Sharing is caring, but ownership is a headache

An ex-Drivezy employee claims that around 120 cars and 200 bikes were purchased under a decentralized asset model after the first ICO. While Singh told The Ken that the company currently has 8,000 two-wheelers and 3,000 cars on its platform, he refused to comment on how many of these are on the P2P model.

The single biggest problem facing companies in India’s urban mobility space is scaling.

Finding oneself

This has been a problem in the country since at least 2015 when Bengaluru-born Ola found itself at a crossroads. Having grown steadily since its inception in December 2010, and faced with competition from global ride-hailing giant Uber, it needed to scale its supply of cabs.

In a country like India, plagued with poor public transport infrastructure, rising fuel prices and a burgeoning population, demand wasn’t the issue. Ola made its move, launching its cab-leasing operations the same year. Drivers and fleet owners could lease Ola-owned cabs. Uber followed suit. But this was no silver bullet to their cab supply woes. In recent years, both companies have seen their cab-leasing operations run into trouble.

Current struggles

Ola and Uber aren’t the only ones struggling with this problem. Car rental startups also face such issues. The problem ultimately comes down to one thing. As the number of cars on each platform goes up, so does the cost of ownership. Worse, these are depreciating assets on the company’s balance sheet. Actual ownership of vehicles is a burden no one wants to bear.

Zoomcar attempted to reduce this burden in its own attempt to scale with its Zoomcar Associate Programme (ZAP). ZAP invited individuals to purchase one or more vehicles and lease them to Zoomcar. This lends a P2P car rental aspect to the platform. Alternatively, individuals could lease vehicles from Zoomcar through a downpayment and subsequent EMI fees. This meant that vehicles are also on Zoomcar’s books until the cost of the vehicle is paid off by individual investors. Still not ideal.

According to Vipul Goyal, co-founder of car servicing platform CarCrew and investor in Drivezy, P2P car rental models and leasing programmes haven’t been able to help companies achieve scale. “I don’t think they (leasing and P2P rentals) have scaled at the moment, and a lot of these companies claim to be asset-light and they are just using different vehicles or different entities to own the vehicles and supply on the platform,” adds Goyal.

Which is where Drivezy’s crypto-based model was supposed to come in.

Drivezy was one of the first Indian firms to dip its toes into the ICO pool. Their white paper was released in November 2017, a time when the ICO craze was nearing its peak and there were no clear guidelines around this fundraising mechanism across the globe.

Drivezy’s timing seemed perfect. Two back-to-back ICO offerings that raised $13 million, followed by a $100 million asset financing deal via a special purpose entity (called Harbourfront Capital, in collaboration with AnyPay), capped by a $20 million Series B round. Everything it touched was golden in 2018.

But inside its pile of golden coins was trouble. Crypto trouble.

Because blockchain is more complex than just a layer on top of the conventional business or financing models. Properties like decentralization, security, transparency, and immutability that are associated with blockchain don’t come pre-installed in a custom-made blockchain. These are acquired over a period of time and are subject to many variables.

Catch a tiger by its tail

Through the first phase of the ICO, Drivezy was not just able to decentralize asset ownership, but, as co-founder Sah explains, also avoid the interest costs it would have incurred had it financed its asset purchases through banks or NBFCs. While the legality of this funding method is still uncertain, the more problematic part is its planned second phase, RentalCoin 2.0.

Because while having a distributed network is useful for Drivezy’s business model, having a private token to fuel its entire network—RentalCoin 2.0—is more questionable. Especially when it could simply use a more stable fiat-backed cryptocurrency, mature cryptocurrencies like Bitcoin or Ethereum which are on a public blockchain, or just local currency like the Rupee or Dollar.

 

 

 

How does RedSeer know who kicked ass?

Oh, people have a lot to say. They say that RedSeer is biased. That it cherry-picks data to suit the narrative of the client it wishes to please. And mostly these are big clients, who give RedSeer a lot of consulting work and access. Both people and data.

Accessing the advantage

So RedSeer uses that access to its own advantage and creates market intelligence reports that it sells to the same client. And then to other players in the business, saying hey, look, here’s how you are doing vis-a-vis the market leader. Here’s what the market intelligence says.

And then RedSeer goes even further. It sells the neatly-drafted, graphics-rich, colored intelligence reports to venture capital investors. Those that have investments in the space, saying, here’s information to better assess the performance of companies in your portfolio. Don’t just blindly believe what the startups are telling you; don’t be in the dark.

The venture capital investors pay top dollar for intelligence from a neutral, consulting organization and they are thankful. Quite a few startups don’t think RedSeer’s intelligence is intelligent. They, however, work with RedSeer because their investors buy RedSeer intelligence reports.

Kumar shrugs.

“When people start saying bad things about you, I guess you should know that you are doing something right,” he says. “Also, you can’t please everyone.”

To be fair, he doesn’t need to.

As things stand today, the who’s who of the consumer Internet world in India is a RedSeer client. Flipkart. Amazon. Shopclues. Big Basket. Oyo. Treebo. Ola. Practo. Swiggy. Zomato. Foodpanda (owned by Ola). Hike. Byju’s. These are just a few names in a list of clients that go beyond a hundred. (RedSeer claims it has 200 clients) Name any startup, and seven out of ten chances are RedSeer has either done some consulting work for them or they’ve heard of the firm because it pitched for some business.

Diligence for investors

That’s not all. The firm also works for venture capital companies. From the likes of Tiger Global, a US-based hedge fund, to Blume Ventures, an India-based early-stage venture capital firm. RedSeer hustles for business with everyone, for every dime. In fact, in the last year, it has started doing due diligence for investors, adding this service on top of consulting. Something that has stood it in good stead. As of March 2018, the company recorded total revenue of Rs 29 crore ($4 million), a 100% jump over the previous year.

And the profit of Rs 6 crore ($843,822). Again, 2X compared to the previous year. 42SeerTechnologies FZE, a 100% subsidiary of RedSeer, recorded turnover of Rs 16 crore ($2 million), and profit of Rs 5.5 crore ($773,504).

That’s precious money. Not turnover, but a profit of Rs 11.5 crore ($1.6 million): a princely sum that stands in stark contrast to the bottom line of the clients RedSeer services.

But still, chances are you’ve never heard of RedSeer Management Consulting Private Limited before. It is imperative then that you must. Because, come to think of it, about four years back, RedSeer was just a bunch of people willing to do any work for a price. People who had worked in the consulting sector only briefly, but not enough to have a Rolodex of clients waiting for them. Cut to today, the firm sits neatly between two worlds, research and consulting.

Market Research Survey

In some parts, it is like IMRB, a market research survey firm. In other parts, it is like a McKinsey or a Bain & Co, where it consults startups on entry strategy into new markets, new business verticals, growth strategy, cost reduction, and the evergreen bestseller—generic trends.

The question at hand then is, how did Anil Kumar do it? How did RedSeer get from zero to 170 people and four offices across the world? Does the firm have a shot at making it big in the highly unorganized consulting business or is it just serendipity that has got it here, and would RedSeer’s luck soon run out?

This is that story. It is also the story of RedSeer’s mercurial rise and the slow path towards the maturity of the Indian consumer internet space. Where the landscape is increasingly looking like Goliaths Vs Goliaths. One that, in turn, helps companies like RedSeer flourish.

 

 

Riding the e-scooter wave

Thanks to the initial lack of enthusiasm towards bicycles, mobility startups—like Mobycy—are now increasingly turning to e-scooters.

But Bengaluru-based two-wheeler rental platform Bounce hasn’t given up on bicycles yet. It has reportedly bought out Ofo India’s bicycle assets. Now, why is a two-wheeler rental company interested in cycles? Possibly to have a fleet of a range of two-wheelers. Multiple requests for an interview were turned down by Bounce CEO Vivek Hallekere.

Bounce’s rival ONNBikes has a similar story. The company’s Chief Marketing Officer Akashdeep Singal told The Ken that ONNBikes started off as a weekend leisure product. People used to rent out bikes—mostly the Royal Enfield Bullet—to go on weekend joy-rides. But this is changing, says Singal.

“So, in the last one year, all the startups in vehicle rental space started to understand the potential of solving the problem of a daily commute, rather than the aspirational weekend commute market,” he says.

An excellent opportunity to evolve

Ola, too, seems to have smelled this opportunity.

In December 2018, Ola announced a $100-million investment in VOGO and its e-scooters. But why would an “on-demand” player suddenly shift focus to the self-drive market? Is there a last-mile in Ola’s services it’s trying to connect?

Industry experts that The Ken spoke to say that the typical users on public bicycle/scooter rental services come primarily from three usage sets:

Ola and Uber users, especially the Uber POOL and Ola Share user base.
Regular metro and bus users who would try out cycles/scooters instead of walking to these stations.
People looking to get a quick morning/evening ride to work and back.

Self-drive has now also evolved into the sub-division of “dockless” (pick and drop and anywhere) and “docked” (pick up and drop at designation stations). Because of this, the likes of Ola would also be able to access areas where their cars and autos couldn’t go.

Mobility sharing startups that The Ken spoke to—including VOGO, Mobycy, ONNBikes, Ofo, Yulu and others—pointed out that their early pilots revealed three kinds of usage networks: the office-goers who use public transport, students within educational institutions, IT parks, and residential areas. By segmenting the market this way, the placement of scooters/bicycles is established. But before that, they assess if the bikes should be docked or dockless.

Dockless or abandoned?

Both models come with their own advantages and financial risks. The docked variety comes with the obvious benefit of making cycles traceable. It is also easier to maintain as the pickups and drops happen in designated parking stations. However, it falls short on last-mile as the user has to make their way to the bike, making it self-defeating. Dockless, on the other hand, helps the customers pick the bicycles up and drop them off anywhere. But it comes with the demerits of higher expense, vandalism, theft; it’s also a lot harder to locate if lost.

Whether docked or dockless, the underlying tech interface for enabling a bicycle or a scooter-sharing product is a bigger priority. Thanks to exploding smartphone growth (especially in cities) and mobile data, startups have their first problem solved: locking and unlocking of vehicles. Today, startups like Bounce and VOGO depend on OTP-based authentication to this effect.

Reports by the Uber

The tech, however, isn’t new and, scooter-sharing is taking off in a big way in, say, the US. In fact, Uber claims that the number of riders registered by its new electric vehicle JUMP has seen an actual jump during peak hours in cities like San Francisco (and a drop in Uber cab requests), saving time and fuel. Can this happen for India?

Maybe, but India will first need to address the lack of safety on roads, the negligence and corruption at the municipal level before one can even imagine it.

Shrinath V, a tech consultant, who first tried out Yulu bicycles for fun is now dependent on them for his last-mile commute to the gym (from his house) which is under 2 km. But he doesn’t use it for long commutes as it’s “too risky to go out cycling in Bengaluru roads without a helmet”. Of course, not being handed a helmet is a deterrent among Indians which these startups must consider.

 

 

We are a quiet company and we don’t bribe

n 2015, Amit Saberwal started RedDoorz in Indonesia.

A hospitality executive, Saberwal cut his teeth at MakeMyTrip before he started out on his own. What Oyo is to India, RedDoorz is to Southeast Asia. As things stand today, the company manages 680 hotels across Indonesia, the Philippines, Singapore, and Vietnam.

That’s about 17,000 rooms across 40 cities. RedDoorz has raised around $30 million in venture capital from a whole host of investors: 500 startups, Innoven Capital, International Finance Corporation, Hendale Capital and Jungle Ventures among others.

The intensity of the impact

Saberwal says that he is keenly watching Oyo’s moves in the region. “They certainly make a lot of noise,” he said, speaking on the phone from Singapore. “But I think Southeast Asia is large enough for two to three players. It is not like in India where I notice this effort to corner a large part of the market and become a majority player.”

It is not for nothing, as at the heart of this pursuit is money.

For both the hotel and the company hoping to manage it.

A few questions should help us think through this better: A. How much more money (revenue) can a hotel management company like RedDoorz make for the hotel owner? B. Are independent budget hotel owners in Southeast Asia happy to let go of their hotel just like in India? C.

Listing the space

How desperate are OTAs to ensure that there are no middlemen between travelers who land on the site/app and hotel owners who list their rooms? After all, OTAs are nothing but middlemen in the transaction chain; why should everyone take a piece of the action and keep making the large pie smaller? D. A larger, existential question; do budget hotels really need managing?

A quick digression here to meet another subject in our Southeast Asia sojourn. Meet Zuzu Hospitality Solutions.

Started by two former Expedia executives in Singapore, Dan Lynn, and Vikram Malhi’s asset-light business idea is that independent budget hotels in Southeast Asia do not need managing. They only need a technology platform that can help them make more revenue.

Zuzu has been in business for about three years and works with close to 600 hotels in the region. “The problem for a small hotel is that they don’t get much love from the big OTAs,” said Lynn, speaking on the phone from Singapore. “So how to price themselves, from a hotel’s perspective, that’s what we do.”

Sure, back to money. A hotel’s behavior is directly proportional to the occupancy rate. Now because Southeast Asia is big on tourism, occupancy rates of hotels aren’t abysmal. Much worse could be the state of affairs like in India, where hotel owners maintain physical books of accounts, but that’s not how bleak things are there.

How significant it is?

The average occupancy of hotels in the region is upwards of 50%. Some markets are higher, like Singapore and Thailand. “So think of it as this is what you are getting from working with OTAs,” said Kapoor of Videc. “Depending on which market you are in, the upside that a company like Oyo or RedDoorz brings can be significant.”

Saberwal claims that RedDoorz has a track record of a minimum 30% increase in revenues for the hotels the company works with. “While we work with all OTAs, and we recently got integrated into Go-Jek [a super-app of Indonesia], on our platform, we have a 65% repeat rate from customers.”

The company has been able to get this far without getting into minimum guarantees. “We are a quiet company and we don’t bribe our partners to be part of the network,” adds Saberwal. “We run a capital-efficient business. So we will standardize the hotel, train the staff, rate the hotel on several quality parameters, but we don’t get involved in running the hotel operations.”

Oyo, of course, has its foot on the pedal and plans to do more than just management.

 

Getting away with the minimum guarantee

This reveals an interesting facet about OYO’s business model.

A minimum guarantee is a double-edged sword.

OYO might have abandoned its Ponzi-like scheme of partial inventory, wherein hotel owners had perverse incentives to boost imagined usage. But the new model of picking up total inventory has its own share of risks as is apparent by this hotel owner’s experience.

So should OYO do away with minimum guarantees?

Not at all.

The presence of the minimum guarantee is the primary reason why hotel owners sign up with OYO in the first place.

But wouldn’t OYO’s much-vaunted technology chops allow it to price the minimum guarantee at a sustainable level? Surely, it doesn’t require very advanced technology to view a hotel’s legacy records and peg the minimum guarantee at a level that is sustainable for OYO.

The problem is not with technology.

It is with human behavior and incentives.

No hotel owner would sign up with OYO if the minimum guarantee sum was not pegged at a level that is higher than what he would have reckoned he would have made by himself in the first place. It would make no financial sense for the hotel owner to agree to “fair” market value as he would probably make that much in any case and not even have to pay any partner a 20% cut.

The only exception would be an adverse selection of sorts—hotels that are grossly sub-standard whose owners couldn’t care less about occupancy rates and would be happy to offload these headaches to OYO. But would these hotels then have the mindset to meet OYO’s operational standards and stay within the prescribed limits? Probably not. If these hotel owners had that level of customer service in mind, they wouldn’t have been subpar in the first place.

So what does OYO do?

For one thing, it can’t do away with high minimum guarantees. Instead, it uses its enormous funding chest to follow a scorched earth-like policy to capture the market. Given that OYO’s competitors such as Treebo and Fab Hotels don’t even have 10% off OYO’s funding even when combined, OYO can crowd out these players simply by pricing itself out.

But as the hotel owner, we spoke to confirmed, a deal that seems too good to be true inevitably ends up being just that. A hotel owner might tie-up with OYO lured by the minimum guarantee, but given that this figure is set at an unsustainably high peg, sooner or later the jig is up.

A few months after the hotel owner tied up with OYO, the company sent a letter conveying its decision to reduce the minimum guarantee from Rs 14.5 lakh per month to Rs 9.2 lakh ($13,000) per month. The agreement between the hotel and OYO had no provision for any such change (The Ken has reviewed this agreement). Not only did OYO unilaterally impose this change, but it also pressured the hotel owner by delaying payments and not clearing monthly dues completely (The Ken has a copy of the emails exchanged between the hotel owner and OYO).

One would think that the hotel owner could simply cancel his agreement with OYO and move out, but that is not as easy as it sounds.

Source of customers

During the course of the partnership, OYO has completely taken over the hotel’s source of customers. The hotel’s own bank of regular customers has diminished as the OYO umbrella brand has obfuscated the hotel’s own brand and customer personas have changed. Having committed oneself to a higher cost structure makes it tough for the hotel owner to shift to an OYO competitor who wouldn’t pay such a high minimum guarantee in the first place.

Most hotel partners of OYO would probably therefore acquiesce and comply with OYO’s arm-twisting as they have few alternatives.

The hotel owner we spoke to didn’t. He has since taken his hotel off OYO after giving the mandatory 60-day notice period as required by the agreement (it is another thing that OYO continues to list the hotel on its website). He has also initiated legal action against OYO for breach of contract and non-payment of dues.

This is not an isolated case.

 

 

 

 

 

OYO has doubled the inventory in India

Helping OYO along is the fact that traditional hotel chains in China have a high barrier for membership. A chain will typically ask for a series of fees—membership fee, a fee for the computer system, a deposit, and other expenses.

And these are on top of the renovation fees an owner has to pay out of pocket to ensure the hotel matches the chain’s aesthetic. Most hotel chains also require properties to have a minimum of 80 rooms to be eligible.

Renovation at its best

OYO had none of these compunctions. “OYO wasn’t like Rujia and Hanting those hotels. You don’t have to renovate everything according to their specifications,” says Xue Jun Ying, a hotel operator in Tianjin, a city close to Beijing. Xue signed up with OYO in June 2018. “With them [Chinese chains], I would have to spend all this time renovating and then they’ll still collect these fees,” she says.

OYO does not expect its hotel owners to overhaul their hotels. Xue said she spent about 800,000 RMB ($119,200) of her own money to renovate the hotel, redoing some of the bathrooms. OYO paid for the new signage and the renovations in the corridors. She didn’t have to pay a membership fee or a deposit.

Filling beds

In exchange for partnering with OYO, hotel operators are promised increased occupancy. According to the company’s research, occupancy for individually owned hotels is under 40%.

In contrast, Huazhu Group-owned Hanting, one of the largest chains in China, had an occupancy rate of 89% in the quarter ended in December 2018. On average, chain hotels have an occupancy rate of 75% or higher, according to Li. For individual owners, however, even getting up to 50% is a huge boost, he says.

Xue said her occupancy rates have gone up a bit, though it is hard for her to compare revenue for the last two years, as she was ill and had to work less. Since joining OYO last summer, she said about 75% of her guests came through apps as well as OYO’s offline channels like tour groups. It’s too early right now to tell how much benefit OYO has brought, she said.

But Xue does have a complaint—she has lost control over her prices. “I’ve potentially lost tens of thousands of yuan in the last couple of days,” she says.

This is because her rooms generally fill up around March every year for an exam nearby. This demand allowed her to charge up to 300 RMB ($45) per night for a room. Now, a single room goes for 80-90 RMB ($12-13.5). Still, she plans to partner with OYO for two of her other properties. Xue declined to share the exact details of her deal with OYO.

This is a point of contention between individual hotel owners and the Indian-born company. The OYO spokesperson, though, claims this wasn’t really a problem. “We have a more professional and systematic pricing strategy that takes into account the total revenue,” said a spokesperson for OYO.

This sounds similar to the company’s practices in India, where room rates are discounted in the latter part of the month, especially if occupancy has been low for the elapsed period.

The company calls it dynamic price adjustment—a strategy that takes into account how many rooms a hotel has in relation to the market, and then considers how many customers are needed to maximize profit. This system may change, the spokesperson said.

Lost and found

OYO’s hybrid model of aggregating existing supply and providing them with a uniform brand and customer experience means that it doesn’t quite resemble anyone else in the existing market.

However, its sharp rise to prominence has seen many businesses—even ones it doesn’t directly compete with—mark it out as competition.

Meituan Dianping, a leading tech company that focuses on food and lifestyle services, is one of them. One of Meituan’s many businesses is an online hotel booking platform.

Meituan accounted for almost 50% of China’s online hotel bookings in the second quarter of 2018, according to Trustdata.

A front desk employee at an OYO-branded hotel in Tianjin said that she would personally use Meituan over OYO’s booking app.

“Maybe it’s because it’s more familiar, but it’s also because Meituan will tell you what’s nearby and what you can eat,” she explains. She declined to be identified beyond her last name as Li as she didn’t want to offend her employer.

 

Pine Labs sends itself a $110-million online gift voucher

The best gifts are those that keep on giving. It turns out buying a gift-management platform could work out the same.

Offline payment processor Pine Labs bought gifting platform Qwikcilver Solutions for $110 million last month. And that buy checks multiple boxes for Pine Labs—more revenue, more retailers to reach out in India and internationally. But most importantly, it lets Pine Labs cross over—from enabling payment acceptance over point of sale (PoS) devices across 100,000 brick and mortar retailers to the madly competitive world of powering payments for online retail.

Role of the online payment portals

This comes at a time when every single online payment company—Paytm*, PhonePe, Google Pay, Amazon Pay—has waded offline. This despite online retail growing at a rate of 50% between 2012-2017. And now, the reverse trend is in motion, starting with Pine Labs.

The nearly $1 billion-valued Pine Labs wants to tap Qwikcilver’s online retailers like Amazon, Flipkart, and manage more than just gift cards. It also wants to become an online payment gateway. Offline to online is a first for India and Pine Labs is leading the shift.

But it isn’t going to be easy.

Pine Labs is entering the den of payment gateways like BillDesk, PayU, Razorpay, CC Avenue, Instamojo that help businesses accept all forms of digital payments from wallets to net banking to cards to Unified Payments Interface (UPI). Indians spend close to Rs 20,000 crore ($2.9 billion) monthly online, all of which are processed by these gateways, according to industry estimates. A large number on the face of it, but only two out of 10 retail payments happen online.

Payments that happen in offline stores account for roughly 80% of the total payments that are processed in a year, say those in the industry. And that’s where PoS companies like Pine Labs, Ezetap, M-Swipe are at now; however, they cover only about 1% of the 14 million retailers in India. But as retailers see merit in being present both online and offline as Omni-channels, offline payments processors are following suit.

Encouraging the merchants to grow

“We want to enable our merchants wherever they want to grow,” said Vicky Bindra, CEO of Pine Labs, over email.

And to do that, 20-year-old Pine Labs, which has raised over $200 million, is counting on Qwikcilver’s network. The Bengaluru-based Qwikcilver is the largest of its kind in India and works with about 200 top retailers both online and offline. And online retailers like Amazon (which bought a 10% stake in Qwikcilver in 2017) make up 35% of Qwikcilver’s revenues.

Amazon users spent over $6 billion in 2018, and about 60% of people pay for the goods online with the rest opting for cash on delivery. A chance to gain even a sliver out of those transactions would be well worth the $110 million Pine Labs is spending on the acquisition.

So far, Pine Labs has had a skeletal online payment gateway offering for consumer durable retailers like Croma, when they wanted to sell their wares online. But now it wants to go the whole hog. “Pine Labs, which had no reason to be a part of the conversation with the likes of Amazon, with Qwikcilver, it now gets a foot in the door,” said a senior payments executive who has followed Amazon’s payments moves.

The Qwikcilver draw

Retailers love the idea of gift cards. Globally, every retailer worth their salt has one.

Retailers see gift cards as their “currency.” More tangibly, it’s a tool to bring in new customers—one which makes them spend more.

And in a way, it also shows how loyal your customers are, says Srinivas Rao, senior vice president marketing at fashion retailer Lifestyle. For Lifestyle, 8% of its top line comes from gift vouchers, he says. Govind Shrikhande, the former CEO of fashion retailer Shoppers Stop, known for its gift cards, said acceptance for this took off mostly in the last five years.

This buys paid for in cash by Pine Labs, is also a great top-up for Pine Labs, as Qwikcilver’s revenue was nearly half that of Pine Labs’ Rs 300 crore ($43.7 million), as of 2018, according to financials sourced from Tofler. Qwikcilver earns anywhere between 0.5-2% out of every gift card it sells for managing the “currency.”

 

 

A golden opportunity for the OLA?

“Electric vehicles are becoming more acceptable because of improvements in battery technology among other reasons,” says Jay Ritter, a professor at the University of Florida’s Warrington College of Business, known as “Mr. IPO” for his work on initial public offerings.

“So all these companies (from Uber in the US to Ola in India) are being financed by investors who are willing to accept the losses now because they see the potential for big future profits in a winner-take-all market. And the technology is certainly improving in a direction were the costs disadvantage relative to internal combustion cars is falling.”

End of the tunnel

For Ola specifically, the Didi model may be the light at the end of the tunnel. The Chinese company has tied up with a range of manufacturers, including state-owned automaker BAIC and its EV-battery subsidiary BJEV. Likewise, some of the investments from Hyundai and Kia will help Ola build out infrastructure using the technology that the carmakers have and deploy them in India to kickstart a potential EV movement.

For Hyundai, the deal gives them a platform to help develop India-specific electric vehicles (the only major manufacturer of EVs in the country is Mahindra, Ola’s erstwhile partner).

“This is a long-term play by Ola, don’t expect any quick results,” says an industry insider, who asked not to be identified. “It’s done as a way to get closer to the government as well. Mahindra has put their foot forward, Ola is joining them.”

Of course, this person adds, whether Ola’s gamble pays off depends largely on if the government will cooperate on setting up a charging network. Much, he says, like what happened with Didi and the Chinese government, one of the biggest proponents of an electric future.

Ultimately for cab aggregators, the EV lure lies in reduced costs. A January paper by the International Council of Clean Transportation points out that the total cost of operating an EV becomes comparable to that of a petrol-powered car as EV range goes up. Excluding subsidies. Add in government sops, and as the price of batteries and EV tech, in general, goes down, and operational costs will only decrease.

(In a slightly more specific example, Business Insider quotes Lyft COO Jon McNeill as saying that the company’s drivers who switched to EVs save “thousands of dollars a year”.)

Solely different path

Additionally, Ola’s EV push—if successful—can mean an entirely new line of business. Solve for a viable charging setup, either through networks of charging points or experimental battery swapping stations and the world is your oyster.

“That is what I think they are targeting with the new subsidiary (Ola Electric Mobility),” says the analyst. “Once they are able to crack the infra issues and scale the business, I think they will cut across industry and the state authorities.”

“There will be enough government sops to power the EV sector, and if the infrastructure is available, people will look to buy more electric vehicles,” says the analyst.

What is the cost?

Lower operating costs plus a new potential revenue stream equal another step towards profitability. Ola’s revenue for the year ended March 2018 stood at Rs 1,861 crore ($269 million, up 44% year-on-year) and its losses fell almost 45% to Rs 2,676 crore ($387 million), according to data from company research platform Tofler. And the closer it gets to profitability, the rosier the outlook for an eventual public listing—and as Lyft’s $24 billion IPO shows, there’s no dearth of demand.

“Most of these ride-sharing companies are losing money. So they’ve either got to get money from private sources or from public markets,” says Ritter. “And public markets are very willing to finance these companies because of the widespread belief, which I share, that there is a very profitable future market for transportation as a service.”

That market is just what Ola the mobility company is betting on.

 

Decoding Sequoia’s Surge

Ask anyone in the Indian startup ecosystem about the state of the state—the answer will inevitably paint the last three years as a “golden period” for Indian startups and investors. Thanks in large part to VC-funded discounts and Jio-fuelled dirt-cheap data, the online market in India is booming like never before.

Everything from ride-hailing to food delivery to e-commerce has become a mainstream consumer market rather than the niches they were earlier. Billions of dollars of new investor capital have entered the country and more than a dozen startups have reached the exalted unicorn status.

Most importantly, for the first time ever, the Indian startup ecosystem is seeing large exits, starting from $30-40 million cheques all the way up to the Flipkart mega-deal.

The best of times, right?

Not quite.

While billions of dollars of VC money has been invested, most of this has gone to mid-to-late stage deals beyond Series B. On the other hand, early-stage funding has seen a sharp, almost precipitous, drop in the last two years.

According to data from research firm Tracxn, the number of investments in 2018 fell 22% year-on-year to 870. More worryingly, the number of seed and angel deals has more than halved from a peak of 1,030 in 2016 to 484 in 2018.

This trend continued in the January-March 2019 quarter, with just 147 early-stage firms raising funding. According to data from VCCircle, while venture deals alone fell by a third year-on-year – 71 in the January-March 2019 quarter, the decline in seed deals was even sharper. The number of startups getting funded more than halved to just 76 in this quarter.

So what explains this peculiar pattern?

Endgame SoftBank

The one-word answer would be the Japanese investment behemoth SoftBank.

The traditional VC-funded startup playbook went something like this. Raise a small seed round to get off the ground. Follow it up with a larger Series A round to reach product-market-fit. Raise Series B and beyond to fund growth and put you on the path to an exit for the investors. Going from seed to Series B would take three to four years on average, while the exit would take a further four to five years.

But SoftBank’s billions completely disrupted this playbook. Ambitious startup founders and VCs no longer needed to have the discipline and patience to experiment with small cheques and double down on proven winners.

Instead, the playbook consisted of making large investments right from the get-go in the hope that this capital will help the startup get onto SoftBank’s radar and secure a $100 million-plus follow-on investment. Both VCs and founders could then cash out partially through secondary deals at this point and let the rest ride towards some obscenely large exit target.

The fact that VCs were now signing larger first cheques also necessarily meant that the number of companies that they backed was smaller. In addition, the SoftBank imperative meant that the types of companies getting funded were also self-selecting—restricted to domains that the likes of SoftBank were interested in.

Since VCs typically tend to think alike, this commonly-held belief in SoftBank’s benediction has created a gap in early-stage funding that angels and accelerators have been unable or unwilling to fill.

Enter Sequoia.

Sequoia’s Surge

Earlier this year, Sequoia India launched an accelerator named Surge for early-stage startups in India and Southeast Asia. Loosely modeled after the lauded YCombinator model, the Surge program will hothouse two cohorts of 10 to 20 companies a year, with each cohort going through a four-month program that will take them to Singapore, China, India and Silicon Valley for workshops with professional services experts and marquee mentors drawn from the Sequoia portfolio.

The most significant facet of Surge is that each company will receive $1.5 million in funding from Sequoia in the form of equity or a convertible note.

This is by far the largest cheque size offered by any accelerator globally—YCombinator itself, for example, offers only a tenth ($150,000) for a fixed equity stake of 7% in the company. While the companies are not guaranteed follow-on funding from Sequoia itself, they can pitch for more capital from other investors in a Demo Day at the end of the program.

 

 

What are the android aspirations?

Standardization is a zero-sum game. There are clear winners. And modern history is littered with the carcasses of losers. Betamax was priced out by VHS, which came to dominate the home video VCR market for the next two decades. Microsoft’s bundling of Internet Explorer with its Windows operating systems put paid to Netscape Navigator’s growth plans. And with the likes of Facebook and Twitter amassing users, Google+ was destined for failure.

What are the upcoming standards?

Even though he doesn’t admit it openly, Maini is prescient about an upcoming standards shake-out. That’s why SUN isn’t competing to be the next VHS or Microsoft. They’ve set their sights on a much closer example in history: Android.

“Think of us as the Android platform for electric mobility. It’s an open standard, with little, individualized tweaks for different form-factors. Just like Android has the capacity to tweak its apps for a Xiaomi or Samsung phone. But the basic application remains the same,” explains Maini.

The comparison with Android makes SUN’s ambition—to be the new normal in charging standards—crystal clear. Maini admits, however, that the SUN solution isn’t exactly like Android’s open standards. The involvement of OEMs—to make the battery compatible—is needed from the start.

This complicates things.

Breadth of operations

At the end of the day, says ION’s Aryan, standardization isn’t about the technology or breadth of operations. It’s about exerting power and influence. Aryan launched ION Energy with a similar battery-as-a-service model in mind, but its ambitions were cut short by low-cost batteries from Chinese competitors. ION’s model has since pivoted to its current BMS focus.

For the Android-like scale, SUN needs to have an Android-like influence.

“The only places where swapping has really worked at scale is where an OEM or a fleet owner themselves have popularised a battery standard.

They have the scale and influence to do it,” says Aryan, citing Taiwan-based Gogoro’s model. Gogoro, which manufactures its own electric smart scooters, has built out an extensive swapping network across Taipei to service its two-wheeler fleet and flood the market with its standardized energy offering–GoStation.

Closer home, it’s what Ola might try with its new electric fleet and charging infrastructure, and through its investment in ride-share companies like Vogo.

Role of the Third-Party energy

“It’s going to be really difficult for a third-party energy provider to wield that kind of influence on an OEM partner or a large fleet owner, to get them to adopt their standard,” says Aryan, echoing SmartE’s Srivastava.

To his credit, Maini has put his considerable influence to good use. SUN’s been proactive in signing up OEMs and fleet owners, seven of whom he’s not willing to name before negotiations conclude. “We already have names like Ashok Leyland on board,” he says, confident that he will be able to capture the first-mover advantage with his roster of influential partners.

SUN’s early play at a walled garden approach might work to some extent. But to create, establish and scale one standard, a battery platform like SUN will need a significant shift in goalposts. The parallel then is not Android, but Jio.

“If you’re willing to put in the resources that Jio did for the telecom sector, then you might gather enough influence to unite OEMs and others to your standard,” says Aryan. But a Jio-like scorched earth strategy—which would mean offering swapping/charging literally for free— means billions of dollars in cash burn to keep customers on one platform.

What are the dominance ratings?

Even that dominance might be fleeting in the fickle mobility sector, with the constant flux in battery sizes, power, and chemistries. The hero might have signed onto the SUN platform for now, but as Gill reveals, there’s nothing stopping it from signing on other providers.

“Maybe we’ll sign up different partners for different geographical zones,” he says. Hero’s approach might be to spread its risk, but it’s also a prime example of why the market may stay fragmented for longer.

And while fleet-owners like Srivastava want this fragmentation to end, he too, can’t see an individual company tying it all together. “The government must get involved with the OEMs to create this battery standard,” opines Srivastava.