Author Archives: Aristotle Consultancy
The e-commerce space has rapidly evolved but several challenges have surfaced primarily in areas of taxation, logistics, payments, internet penetration and skilled man power, the CII-Deloitte report on ‘e-commerce in India A Game Changer for the Economy’ said.
“In taxation, for example, the lack of a uniform tax structure leads to several issues such as double-taxation or impediments in the free flow of goods across the country. However, the ensuing Goods and Services Tax (GST) is expected to help in overcoming these challenges through a uniform tax structure,” it said.
Clearly defined rules for e-commerce transactions in GST and a consultative approach while framing these rules will be favourable to both, the government as well as e-commerce companies, it added.
It also said timely and effective implementation of programmes like Digital India, Make in India, Startup India and Skill India will support the e-commerce ecosystem to overcome the challenges related to ineffective rural internet penetration and lack of skilled manpower.
The report has recommended several measures including in the areas of direct and indirect taxes to promote this sector.
It said documentation requirements should be simplified for applying tax treaty provisions such as declaration by the payee, as opposed to tax residency certificate; and simplified mechanism should be in place to obtain lower or nil withholding tax certificates for the companies, without requiring payer details.
“Unutilised business losses of e-commerce companies should not be lost even if the shareholding of the company changes by more than 49 per cent. Increasing the number of years within which the tax holiday can be availed by startups in the e-commerce industry,” it suggested.
The indirect tax environment in terms of policy as well as administration would also be the key towards unleashing the potential of the industry in India.
“The indirect tax laws need to be evolved and re-designed to consider the changing business dynamics of e-commerce since the activities involve high volume and low-value supplies,” it said adding a central committee needs to be constituted to oversee the implementation of a conducive environment.
States and local bodies should ensure that a comprehensive tax is uniformly interpreted, and implemented for facilitating the growth of the sector, besides GST laws should take into consideration the actual nature of the transaction to determine tax liability of the sellers.
Source – ET Retail
From a period of exuberance, India’s e-commerce sector has entered a reality check phase with players focussing on cost cutting and business viability as investors seek performance, tech investor T V Mohandas Pai said today.
Pai, ex-CFO of software major Infosys, said 2015 was a year of exuberance as a lot of money flowed into the sector but it is no longer the scene now.
“Now, the funds have become very costlier. Now, they (investors) are demanding performance. Capital is also becoming scarce driven by interest rates in the US and potential meltdown in demand in China. Europe is not growing and Japan is not doing well and there is fear.
“That’s why venture capital flows have come down. They (investors) have become very selective. People are now beginning to ask questions as to when e-commerce business will be viable and when they will create a sustainable business and value for the money they have put in. That’s good news”, he told .
Many e-commerce players believed that if they go on giving fat discounts and sell more, they would get more revenues and higher valuation. “That model is not sustainable,” added Pai, co-founder of Aarin Capital.
Now, investors are demanding performance. “Some sanity is coming (in the e-commerce space). E-commerce players should build business based upon efficiency and not upon steep discounting. Discounting can be there to the extent of savings they have compared to a conventional store. They are getting cautious and they are cutting costs, and that’s good news,” he said.
As for whether some top Indian e-commerce players are overvalued, he said, “Whether they are overvalued or not depends on who is willing to pay money for that valuation. If they are raising capital, if somebody is paying money, then it’s fairly valued. It’s very difficult to make comments. Some funds write it down based on their model.”
Pai does not think investment flows into the e-commerce play would slow down further. “Funding will come in for B2B and players with sustainable businesses and great technology. Direction of the funds may change. Funding will not come down in a substantial manner,” he said.
Pai, who is also Chief Adviser to the Manipal Education and Medical Group, dismissed reports that hiring is slowing down and salary packages are being slashed in the sector.
“Startups are also businesses. Some of them may succeed, many of them will fail. That’s the nature of the business. Nothing has changed in the last six months. Startups are coming, some of them are raising money, some of them are failing, it’s continuous,” he said.
Source – ET Retail
For any startup, the first year is very crucial. It is the stepping stone of a successful entrepreneurial journey, which can make or break a startup. Having a baby and having a startup have much in common. Just like a baby needs nurturing and care, a startup also needs the same level of dedication and time from day one.
For a first-time entrepreneur, a host of things can go wrong while rolling out a startup. So, how do you ensure that your startup is able to survive the tough first year?
1. For validation, get out of your comfort zone
Entrepreneurs need validation for their startups. Validation or market research is one of the crucial parts when it is about laying the foundation of a startup. Interestingly, this is where a lot of entrepreneurs make their first and the most fatal error. They create circumstances where their validation exercise will inevitably succeed. For example, in a hyperlocal business they will test it in a place where they have lived for the last few years and thus know most of the people around. With that unfair advantage, their hyperlocal proposition such as restaurant or food ordering will work.
It is similar to a child asking his mother whether she is good looking. A mother will always answer in the affirmative. Using this positive reply, they go to the investor, pitch their idea and share their promising market research. The moment they get the money and apply it in a real situation, out of their comfort zone, they fail. It is one of the prime reasons for the downfall of food delivering startups. So, instead they should set up their experiments in a way where they get some initial paying customers or do some research in an area where they have no contacts.
2. People management is the key
A good team is the most important piece of the startup puzzle and one wrong hire can pave the way for downfall. When a startup is trying to ramp up quickly, it is easy to fall into the trap of hiring too many people.
In the first few months of a startup, only the founders and founding team work round the clock as they passionately build their company from scratch. When they start hiring, they wrongly assume that these people will also share the same vision. However, the employees that come to them only see it as a stepping stone in their career path and thus are not likely to produce results same as that of the owners. The founders assume that since work has increased, they need to hire more and more people, without realising that people management is an enormous task.
The budding entrepreneurs learn this the hard way. That’s when we hear about people getting fired. This is a huge challenge and most founders take people management for granted.
3. Do not run after the money
Another mistake that has become synonymous with startups has to do with money.
Entrepreneurship now has become more about raising money. Entrepreneurs start chasing money as if that is the sole objective of their business. Since they are more inclined to chase investors, the business suffers as they do not focus on making the startup more sustainable.
It is true that people who raise a lot of money in the early stages of a startup get a huge lead over rivals but it creates dependency on the investors. When the investor loses confidence or interest and if the entrepreneur has no solid economic model to sustain, the company comes crashing down.
4. Fundraising is no piece of cake
When it is about raising money from an angel or seed investor, the first-time founders fail to realise how cumbersome and time-consuming the process is. The entire team puts all its effort in raising money and thus the business suffers heavily.
This problem is so acute that it never goes away and is just pushed into the background but can turn lethal in the first year. Flipkart’s re-jig at the top with Sachin Bansal moving from the CEO’s position to the chairman’s is a perfect example. With the responsibility of IPO and other corporate actions, it was best that he did not have an operational role in Flipkart anymore. Thus, the solution is to give one of the founders the primary responsibility of reaching out to investors and that person can move away from the operational side. The rest of the founding team can focus on operations.
5. Do not get swayed by what others are saying
Getting influenced too much by their first contacts is a problem faced by first-time entrepreneurs. Many startups constantly change their direction of work based on the feedback they get from an investor, a startup event, etc.
When founders set up businesses primarily driven by the opportunity in the market they get lost in the never-ending web of change. However, if the founders set up the business based on where their passion lies, this problem would not occur.
6. Keep your house in order
People become entrepreneurs because they are good at something or have experience or belief in something. However, there is one thing which no entrepreneur is good at. It is related to compliance, regulation, paperwork, accounting, book-keeping, record keeping, et al.
Most entrepreneurs find this part of a business to be a big pain area and thus steer clear of it to focus on the bigger picture. They would love to write cheques, without having to fill up some forms. They might be under the impression that their company is moving very fast, but on the other hand these things might come back to haunt them in the future.
When investors are vetting your company, they ask for various pieces of information or evidence. However, if you haven’t kept any records and are not good with compliance, you might end up missing out on a lot of opportunities that may come knocking at your door. In the last one year I have come across two companies where everything was finalised from term sheet to shareholders agreement, but the founding team was not able to do all the compliances and the deal fell through.
Source – Kotak Business Booster
Wedwise Consultants Pvt Ltd, which operates WedWise, a portal for wedding planners, photographers, caterers and other related service providers, has raised an undisclosed amount of seed funding from StartUp Equity Partners (STEP), co-founder Ginny Kohli.
The funds will be primarily used for the development of Wedwise TV, a YouTube channel focused on wedding planning and wedding themes.
“WedWise is a close-knit community that allows people to look for wedding inspiration, find professionals to carry out certain tasks, or vendors to reach out to customers. So, we are both B2C and B2B,” said Kohli.
STEP, a boutique investment banking and consulting firm is founded by two investment bankers Neeraj Batra and Gunit Chadha. Batra has earlier worked with Bank of America, AMAS Group, and Hinduja Group. Chadha, an alumnus of The Wharton School, is the CEO of Deutche Bank Asia Pacific region. The firm offers strategic consulting on financial structuring and branding, acting as a startup accelerator, and picking up 15-40 per cent stake in its investee companies.
A bunch of startups that seek to connect couples with wedding planners has emerged in the last 12 months. The market for wedding-related services is estimated to be worth $40 billion in India, according to US-based venture capital firm CerraCap Ventures. Some of these ventures have also secured external funding. In a similar space, Weddingz.in, an online marketplace for wedding venues and vendors, has raised an undisclosed amount in pre-Series A funding from consumer-centric venture fund Sixth Sense Ventures. Prior to that, the startup had raised about $1 million (around Rs 6.7 crore) in angel funding from a group of investors, including Google India’s managing director Rajan Anandan in December 2015.
Hyderabad-based With Ease Technologies India Pvt Ltd, which operates an integrated wedding services provider AppilyEver.com, has raised $400,000 (around Rs 2.75 crore) funding led by Varun Aggarwal, founder and COO of Univariety, and other angel investors.
Last month, New Delhi Television Ltd (NDTV) launched its wedding solutions platform Bandbaajaa.com. In December 2015, CerraCap had invested in NDTV’s subsidiary Special Occasions Ltd under which the portal is housed.
In September, wedding planning portal WedMeGood raised seed funding worth Rs 2.7 crore ($407,200) from Indian Angel Network. Others in the Indian online wedding planning space include WeddingPlz, PlanningWale and FullOnShaadi.
Wedwise was founded in May 2015 by Ginny Kohli. She has an engineering degree from Aston University in the UK and an MBA from Infinity Business School, and has earlier worked with Rolls Royce, London, and Groupon India.
The portal allows the customer to post a query to access vendors, and also see reviews and recommendations by others in the invite-only community.
The startup claims to have 25,000 members on the portal, of which close to 55 per cent are vendors or service providers. It also claims to have a query posted every hour, which gets a response in less than a minute.
Source – Techcircle
Venture capital (VC) and private equity (PE) firms cut investments in Indian start-ups by almost a quarter on a sequential basis in the three months to March, the second consecutive quarter they did so, as investors starved of exits and fearful of souring bets hold back cash.
Investors infused some $1.15 billion into Indian start-ups in the first quarter of this year, down as much as 24% from the December quarter, which itself had seen a slump in investments of 48% from the preceding three months, according to a joint report by KPMG and CB Insights.
The $1.15 billion reported by KPMG includes at least $150 million of secondary share sales that went from one set of investors in Snapdeal (Jasper Infotech Pvt. Ltd) to another.
The number of start-up deals fell 4% to 116 in the quarter, the report said.
The largest deals in the January quarter included $150 million received by online grocer BigBasket; $150 million raised by online marketplace Shopclues; and $50 million raised by Snapdeal, India’s second most valuable e-commerce firm.
“With mounting investor hesitation and concerns of overvaluation, Indian investment continued to decline in the first quarter,” KPMG and CB Insights said in the report.
After pumping more than $9 billion into Indian start-ups since the beginning of 2014, investors started pulling back late last year because of a mix of global macroeconomic factors such as a growth slowdown in China, as well as concerns over massive losses incurred by start-ups.
This year, investor caution has increased manifold, resulting in an acute slowdown in funding, fall in valuations and delayed deal closures.
“We have not been in contact with investors to raise funds but the sense we are getting is that there is a wait-and-watch situation that is going on,” said Ashish Goel, chief executive at online furniture retailer UrbanLadder. “There is definitely lesser investment in early-stage start-ups when compared to the last 4-5 months and (the number of) deals have certainly reduced.”
Even India’s top start-ups are struggling to raise cash at their current valuations. There are two main reasons why companies are struggling to raise money, said Aseem Khare, co-founder of home services start-up Taskbob, which raised Rs.28 crore in February.
“First, companies have been using investor money for giving away discounts that have beefed up top-line numbers but have not been able to create brand loyalty. Due to this, the percentage of revenue that comes through discounts is very high and has put doubts on the business model. The second reason is that of unit economics. There are businesses that are solving a problem, but the margins are too low for them to be sustainable or operationally profitable,” Khare said. By unit economics, Khare’s reference is to the cost and revenue from one transaction—say, a food delivery order taken online, and fulfilled.
The funding slowdown is not restricted to Indian start-ups alone, said Varun Khaitan, chief executive at home service app UrbanClap.
“The US has much bigger problems. And since some of the biggest investors are US-based, this problem has flowed into India. But if a company is doing well, then irrespective of the environment, it will attract investors,” he said.
The report by KPMG and CB Insights confirmed Khaitan’s views and said start-up deals in the US were much lower in the first quarter compared with the peak levels seen in 2015.
“The first quarter of 2016 extended the global decline in VC (venture capital) activity with both total deal volume and deal value declining further following a major dip in the fourth quarter. Some of the factors driving VC investors to take a more measured investment approach include an economic slowdown in China, rising interest rates and an approaching election in the US and a June referendum over the UK’s future in the European Union,” the report said.
Investors expect the funding environment to remain depressed for some time to come.
While start-ups have started to conserve cash by reducing discounts and other expenses this year, it’s not clear how young Internet companies will sustain their high growth rates without the lever of ultra-low prices.
“For the slowdown to end and for funding to return in a big way, there needs to be a trigger. Right now, there is a lot of uncertainty over macroeconomic factors like China’s economy and what’s happening to US start-ups. Plus, the Indian unicorns are also facing a rough patch. So it’s hard to see where a positive trigger will come from,” an executive at a firm that has invested in Flipkart said on condition of anonymity.
The government has added to the troubles of start-ups with new regulations governing e-commerce.
India on 29 March allowed 100% foreign direct investment in online retail of goods and services under the so-called marketplace model through the automatic route, which would legitimize existing businesses of e-commerce companies operating in India.
Three conditions attached to the government’s approval, however, could either hurt e-commerce companies or force them to find new ways to get around them. One, no group company or seller on a marketplace can contribute more than 25% of the sales generated. Two, marketplaces cannot influence product prices. Three, small sellers will now have to take responsibility of quality of goods and after-sales support.
Source – Livemint