Don’t be Quikr

This information is dated by a couple of months. It is important, though. In August this year, Quikr, the digital classifieds company said that its real estate vertical had performed exceedingly well. So much so that the business has become profitable. Quikr’s revenue for the year March 2018 is expected to be around Rs 170 crore ($23 million). As far as claims go, this was Quikr’s the world is our oyster moment.

What was the revenue?

Context: Just last year, ending March 2017, Quikr had total revenue of Rs 109 crore ($15 million). Total. Not just the real estate business. Long-term readers of The Ken will know Quikr as a mish-mash of five different businesses, but that’s all it managed. And now, just a year later, the company claims that things couldn’t be better. Just one vertical has brought in Rs 170 crore ($23 million). Which brings us into the picture.

The facts of the case are as follows. In the year 2016, Quikr, a digital classifieds company, acquired Commonfloor, a real estate property listing website. For $200 million, in an all-stock deal. In 2015, just a few months before the Commonfloor acquisition, Quikr acquired Indian Realty Exchange (IRX), an app-based aggregator of property agents. For an undisclosed sum.

That same year, Quikr also acquired RealtyCompass, another real estate listings company, which at the time claimed that it was a real estate analytics company. Except that the analytics part doesn’t deserve any serious exploration. Again, this acquisition was for an undisclosed sum.

Acquisition of the Commonfloor

Moving forward to 2016, post-Quikr’s acquisition of Commonfloor, and its appetite still wasn’t sated. Next on Quikr’s shopping list was Grabhouse, a real estate website for rental listings. Once again, an all-stock deal. Rumored to be worth around $10 million. Then in 2017, Quikr acquired HDFC RED (through its acquisition of HDFC Developers) and HDFC Realty, an online real estate classifieds business and a real estate brokerage business respectively. For $54.8 million in total. Again, an all-stock deal.

To lord over all of these acquisitions, Quikr created a business unit called Quikr Homes.

To a casual observer, all of the above may seem like parts of a serious plan to dominate the online real estate business in India. A country where buying, selling, renting, brokers, buyers, and sellers of apartments and homes and pads, are all a string of problems in a business that survives on opacity and distrust.

Indeed, it should have been. But it hasn’t panned out that way.

In the last three years, in a mix of stock and cash, Quikr has invested anywhere between $300-$350 million in the real estate business. Now, the company hasn’t filed its March 2018 financials, but just last month, Quikr claimed that the real estate piece contributes to 35% of its total income.

It should come as no surprise to you, dear reader, that total income is a misleading indicator of the true health of a business. Operating income does a better job. For the year ending March 2017, Quikr had an operating income of Rs 64 crore ($8.6 million). Now, let’s say that the real estate vertical (minus the HDFC acquisitions) still accounted for 35% of Quikr’s business. That would be Rs 22 crore ($3 million).

Impact on the revenue

But here’s the thing. As of March 2015, before the acquisition by Quikr, Commonfloor already had a revenue of Rs 44 crore ($6 million). By March 2017, its revenue halved. In fact, more than halved. In two years. The inference is for you to draw.

When The Ken presented these numbers to Quikr to get to the bottom of the real estate vertical claim, the company said that it’d be better if the 35% claim is looked at as a percentage of total income and net operating income. To put it mildly, that would be both wrong and willful misdirection.

Sources The Ken spoke with said that the real estate business should contribute around Rs 60 crore ($8 million) to the operating income of Quikr in FY18. That’s less than $10 million. A pittance, really. And that’s without us even getting into the company’s losses.

Now seems like as good a time as any to ask, whatever happened?


Measuring Mettl’s mettle: The anatomy of a startup exit

$40 million.

Visualizing the results

But that time has passed.

Today, a $40 million figure means almost nothing. There are companies that have raised hundreds of millions, even billions of dollars.

$40 million is how much Flipkart burns in a single month.

$40 million is how much Zomato and Swiggy are jointly spending each month.

$40m is how much Mettl was acquired for earlier this month.

Wait, Mettl who? What acquisition?

If you asked yourself these two questions, don’t berate yourself for any perceived ignorance. There was hardly any media coverage of Mettl’s exit in mainstream print media (presumably at least partially because they didn’t have column space to spare after running all the Flipkart/Zomato/Swiggy advertisements).

Of course, this isn’t surprising in the least—in our current echo-chamber, “X”illion is newsworthy only if it starts with a B and not an M.

But the fact of the matter is that this $40 million figure is far more important and significant than it appears on the surface.

Why so?

Let’s start with the numbers.

Numbers that tell the tale

As a precursor, it might be pertinent to point out that Mettl is a SaaS startup operating in the HR technology space with a specific focus on online talent assessment. Basically, the company offers a solution that lets enterprises evaluate and assess potential hires. Headquartered in Gurugram, Mettl was founded by Ketan Kapoor and Tonmoy Shingal in 2009 and has since grown to a team of 380 members.

Mettl has been profitable since 2013 and is currently said to have annual revenue of $10 million or thereabouts. Earlier this month, the company was acquired for a reported sum of $40 million by Mercer, a wholly-owned subsidiary of NYSE-listed professional services firm Marsh and McLennan.

Mercer focuses on human resources consulting and has a large global footprint of 23,000 employees operating in 130 countries.

Now, why is this $40 million figure significant?

For starters, it represents an exit rather than an investment—there are many Indian startups that have raised more than this figure in funding but very few that have exited for anywhere close to this figure. The importance of this is further embellished by three factors.

First, it was an all-cash acquisition. It is one thing for one Indian startup to acquire another using over-valued stock as currency but it is entirely another for an international conglomerate to purchase an Indian startup by paying cash. This leaves no doubt about the perceived quality and value of the purchase.

Second, Mettl is a tech/SaaS startup. Prior to Mettl, there has been only a handful of Indian venture-funded SaaS startups that have been acquired at this scale, and hardly any that have not been acqui-hires. So in a sense, this is completely unchartered territory as far as startup exits go in India.

Amplification of the revenue

Finally, and most importantly, the $40 million figure is important because Mettl only raised a grand total of Rs 23 crore in funding through its life-cycle. Parlaying a Rs 23 crore investment into a Rs 300 crore exit means that everyone has made money on the deal—a rare win-win scenario.

Here is a summary of Mettl’s funding journey.

Blume invested a total of Rs 2.92 crore into Mettl (this includes a secondary transaction where Blume purchased the shares of angel investor Sasha Mirchandani). Assuming the Rs 300 crore exit value comes with no caveats (such as contingent earn-outs), Blume made a total return of Rs 22.74 crore—a great 7.8X return and healthy IRR of 40%. This exit also marks Blume’s highest cash exit. Considering the fact that this investment came from a Rs 100-crore fund, the Mettl exit represents a return of 22% of the total corpus, making it a clear winner.



Having an insight into the Food Panda Story

At the time of these acquisitions, Foodpanda India claimed that both TastyKhana and JustEat would continue to run independently. By 2016, however, both brands were on their way to extinction. And as food delivery startups like Eatlo and Dazos shut shop, Foodpanda’s major backer’s Rocket was looking for the exit doors. That exit would finally come towards the end of 2016 when Rocket Internet sold its majority stake to Foodpanda’s rival food delivery platform, Delivery Hero.

Food delivery platform

Any hopes that this would give the flagging food delivery platform a boost would prove far off the mark. And just over a year later, Foodpanda was sold to Ola in a distress sale. To sum up, three management changes, multiple funding rounds, two acquisitions, and many losses of face later, Foodpanda India is a shadow of its former self. For perspective, Foodpanda publicly claims to be present in more than 50 cities at present.

At its peak in 2015, Foodpanda was in more than 150 cities thanks to its acquisition of JustEat and TastyKhana. And add to this the presence of Swiggy, Zomato, and to a smaller extent UberEats, and the road ahead seems rough and long.

But Ola thinks it can do what no one else could—turn Foodpanda around.

The Lazarus act

Ola’s interest in the food delivery business is older than its tryst with Foodpanda. Foodpanda, in fact, is Ola’s second stab at the food delivery market. The honor of first going to Ola Cafe, which failed to make it past the pilot stage. A feature on the regular Ola app rather than a standalone platform, OlaCafe only offered certain items from each restaurant on its platform rather than offering the entire menu.

Ola drivers in the vicinity of the restaurants would then pick up orders and deliver it to customers. However, the model wasn’t sustainable, and the Ola Cafe tab on the Ola app disappeared around a year after it was introduced.

But this wasn’t Ola giving up on the food delivery sector. This was a strategic retreat. And as Swiggy and others grew in size, Ola grew hungrier for a share of the food delivery pie. “With the rapid growth of Swiggy and UberEats, Ola felt like the time was right.

However, it couldn’t start afresh with a new (food) brand. Foodpanda was a natural choice,” says a consultant who works for Ola. The person requested anonymity as he is not allowed to talk to the media.

Shifting to the senior-level employees

To help steady the ship, Ola announced at the time of the acquisition that it would set aside a $200 million war chest for Foodpanda. The company also shifted several senior-level employees from Ola to Foodpanda across roles like business strategy, engineering, sales, and operations, as per two people close to Foodpanda’s management. Ken wasn’t able to independently verify the number of employees that were moved internally.

The source who was briefed on Ola’s strategy for Foodpanda said that Ola CEO Bhavish Aggarwal tasked McKinsey’s managing partner Sudiptha Pal with constructing a business strategy to reboot Foodpanda India. Foodpanda is yet to respond to a detailed questionnaire sent by The Ken.

Foodpanda, according to a source who was briefed on Foodpanda’s business strategy, intends to differentiate itself from its rivals in one major way. While others focus on restaurants, Foodpanda’s focus will be directly on the food.

Well, yes, a food delivery platform’s focus ought to be food, just like ride-hailing platforms ought to ride. So what does that mean?

This stems from Ola CEO Aggarwal’s belief that food delivery is a business of selling various food items rather than promoting a bunch of restaurants. “His thesis is quite different from Swiggy, Zomato, and UberEats. Swiggy and Zomato believe that they are a restaurant-first business. Bhavish actually believes that the (food delivery) market is a food-first business,” adds the source.



India’s digital mutual funds bet: Will Paytm Money win this?

And claims like this.

“Higher returns: Get up to 1% higher returns with Direct Plans of Mutual Fund Schemes.”

“Zero Commissions: Pay no commissions or any charges on buying and selling of mutual fund schemes.”

These are the ingredients, one would think, would create the perfect investment app—Paytm Money.

What are the claims?

And yet, Paytm Money has a long way to go.

Of the 5600-odd reviews for its Android app from the 500,000+ users who have downloaded it, the average rating is just 2.9/5 stars. On popular question-and-answer website Quora, many threads have been dedicated to the app’s apparent ineffectiveness and lack of a customer service number.

A financial services rival even insisted Paytm Money isn’t easy, especially not with fund selection. “It simply pushes forward funds which have done well in the recent past without accounting for risk,” he laments.

Impact of the online mutual funds

That couldn’t possibly help the app in its attempts to capture the online mutual funds market in India. More so because there’s stiff competition out there.

There are existing players such as online discount brokerage firm Zerodha, online investment platforms Scripbox and Fundsindia, Times Internet sponsored ET Money*, the number 2 mobile wallet company Mobikwik which acquired Clearfunds, Robo-advisory firm Arthayantra (more on Robo-advisory below); plus, recently, a whole host of startups have mushroomed in this space.

“These players have built a certain amount of trust with their clients and that gets deepened if you are in the business for long. Whether or not they will challenge Paytm Money but they will continue to survive because of the specific specialties they have created and their early mover advantage,” says Sundeep Sikka, CEO of Reliance Nippon life asset management.

But Paytm Money is still trying to pull out all the stops. It has tied up with rating agency Crisil, investment research company Morningstar and another mutual fund research firm Value research Online for fund ratings on the platform.

Achieving the sustainable progress

But that may not be enough. These ratings are based on past performance, and achieving a quick a 4-star or a 5-star does not a sustainable rating make. Besides, it cannot be “one size fits all”. Even among good performing funds, there has to be customization based on an individual’s requirement.

“Convenience alone does not draw people to a platform. In financial services, it returns that matter at the end of the day. Returns come when there is appropriate advice. I think it would be very naive of any platform to just bank on captive audience and integration for growth,” says Dinesh Rohira, Founder,, a financial investment portal.

Paytm Money, on its part, says that it has got a phenomenal response. Out of 1.4 million people who have registered to invest through the platform, CEO Pravin Jadhav claims approximately 400,000 have already come on-board. Jadhav emphasizes that his firm’s focus is not on assets but investor numbers, which is why he says it is important to understand that 60% are first-time investors.

340,000 investors have invested in denominations as small as Rs 500 ($6.85) and Rs 100 ($1.37) All this, Jadhav insists, without spending a single rupee on customer acquisition. When asked if this interest is from Paytm’s existing wallet or payments bank customers, he declined to elaborate.

Paytm Money’s challengers, primarily ET Money and to some extent, Mobikwik, have something more to offer. ET Money, which is trying to piggyback on Times Internet’s ecosystem and claims to have more than 4 million users on its platform, has been in the market for over three years.

An edge in itself. It also offers other financial products such as credit and insurance on an app with a decent user interface. Mobikwik-acquired Clearfunds, on the other hand, provides paid portfolio advisory, apart from offering direct funds for free on the platform.



Knowing the insights of the supply game

The quantity of traffic is what comes for deals and discounts or “I just require one thing instantly” and all of those things. And they may go wherever they can find a little bit of a deal but use Dunzo because it delivers quickly. They’re not gonna pay top dollar for it.

What defines our primary job?

Our primary job as a business is to make sure that we don’t lose money on this. What it does is it creates a great amount of highly dense supply on the ground. The density of demand creates a density of supply. What you do then is you take the density of supply and feed into the quality business.

The Ken: What is the quality business? Price-insensitive customers?

Biswas: Price-insensitive.

The Ken: So, get price-sensitive demand to drive supply, then use supply to fulfill price-insensitive demand?

Biswas: Yes. I’ll give you a small example, something that I’ve validated with Ola. The 5 min, 7 min, 10 min ETAs that you and I see is because of the density of Uber Pool or Ola Share.

Ola Share, by itself, runs on a loss, but what it does is it creates insane numbers of cars on the road. Because at 40-50% of traffic on the road, it allows these people to be busy all the time. Even if they lose a little bit of money on it, they make all of that money back on you and me.

So you and I are profitable for them, and the reason why we end up seeing a great amount of supply on the ground saying 5-7 mins availability is that Ola Share creates a lot of demand on the ground. These are people who are willing to travel in a cab for 50 bucks, instead of auto, by taking 30 minutes longer. And when those cabs get free, they become available for you and me to go singularly.

The only reason this works is when your supply network is the same. If the supply network is different, then we’ll never get economies of scale. That’s why we say we’ll always be bikes-only.

The supply game

The Ken: What if we look at your potential market as the supply side (partners), instead of the demand side (customers)?

Biswas: That’s the only way. Our competition, if you were to really sit back and think about it, looks like Swiggy and Ola. And that is why a Swiggy now wants to go ahead and say ‘what more can I do beyond food’. It’s why Ola, which is into the cabs business now, wants to do food and other things.

The honest thing, unfortunately, is that we are all dispatch businesses. We are not for food businesses, we are not logistics businesses. We are convenience businesses, sure, but at the core of it all, what we are doing really well is we’re dispatching really well.

The Ken: So what you’re really fighting for, “the market”, is attracting and retaining partners? And the real reason why you’re offering bike taxis is that you want your partners to be better utilized and more satisfied with the earnings and time. Usually, it’s the other way around, right?

Biswas: I don’t think that’s a revelation to anybody. I think everybody’s realized that once you go ahead and start pivoting into this, globally this seems to be like a supply business. This is literally the internal transition in this company. We started off as an extremely user-centric business, obsessed, etc. After a year of functioning, we quickly realized that this is a supply-side business. I have this product manager who puts it very interestingly, saying, if you’re delivering in 30 minutes’ time, you don’t need to build a user app, you can build a Google Form.

The Ken: Because users will put up with the friction?

Biswas: Because users will put up with the friction. I thought the Google Form analogy was very interesting because it tells you the power of the actual supply network. Because this is bound to happen. This is the way locals should function. This is the way that cities should actually go out and function, where every point in the city becomes transactable with or reachable – you can commute from there. Because this is the most efficient supply layer in the city, it travels at a buck and a half a kilometer. Cabs will never be the most efficient way to travel.



Why BigBasket’s betting on subscriptions to deliver

It did this by staying focused and disciplined. By keeping costs low. By delivering groceries 6-12 hours later, often even 24 hours later. By building a wide assortment of SKUs (stock-keeping units), the largest in the business. By focusing on large order baskets.

Discipline is must though

All the things that helped it survive the bloodbath in the space, one that ended with the drying up of capital as investors realized, there were just no easy profits to be made.

The proof of its survival pudding came in February this year when it raised $300 million in funding from the Alibaba Group. The size of the round was meant to send a deterring signal to all existing and potential competitors: back off, we’re the 800-pound gorillas here.

But the grocery game had already shifted, at least from a venture funding point of view. Instead of competing with BigBasket on its own terms―breadth of assortment, low prices, and sustainable unit economics―a bunch of plucky and nimble startups changed the game. By making themselves so narrow and fast that BigBasket, with its 800-pound heft, couldn’t react to fast enough.

What are the segments?

They came fast, each slashing away at BigBasket’s lucrative segments of, well, basket. They were “micro-delivery” startups―each catering to the daily needs of customers, instead of planned weekly or monthly ones. For example, meats, milk, eggs; small baskets of grocery replenishments.

But if you can’t beat ‘em, join ‘em. Or better yet, buy ‘em.

This is the latest arrow in BigBasket’s quiver, BBdaily—a retail subscription model through which it hopes to replace your milkman.

The 7-year-old business entered the space with three back-to-back acquisitions in October. First up was RainCan, which offered a grocery subscription service in Mumbai and Pune. BigBasket then went on to acquire MorningCart, which provided a similar service in Bengaluru. Last on BigBasket’s shopping list was Bengaluru-based startup KWIK24, which specializes in vending machines for daily supplies.

These acquisitions represent a marked departure from the company’s usual ethos. Industry experts say this was never BigBasket’s way of doing things. It has always relied on a trial-and-error strategy: pivoting from store aggregation to an inventory model.

In the past, it has preferred to create its own labels for mass-demand products like rice, pulses, and meat. However, it chose to go the acquisition route for its planned subscription milk delivery play. There is a palpable sense of urgency on display, meaning that BigBasket sees micro-delivery as a crucial part of its business going forward.

The pivot

When BigBasket started out in 2011, it had a sourcing tie-up with METRO Cash and Carry as well as HyperCity. By 2014, however, it pivoted to an inventory-led model.

However, cracking the micro-delivery space won’t be easy. Given that it caters to daily needs products, it is a low-value space. While BigBasket’s average order value (AOV) is around Rs 1,500 ($21), BBdaily’s is just Rs 50 ($0.70). In addition, there will be a new set of logistics issues for BigBasket to figure out. And, of course, there are the incumbent players. So, what is it that has BigBasket so invested in micro-delivery and how does it go about making this a lifeline rather than a liability?

Loyalty first

To be fair, BigBasket is not entirely new to the micro-delivery world. Launched in December 2015, their BBExpress service offers a more limited inventory—largely daily needs items—with the promise of 90-minute delivery.

“Over time, they (BigBasket) realized that some 10-15% of the SKUs are required on a high-frequency basis, almost every day. Sometimes these SKUs move faster than the rest of the grocery goods because consumption of these goods is frequent,” says a venture capitalist aware of BigBasket’s operations.



A leg in the door

Ease of entry and exit of visitors isn’t myGate’s singular feature though. It also curates a list of service providers, categorizing them—such as your domestic help, car cleaner, cook and nanny. Residents are allowed to rate their services. The rating enables other people living in the community to decide whether they want to hire the individual or not. With the tap of a button, you can choose to assign that person to your home.

Security of the application

myGate says it doesn’t use the personal data to advertise products. When anyone enters a gated community, they need to be identified at the gate. This means that the app records the data of the visitors, daily staff entry, and various delivery companies that enter the complex.

It’s now running a pilot with Swiggy, Zomato and cloud kitchen Freshmenu to pre-approve the entry of their delivery executives at the gate. The resident can also set a timer that auto-approves the delivery executive within the stipulated time.

A Zomato spokesperson said the company is running an experiment with myGate to see if they can cut down the time taken to complete the delivery by making entry into residential complexes seamless.

This is just a pilot so there are no commercial dealings right now. The myGate app currently has an exhaustive list of companies that you can select from that send their delivery executive or other service providers to your home. You can pre-select them and allow them to enter the gate.

What is the future?

Will this be the future of the company’s growth? Vijay Kumar claims the pre-approval of entry of delivery executives is only being added for the convenience of the residents. And his team is only focused on meeting targets.

myGate has signed up 1,000 housing complexes, says Vijay Kumar. When it raised funds of $2 million from Prime Venture Partners and other investors in January, it had signed “several hundred”. At an average of two guards per housing complex and at Rs 5,000 ($71.30) a device, this adds up to a revenue of Rs 1 crore ($142,565) a month or Rs 12 crore ($1.71 million) a year.

The company says it will not use data to target advertise any products or services to the residents of the communities. Daga, the chief technology officer of myGate, says he is not in the business of selling customer data.

But there is so much data that the company has about the consumption patterns of the residents. Vijay Kumar and Daga say they don’t plan on using this data for business purposes. “There are a lot of things where we can use it,” Vijay Kumar says. “As of now, we don’t have anything in our minds. We don’t have any plans.”

The $9 million in Series A funding it raised in October from Prime Venture again, and other existing investors, will go towards expansion into 10 cities, says Vijay Kumar. Right now, it has operations in Pune, Hyderabad, Bengaluru, and most recently, Chennai. By 2019, myGate aims to have 10,000 apartment complexes under its belt.

Calculating the logistics

With the two-guard average in place, that’s a sweet Rs 120 crore ($17.11 million). There is a cost though—the customer acquisition cost versus what the company is making—annual contract value (ACV). “That equation needs to match at some point,” says a partner at a venture capital firm requesting anonymity, who specializes in SaaS (Software as a Service) products.

“I fear that when you are selling to unempowered buyers (like management committee of apartment complexes), you have a longer sales cycle. And, therefore, a more expensive sales cycle. You don’t have a large ACV. Therefore, I question just the economic robustness of the business,” he adds.

While myGate didn’t share how long it takes to convert a sale, the company has offered a pay-as-you-go option to reel in customers in the past. Once they get hooked on to it, the company would sign a long-term contract.

In this space, playing the game right would mean having long-term contracts in place. ApnaComplex, which offers property management tools such as accounting, helpdesk management, payment collection, and facility management, apart from its own gate security management tool, has multi-year contracts, says its CEO and founder Raja Sekhar Kommu. “The longest we have is five years,” he says.




GE startup GenWorks’ rural India healthcare push

So, when S Ganeshprasad, the then-director at GE, spotted Aravamudan Krishna Kumar, the then-managing director at Philips, at a radiology conference in 2015, he was curious about Philips’ latest attempt.

Radiology Conference

After pleasantries, Kumar told him, “Ganesh, our rural experiment failed. It’s so difficult, you know, to maintain. Business is not very predictable; somewhere it works, somewhere it doesn’t work.”

From 2010 onwards, all device makers adjusted and readjusted to the market’s needs, building brand-new products from the ground up. Low-cost ultrasounds, ECGs and infant warmers. But the target market didn’t make an easy switch. Philips, it appeared, was the latest casualty. Ganeshprasad’s heart skipped.

You see, GE was to announce its latest experiment that very day. It had a minority 26% stake in GenWorks Health Private Limited, an independent startup that would sell affordable GE devices to rural India, primarily for a commission. This would be the first such investment for the conglomerate. Ganeshprasad would helm GenWorks.

Sales of ultrasounds

He had been with GE for 18 years, heading sales of ultrasounds, cardiology and other products. Under his tenure, the ultrasound business grew to $100 million in sales, with a 48% marketshare, making it among the most successful portfolios at GE.

“Oh my god, I’m getting into it today!” Ganeshprasad recalled thinking last month at his office, which is in an IT park, a 15-minute drive from the GE campus in Bengaluru.

Following GE’s announcement of GenWorks, colleagues had crowded around Ganeshprasad at the conference, he recalled.

All of them had questions. “Why did you do this? You’re so successful!” “Why did you even do this man, c’mon!” “This is stupid, this is a risk you’re taking at this stage of your life. Now GE will just forget this, what will happen to you?”

Tough challenges faced though

Selling healthcare to rural Indians is a tough proposition, so medtech companies focus on urban residents. Today, a major portion of the revenue of many companies comes from selling to corporate hospitals and large diagnostic centers in metro cities.

That’s unfortunate because most of India’s population—about 833 million people—live in the countryside and go to the government or rural hospitals. Many do not have access to MRIs, CT scanners or even low-cost devices (or “boxes”, in industry parlance) such as ECGs. A whole market remains under-tapped.

GenWorks has succeeded – to an extent. In the past three years, Ganeshprasad’s team has penetrated tier-2 cities and beyond. They have created a streamlined, pan-India distribution network of more than 300 distributors for selling GE products in 450-plus districts. India has a total of 640 districts. As a result, sales of GE products to these areas have doubled over three years, to Rs 420 crore ($59 million), according to Ganeshprasad.

For GE, this has been a win. Selling to rural India used to be roughly 12% of the cost of a device (a figure that GE neither confirms nor denies). That’s come way down, as its commission to GenWorks is in the single digits. By spinning off the division, they get to have the cake and eat it too. For now.

But Ganeshprasad senses his limits. He is flying with one wing tied to GE and the other clipped. Genworks’ revenue has grown year-on-year to about Rs 90 crore ($12.7 million) in 2018, up from Rs 33 crore ($4.7 million) three years ago.

But small cities have only so much demand – there are few doctors, fewer nursing homes and even fewer specialists who know how to use ECGs or CT scanners. That pool isn’t going to magically widen. “If there are only 100 people who’ll buy there, there are only 100 people who’ll buy,” Ganeshprasad said. “My expecting the 100 to become 200 is wishful thinking. If it happens, we’re all happy. But it’s not going to happen.”



What is the Pliant disposition?

Just as the literal Trojan Pig needs to be pliant to allow engastration—the stuffing of animals within—SoftBank requires its Trojan Pigs to be equally pliant in terms of giving it non-standard rights.

For instance, in some cases, SoftBank asks for “multiple liquidation preferences” where it can make money even if the value of the company drops.

Typically, this comes at the expense of other investors and founder/employee stock. In addition, the firm often asks for “ratchet rights” which requires the startup to give it additional shares should the value of the company drop. It also has “participation rights”, wherein, should a sale occur, SoftBank would not only get its money back before other investors, but it would also receive a share of the money that is leftover.

Owning an absolute majority

Beyond these financing terms, SoftBank often asks for rights that give it an irrevocable say in terms of future funding rounds or public listings. It can, for instance, block an IPO if the firm doesn’t get a prescribed return. While other VCs typically cap their ownership at 20-30%, SoftBank also has no qualms about owning an absolute majority stake in the company. In OYO, for instance, SoftBank owns nearly 50%.

SoftBank also determines the set of investors from whom a Trojan Pig can raise capital in the future. It leverages the fact that it has multiple anchor investments in key markets all around the world to force a loose cartel of sorts, where one portfolio company invests in another, creating a network of entities with SoftBank itself in the middle. OYO recently raised $100 million from SoftBank-backed Grab, the Southeast Asian ride-hailing company.

Considering the fact that Grab itself is currently raising money to fund its own capital requirements, the investment in OYO might seem incongruous. But there is little doubt who is pulling the strings in the background to facilitate such deals.

There is the odd SoftBank-backed company like ride-hailing company Ola where the founder is strong enough to stand up against such arm-twisting deals and shotgun marriages, but these are rare and far in between.

Indigestion is inevitable

As is inevitable with egregious feasts, devouring a Trojan Pig has consequences ranging from indigestion to diarrhea. But these are far more serious than cutesy metaphors.

By using startups such as OYO as surrogate vehicles for its own ambitions, SoftBank has irrevocably altered funding and competitive dynamics. On the face of it, it might seem that having more money in the system is a plus for everyone around—startups get more money, other VCs get valuation bumps and the market sees more exits. But all these collateral benefits are temporary at best and chimerical at worst.

Startups that do take funding from SoftBank become addicted to capital and prematurely lead their startup into dizzying growth trajectories that upset stakeholder balance in markets. Recently, more than 250 budget hotels across the country signed a petition against OYO as their businesses were suffering due to their dealings with OYO.

Disrupting the market

According to them, OYO was disrupting the market through deep discounting which resulted in lower revenues for the hotels and then arbitrarily charging higher commissions and contract terms related to payment cycles.

Startups that do not take funding from SoftBank find themselves having to fight competitors with seemingly endless pools of capital and the cachet to follow a scorched earth policy that robs them of any chance to achieve market traction.

Ask budget hotel chains Treebo or Fab Hotels. But choosing not to work with such Trojan Pigs is also often not an option. MakeMyTrip had, for instance, earlier delisted OYO from its platform but was forced to let it come back recently. Fighting a big-stack bully like SoftBank is not a battle that startups are likely to win.



Old: B2C, gold: B2B

But after three important deals in the last one year, we may perhaps be looking at a premature saturation of the inventory model.

The logic of the investments made

In September 2017, Amazon, through its investment arm, picked up a 5% equity stake in department store chain Shoppers Stop. A year on from that, in September 2018, the company purchased a controlling stake in grocery hypermarket chain More.

Then, in August 2018, Walmart spent $16 billion to buy Flipkart.

To a casual observer, e-commerce seems to be changing in India, but the fact is that inventory-led e-commerce has reached its tipping point, and online sellers are getting impatient.

Between the two, Flipkart and Amazon control 60% of the e-commerce market. But there’s increasing evidence that the market, as the two saw it—inventory-led e-commerce—may not be growing as fast as expected. E-commerce is estimated to add up to less than 3% of Indian retail.

As entrepreneur action and investor interest moved beyond inventory-led e-commerce, the new paradigm is that it is actually more about enabling businesses between sellers and the end customers. In short, B2B commerce.

According to a report by trade association body NASSCOM, 43% of India’s new tech startups in 2018 focussed on the B2B space. In 2018, B2B marketplace Udaan, co-founded by ex Flipkart CTO Amod Malviya, became the fastest startup to reach a $1 billion valuation after it raised $225 million in a round led by Yuri Milner’s VC firm, DST Global. Udaan was founded in 2017.

An interesting sub-segment of the B2B explosion is B2B2C. Bengaluru-based Meesho, a platform for enabling social media-based sellers, which just closed a $50 million round of funding in November, is a good example of this.

Both Meesho and Udaan have raised money from VCs such as DST, SAIF, Sequoia, Lightspeed, and Matrix. These are investors who shied away from making new bets in B2C-focused e-commerce until the B2B phenomenon took off. Is this a new dawn in Indian e-commerce?

Meesho’s ‘Robin Hood’ pitch

Meesho’s model revolves around moving stock owned by wholesalers to end consumers, without the actual sellers ever taking ownership of the stock. Instead, sellers on Meesho—or rather re-sellers—act as independent workers. They pick a niche such as garments, home decor, or lifestyle accessories and focus on finding customers for these products.

When end-customers place an order with the re-seller, the stock is moved from the wholesaler’s warehouse directly to the buyer. This means zero investment for re-sellers when they start out. Instead, their real challenges are knowing how to sell (stock curation) and figuring out whom to sell to (demand base).

In business terms, Meesho’s model isn’t new at all and was widely known as ‘drop shipping’. According to Rahul Chowdhri of Stellaris Venture Partners, dropshipping can only be emulated across long-tail categories like fashion, shoes, home decor, accessories, and health supplements. Stellaris had earlier invested in Shop101 and Wydr, both of which are competitors to Meesho.

Introduction of social commerce

Before pivoting into social commerce in 2015, Meesho CEO Vidit Aatrey and his team started as a hyperlocal startup that delivered garments and fashion products by aggregating small neighborhood boutique shops. It made sense for Aatrey and his team to narrow down on the hyperlocal segment because it was an emerging play in 2014 and 2015, and of course, VC money was abundant.

“Most boutique shops were led by married women, and a majority didn’t even have a store. They simply promoted inventory owned by other small wholesalers using WhatsApp and Facebook groups,” says Aatrey. But there was a problem.

Boutique shops deal with niche lifestyle products, and the demand is scattered throughout the year across festivals like Diwali, Rakhi, Holi, etc. Some customers want special hand-made sarees, and some customers want accessories to go with their sarees. Finding a continuous supply for such fragmented demand could be harrowing.