Author Archives: Aristotle Consultancy
Mergers and acquisitions have picked up significantly in the startup space with 48 deals in the past three months, according to Xeler8, a platform that tracks startup activity in the country. This is in line with the trend towards consolidation among startups.
Whether it is a strategic move to eliminate competition, or to take advantage of the conducive market situation, startups are looking at acquiring other ventures.
Online fashion marketplace Voonik Technologies recently made three acquisitions Zohraa, a marketplace for designers and boutiques, Styl and Picksilk that helped it enter the premium ecommerce segment. “It wouldn’t have been possible to acquire them in some other market,” said Sujayath Ali, cofounder of Voonik. “They were also looking for a chance of M&A because they weren’t able to scale up.”
While capital is flowing out of the bigger startups into the smaller ones, industry players believe that their money is well spent as they end up acquiring a technology they otherwise would have to work towards. There are others who spend their money to acqui-hire – that is, buyout for the employee skills and expertise other startups.
Bengaluru-based online gifting platform Giftxoxo recently acquihired BookMyInterest, a marketplace for hobbies and leisure activities.
Experts in the field say there are a lot of small deals in the markets, and soon mid-size deals would pick up. “Small deals are a good thing, but there are no mid-size deals at the moment,” said Sanat Rao, fellow at iSPIRT M&A Connect programme. “Mergers and acquisitions are higher than what they used to be a few years ago, but we need more mid-size deals, which I think will pick up soon.”
InnerChef, a Gurgaon-based food technology startup, has acquired two firms in the same space to expand their presence to other cities. Its cofounder Rajesh Sawhney said it is looking at more acquisitions in the future.
Voonik officials said the company is now looking to acquire from the fields of machine learning and artificial intelligence.
Source – ET Retail
Aavriti Jain, co-founder, Dhora, a Jaipur-based seller of designer clothes, leather goods and semi-precious jewellery, has had a terrible summer so far. Orders on the portals Dhora sells, such as Amazon and Flipkart, have dried up. Not long ago, Dhora used to ship 60-70 packets a day. Now, many days go without orders.
Sashi Somavarapu, founder and CEO, Redlily.com, a seller of baby products across e-commerce platforms in Hyderabad, is also having a torrid time. “People are buying, but prefer essentials over discretionary items,” he says. Orders for items like diapers and napkins but those for strollers and baby clothes have declined, with buyers preferring to visit stores to shop.
Several sellers across the country have noticed this change in buyer behaviour in the last two months. And this is across categories electronics, clothes, designer wear, kitchen items and baby products.
It is not hard to see why. On April 1, the government disallowed deep discounts, insisting that portals can’t dip into their cash reserves (read venture money) to subsidise products. Discounts if any will be at the discretion of manufacturers. That means Samsung and Micromax can offer discounts but Paytm, Snapdeal, Shopclues, Amazon, Flipkart etc cannot.
Deep discounts were the USP of these websites and if they were discontinued, customers would rather go to a physical store that not only offers discounts but also allows them to check out items directly. Online shopping in India, at about $10 billion in the total retail business of about $450 billion, is growing 10-12% annually. Out of the 400 million internet users about 40-50 million shop online while regular buyers would be less than 10 million.
The growth was largely fuelled by discounts. “Discounts created online shopping,” says Rajat Kohli, consultant, market expansion, Zinnov Consulting.
A large number of those shoppers seem to have gone into hiding. The business of online sellers of electronics has dropped by around 30% since April this year while that of fashion and shoe e-tailers has fallen 40-50%. Sanjay Thakur, president, eSellers Suraksha Forum, says, “Discounts and volumes have an inverse relationship.”
Dinesh Chopra, director, Softex Surya, a Nehru Place, Delhi-based retailer of computers and electronics says sales have fallen 30% since April. “Now price (of ecommerce websites) is aligned to retail outlets and portals are also focusing on fast selling items rather than display unique items on landing pages.”
Chopra thanks his lucky stars that he didn’t shut his store in Nehru Place. “In recent weeks I have seen increased footfalls and conversions.” Earlier, he says, people came to see products, compare prices with online and buy from portals as they were cheaper. Now with similar prices online and offline, shoppers are flocking back to buying offline.
The government order on discounts has in effect created a level playing field for online and offline retailers.
Source – ET Retail
The other day, I came across a TV interview of Rahul Yadav, who was CEO of a startup named Housing. com till he was sacked by the board. The interview is old, having being conducted in September 2015. However, there is one part of it which offers an interesting insight into what is wrong with Indian startups. At one point in the conversation, Yadav confesses that he doesn’t like ‘Excel sheets’. He says that when they (he and his cofounders, presumably) were meeting potential investors, if the investor asked for Excel sheets, they would just drop that investor.
It’s clear from the conversation that the loathing is not for any particular software sold by Microsoft. Instead, ‘Excel sheets’ are a synonym for calculations and projections about the business. These spreadsheets would have calculations about how much the business would spend, how fast it would expand, how much could it earn and from what kind of activities it may make money. However, if any investor turned out to be the sort who was interested in discussing such things, these entrepreneurs just stopped talking to him and moved on to someone else. As Yadav says, with a sly smile at one point in the interview, that when an investor wanted too much detail, he knew it wouldn’t work out.
Now there’s nothing unusual about this attitude. This has been a time-honoured tradition of Indian promoters since long before these digital days avoid investors who are interested in too much detail, just look for a greater fool instead. However, I do feel that in the domain of technology startups, this attitude arises from a fundamentally different premise. Earlier, promoters had complete self-awareness that they were doing something shady by fooling the investors about the true nature of the business. Nowadays, the entrepreneurs seem to be fooling themselves, too.
They seem to firmly believe that as long as they have enough scale, that’s great, even if they are losing money on each transaction. There’s a joke about this: “We know we are losing money on each customer, but we’ll make it up on volumes.” It’s not a great joke, till you Google it and find that a lot of people don’t know it’s a joke. There’s a widespread belief among startups that this really is true. The opposite view, that a business is a business and cannot defy the basic logic of sales, expenses, profit and loss for too long, is seen as something that doesn’t apply to new, technologybased businesses. The fundamentals of business cannot be ignored for too long.
One of the problems in India is that there seems to be a widespread belief that the marquee startups are justified in going through a long period of heavy losses because Google, Facebook and Amazon went through this. The problem with this idea is our skewed idea of what ‘tech’ is. During the time that they were making massive losses, the big American Internet giants were building their infrastructure and developing genuinely groundbreaking technology.
Even Amazon, which was supposed to be just a retailer, invented the infrastructure-as-a-service concept and is now ahead of Google, Microsoft, IBM et al in cloud computing with its fabulously profitable AWS (Amazon Web Services) business unit.
Nothing remotely resembling this is going on with Indian tech businesses, which seem wedded to the idea of almost literally giving away money to customers in every transaction.
In a way, it shouldn’t really matter to anyone if a lot of businesses lose money belonging to greater fool investors and eventually shut down. However, the negative impact on employees, suppliers, the brick-and-mortar competitors put out of business and on the business environment generally will be huge. It would actually be good for everyone concerned if India’s zombie startups reach their logical end sooner rather than later.
Source – ET Retail
The startup ecosystem has truly taken off, and India is one of the fastest growing startup countries now. Since the launch of ‘Startup India’initiative last year, many startups have come up with inventions, making our life easier and indeed becoming our intelligent personal assistants.
Therefore, the main objective of the fest is to stimulate the startup ecosystem and bring about a 360 degree visibility to the burgeoning entrepreneurs in India.
The Department of Industrial Policy and Promotion (DIPP) has requested Prime Minister Narendra Modi to inaugurate the event, officials said.
As many as 571 budding entrepreneurs have filed applications as on June 24, with the DIPP for recognition as innovative startups to avail tax breaks and other benefits.
Realising the potential of startups in India, Prime Minister came out with a slew of incentives in January to boost the Indian startup ecosystem by offering a tax holiday and inspector raj-free regime for a period of three years, capital gains tax exemption and INR 10,000 Cr corpus to fund them.
India has the third largest number of startups globally. To boost financing, a 20 per cent tax on capital gains made on investments by entrepreneurs after selling own assets as well as government-recognised venture capitalists is also exempted.
Commerce and Industry Minister Nirmala Sitharaman has asked the Finance Ministry to consider raising tax holiday for startups to seven years to encourage budding entrepreneurs.
Source – Inc42
This notification is part of the all-round initiatives planned by the government to strengthen the startup ecosystem in India.
Funds received by a startup amounting to Rs 25 lakh or more by way of a convertible note, in a single tranche from a person, will not be treated as a `deposit’. The convertible note is to be either converted into equity or repaid within a period of five years.The Companies (Acceptance of Deposits) Rules have been accordingly amended via a notification dated June 29.
Owing to this relaxation, the stringent rules relating to informing the registrar of companies (RoC) or creating a deposit repayment reserve in the books of accounts will not apply to the startup receiving funding via convertible notes. However, it should be noted that the relaxation is available only to startups that meet the governmentprescribed norms (as defined by the department of industrial policy and promotion, or DIPP).
This notification is the second such initiative to ease funding challenges for startups. TOIhad in its edition da ted June 20 reported that eligible startups will be exempt from angel tax. They will not have to pay any tax on the differential between funding received from non-registered funds or high net worth individuals and the fair market value of their entity.
Startups are defined by a DIPP notification dated February 17, 2016, to mean “an entity, incorporated or registered in India not prior to five years, with annual turnover not exceeding Rs 25 crore in any preceding financial ye ar”. Second, such an entity is required to be engaged in “development, deployment or commercialization of new products, processes or services driven by technology or intellectual property”.
If a tax holiday is to be availed, the entity is required to be set up between April 1, 2016 and March 31, 2019 and an approval of an inter-ministerial board set up by DIPP is required. The tax holiday is available for a period of three years in a block of initial five years.
571 apply for Startup India initiative
A status report issued by `Startup India’, the government initiative under the auspices of the DIPP, provides an indication of the interest in the programme. Till June end, 571 applications had been received from entrepreneurs. While 106 of these applications were complete, all of them will not get a tax holiday (even as other incentives could be available) as a majority of these companies were incorporated prior to April 1. Only 12 entities qualify for the tax holiday, subject to clearance by the inter-ministerial board. Five of these entities have yet to provide the required documents. DIPP is reaching out to top companies requesting them to set up new incubators or scale up existing incubators in collaboration with educational institutions. An online learning module will soon be available for entrepreneurs.
Source – ET Retail