to Google, is based on experimental technology called LaMDA, short for Language Model for Dialogue Applications, which Google has been testing inside the company and with a limited number of outsiders for several months.

Sundar Pichai, CEO of Google, explained in a blogpost – “Bard seeks to combine the breadth of the world’s knowledge with the power, intelligence and creativity of our large language models. It draws on information from the web to provide fresh, high-quality responses. Bard can be an outlet for creativity, and a launchpad for curiosity, helping you to explain new discoveries from NASA’s James Webb Space Telescope to a 9-year-old, or learn more about the best strikers in football right now, and then get drills to build your skills.”

He further elaborated on Google’s longterm AI strategy – “Two years ago, we introduced MUM, which is 1,000 times more powerful than BERT and has next-level and multi-lingual understanding of information which can pick out key moments in videos and provide critical information, including crisis support, in more languages.

Now, our newest AI technologies — like LaMDA, PaLM, Imagen and MusicLM — are building on this, creating entirely new ways to engage with information, from language and images to video and audio. We’re working to bring these latest AI advancements into our products, starting with Search.”

On Wednesday, Microsoft announced the incorporation of ChatGPT’s capabilities into its search engine Bing to be made publicly available. CEO Satya Nadella opined on the launch event – “AI will fundamentally change every software category, starting with the largest category of all – search, “Today, we’re launching Bing and Edge powered by AI copilot and chat, to help people get more from search and the web.”

Which technology is superior – Google’s Bard or Microsoft backed OpenAi’s chatGPT? This has become the major discussion point on social media. Tech geeks, on either side of the divide, have claimed their respective victories.

The services of ChatGPT and Bard will be similar, with users typing in a query to receive a human-like response. The difference would be on the underlying data source on which they have been trained. Google of course maintains the most up to date record of web content on Earth, and no doubt Bard will be using that information to its benefit, but exactly how it processes and packages that information would become clear once people start using it.

From a startup ecosystem perspective, it reaffirmed the exponential scalability of a robust innovation. A relatively unknown tiny startup OpenAI managed to decisively leapfrog and become synonymous with AI technologies, which Google had pioneered in the past.

As this article argues about openAI’s success – “The short explanation is that tech moves fast and big companies move slow, and while Google released paper after paper and tried to figure out how to fit AI into its existing business strategies, OpenAI has focused on making the best models and let people figure out their own applications”

Exciting times never end in the startup world.

Startup Funding Summary

Mensa Brands, Bengaluru-based D2C house of brands startup, has raised $36 Mn in a funding from TradeCred – Read More

Entropik, Bengaluru-based AI-integrated market research platform, has raised $25 Mn in Series B funding from Bessemer Venture Partners, SIG Venture Capital, Trifecta Capital, Alteria Capital and Bharat Innovation Fund – Read More

Zypp, Gurugram-based EV-as-a-service platform, has raised $25 Mn in Series B funding from Gogoro, Goodyear Ventures, 9Unicorns, WFC, Venture Catalysts, LetsVenture, IAN, IVY Growth, Grip, global impact fund IIX and other HNIs – Read More

Simple Energy, Bengaluru-based EV startup, has raised $20 Mn in a funding round from Dr Arokiaswamy Velumani, Ashwin Hinduja, Sanjay, Sandeep Wadhawa, Sripriya Kalyanasundaram, Lambda Test, Purple Moon Ventures, Manish Bharti and Vasavi Green Tech – Read More

Bluelearn, Bengaluru-based edtech startup, has raised $4 Mn in Seed funding from Elevation Capital, Lightspeed, Titan Capital, 2AM VC, Vidit Aatrey and Sanjeev Barnwal – Read More

M&A Snippets

Bengaluru-based financial services provider Siply has acquired Hyderabad-based digital savings app myPaisaa for $8 Mn – Read More

Bengaluru-based healthtech startup MediBuddy has acquired New Delhi-based wellness and fitness startup vHealth for an undisclosed amount – Read More

Mumbai-based music company Warner Music India has acquired Chennai-based digital media & music company Divo for an undisclosed amount – Read More

Market lessons from Hindenburg vs Adani

February 5, 2023

In this edition let us analyse the biggest news of the week – Adani Enterprises Ltd (AEL) calling off their ~₹20k Cr follow-on public offer (FPO). Let us recap the facts.

A publicly listed company raising funds through fresh equity is termed as a FPO. Market watchers had long expected an Adani FPO, as a strategic move to monetise on the dream rally Adani stocks have had in the past 2.5 years. In Mar 2020 AEL stock was trading at ₹128 which had reached ₹3903 on 25th Nov 2022. A valuation jump (price/earnings ratio) from ~12x to 361x. Even best performing tech companies cannot command such valuations.

Banking on this market-defying performance, AEL (incubator company of many of the Adani businesses) had announced its FPO of $2.4 Bn last November, which opened for subscription on 27th January with a price band of ₹ 3100-3300. As per the market reports, ~50% of 2.4 Bn was earmarked for retail investors, ~21% for Non-institutional investors (NII), ~28% for Qualified Institutional Investors (QIB) and a small portion for Adani group employees.

On 24th January, US short-seller Hindenburg Research published a report accusing the Adani Group of stock-price manipulation and accounting fraud for decades. Short-sellers aim to profit from overvalued stocks by betting on their imminent fall in stock price. They announced the seven key listed Adani companies have a significant downside of 85% due to over valuation.

First, Hindenburg alleged ‘Stock Parking’ by the Adani group. Stock Parking is the illegal practice of selling shares to another party with the understanding that the original owner will buy them back after a short time. The goal of parking is to conceal a stock’s real ownership while maintaining the appearance of regulatory compliance.

Indian Securities Regulator SEBI’s rules require a minimum public shareholding of 25% in listed companies to ensure a minimum level of liquidity, to reduce insider trading, market manipulation, and to minimize volatility.

Hindenburg produced a list of suspected offshore funds & shell companies closely linked to Adani group that own stock in the listed companies which effectively breaches the 25% public holding rule.

The report alleges this mechanism is affected by diverting funds from listed Adani companies to Adani family private offshore trusts & companies. These trusts & companies, helmed in most of the cases by Gautam Adani’s elder brother Vinod Adani, redirect the funds to Mauritius based shell entities which then invests or trades in Adani group stocks. Hindenburg lists 5 such funds with cumulative assets over $8 Bn almost exclusively invested in Adani group stocks.

Hindenburg Research alleges that suspected stock parking entities have accounted for as high as 30-47% of the ‘Delivery Volume’ in Adani stocks, suggestive of circuitous trading and manipulation. Delivery volume refers to the number of shares that are traded over a given period of time. It simply shows the level of participation (interest) of the market participants at a particular price point.

Second, Hindenburg Research alleges that capital is moved from offshore entities to private Indian companies in Adani group often through ‘undisclosed related party transactions’ which are violative of the law. Capital is then transferred to the listed companies, in order to make them appear more creditworthy or solvent.

Third, Hindenburg Research alleges that AEL lacks robust financial checks & controls, expected of a conglomerate of such global size. This is reflected in lack of credible independent auditors, lack of stability in the CFO role (5 changes in last 8 years).

Fourth, the report points out that investment banks and professional investors have steered clear of Adani listed companies. Despite Adani listed companies featuring in domestic and overseas indices, no active local fund owns Adani Green, Adani Enterprises, Adani Total Gas or Adani Transmission above 1% of equity, according to shareholding disclosures.

Fifth, the report also brings about the historical cases, inquiries initiated against the Adani group leadership team members for financial impropriety, and ends with a pointed list of 88 questions for clarification.

On 25th January, stock prices of all Adani listed companies plummeted and continued their free-fall in the following days. Adani group fervently rejected all the accusations by projecting a nationalist posture and ascribing all allegations as a conspiracy.

The FPO was fully subscribed due to oversubscription by QIBs and NIIs. Expectedly, retail investors stayed away with only a 12% subscription of their earmarked share.

But global finance is an interconnected world. The repercussions of the Hinderberg Report went beyond the FPO with global media outlets turning their gaze on the Adani group. Credit Suisse halted accepting Adani linked bonds as collateral. One of the Dow Jones indices, decided to drop AEL from its index. Demands for a regulatory probe became loud in India.

On 1 Feb, AEL in its wisdom decided to scrap the FPO and announced to return the proceeds claiming to respect investor sentiments. As I write, the stock surged 21% on Friday. But this issue goes beyond what ultimately happens to the stock prices of Adani listed companies.

The long-term significance lies in how big business relations with the government are structured in India. It would be in the best interest of all Indians that we evolve towards a pro-market rather than a pro-corporate economy.

By pro-corporate I mean, the widespread perception that select big business houses get preferential treatment either through government actions or deliberate inactions.

Markets function on trust. Efficient markets lead to economic growth which leads to equitable prosperity in the long term. Cutting edge research, innovations and startups are more likely to emerge and scale in efficient markets.

Role of the state should be of a neutral enabler rather than a selective arbiter for few. This is best ensured through various independent regulatory institutions and a vibrant media.

Ecosystem Ventures This Week

Key Highlights – Events

We are pleased to announce that Ecosystem Ventures had the inaugural pitch event of 2023 this week, where two of our shortlisted startups pitched to more than 60 angel investors, who joined either remotely or graced our office with their presence.

To view our active deals visit here.

Startup Funding Summary

Enzene Biosciences, Bengaluru-based biotech company, has raised $50 Mn in a funding from Alkem Laboratories, Eight Roads Ventures and F-Prime Capital – Read More

Freightify, Chennai-based freight rate management SaaS platform, has raised $12 Mn in Series A funding from Sequoia Capital India, TMV, Alteria Capital, Nordic Eye Venture Capital and Motion Ventures – Read More

CapGrid, Gurgaon-based B2B cloud manufacturing startup, has raised $70 Mn in a funding round from Nexus Venture Partners, Axilor, Anicut Capital and Deepak Jain – Read More

The Esports Club, Bengaluru-based gaming marketing services provider, has raised $3 Mn in a funding from KOMLAY Group and SAMBAVANATH Group – Read More

Saarthi Pedagogy, Ahmedabad-based edtech startup, has raised $1 Mn in Series A funding from GVFL Limited and Pinnacle Investments – Read More

M&A Snippets

Bengaluru-based IT service assistance provider ReadyAssist has acquired Vadodara-based two-wheeler servicing firm SpeedForce for $10 million – Read More

Hard Work or Harvard?

January 29, 2023
I wish you had a great Republic day celebration.
 
The English word ‘republic’ is derived from Latin – ‘res publica’, the public thing. This translates in the political domain into decision-making in the open, in full view of all. It follows that informed, vigilant, and articulate citizens are the foundations of an ideal republic. Universities, through good quality education, are expected to nurture such citizens.
 
In this edition, let us touch upon one of the forthcoming policy changes in higher education, which has been widely discussed in the past weeks.
 
Earlier this month, University Grants Commission (UGC), apex body regulating the universities in India, released the draft guidelines to allow foreign universities in India. Thus, we would have the likes of Harvard & Cambridge University to open their campuses in India.
 
First, it is important to acknowledge the sad reality that Indian universities, whether public or private, do not feature in the top global rankings. Second, we often create a false equivalence between the premium standalone technology or management institutes (IITs/IIMs) and the top ranking universities from abroad. Harvard university is much more than the Harvard business school. A world class university has high ranking departments, schools across disciplines.
 
This leads us to a set of fundamental questions –
1. What goes into making a world class university? 
2. Why would the best known universities of the world open their campuses in India? 
3. Why has India been unable to create public or private universities, which could become the default low-cost destinations for higher education in the world?
 
First, a world class university marries teaching with research. Unit economics for a full-fledged Ivy League university campus are not likely to work in India. Funding research is a long drawn process with no immediate return on investment. Most of the foreign universities receive state subsidies and grants as fees alone cannot support the research.
 
Moreover, in its guidelines UGC has allowed repatriation of profits made in India. Hence there exist no structural reason for long term investment in research. Most likely, a ‘center’ offering a couple of professional courses (such as MBA) might be replicable but not a campus offering research across various disciplines.
 
Second, there seems to be no economic or lifestyle incentive for top-notch exceptional faculties from abroad to shift their base to India unless their existing salaries are matched or exceeded.
 
Third, only a small segment of the Indian consumers can afford foreign education. Incentive to go abroad is partly cultural as well, to experience life and network beyond India. Would the price differential in Indian campuses be significant enough to forgo non-financial incentives? To flip the question – If IIM A opens a campus in another Indian city, e.g. IIM A Bhopal. Would people who can afford IIMA originally switch to IIMA Bhopal? The cultural vibe and ethics of the original university are hard to replicate elsewhere.
 
Fourth, it would be quite paradoxical of UGC which is pushing for standardization in entrance, assessments, and syllabi across public universities to create exceptions for campuses of foreign universities which thrive on their autonomy and diversity.
 
Data seems to suggest full-fledged foreign campuses of best known universities are hard to find, except for a couple of exceptions.In this C-BERT database of foreign campuses, we do not see names of the biggest brands – such as Stanford, Oxford, Princeton etc. You may find one off ‘centre’ or ‘school’ but not full campuses.
 
The third question – why are there no world-class Indian universities? – is more significant than foreign universities opening campuses in India. It would be in the national interest that the startup and investor community reflects on it. It appears we do have the intent and a community of financially capable entrepreneurs who can establish low-cost world class universities.
 
The most likely reason lies in the complex and bureaucratic regulatory system of higher education in India. On one hand it has deteriorated public universities beyond repair and not incentivised quality private universities to flourish on the other. 
 
It remains to be seen which universities finally arrive in India but let us strive to do ‘hard-work’ to create world class Indian Universities which would nurture our republic and become the next “Harvard’ for the world to look upto. 
 
Jai Hind!
Startup Funding Summary
Log9, Bengaluru-based nano-materials manufacturer and RnD startup, has raised $40 Mn in Series B funding from Amara Raja Batteries, PETRONAS Ventures, Incred Financial Services, Unity Small Finance Bank, Oxyzo Financial Services and Western Capital Advisors – Read More
Ecozen, Pune-based deep tech startup, has raised $25 Mn in Series C funding from Nuveen, Dare Ventures, India EXIM Bank, Caspian and Hivos-Triodos Fonds – Read More
FuelBuddy, New Delhi-based mobile energy distribution platform, has raised $20 Mn in a funding round from Jindal Power Limited, RJ Corp, and Nilesh Ved – Read More
Rigi, Bengaluru-based community management platform, has raised $12 Mn in Series A funding from Elevation Capital, Accel, Stellaris, Sequoia, Mahendra Singh Dhoni, Kunal Shah, Amit Agarwal, Chakradhar Gade, Sharan Hegde and other HNIs – Read More
Landeed, Bengaluru-based proptech startup, has raised $8 Mn in Seed funding from Draper Associates, Y Combinator and Bayhouse Capital – Read More
M&A Snippets
Bengaluru-based IT services firm Happiest Minds has acquired Madurai-based IT services company Sri Mookambika Infosolutions for $14 Mn – Read More
Pune-based gaming and entertainment firm JetSynthesys has acquired US-based media and entertainment company Fanory for an undisclosed amount – Read More
New Delhi-based online travel company Easy Trip Planners has acquired Hyderabad-based hotel booking platform cheQin for an undisclosed sum – Read More
Noida-based fintech company Pine Labs has acquired Bengaluru-based enterprise platform Saluto Wellness for an undisclosed sum – Read More

Competition Commission of India’s penalty on Google India

January 15, 2023
In this edition we would briefly discuss the widely reported news of Competition Commission of India (CCI) imposing penalties on alleged anti-competitive practices of Google India.
 
CCI was established after the enactment of Competition Act, 2002 which mandates CCI to promote and sustain an enabling competition culture through engagement and enforcement that would inspire businesses to be fair, competitive and innovative; enhance consumer welfare; and support economic growth.
 
In Oct 2022, on an appeal filed by three advocates in 2018 against Google India, CCI had passed two orders imposing penalties on Google. First order of Oct 20, with a fine of ~1337 Cr, relates to the anti-competitive practices with respect to Android (mobile operating system). Second order dated 25 Oct, with a fine of 937 Cr, alleges Google abusing its dominant position by way of its Play Store policies and asked Google to cease its “abusive” practices.
 
Google’s Android is the dominant operating system for smartphones in India with over 95% market share. As per the complaint to CCI, smartphone manufacturers (OEMs) have no choice but to agree to Google Mobile services (GMS) through which proprietary applications & services such as Google search, Google Chrome & Youtube come pre-installed on the device which cannot be removed. Such conduct was claimed to have hindered the development and market access of rival mobile applications or services.
 
In the second case, Google, through its control over the Play Store, is favouring Google Pay over other competing apps, to the disadvantage of other UPI apps and end users. In simple terms, apps have to necessarily enable their in-app purchases through Google Pay services only. This amounts to abuse of its dominant position by Google.
 
Google challenged both of these CCI orders in the appellate authority – The National Company Law Appellate Tribunal (NCLAT). NCLAT declined to provide interim relief to Google, following which Google has approached the Supreme Court which would listen to its plea on Monday 16 Jan 22.
 
Meanwhile through a comprehensive blog post, Google initiated its public communication exercise where it emphasised on the significant role Google and its products have played in ushering digital transformation in India.
 
“Over the last 15 years, through Android’s free open source software and suite of high quality apps, Google has helped device manufacturers make smartphones more affordable by a vast margin. Today, any user can get their hands on a fully functional smartphone at less than Rs. 6000 from numerous brands.”
 
Secondly, on impact of the CCI orders, Google has argued – “As we look beyond the estimated 700 million users who are already online, safety, affordability and expanded use cases for the next wave of users will be the pillars that will determine digital adoption. Unfortunately, the ordered remedies on Android strike blows to these very areas’’.
 
In other words, Google is making an argument against the CCI orders on increased security risks due to multiple unique android versions (called forks), lesser smartphone affordability due to increased software development costs, and higher user exclusion due to higher cost for app developers.
 
It is worth noting that, as brought about in this insightful piece, mobile broadband users through smartphones in India have plateaued. After a burst of rapid growth in the earlier half of last decade, it has become stagnant.
 
This leads to expanding the existing monetisation opportunities from the crowded top of the bracket 10 Mn indian internet users. E.g. in yet another news from last month, Google is set to launch Youtube Courses, a structured learning experience on Youtube, in direct competition to ed-tech apps. Thus, if Google apps are pre-bundled and configured in the device, it creates an unfair advantage for market access for others.
 
It would be interesting to see how the Supreme Court leans on this issue which would have bearing on the startup ecosystem.
Ecosystem Ventures This Week
Key Highlights – Events
We are happy to share that Mr. Abhishek Sanghvi, Mr. Abhijeet Bhandari (Partners, Ecosystem Ventures) and Mr. Shailesh Jain (VP, Ecosystem Ventures)  participated in the 17th Pravasi Bharatiya Sammelan and Global investor meet 2023, held in Indore.


Startup Funding Summary

Wakefit.co, Bengaluru-based furniture and fixture improvement brand, has raised $40 Mn in Series D funding from Investcorp, Sequoia Capital India, Verlinvest and SIG – Read More

LEAD, Mumbai-based edtech startup, has raised $20 Mn in series C funding from Stride Ventures, Alteria Capital, Standard Chartered Bank, HDFC Bank and ICICI Bank – Read More

Toddle, Bengaluru-based edtech startup, has raised $17 Mn in Series A funding from Sequoia Capital India, Tenacity Ventures, Trifecta Capital, Matrix Partners, Beenext and Better Capital – Read More

Park+, Gurugram-based car owners-focused app, has raised $17 Mn in Series C funding from Epiq Capital, Matrix Partners India and Sequoia Capital India – Read More

ApnaKlub, Bengaluru-based B2B wholesale firm, has raised $16 Mn in Series A funding round from TrueScale Capital and ICMG Partners – Read More

M&A Snippets

US-based private equity firm Carlyle has acquired Bengaluru-based beauty and personal care entity VLCC for $300 Mn – Read More

Bengaluru-based D2C brand aggregator Goat has acquired Bengaluru-based home and lifestyle brand Chumbak for an undisclosed amount – Read More

New Geo-spatial policy as an enabler for startups

January 8, 2023

In this edition we would briefly discuss the new geo spatial policy notified by the Government of India on 28 Dec 2022. The policy has been commended by the sector stakeholders and may usher innovation in Geo-spatial based products & services for India and the world.

The policy builds on the Feb 2021 document titled ‘Guidelines for acquiring and producing Geospatial Data and Geo-spatial Data services including Maps’. Through these guidelines GoI had defined Geo-Spatial data as any positional data with or without attribute data. E.g Positional data of any place is derived from latitude, longitude and the elevation of the place from a reference point. Attribute data is any data when associated with Positional Data gives additional meaning to it.

Historically, the most common representation of positional data has been through printed maps. For their strategic significance and perceived security risk, the production and dissemination of maps has been strictly controlled through the Survey of India, the apex organization tasked with maintaining the datasets related to Geo-spatial information.

Guidelines enable a new approach whereby – “there shall be no requirement for prior approval, security clearance, license or any other restrictions on the collection, generation, preparation, dissemination, storage, publication, updating and/or digitization of Geospatial Data and Maps within the territory of India. Individuals, companies, organizations, and Government agencies, shall be free to process the acquired Geospatial Data, build applications and develop solutions in relation to such data and use such data products, applications, solutions, etc by way of selling, distributing, sharing, swapping, disseminating, publishing, deprecating and destructing. Self-certification will be used to convey adherence to these guidelines.’

The guidelines proposed a ‘negative-list’, whereby sensitive attribute data would be put on a list, which would not be made available, unless under specific regulation, as part of Geo-spatial applications. Rest of the data is being made available to companies and individuals.

To decide as the final authority on what constitutes the negative list, the Feb 2021 guidelines envisaged formation of GDPDC Geospatial Data Promotion and Development Committee, which has now been announced in the policy document.

Furthermore the new policy outlines a vision and time-bound milestones to achieve the goals. E.g by 2025 the enabling legal framework that supports liberalization of Geospatial sector and democratization of data for enhanced commercialization with Value Added Services is expected to be put in place.

By 2030, High resolution topographical survey & mapping (5-10 cm for urban & rural areas and 50 cm-100 cm for forests & wastelands), High accuracy Digital Elevation Model (DEM) for the entire country (25 cm for plain, 1-3 meter for hilly and mountainous areas) is expected.

Similarly, by 2035, high resolution/accuracy Bathymetric (measurement of depth) Geospatial Data of inland waters and sea surface topography of shallow/deep seas – to support Blue Economy is expected.

It would be interesting to see how new startups emerge in the geo-spatial space following the liberalization of policy. One of our portfolio companies is creating value for many businesses through their location intelligence platform. You may explore more about them here.

Startup Funding Summary

KreditBee, Bengaluru-based fintech startup, has raised $100 Mn in Series D funding from Advent International and Avendus Capital – Read More

SarvaGram, Mumbai-based financial service provider, has raised $35 Mn in series C funding from Elevar Equity, Elevation Capital, Temasek and TVS Capital – Read More

VilCart, Bengaluru-based rural commerce startup, has raised $13 Mn in Series A funding round from Asia Impact, Nabventures Fund and Texterity – Read More

Jupiter, Mumbai-based fintech startup, has raised $12 Mn in a funding from Alteria Capital – Read More

Varthana, Bangaluru-based NBFC startup, has raised $7 Mn in a funding from MicroVest – Read More

M&A Snippets

Mumbai-based fintech startup InCred Capital has acquired Mumbai-based wealthtech startup Orowealth for an undisclosed amount – Read More

Noida-based travel and hospitality services provider RateGain will acquire California-based data exchange platform Adara for $16 Mn – Read More

Ghaziabad-based FMCG Company Dabur India has acquired Mumbai-based spices maker Badshah Masala for $71 Mn – Read More

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