Right Now (The StartUp Newsletter) Jan'20

Ecommerce at Sixes & Sevens

A flashback of recent regulatory proposals

  • 26th Dec'18 - Govt. releases press note 2, drastically changing FDI policy, restricting FDI in inventory model of ecommerce and other strict measures. Amazon & Flipkart pulled down thousands of products from their online stores.

  • 23rd Feb'19 - Govt. releases draft ecommerce policy which proposes the need to protect data and also provides protection to online sellers and consumers against discrimination and unfair business practices. Policy widely criticized as one which does not provide any concrete solution.

  • 24th June'19 - Piyush Goyal (commerce and industry minister) met representative of about 25 internet and ecommerce companies to instruct them about the report to be submitted under the new FDI policy.

  • 2nd Aug'19 - Draft guidelines on e-Commerce for consumer protection issued by the Department of Consumer Affairs inviting comments and suggestions from stakeholders by 16th Sept’19.

  • 11th Nov'19 - Govt. issues draft Consumer Protection (e-Commerce) Rules, 2019 inviting suggestions by 2nd Dec’19. The Rules, which is exactly same as the guidelines issued in August, make it clear that an e-commerce entity cannot influence the price of goods and services, cannot adopt unfair trade practices, nor leave fake reviews as consumers.

  • 11th Dec'19 - Govt. introduced The Data Protection Bill in Lok Sabha, which was referred to the Standing Committee, which will furnish its report by the first day of the last week of the Budget Session, 2020.

Since the dawn of e-Commerce in India, the ecomm companies have enjoyed a 12-year long journey without much regulatory hurdles. However, the year 2019 has been turbulent for the ecomm giants as new regulations seek to bring more discipline and responsibility in their activities.

The new FDI norms, which came into force on 1st Feb’19, forced the e-tailers to go back to the drawing board and rethink their business models, drawing largescale criticism from the United States and also straining the two country’s trade ties.

Fun Fact: Cloudtail, one of the biggest sellers in Amazon, which at one point used to contribute 70-80% of overall sales, underwent a major do-over in terms of ownership, to meet the FDI norms. Amazon now owns only 24% (earlier 49%) and Infosys co-founder Narayan Murthy owns the rest 76% in Prione Business Services which owns Cloudtail.

Other key provisions proposed by the government are:

  • Protection of sensitive personal information, covered through the data protection bill (discussed in our previous issue);

  • Prohibition on influencing price of offerings to maintain a level playing field for all;

  • Prohibition on posting false customer reviews and exaggerating the quality or features of their offerings;

  • Execution of explicit contracts with every seller, and also displaying terms relating to return, refund, exchange, warranty, etc to consumers to enable them in making informed decisions;

  • To implement an adequate grievance redressal mechanism to satisfactorily solve consumer complaints.

One of the leading stakeholder from side proposition – CWAI (The Confederation of All India Traders), lauded the steps taken by the government to curb cheeky and irresponsible behavior of ecomm companies. Backed by roughly 70 million small businesses, CWAI has for long been protesting against the giants accusing them of deep discounts and flouting India’s FDI norms, which has unfairly hurt small businesses. Complaints by CWAI are currently under review by the Ministry.


While we’re here: CWAI invoked about half a million traders to carry out silent protests across the nation on 15th Jan’20, the day Amazon CEO Jeff Bezos visited India. In his deliberation at New Delhi, Bezos said that Amazon will invest $1 Billion to bring small and medium Indian enterprises online. Either the protests worked, or it was already on his cue cards. We will never know.


The BIG Picture: The GOI has hit the right chord by initiating discussions in the lines of regulating the Ecommerce space, which has for long been outside the watchdog’s radar. But the industry is nervous, especially because of poor track record of implementation of new policies and some extremely stringent rules.

Indian StartUp Ecosystem

What's Buzzing?

Inspire, Hire & eventually Fire

If a startup’s Income statement was a rose bush, the top-line would be the rose and the bottom-line, the thorns. And as Alphonse Karr famously put it, one may grumble that roses have thorns or rejoice that thorns have roses.

Yes, lets admit it! While the 2nd-gen startups are still rosy about the top-line, the investors have started getting grumpy about the clingy-red-bottom-line.

To give you some perspective, let’s take you on a power-trip around the WeWork fallout: In November 2019, SoftBank wrote off its investment in WeWork (a co-working space startup, based out of the USA) by $4.7 billion that sent shockwaves across the entire startup ecosystem and threatened to change the game forever.

In the 1st week of January 2020, news surfaced that Oyo (often considered as SoftBank’s jewel in India), got a reality checklist from SoftBank, to get rid of contracts and businesses that are not EBITDA-profitable, by 31 March 2020. The VC also set the deadline for Oyo’s listing in the US bourses by FY 2023. Before you start sympathising with the young unicorn, it might be worthwhile to note that the startup recorded a 5.5X jump in its losses in FY’19 while the top-line magnified by 3.5X only.

Even the Founder cum CEO Ritesh Agarwal is not trying to refute as his Monday morning email to employees mentioned “…we will reorganise more teams across businesses and functions…”: which is a startup’s speak for: we’re eliminating jobs. Yes, you heard that right! On 15 January 2020, the startup confirmed that it will be bringing down its headcount by as much as 2400 employees or 20% of its workforce in India.


Zoom out: It’s not just SoftBank that has started to tighten its noose on its investees and worse, it’s not just Oyo that has resorted to high-scale layoffs as a means to cost-cutting. In the second half of 2019, other Indian unicorns also competed aggressively to layoff more and more employees.


Zoom out 2X: In a bid to magnify the top line, startups often indulge in what we call as ‘blitzscaling’ (growing at a very high pace) (E.g. Oyo penetrated into 800 cities across 80 countries within 6 years from inception), riding a triple digit growth rate y-o-y, having a colossal impact on each function of the business. Issues start arising when not all functions of the business get a proportionate share of the management’s time, energy & investment.

What else is Buzzing?
  • Byju’s raises $200MM, valuing it at $8 Billion, becoming India’s 3rd largest Unicorn Startup, after Paytm and OYO. Among the top 3, Byju’s is the only startup which has claimed to have turned profitable.

  • The first meeting of the Startup Advisory Council is expected to take place before the upcoming Union Budget, where issues plaguing the startup sector are likely to be tabled. Bhavish Aggarwal (founder, Ola), Byju Raveendran (founder, Byju’s), Infosys cofounders Nandan Nilekani and Kris Gopalakrishnan, among other big names, are likely to attend the meeting. Exemption from capital gains tax, redeployment of capital into startups and taxing of ESOPs are some key matters that may be discussed in the meeting.

  • Nikita Puri says that Startups can flourish even from small towns. One can draw inspiration from Vizbee Robotic Solutions (Bhopal) – makes delivery drones; The Kabadiwala (Bhopal) – revolutionized waste recycling; MAYU Lifestyle (Solapur) – produces premium lifestyle goods out of waste; and Generobotics (Thiruvananthapuram) – invented sewer cleaning robots.

Ventures Deeply Capitalized

Where have the Big Bulls been investing?


In 2019, as many as 32,800 Venture deals were witnessed worldwide with roughly $294.8 billion being invested from tiny pre-seed and “sprout” rounds to supergiant pre-IPO technology growth deals. With such humungous figures on the board, 2019 still remains the 2nd most active year in the VC world- we believe that the WeWork debacle which had a ripple effect on the entire startup ecosystem and the ongoing US-China trade war that triggered a worldwide economic slowdown, might have a roll to play in disrupting the party.

What is significant to note is how the share of Angel-Seed Investment to the total Dollar Volume, has increased steadily over the years that speaks volumes about the VC world’s consistent efforts to grab a share of the ‘next unicorn’, as early as possible.

The Indian startup ecosystem also saw sizeable investments in the month of December and first-half of January:

While we’re at it: As the year ends, we take a look back at the funds launched by venture capitalists and their plans for fund deployment:

Around the World in a Blink

Ideas that got the push

Peleton Fitness

Peleton is a New York based exercise equipment and media company found in 2012. It redefined the community fitness by letting people virtually do all the exercises right from their bedroom, yet with the same energy and fun of a group cycling class.

They leveraged personalization, content, product development, and exceptional service to create an almost unheard of 95% retention rate of what they call Connected Fitness Subscribers.

Sweepr

Sweepr is a startup which aims to help companies offer better technical support for smart home products by analyzing the devices connected to someone’s home network and helping determine where the problem lies. The company swept up €8 million in new funding, at least some of which comes from a new strategic investor: Amazon’s Alexa Fund.

Outlier.org

Outlier.org is a Brooklyn-based startup which produces online courses, dynamically generated problem sets, and testing tools. Students pay $400 per course and, if they pass, are given fully transferable college credits from the University of Pittsburgh.

Outlier.org raised $11.7 million in Series A funding in a round led by GSV Ventures. Tectonic Capital, Jackson Square Ventures and Harrison Metal also participated in the round.

Bob.io

Founded in 2017, Bag on Board (aka Bob.io), based in Madrid, picks up luggage, shuttles it to the airport and checks it in. Baggage is picked up by the traveler from the luggage carousel at the destination airport. The service starts at €15 for one bag, and €5 for each subsequent bag.

Bob.io raised €3 million in a new funding round. K Fund, TA Ventures, GAA Investments, & Big Sur Ventures invested in the deal, alongside angel investors like Andreas Mihalovits and Carlos Domingo.

Learning from the Best

excerpts from Alibaba’s World by Porter Erisman


Anyone can start a business and succeed, provided they have enough determination and the right attitude. As the story of Chinese e-commerce company Alibaba reveals, even a small start-up from a developing country can compete with Western giants if they set their minds to it.

When starting a business, reach for the sky

When Jack Ma started Alibaba in 1999, only 1% of the Chinese population used the internet. And yet, in the course of 20 short years, Alibaba overcame international competitors and social mistrust, and it now dominates 80% of China’s e-commerce market. You don’t have to be as smart as Einstein to start a business that will one day become successful. Before starting Alibaba, Jack Ma was an English teacher earning $20 per month. He sometimes jokes that Alibaba is so successful precisely because he doesn’t really know anything about computers. It wasn’t his computer genius that made him so successful, but his entrepreneurial spirit.

Successful Entrepreneurs turn hardships into advantages

Every business will face difficulties along the way, but such inevitabilities shouldn’t discourage you from trying. In fact, you can actually turn the barriers that stand in your way into advantages! In early 2003, China was hit by the deadly SARS epidemic. After an Alibaba employee contracted the virus, all of the company’s employees had to stay quarantined in their homes. But instead of letting their fear incapacitate them, the Alibaba team kept the site running from home. They were rewarded for their efforts with a huge influx of traffic. People all over the country, quarantined at home were practically forced to give e-commerce a try.

Build a sustainable business

If you want a successful company, it needs to be designed to last, not just to get through the season. One of the goals Ma set at the very beginning of Alibaba was for the company to last at least 80 years. He stayed true to the idea of building a sustainable company that lasts. Such a decision infuses a positive spirit and a long-term approach to decision making.

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