What's eating venture debt in India?

Let me be honest. Before I read Arundhati’s story today, I knew nothing about this topic. Her story is about why more startup investors are veering towards a new model of funding through something called venture debt. 

 

Me, I barely understand equity financing. Cap table. Liquidation preference. Term sheet. Pre money. Post money. Extended universe. Crossover episode. Xbox 360 version. No clue. 

 

Anyway, after I read her story, I finally got it. If you know what venture debt is, you should click on the link at the bottom and head over to read the story. Save yourself. 

 

If you have no idea, read on. I have come up with a really tortured analogy. It’s too late for you now. Here goes. 

 

Startups need money. Usually to grow. Pay salaries. Things like that. And to raise this money, they need an investor. Now remember, this startup has nothing, so it can really offer just one thing—the promise of future returns. Give me money. Take a share of me. I will make it big. And we both will win. The investor looks them over, talks to them about their hopes and dreams, takes them out on a few dates and says, sure—take my money.

 

That’s equity financing. Invest in my potential, and in my future. Not the present.

 

But there’s another way to do this. Enter venture debt. Venture debt is where a company goes to an investor and says—look, I need some money. Take a teeny tiny share. Forget my long-term potential. I will pay you back. With interest. I am doing well. I have good prospects. Everything is secure. No, I don’t drink. Yes, I have a green card.

 

In other words, equity financing is like love marriage and venture debt is arranged marriage. Thank you for coming to my TED talk. 

 

Our story today is about why venture debt in India is not as popular a path for financing startups even though investors like Sachin and Binny Bansal, the founders of Flipkart, are taking an interest in it. Venture debt could be bigger, but there are some niggles as well. Partly regulatory. Partly a mindset. 

 

Partly because just like arranged marriage, venture debt simply isn’t for everybody.

 

You should read our story to find out more. Here: https://the-ken.com/story/whats-eating-venture-debt-in-india/

Red would be proud.

Red would be proud.

 

You know Red, the black dude in the famous Hollywood prison break movie, who, in a moment of inspired wisdom, (one that can only be arrived at by spending enough time amongst con men and murderers and occasionally getting beaten to a pulp and after reflection of that wretched existence), said, “Hope is a good thing.”  

 

So yeah, Red would be proud of India’s payments banks. These banks, like Airtel, Paytm and Fino are singing the Hope song like it is time for Obama Part II.

 

Two points should make you feign interest in this unique, hope-MLM scheme. 

 

Point No. 1: Banking Correspondents (BCs) are opening payments bank accounts again. Two or three a day. They are doing physical Know Your Customer (KYC) and not electronic. The damn thing costs more money. 

 

Point No. 2: R Gandhi, the former deputy governor of the Reserve Bank of India (RBI) and now an advisor to Paytm, said there was an expectation that payments banks will make money out of payments and remittances. “But there is a change with the entire payments ecosystem as no one is willing to pay for payments,” he said.

 

You hear that, Red!

 

The history of payments banks is a picturesque story of tragedy set in a Scandinavian small town. I know this because this is the stuff I watch on Netflix after I’m done with The Ken. 

 

I can’t imagine why payments banks continue to exist. After India’s Reserve Bank of India (RBI) has clobbered them with one regulation after another, they have seen it all. Tied up in knots. Banned from conducting business. 

 

My colleagues Sidhartha and Arundhati have a fine story on them. This story is free and you can read it here: https://the-ken.com/story/payments-banks-struggle-move-beyond-payments/

Questions are vitamins

My father's always had an extraordinary complaint about me. That I'm scared of questions. It's a conversation goal I just didn't hit while growing up. "You were too scared to even ask for directions," he tells me, chidingly. Maybe it was our shuttered and repressed school system, or maybe parental affection didn't exactly warrant too much questioning. Whatever may be the case, I grew up scared of the ugly, bendy question mark.

As you can already tell, this trait does not bode well for a journalist. Bread and butter and all that. But in a place like The Ken, sharp, incisive questions are to stories what espresso shots are to a Monday morning brain. There is no option but to grit your teeth and give yourself this shot in the arm. Truth be told, it's totally worth it. A well-crafted, clever, unassuming question is a beautiful opportunity. It can predict the future, it can explain the past. It can make the present an infinitely more exciting place to be in. 

Last week's mix of stories, rich in both breadth and diversity, was the result of asking such insightful questions. Questions you always wanted to ask. Questions you thought were too late to be asked. Questions that may not have crossed your mind yet. 

Pradip's Wednesday story on campus placements, for one, tried to answer one simple, overdue question: What is the point of B-schools? His reporting took him deep into the minds and workings of corporates, placement cell coordinators, professors and students who've graduated from this complex, broken education system. In a bid to drive up their own ratings, most B-schools have turned into factories that churn out semi-employable candidates for companies, where their stay is tragically short-lived. Placements was a popular story this week, and free for students to read. One tip: Do check out the comments section. 

Arundhati asked: What's eating venture debt in India? An attractive new option for start-ups to raise hard capital, without worrying about the deathly small time frames set by VCs. But even though it's growing in popularity, with the Flipkart duo, Sachin and Binny Bansal, looking at entering the game, venture debt still has strong currents to calm. Namely, the growth-obsessed start-up culture, fed on a regular diet of equity infusions and outlandish evaluations. Who wants to commit to debt, is Arundhati's prescient question in our Tuesday story.

Rozelle, our newest writer, made her debut on Monday. True to tradition, she jumped right in to wrestle with big fish: Amazon's plans with Shopper's Stop. Last year, The Ken had reported on the odd marriage of two giants coming from the opposite worlds of online and offline retail. It seemed like a well-made, omni-channel match, even if not the happiest. Rozelle, in her piece, investigates what came of this alliance. Did Amazon sweep Shopper's Stop off their feet, or is the marriage on the rocks?

We were off on Thursday, for Holi. Friday's story, by our contributor Tanvi, really hit home, as I'm sure it did with many women who've often dealt with unanswered questions about their bodies. Tanvi's piece was a deep-dive into the increasing prevalence of PCOS, or polycystic ovarian syndrome, which impacts 1 out of every 5 women in India. Co-morbidities like type-2 diabetes, infertility and obesity make it a dangerous condition for over 12 million women. Still, the lack of research—in both cause and cure—has led to a thriving market for off-label drugs and lifestyle therapies to reduce the scarring impact of PCOS. Read the story and share, it's free.

They're all around us. On hoardings. At shopping malls. In our phones. Payments apps and digital payments may have entered in the Indian blood-stream, but payments banks haven't had such luck. Restrictions on using e-KYC by the Supreme Court almost put these banks out of business. Although there has been a partial attempt to reinstate the heavily contested Aadhaar-based identification, it's going to be really difficult for payment banks to regain their lost sheen. Why you ask? Read Sidhartha and Arundhati's take on it in our Saturday story (also free). 

Another week full of good, hard questions and great writing. The wheel keeps turning at The Ken. For my part, I practise every day not to ball my fists, break into a sweat or stutter as I ask impossible things of impossible people. I know my dad would be proud.

Enjoy your Sunday. Read our excellent mix of stories, or gift them to your loved ones, if you haven't already. And most importantly, make a parent proud. 

Cheers,

MakeMyTrip has let the OYO camel inside the tent

Ten months ago, my colleague Ashish wrote a two-part story about a deal between MakeMyTrip and OYO.

 

The terms of the deal were simple. Grant OYO—India’s largest hospitality company—exclusivity on MakeMyTrip, India’s largest travel aggregator. Delist the others. And in one fell swoop, OYO’s competitors got kneecapped.

 

*Cue Michael Corleone montage*

 

In that story, Ashish raised a question:

 

“In India, sector after sector, clear market winners are already in place or will be established. In e-commerce. In cab aggregation. In online travel. In food delivery. Look around you, and there’s chatter of consolidation across businesses. Flipkart-Walmart. Ola-Uber. Zomato-Swiggy. MakeMyTrip-Oyo. So, what happens when the platforms in a monopoly situation begin choking their supply?”

 

It’s pretty clear that OYO is a company that’s going through the classic three stages of hypergrowth:

 

Stage 1 : Kill the competitors.

Stage 2 : Squeeze the suppliers.

 

We have published stories about how OYO did the above. Today’s story is about the third stage. And answers the question that Ashish raised earlier.

 

Stage 3 : Choke the distributor.

 

It turns out that exclusivity is a double-edged sword. OYO is renegotiating the agreement it earlier made with MakeMyTrip —the one which gave it exclusive access—with terms that look more formidable. Minimum guarantees. Integration of OYO’s loyalty program. Add OYO’s wallet option. And MakeMyTrip is seemingly bending over backwards to accommodate OYO and accept the new terms with little protest. Basically the exact opposite of what’s happening around Brexit in the UK.

 

There are more questions. Why is MakeMyTrip alright with this? Has OYO gone too far? Should we gift Theresa May a subscription to The Ken?

 

Ashish’s story today has some answers. You can find it here: https://the-ken.com/story/the-makemytrip-oyo-embrace-just-got-tighter/

THE GREEN WAY OF LENT – Food and Garbage

Introduction

Food is essential for our survival, growth, and health. The more naturally we eat, the better it is for our bodies and metabolic functions. All our food and water comes from the Earth which also provides food to the millions of other living species.

Food Facts

While human beings have been around this Earth for around 200,000 years, agriculture is of more recent origin – being dated to around 12,000-10,000 years ago. For millennia, humans lived off the land, starting as vegetarian gatherers eating edible plants, roots, fruits, nuts, and seeds, and later progressing to eating small animals, and still later becoming hunter-gatherers.

With the dawn of agriculture, two things resulted: the abuse of land for human benefit, and the possibility of waste. At present, around 11% of Earth’s land area is under cultivation, and agriculture is responsible for around 80% of deforestation. Around 33% of all food produced gets wasted every year! Indirectly this means that all that forest land was lost for nothing, and land is being rendered sterile alarmingly fast.

Reflection

The Gospel tells us that we do not live on bread alone. We need the good Earth, her atmosphere, her oxygen-producing forests, her cleansing oceans, her beauty.

Earth gives all living creatures enough on which to live well, but not enough for one species to gather at the cost of others. The mutual respect that all living creatures had for one another is fast dwindling with the human race preying on so many living creatures.

Situation

The plenitude of food choices and easy transport of exotic foods has made us both picky and greedy. We can now access foods grown in any part of the world, ignoring the large volumes of carbon dioxide that preservation, packaging, and transportation cause to be released, and the huge amounts of waste and garbage that results.

In Mumbai city alone, only one of India’s many mega-cities, around 73% of its daily 10,000 tonnes of garbage is food waste. When we know that one tonne is 1,000kg, we get 7,300,000kg food wastage every day in one city alone! A large portion of that is from the hotel industry thanks to strict rules on preserving food left over and the ultra-luxurious choices they offer to their patrons of different cuisines at every meal! But a good amount also comes from upwardly mobile citizens’ homes.

Go Green

Making simple, yet sensible, choices in food procurement, use, and consumption can go a long way towards limiting waste, ensuring health, and preserving the environment. Simple measures like adding raw salads and local fruits to every meal will have great benefits – health and environmental. Carrying a dabba of home-cooked instead of using the school/college/workplace cafeteria is a wonderful option. Growing even a few items at home in balconies or on terraces will not only bring you joy, but lower your food bills.

Sun 10 March Reflect on the Gospel passage about Jesus being tempted. Lent is usually a time to go veg. Learn how consuming too much meat is bad for health and for the environment.

Mon 11 March Be aware of food waste. Avoid food wastage. Eat leftovers. Buy smaller portions to avoid waste. Cook only how much is required.

Tue 12 March Grow veggies in your home. However small your house, a terrace, window, or pot can be used to grow coriander, curry leaves, mustard or vegetables. Get the community involved.

Wed 13 March Compost food waste. Each house can have a small compost bin, or a community can do it together. Wet waste can be made into manure instead of being dumped.

Thu 14 March Buy local produce and from nearby. It’s fresh, you reduce CO2 emissions from travel, and save on transport costs. Take turns to buy bulk for the community and share costs – it is cheaper.

Fri 15 March Go completely meat-free. Meat production releases green-house gases. Going off meat greatly reduces your carbon footprint plus improves your health.

Sat 16 March Check for food packaging. Avoid plastic-wrapped foods or canned foods. They add non-biodegradables to waste and are not generally fresh.

The new PC chip war comes to India

The new PC chip war comes to India

The US vs the Soviet Union. Android vs iOS. Pirate vs ninja. AMD vs Intel. All battles that have rocked the world—or, well, at least some people.

 

What if I were to ask whether you know what processor is inside your laptop or desktop? For most people, the conversation would go, “Intel? Core i something something? What do you mean which one? And how did you even get in here? I’m going to call—”

 

Ahem. For much of the past decade, it used to be that for PC makers—think HP or Dell—there were two non-negotiable costs: a Windows licence and an Intel processor. Unless you were targeting the stingiest of bargain hunters (who would rather Piratebay and don’t care what’s “Inside” the computer).

 

AMD, Intel’s only significant competitor for the processors that power pretty much all of today’s computers and servers, was barely a choice. The 49-year-old California-based chipmaker’s market share collapsed in the mid-to-late 2000s because their entire line of processors failed to stack up to Intel’s. Courtesy of certain design and manufacturing weaknesses.

 

Years of losses followed, the CEO was kicked out, and AMD stock tumbled—everything you’d expect. And Intel had a virtual monopoly.

 

But the company went back to the drawing board, got a new CEO, and two years ago, came up with a brand new processor “architecture” called Ryzen. At the same time, Intel was in a bit of a bind, struggling with manufacturing problems of its own. All of a sudden, AMD was back in the game.

 

Today, AMD’s been gaining market share across laptops, desktops and servers around the world. It’s undercutting Intel—historically obsessed with high margins—in price, and by all accounts coming close in terms of performance. And India, my colleague Roshni points out in today’s story, is right in the middle of the new PC chip wars.

 

Because Indians love a good deal. State governments ordering hundreds of thousands, or even millions, of computers for educational programmes. PC makers who can finally push something other than Intel Inside. In fact, AMD actually counts India as its largest market for commercial PCs. And then you have a tribe of gamers, enthusiasts and tinkerers who buy PC components and assemble their own computers. All on a budget too.

 

It’s a heady mix and a complex fight, and Roshni takes us right into the thick of it. Read the story here: https://the-ken.com/story/amd-intel-india/