Author Archives: Aristotle Consultancy

How would the 6% equalization levy on Online advertisements impact startups?

Tax on Online advertisingIf the proposed levy on online advertisements is actually implemented, it would translate into startups ending up paying 6% over the 14.5% service tax. This equalization levy on online advertisements can burn a hole in the pockets of early stage startups for which online advertising makes more because of its targeted reach and lower cost. Manik Mehta, cofounder Leaf Wearables, a startup that works in the area of women safety through smart jewellery says:

“The levy puts us in a precarious position because all these companies-Google and Facebook- which are the most popular advertising platforms for us, are going to make us pay more at the end of the day,”

In the month of March this year it was proposed by an eight-member committee on taxation of e-commerce, that services ranging from online advertising and cloud computing to software downloads and web hosting be subject to an “equalisation levy” of 6-8% of gross payment if the provider of the service is a foreign entity without a “permanent establishment” in India.  The rationale behind the levy was given as a way for the government to get foreign internet companies such as Google and Facebook to pay taxes in India.  Rashmin Sanghvi, who was part of the equalisation levy committee and is a chartered accountant and an expert on international taxation and taxation of e-commerce has said:

“Under the existing law and double taxation avoidance treaty, India will not be able to tax them. How can India allow this kind of revenue loss?”

However, the impact of this can be that – because of the nature of the levy, the companies will not be eligible for credits in their home countries, which means the levy is likely to be passed on to users of their advertising platforms, such as startups and small and medium businesses. Sarita Singh, who is the founder of Gurgaon-based Corpus Digital highlights how this levy could mean increased difficulty in collecting payments and eventual loss in business-

“Typically, for an SMB client, the media spend is between Rs 50 lakh-Rs 1 crore a month. The taxes are over and above this cost- service tax is 14.5% and 10-15% is the agency’s commission. Collecting this money is also painful sometimes, and now if a further 6% is added , small businesses that we deal will might decide to change the structure of their digital spends altogether, and we could end up losing business,”

The levy committee members say that all those issues related to startups being impacted have been discussed in detail before finalizing the levy. They also said that being burdened by the additional levy or not, will depend on the negotiation of the startups with these providers. It is also being said that government wants to “test” this levy with online advertisements to begin with, and will have to find an alternative to get non-resident companies credits, similar to the way the Mauritius treaty has been re-negotiated.

Source – KnowStartup


Know all about new Intellectual Property Rights Policy

New IPR PolicyThe new Intellectural Property Policy is in compliance with TRIPS. Finance Minister Arun Jaitley released India’s National Intellectual Property Rights (IPR) Policy recently. The Policy which is in compliance with WTO’s (World Trade Organisation) agreement on TRIPS (Trade Related aspects of IPRs), aims to sustain entrepreneurship and boost Prime Minister Narendra Modi’s pet scheme ‘Make in India.’

Here are the highlights:

  • The Policy aims to push IPRs as a marketable financial asset, promote innovation and entrepreneurship, while protecting public interest.
  • The plan will be reviewed every five years in consultation with stakeholders.
  • In order to have strong and effective IPR laws, steps would be taken — including review of existing IP laws — to update and improve them or to remove anomalies and inconsistencies.
  • Special thrust on awareness generation and effective enforcement of IPRs, besides encouragement of IP commercialisation through various incentives.
  • India will engage constructively in the negotiation of international treaties and agreements in consultation with stakeholders. The government will examine accession to some multilateral treaties which are in India’s interest, and become a signatory to those treaties which India has de facto implemented to enable it to participate in their decision making process, the policy said.
  • It suggests making the department of industrial policy and promotion (DIPP) the nodal agency for all IPR issues. Copyrights related issues will also come under DIPP’s ambit from that of the Human Resource Development (HRD) Ministry.
  • Trademark offices have been modernised, and the aim is to reduce the time taken for examination and registration to just 1 month by 2017. The government has already hired around 100 new examiners for trademarks. Examination time for trademarks has been reduced from 13 months to 8 months, with the new target being to bring the time down to one month by March 2017.
  • Films, music, industrial drawings will be all covered by copyright.
  • The Policy also seeks to facilitate domestic IPR filings, for the entire value chain from IPR generation to commercialisation. It aims to promote research and development through tax benefits.
  • Proposal to create an effective loan guarantee scheme to encourage start-ups.
  • It also says “India will continue to utilise the legislative space and flexibilities available in international treaties and the TRIPS Agreement.” These flexibilities include the sovereign right of countries to use provisions such as Section 3(d) and CLs for ensuring the availability of essential and life-saving drugs at affordable prices.
  • The policy left the country’s patent laws intact and specifically did not open up Section 3(d) of the Patents Act, which sets the standard for what is considered an invention in India, for reinterpretation.
  • On compulsory licensing (CL), India has issued only CL for a cancer drug. Mr. Jaitley said, “We rarely exercise this power.” The statement assumes significance as developed countries, including the US, have raised concerns over India issuing the CL. As per the WTO norms, a CL can be invoked by a government allowing a company to produce a patented product without the consent of the patent owner in public interest. Under the Indian Patents Act, a CL can be issued for a drug if the medicine is deemed unaffordable, among other conditions, and the government grants permission to qualified generic drug makers to manufacture it.
  • The IPR policy favoured the government considering financial support for a limited period on sale and export of products based on IPRs generated from public-funded research.

10 Rules Of Success By Paypal Founder Peter Thiel

Peter Thiel: Paypal FounderPeter Thiel is an american entrepreneur, venture capitalist and hedge fund manager. He founded Paypal with Max Levchin and Elon Musk and served as its CEO. He also co-founded Palantir, of which he is the chairman. He became the first outside investor in Facebook, when he acquired a 10.2% stake in 2004 for $500,000.

He serves as president of Clarium Capital, a global macro hedge fund with $700 Mn in assets under management; a managing partner in Founders Fund, a venture capital fund with $2 Bn in assets under management.

Here are 10 rules of success from the illustrious techpreneur:

You Are The Entrepreneur Of Your Life

An individual should believe in himself and take charge of his life. “You should never forget that you have tremendous amount of freedom to make these very basic decisions on what you can do with your life and you can start anytime you want.”

Do One Thing Uniquely Well

The most critical thing for a startup is to do one thing uniquely well, better than anybody else in this world. “If you are starting a business than first question that you must ask yourself is what do you know that nobody else knows is true, or what great business you are building that nobody knows it exists.”

Make Sure People Align Properly

Structure of the company is an important element and one must focus on aligning teams properly. Both formal and informal alignment should exist in the company. Also, there must be genuine bonding between the founders and the existing team. “There’s always a question I like to ask founders which is how did you describe the pre-history of company before you got started. A bad answer is something like this: “We met a week ago at a social networking function, and we thought of this idea to work together as we both wanted to be entrepreneurs.”

Aim For Monopoly

According to Peter Thiel, one should always aim for monopoly. An entrepreneur should always aim to build a company that is so differentiated and disruptive that it doesn’t even face any competition.

Don’t Be A Fake Entrepreneur

As said by Peter, he has met many people who end up trying to be fake entrepreneurs. “Saying that I want to be an entrepreneur is somewhat like I want to be rich and famous. But they really don’t have the mindset to become so.” To start a company means to provide solution to an existing problems, or fill up the gaps. If you are starting a company just for the sake of doing anything to give you a label of entrepreneur, then you are faking it.

Value Substance Over Status

It’s always really good if you are doing something that you are incredibly passionate about, and that the people pursue that. One might go to prestigious business schools or start working with a famous brand, but he should always ask one question – why he is doing this? If the answer is more biased towards the status or prestige and not to the inclination towards learning new things, then it’s time to think over again.

Don’t Lose Sight Of What’s Valuable

When you compete ferociously, you will get better at it. But, you will always narrow down your focus to beating the people around you and this often comes at very high price, thereby losing sight of what is important or perhaps more valuable.

Trends Are Overrated

One must not rely only on trends for his decision-making. Many startups have failed within years of starting because of this. “ I invested in Facebook because it was different from most social media platforms and trends at the time. Most social media websites had nicknames or avatars or another identity code names.”

Don’t Dwell On The Past

Failure is not something that we can very much learn from. Things are different all times. For example, if you find that your current team was the reason for your failure, then, starting again with different team, will not guarantee success. “When you fail at something, start with something new and don’t dwell on the past.”

Find The Secret Path

The best entrepreneurs know this. Every great business is built around a secret that’s hidden from the outside. A great company is a conspiracy to change the world; when you share your secret, the recipient becomes a fellow conspirator.

Source – Inc42

Hotel room aggregator OYO turns profitable

OYO Rooms Ritesh AgarwalSoftBank-backed budget hotel room aggregator OYO Rooms said it has attained profitability at an aggregate level.

The firm, which is operated by Gurgaon-based Oravel Stays Pvt. Ltd, claimed that it was operationally profitable until June 2015 before it went for expansion but regained profitability at a network level from February 2016, as per a statement.

“Our team delivered 15 times year-on-year growth with 2.3 million booked room-night transactions in the January-March 2016 quarter while our gross merchandise volume (GMV) continues to grow every month. Over 95% of the traffic comes from our own sales channels such as app, web and call centre,” said Ritesh Agarwal, founder and CEO, OYO Rooms.

He said Gurgaon, Delhi, Hyderabad and Kolkata have been among the cities which have been driving profitability for the company. The firm aims to triple its inventory by December 2016, he said.

In February 2016, OYO Rooms—which is the most-funded budget hotels aggregator in India—had acquired Tiger Global-backed smaller rival Zo Rooms in an all-stock deal. Earlier, it also started operations in Malaysia.

In August, the firm, which operates in 170 cities across the country, had raised $100 million (Rs 635 crore) in a fresh round of funding led by Japanese tech conglomerate SoftBank. In March 2014, it had secured $24 million from a group of investors led by Greenoaks Capital Partners.

Source – TechCircle

HSBC’s Zomato valuation off the mark, says Deepinder Goyal

Zomato CEO Deepinder GoyalZomato Media Pvt. Ltd’s CEO Deepinder Goyal said on Monday that the company’s investors remained bullish despite a report by brokerage HSBC that claimed the restaurant search and food delivery start-up was overvalued.

HSBC estimates Zomato is valued at $500 million, not $1 billion as many believe. HSBC disclosed its estimate of Zomato’s valuation in a report where it initiated coverage of Zomato’s largest shareholder Info Edge (India) Ltd, which is listed in Mumbai, with a ‘Reduced’ rating. That implies HSBC recommends investors don’t buy or hold Info Edge shares. Info Edge is the company behind India’s top jobs portal

HSBC said while it is bullish on India’s internet and e-commerce business, Info Edge is not an attractive way to bet on India’s Internet story. Info Edge’s biggest investment is Zomato, where it owns a stake of 47%.

The HSBC report elicited a prompt rebuttal from Zomato. On Monday, in an email to employees, Goyal said, “Our revenue has doubled over the past 9 months. Costs have been rationalised. Burn is down 70% from the peak—it was high because we were experimenting with various business models and geographies, which we have cut down drastically—and we are now focused on the large opportunity in front of us in our core business and core markets.”

Goyal’s email to Zomato’s 2,100 employees highlights how start-up founders are scrambling to counter investor concerns over valuations.

After pumping in 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 growing concerns over unproven business models.

Since the beginning of the year, as many as four Flipkart investors including Morgan Stanley have marked down their estimate of the company’s valuation.

In response, Flipkart co-founder Sachin Bansal countered Morgan Stanley’s markdown by calling it a “theoretical exercise” that wasn’t based on any transactions.

To be sure, a markdown or readjustment in valuation only points out that a company may be overvalued rather than raising concerns around its survival.

Still, reports such as those by HSBC do raise tough questions about how investors valued start-ups last year.

The HSBC report cites Zomato’s advertisement-heavy business model, the fast expansion of rival Swiggy and Zomato’s money-losing international operations as the main reasons for its low estimate of the company’s valuation.

HSBC has estimated Zomato’s valuation based on expected cash flow.

But even based on revenues, Zomato’s valuation looks a bit rich compared with a large international peer.

Zomato’s counterpart Yelp in the US trades at a revenue multiple of 4-5 times. For the year ended 31 December, Yelp reported revenue of $549.7 million, while its stock currently trades at $26.50.

If one is to go by Zomato’s own estimate of touching $30 million in revenue by March 2016, the company’s valuation of $1 billion would imply a revenue multiple of 33 times.

HSBC’s critical report on Zomato comes after a tough few months for the company, which has cut jobs and other costs in order to reduce its burn rate.

Over the past year, Zomato has lost a bunch of senior leaders including chief product officer Tanmay Saksena, former Facebook Inc. executive Namita Gupta and chief financial officer Umesh Hora.

In his email, Zomato’s Goyal dismissed doubts about the company’s business model and HSBC’s estimate of its valuation.

“…nobody who knows our business has marked down our valuations. In fact, our existing investors are bullish about us, and are willing to back us further, if needed. And they have categorically said that our valuations are justified. Especially because we are more than doubling year on year, and the next year looks even more exciting for us. But external perceptions of valuations are determined by the state of the market, and the availability of facts to the person who is analysing these numbers.”

He added, “Having said that, we have a lot of work to do to justify the faith (not the valuation) our investors have put in us. We need to continue producing high quality work, innovate on our product, build and scale our new businesses to a point where they become meaningfully large and highly profitable contributors our overall business.”

Source – Livemint