When Ola Electric was gearing up for its IPO, there was palpable excitement among investors for the first public offering from the automobile sector in two decades. In stark contrast, now that Ather Energy is set for a public listing, the mood is sombre.

At least some of the excitement around Ola Electric has given way to fears about profitability, and the stock has been in something of a free fall as the market adjusts to the long trajectory for breakeven, and multiple years of losses for the Bhavish Aggarwal-led EV giant.

And with many investors now sitting on losses when it comes to their Ola Electric holding, naturally, there are some questions and concerns around Ather Energy’s valuation and the potential pricing of the INR 4,500 Cr+ IPO.

In the latest news, Ather Energy has secured the second spot in September 2024 sales. However, examining the FY 25 electric two-wheeler sales data, Ather has fallen to fourth place, losing its third position to Bajaj Chetak. Bajaj has increased its market share from 11% in FY 24 to 14% in FY 25, while Ather’s market share has declined from 12% in FY 24 to approximately 10% in FY 25.

Given that September 2024 sales have stagnated, Ather’s light asset model may appeal to investors as a calculated risk compared to the heavily invested Ola Electric.

However, given that EV benchmarks and multiples have not yet crystallised, Ola Electric is arguably the closest and truest comparison for Ather Energy. So with Ola Electric’s valuation now under $4 Bn after two months of listing after touching a high of nearly $8 Bn in August, is Ather Energy also risking a devaluation soon after listing?

Usually, the unlisted securities market is a great way for us to track the valuations and the pricing that pre-IPO companies might trend towards. According to reports, Ather Energy is targeting a valuation of around $2.5 Bn for its IPO, almost double the $1.3 Bn valuation at which it raised $70 Mn in August this year.

But as market observers told Inc42, the question is not just about valuation alone. It’s also about key differences in the business models i.e the vertical integration at Ola Electric and Ather Energy. 

Among the key differences are:

• Market Focus: Ola aims to produce mass-market vehicles, while Ather is perceived as a provider of premium vehicles.
• Cell Production: Ola Electric intends to manufacture its cells, whereas Ather relies on its vendors for cell supplies.
• Service and Experience Centres: Ola owns its 800+ experience centres and 431 service centres. In contrast, Ather has 211 experience centres and 192 service centres, with only one owned by the company; third-party retail partners operate the rest.

These two companies come from vastly different trajectories. Ola has gone for the blitzscaling approach, whereas Ather claims its long-term strategic investment is better for the automobile industry. 

In terms of sales, Ola Electric has outpaced Ather significantly in the past two years, but Ather still gets the thumbs-up from industry insiders when it comes to product quality.  So when we look at the Ather and Ola Electric battle — beyond sales and revenue — we have to consider the EV stack, the positioning of these two EV trailblazers.

How Ather Energy Stacks Up Vs Ola

A straight apples-to-apples comparison is not possible though, given that Ola Electric is looking to build the complete stack for EVs, while Ather Energy is working more in the mould of an OEM. 

For instance, as we highlighted recently, Ola Electric has nearly a dozen subsidiaries and is deeply involved in in-house manufacturing of key components—including battery cells. On the other hand, Ather Energy has consciously chosen to remain relatively asset-light, operating as a single registered company without entering the cell manufacturing sector, for instance, and has not committed to launching new products like Ola Electric.

Umesh Chandra Paliwal, founder and CEO of UnlistedZone, believes Ola’s model has its advantages, but it does require a lot more operational oversight. 

By controlling the supply chain, especially when the battery along with controller constitutes about 50% of an EV’s manufacturing cost, Ola Electric can optimise production costs and improve its margins. Additionally, Ola operates its own showrooms and service centres, providing customers with a complete in-house experience that strengthens brand control.

In contrast, Ather manufactures EVs but does not produce its battery-cells. Furthermore, Ather’s experience centres and service networks are managed by third-party partners as is the case for traditional ICE vehicles. And finally, Ather’s scooters are positioned as premium products, with a strong focus on delivering a high-quality user experience, which justifies their higher price point. 

And this comparison reminds Paliwal and others of the battle between Apple and Android smartphone makers such as Samsung. Both models have proven effective to some extent, but each has its pros and cons. 

Is Going Asset-Light In Ather’s Favour?

One key concern raised about Ather is that, unlike Ola Electric, Ather does have no control on 50% of its costs due to the dependency on others for the cells. This limits the EV company’s ability to reduce costs further, a problem that Ola has looked to tackle through vertical integration. 

However, Vinkesh Gulati, a member of the executive committee, Federation of Automobile Dealers Associations, asserts that comparing Ather Energy with Ola Electric is unfair. Ather is viewed as a premium electric two-wheeler brand having technically advanced and unique products , while Ola is recognised for mass-market vehicles. As a result, even though Ather may not have control over cell costs, consumers are still willing to pay a premium for its products. 

At the same time, as the EV sales tanked in September, 2024, Ather’s business model is being seen as more agile. The asset-light model does allow Ather to pivot more easily over time, especially for components and parts where technology standards change routinely. For instance, if sodium-ion batteries become the standard and lithium-ion technology becomes obsolete, Ather could quickly adapt to sodium without losing much in the process, unlike Ola, which would need to rewire a lot of its operations. 

Unlike Ather Energy, Ola has taken on the task of cell manufacturing, and the establishment of gigafactories under the government’s PLI scheme is expected to accelerate this vertical. 

What this means is that Ola might suffer from supply chain and pricing fluctuations for raw materials (such as cathode and anode minerals), especially as it scales up cell manufacturing and increases the domestic component mix as has been mandated by the government. 

This is most evident from the fact that Ola spent nearly 100% of its annual revenue on procurement of materials alone in FY22 and FY23. This has reduced slightly in FY24, but given the revenue base, it is still a significant investment.

Ensuring access to raw materials will be increasingly important in the long run as the EV ecosystem grows, and companies need to implement de-risking strategies to mitigate potential supply chain disruptions, according to Gulati and others. 

Raw materials account for over 60% of cell production costs, for instance. Given India’s dependency on imports for raw materials for cell manufacturing, future Ola Gigafactories may face pricing pressures from raw material suppliers and EV manufacturers. 

In terms of R&D expenditure, Ola Electric outspends Ather. As of FY 2024, Ather allocates 6.6% of its operational revenue to R&D, while Ola Electric invests 7.69%. This investment is also reflected in their intellectual property (IP) portfolios. Ather has acquired 45 patents and has 210 patent applications pending, whereas Ola Electric has secured 88 patents and currently has 217 applications pending.

At the moment, it’s not clear whether Ather will invest in cell manufacturing in the long run, but for the time being, it does have a bit of a cost advantage in case there are any changes in terms of the battery technology or disruption to the raw material supply chain. 

The disadvantage for Ather Energy, of course, is that since it is not manufacturing cells, it will have to spend more to acquire batteries for its vehicles in case of any supply chain disruptions, but Ather Energy has protected itself against a potential price hike by positioning its products in the premium price tier, as opposed to Ola Electric. 

Are Ather EVs Better Than Ola Electric?

Despite not having complete control over its vehicle manufacturing, Ather’s electric two-wheelers (E2Ws) are perceived to be better than Ola Electric. 

“Ola Electric may have invested significantly more in research and development, however, Ather Energy’s scooters are recognised for providing a superior riding experience compared to competitors,” according to a former head of Royal Enfield’s electric segment. 

However, a cursory glance at the specifications shows that Ather trails Ola Electric’s product lineup in terms of vehicle range, speed, and motor power, some of the key aspects that appeal a lot to Indian EV buyers. Ather also struggles to match Ola Electric’s pricing perhaps due to the ‘scale’ differences. 

So what makes Ather supposedly better than Ola? Often the reason is subjective. 

One wonders how much of the premium charged by Ather goes towards ensuring that its customers have fewer complaints about the product quality. 

“If you are positioning your brand as a premium offering, your advertising and marketing expenses will be higher, even if sales are lower. However, in Ather’s case, this spending has not translated into brand visibility or premium positioning. Things have improved over the last year, but I still believe Ather needs to reassess how it is spending its money in advertisements and marketing,” said an advertising expert who led multiple brand campaigns for one of the top five E2W manufacturers in 2023.

Despite being perceived as a premium brand, Ather is not currently charging or being able to charge a premium price from its customers. The branding cost therefore only adds to the cost without the ‘premium share’ of revenue. Ather certainly needs to improve its positioning in this regard, he added.

Experts believe that due to its procurement-led model, and the fact that it cannot match Ola’s capital investment in R&D, Ather is compelled to go for the premium category. The company is sacrificing volume for margins. 

Why Valuation Will Be Critical 

However, given the market sentiment for EV investments and Ather’s strong performance in terms of product value, experts believe Ather Energy’s IPO will be oversubscribed. However, like Ola Electric, it may witness a decline thereafter because Ather’s path to profitability is also not clear.

Unlistedzone’s Paliwal believes Ather Energy has made a compelling case for itself for investors thanks to the customer feedback on quality, Ather’s long-term strategy when it comes to the manufacturing platform, and its focus on the premium market, where Ola needs to prove itself. 

These are good indicators for Ather Energy since they signal value to potential shareholders. 

Plus, with Ola Electric’s successful listing providing a reference point to investors, Ather could benefit from the growing investor interest in the Indian EV sector, which is expected to grow at a robust 40-44% CAGR over the next five years, according to Paliwal.

That bullishness is tempered with the caution that the pricing and valuation will be a critical aspect for Ather’s IPO. As seen in the case of Ola Electric, the market cap is now hovering around INR 40,000 Cr, much lower than the listing valuation. Has Ather done enough to justify the $2.5 Bn valuation that it is said to be seeking in the IPO?

Cofounder and CEO Tarun Mehta has repeatedly emphasised that Ather Energy is undervalued in the private valuation landscape. How much merit does this claim hold? Ola Electric slashed its valuation by over 35% for its IPO to succeed and it’s still struggling to meet that valuation. 

Ather Energy does not have the sales momentum of Ola Electric nor does it have the vertical integration, so does the company need to adopt a more cautious approach?

“Given Ather’s declining revenue in FY24 due to the reduction in subsidies and intense competition in the EV space, a valuation closer to $2 Bn may be more appropriate, providing a buffer against Ola Electric,” Unlistedzone’s Paliwal responded

So while Ather’s premium positioning and long-term strategic bet can attract investors, a more conservative valuation is perhaps better to stoke investor confidence.

[Edited By Nikhil Subramaniam]

The post Ather Energy Vs Ola Electric: A Battle Of Business Models And Positioning appeared first on Inc42 Media.

“The founders, particularly Nischal Shetty, made a grave mistake by ghosting WazirX for two years and doing other projects. And suddenly they appeared out of nowhere this year. The July 18 attack is just a culmination of many of their mistakes—this was a disaster waiting to happen,” a former WazirX employee. 

On July 18, 2024, social media was abuzz with news of India’s largest crypto heist, as WazirX reported $234 Mn worth of cryptocurrencies stolen from one of its wallets hosted on Liminal, an institutional digital asset custody platform.

It’s now been more than 60 days since the heist, and a series of allegations have surfaced, with blame being shifted, and little groundwork being done. But this is what has happened in the interim:

• The company started a white hat bounty programme offering up to 10% of the stolen funds ($23 Mn)
• An FIR has been filed with the Special Cell of the Delhi Police against unknown persons
• Zettai Pte Ltd, the Singapore-based entity owned by WazirX cofounders Nischal Shetty and Sameer Mhatre, filed for a moratorium in Singapore High Court. 
• WazirX claims to be in talks with 11 crypto exchanges for a possible acquisition

It’s important to note that Zettai is the holding company for the Indian entity Zanmai Labs which operates in INR-crypto transactions on WazirX 

Now, the hack and heist have opened up a whole can of worms for WazirX. Even as Shetty looks for a white knight to come to rescue WazirX, things look bleak. 

“Can you sell something that you claim not to own? Can someone invest in or buy a company whose ownership is disputed and being investigated by the ED for FEMA violations? Despite the lucrative data of 16 Mn users, nobody would want to poke their nose into this,” said a founder of another crypto exchange. 

The heist, and the handling of it thereafter, has raised numerous questions concerning WazirX, its founders Shetty and Mhatre, as well as Binance which, despite denials, still is the real owner according to the WazirX affidavit. 

Besides these entities, Liminal Custody, where WazirX’s wallet was hosted, is also coming under fire, and on its part, pointed fingers at WazirX. 

Finally, there’s the Indian government, which collects a hefty 30% tax on crypto gains, its investigative agencies, which have not yet arrived at a conclusion on even their previous investigations into WazirX.

Where WazirX Fell Apart

Despite WazirX founders holding two town hall meetings in the last few weeks, many questions remain unanswered. And, there is a series of events and questionable decisions that led to this stage. 

After Zebpay’s temporary downfall in 2018, followed by Koinex shutting down, WazirX rose to become one of the largest crypto exchanges in India, maintaining its dominance for a couple of years. At one point, Binance had seemingly acquired the company, however, WazirX’s relationship with Binance soured eventually, leading to a very public fallout on social media.

Despite the Binance tussle, WazirX remained one of India’s most popular crypto exchanges until July. The growing popularity of cryptocurrencies in 2021, fueled by Bitcoin’s meteoric rise, helped WazirX achieve a trading volume of $38 Bn, with 44% month-on-month growth.

Like the employee quoted at the beginning said though, things soured soon after that. The founders had essentially abandoned the ship between 2022 and 2023 to pursue other ventures. Shetty went on to cofound Shardeum and Pi42, while another cofounder Siddharth Menon founded Tegro, a marketplace for blockchain game assets.

By January 2022, both founders had shifted their base to Dubai and were no longer actively involved in running WazirX. And then came the heist. 

After a series of blunders since August 2022, when the ED investigation began, this seems to be the end of the road for WazirX. Multiple founders who spoke to Inc42 believe whether it’s the moratorium or insolvency, WazirX might not see the light of day again.

Here’s the story of the $234 Mn heist that shook the Indian crypto industry and WazirX.

The Biggest Crypto Hack In Indian History

The attack on WazirX began on July 18 when one of its multi-signature or multisig wallets was breached and cybercriminals stole $234 Mn (or around INR 2000 Cr) in digital assets. According to various reports, North Korean actors were allegedly involved in this hack.

According to various accounts from Liminal and WazirX since then, the multisig wallet in question was controlled by five signatures from WazirX and one from Liminal. However, to initiate a transaction one needed three signatures from WazirX signatories and one from Liminal. 

To steal cryptos from this wallet, the hackers first created a fake account on WazirX, deposited tokens into it, and began purchasing Gala (GALA) tokens. They started by emptying out the hot wallet and then gained access to the cold wallet before draining that too. 

When WazirX signatories accessed the multisig wallet, the hacker was able to maliciously change the payload for the smart contract that controlled the wallet, 

Once the smart contract was upgraded in their favour, the hackers had complete control.  They required no further keys from WazirX, which allowed the attackers to completely drain all the funds.

At the time of the breach, WazirX had an estimated 16 Mn users and held $570 Mn in customer deposits. Approximately 4.3 Mn users suffered substantial losses due to the hack, with nearly half of their crypto balances wiped out.

As 45% of total user funds were lost, WazirX was left with no choice but to freeze all trading and withdrawals on the platform. Desperate to recover the stolen assets, on July 21, the hacked exchange announced two white hat bounty rewards.

Under the first bounty program, WazirX offered up to $10,000 worth of Tether (USDT) for actionable intelligence leading to the freezing of the stolen funds. 

The platform also launched a recovery bounty, offering 10% ($23 Mn) of the recovered amount as a reward to anyone who helped retrieve the stolen assets.

Since then, the hackers or the entity behind the WazirX breach have already moved the stolen Ether (ETH) cryptocurrency worth over $64 Mn through TornadoCash. 

Tornado Cash is an Ethereum coin mixer that utilizes zero-knowledge (ZK) proof cryptography to ensure the anonymity of user deposits and withdrawals.

This helped the attackers obscure their wallet addresses across blockchains, effectively masking their trail. 

While the platform was banned by the US government in 2022, it remains operational in several jurisdictions, including North Korea.

Who’s To Blame? Liminal Or WazirX?

At the centre of the hack are two parties—WazirX and Liminal Custody—each conveniently blaming the other from day one, leaving users uncertain about the security of their funds.

WazirX is an online exchange that allows users to buy, sell, or trade cryptocurrencies. While the exchange is registered in Mumbai and has a Singapore holding company, founder Shetty resides in Dubai. On the other hand, Liminal Custody is a Singapore-based crypto wallet infrastructure provider, which hosted the compromised wallet in Wazir’s case.

On the day of the hack, WazirX claimed in a blog post that the attack resulted from a “discrepancy between the data displayed on Liminal’s interface and the transaction’s actual contents.” 

One month later, on August 14, WazirX ended its relationship with Liminal and began transferring funds into new multisig wallets.

WazirX also enlisted Mandiant Solutions, a subsidiary of tech giant Google, to conduct a forensic analysis of the three laptops used for signing the transactions that depleted nearly half of its crypto reserves.

The hacked exchange later stated that it had received a clean bill from Mandiant, which found no evidence that its laptops or systems had been compromised during the hack. However, WazirX didn’t stop at clearing itself of responsibility. It further claimed that preliminary findings indicated the cyberattack likely originated from Liminal.

In response, Liminal brought in auditing giant Grant Thornton to perform its own forensic analysis, which cleared Liminal of any wrongdoing. The wallet infrastructure provider stated that no breach had occurred on its end.

It’s worth noting that neither Liminal nor WazirX has released the entire forensic report in public, but only parts of it.

Speaking to Inc42, a Liminal spokesperson said, “WazirX was using self-custodial software, not our custody service. The wallet was actually in the client’s custody, with the customer holding 5 out of the 6 keys required to control the wallet.”

Since the hack involved both entities, it would have been ideal to conduct a joint forensic analysis rather than separate investigations. However, Liminal clarified, “No, we were not approached by WazirX for any joint forensic audit.”

WazirX did not respond to Inc42’s queries till the time of publishing. 

However, the Liminal spokesperson hinted at the company exploring legal options to safeguard its brand name after the accusations from WazirX.

WazirX’s Nischal Shetty In The Hot Seat

Even though on paper Shetty, Menon and Mhatre are the founders of WazirX, Menon left the company in February 2022, while Mhatre has stayed out of the media spotlight. Essentially, Shetty is the face of WazirX and he’s naturally taking a lot of the heat in this matter.

“Before the Binance acquisition, Nischal and other founders paid salaries out of their own pockets. They also went the extra mile to ensure that WazirX got acquired by Binance, but since 2022 they have let everyone down,” said a source close to the matter. 

Post the acquisition by Binance in 2019, the global giant set up an internal team, including Binance US CEO Brian Schroder and Binance’s legal team, to work with WazirX. On WazirX’s end, Shetty and VP of finance Tushar Patel were the points of contact for Binance. 

According to a CoinDesk report, the terms of the agreement allowed WazirX to continue “accessing and operating these accounts for the sole benefit of Binance,” which was designated as “the absolute owner of these accounts.”

On July 28, 2021, after Patel agreed to the purchase agreement, Schroder wrote: “Thank you, Tushar. We will start the transfer process and keep you posted.”

But less than a year later, trouble came knocking. 

India’s Enforcement Directorate (ED) issued four summons on February 7, April 8, May 11 and June 7, 2022 against WazirX and its founders. Then on June 11, the ED for the first time publicly announced sending the show-cause notices to WazirX and its founders for crypto transactions worth INR 2,790.74 Cr being probed under the Foreign Exchange Management Act (FEMA), 1999.

Needless to say, Binance’s legal team was also facing the heat. After the first of the ED notices, Binance, which was already largely operating in ghost mode from tax havens like Malta, began distancing itself further from WazirX and the India business. 

The final blow came on August 5, 2022, when the ED conducted search operations at Mhatre’s and the WazirX office. On the same day, Binance completely cut WazirX off, claiming the acquisition had never been completed and that WazirX’s founders still ran the company and were effectively its owners.

However, Shetty has evidence on his side, showing that Binance unilaterally withdrew $67 Mn in trading fees from the WazirX platform. Binance transferred these amounts to an internal account solely controlled by them, as Binance owned the WazirX wallets, according to Shetty.

Despite this, Shetty and WazirX cannot claim complete innocence.

According to sources close to the development, Binance invested approximately $100 Mn to acquire the platform, though Inc42 could not independently verify this. 

As per the agreement, Binance was supposed to acquire the WazirX platform and take control of the peer-to-peer trading operations.

The KYC and INR-Crypto transactions, however, would continue to be executed by the Indian entity Zanmai Labs, owned by Zettai Pte Ltd in Singapore, jointly owned by Shetty, Menon and Mhatre.

“During the ED investigation, Shetty was doing everything to comply with the investigation while Binance was running away, ghosting us,” remarked a former WazirX employee.

However, this doesn’t absolve Shetty and WazirX from blame. On January 26, 2023, Binance threatened WazirX, demanding Shetty retract his claims about WazirX ownership or face the termination of its service agreement in a week’s time. 

In response, Shetty migrated wallets from Binance to Liminal and continued operating the platform despite the ongoing dispute.

“At this point, Shetty did not fully disclose the situation to traders and investors. He did not reveal the heightened risk investors would face after the ownership dispute with Binance,” said another cofounder of a leading Indian exchange.

Many users continued to trade on WazirX, as nothing appeared unusual on the app except for changes to the user agreement, which only a few people read, if at all.

Another critical issue is using Binance’s name in the user agreement when Binance had already publicly detached itself from any association with WazirX.

Rashmi Deshpande, specialising in technology Laws and founder of Fountainhead Legal, told Inc42 that if the user agreement is with the Indian entity Zanmai and Binance is also mentioned as someone responsible for peer-to-peer trading which continued to be part of the user agreements, both the entities could be held responsible as per the Indian laws.

In response to Inc42’s queries, Binance stated that it did not acquire, nor does it own or operate, the WazirX platform, Zettai Pte Ltd, Zanmai Labs, or any of its affiliates. This includes operations related to P2P transactions on WazirX. Any claims suggesting that Binance controls or owns these transactions are incorrect, the spokesperson said. 

Binance further claimed that Zanmai Labs’ reference to Binance in WazirX’s Terms of Use was false and misleading and that it was not authorised by the company.

The Binance spokesperson added, “We have been in communication with the WazirX team since July 18 to support their incident response efforts. We are deeply committed to the security and resilience of the entire cryptocurrency ecosystem. Our goal is to ensure the safety of the digital asset community by sharing best practices and advanced security measures. That said and for the avoidance of doubt, please be reminded that Binance does not manage or control any aspect of WazirX’s business or operations, including WazirX’s user funds.”

Those who invested through WazirX have questioned Shetty’s intention behind not releasing a copy of the FIR, the forensic report or other details pertaining to the ownership dispute with Binance.

As one user told us, even if WazirX had non-disclosure agreements with Binance, these were breached when the company was sharing details of the case with certain sections of the media to gain leverage over Binance. 

“Technically, you have already breached the NDA in the past. You could at least share the nature of the lawsuit with Binance. We don’t even know the title of the lawsuit. That’s what is disturbing,” the WazirX user added. 

Other WazirX insiders told Inc42 that Shetty had distanced himself from the company for an extended period while working on other projects. Most employees worked from home and there was a small setup at a WeWork property in Mumbai, but Shetty had minimal communication with the team.

Even in the two town hall meetings following the heist, Shetty has continued to fumble and deviate from what should have been the appropriate course of action. This includes the critical step of bringing more transparency to the process, especially considering the plight of over 4.4 Mn investors impacted in the heist.

While withdrawals were halted immediately, INR deposits remained open for a few days even after the hack. 

Many investors, unaware of the situation, continued to deposit INR. However, these very investors are now unable to withdraw their funds in full and will only receive up to 66% of their money, with the rest potentially being lost.

Though Shetty claims to have lodged a complaint on July 19, the FIR was registered two weeks later, i.e. on August 5, 2024. A DCP from Karnataka confirmed to us that once an online cybercrime complaint is made, the FIR is registered immediately after the complaint copy is shared. Given the magnitude of the stolen amount, the FIR should have been registered instantly.

Inc42 spoke to Hemant Tiwari, DCP, IFSO, Delhi Police who is supervising the investigation. Tiwari said that the complaint was registered only a couple of days before August 5, 2024. Initially, the WazirX team had filed the complaint with Mumbai Police where the FIR was not registered and the complaint with Delhi Police came after this, and the FIR was registered thereafter. 

To date, Shetty has not provided any evidence to support his claims regarding the timing of the complaint.

About the investigation, Tiwari hinted at onboarding a blockchain analysis firm. “The investigation is still in the initial stage, hence I won’t be able to disclose much in this regard,” he added. 

Moreover, all proof-of-reserve reports published by WazirX consistently claimed a 1:1 reserve ratio, meaning that WazirX had more assets than liabilities. However, when asked for specific figures, WazirX failed to respond.

In its affidavit, WazirX provided details of the assets it has remaining.

However, this did not match the data shown by Coin Gabbar’s WazirX tracker. Multiple users have reported this.

The same issue extends to multiple tokens.

Investors that Inc42 spoke to raised a series of concerns, including why they were not consulted before onboarding Kroll. 

“WazirX has set aside INR 100 Cr to cover legal expenses and bring Kroll on board for managing the moratorium process. This is investors’ money, not the company’s funds. Yet, investors were not taken into confidence for such major decisions,” said Ravi Kumar, a Noida-based investor who had invested over INR 2.5 Lakh on the WazirX platform.

Unocoin’s cofounder Sathvik Vishwanth also agreed that WazirX should not have kept INR 100 Cr set aside to fight the legal battle and said it should not have applied for a moratorium. “Once the business stops, everything stops. Instead, WazirX could have immediately returned the remaining amount to the users and could have continued the operation. This could have offered better chances to recover in the next 12 months.”

The Buck Needs To Stop With The Government

Can the Indian government and its investigative agencies continue to hide behind the claim that crypto is an unregulated territory? And what even happens to cases of crypto scams and frauds where investors have been waiting for years for resolutions or a verdict. 

“Whose responsibility is it to regulate cryptos if taxation is allowed? The Indian government has been charging 30% tax on all profits, even when there are losses on other crypto transactions. For what? If they can’t step up and help investors in these unprecedented times?” asked Praveen Singh, an investor with the WazirX platform. 

It’s worth noting that since last year, the Financial Intelligence Unit (FIU) under the Ministry of Finance has been tasked with keeping records of all crypto exchanges and entities operating in the Indian market. This essentially means that any crypto entity must have FIU clearance to operate in India.

Binance has alleged that since Zanmai Labs, and not Binance, applied for the FIU licence, Zanmai Labs should be held accountable for the WazirX fiasco.

However, the bigger question remains: Why have no investigative agencies like the CBI or others come forward to investigate a case that impacts the lives of 4 Mn Indians? Many of whom have invested precious life savings into crypto and are paying the requisite taxes for trading in cryptocurrencies. 

Advocate Deshpande claims that the RBI and the Indian Government as well have time and again clearly mentioned the risk involved in cryptocurrencies. However, this warning sign is not enough to prevent investors from becoming victims of such attacks.

Now that India is home to one of the biggest crypto heists in history, it is high time that the Indian Government takes serious action on regulating the crypto space by introducing crypto-specific laws.

[Edited By Nikhil Subramaniam]

The post The End Of WazirX: The $234 Mn Heist, Nischal Shetty Under Fire And The Blame Game appeared first on Inc42 Media.

Swiggy is not shy of an experiment or two — from products like SuprDaily, InsanelyGood, Scootsy, and Swiggy Mall to multiple changes in its subscription/loyalty programmes to new food delivery segments. 

The new Swiggy — the one going to the IPO table in 2024 — is more than just food delivery. Instamart and quick commerce have taken centrestage. Other services are becoming just as critical for long-term profitability. 

And there’s a lot of optimism even within Swiggy about its fortunes. Following Zomato’s 80% share price growth over the past six months, Swiggy has revised its IPO size from the originally planned $1.25 Bn to $1.4 Bn. 

The company, initially set to raise $450 Mn through a fresh issue, will now issue fresh shares worth $600 Mn, while maintaining the offer-for-sale as previously planned. This positions Swiggy’s IPO as the fourth largest on Indian bourses, after LIC, Paytm, and Coal India. And naturally all eyes are on the food delivery and quick commerce giant. 

And the role of the key people leading the various verticals will be just as critical for IPO success and beyond. Alongside cofounders Nandan Reddy and Phani Kishan, cofounder and CEO Sriharsha Majety has built a team that sees quite a few experienced professionals from the world of ecommerce, consultancy and technology products.

The Swiggy Universe: Food Delivery Is King

Unsurprisingly, Swiggy’s food delivery vertical is the dominant contributor to revenue, accounting for over 81% of its gross earnings, followed by Instamart, which generated INR 1,100 Cr, contributing around 10%.

Swiggy’s food delivery business grew 17% to INR 6,100 Cr in FY24. When compared to Zomato’s food delivery revenue of INR 6,161 Cr, Swiggy is neck and neck with its chief rival. But Zomato-owned Blinkit reported INR 2,301 Cr in revenue, more than double of Swiggy. 

The silver lining is that Swiggy reduced losses by 44% from INR 4,179 Cr to INR 2,350 Cr. This reflects Swiggy’s improving financial performance and a path to profitability ahead of the IPO. With the company expected to file its RHP with the SEBI later this month, it’s important to examine just who is in charge of leading the food delivery and quick commerce giant to the stock exchanges. 

On the food delivery front, while cofounders Majety and Reddy oversee overall product innovation and direction of the business, Swiggy appointed former OYO India CEO Rohit Kapoor as the lead of the food marketplace segment in August 2022.

Interestingly, Kapoor comes with over twenty years of experience in sales and finance in enterprises and companies such as Max India and McKinsey & Company, before a stint at OYO where he was also CEO of India & Southeast Asia operations and later the Global CMO. 

Not being from the consumer services industry, Swiggy is relying on Kapoor’s expertise to get to profitability on the food delivery front by FY25

Another key exec is Tapojoy Chatterjee, VP and head of product, and as such his role overlaps with other verticals, given Swiggy’s one-app approach, as opposed to Zomato and Blinkit. 

Kapoor also oversees the Dineout business, which Swiggy acquired in 2022, and is likely to be a big focus for Swiggy going forward if Zomato is successful in scaling up District and its own going-out business. 

On The Quick Commerce Front

The quick commerce (QC) market is set to outgrow the online food delivery sector, having already surpassed 50% of its size by 4QCY23, according to JM Financial. QC’s growth is expected to continue, fueled by its broader target market and high customer satisfaction. In contrast, the food delivery market’s growth is projected to remain modest at around 20%, with QC potentially overtaking it in the next 3-4 years.

Swiggy, like Zomato, Zepto, and BigBasket, is betting heavily on QC. Reports suggest Swiggy plans to allocate a significant portion of the funds from its upcoming IPO to expand Instamart. 

The company aims to double its network of dark stores, which supply groceries and home essentials, to over 1,000 locations in the next four years as it increases its presence in various cities. The new dark stores are expected to be larger in size to cater to the non-grocery category, which is a critical factor for profitability in quick commerce. 

Interestingly, Blinkit aims to hit 1000 stores by FY25, and double this in the next year. So Swiggy is looking to go toe-to-toe with Zomato once again, even as Zepto grows as a challenger.

In September 2024, Swiggy appointed Amitesh Jha, an IIT Delhi and IIM Ahmedabad alumnus with 14 years of experience at Flipkart, as the CEO of Instamart. Previously, Instamart was headed by cofounder Kishan. 

One clue about Jha’s focus comes from CEO Majety’s statement during his appointment. “His extensive experience includes leading core categories such as smartphones, general merchandise, fashion, and large appliances, as well as managing their logistics arm,” the cofounder said in September when Jha came on board. 

Just last month, the company appointed Sairam Krishnamurthy, a former head of supply and marketing at Ola, as the COO of Instamart. 

Besides this C-Suite recruitment, Swiggy bolstered its product and management layer for Instamart with Himavant Srikrishna Kurnala as head of product for Instamart, Mayank Rajvaidya as VP of fruits and vegetables, and Manu Sasidharan as AVP of the FMCG category. Other key leaders at Instamart include Abhishek Shetty, who leads marketing, and Anirban Roy, VP of category, revenue, and growth.

Swiggy Mall, earlier, the company’s non-grocery product category on quick commerce has now been fully merged with Instamart.

This will be the most critical piece in Swiggy’s org structure, given how significant Instamart is from a revenue point of view. Notably, while Blinkit—part of Zomato—registered a 3x growth in FY24, increasing revenue from INR 809 Cr in FY23 to INR 2,301 Cr in FY24, Swiggy’s Instamart has struggled to keep up with competitors. 

Despite being an early entrant in the QC space, Instamart’s revenue reached only INR 1,100 Cr in FY24, trailing behind Blinkit in revenue.

Plus, now Swiggy also has to compete for revenue share with the likes of BigBasket and Flipkart. The company cannot afford to fall behind in the quick commerce race, as this is the biggest potential revenue contributor in the long run.  

Swiggy’s Dineout Needs More Muscle

Finally, there’s Dineout, Swiggy’s dining-out platform, which was acquired in 2022 for $120 Mn. 

Initially led by cofounder Ankit Mehrotra after the acquisition, this vertical is led by Rohit Kapoor since June 2023. Kapoor was tasked with unlocking revenue streams for Dineout and works closely with the product and growth teams. 

The company has plans for this product as well with table reservations added to discounts and rewards as a way to bring in more users and revenue. 

In FY24, Dineout recorded a 98% year-on-year growth in gross order value (GOV), reaching INR 2,200 Cr, up from INR 1,100 Cr in FY23. Adjusted EBITDA improved as well, reducing from -12.4% in FY23 to -8% in FY24.

The company credited this growth to higher commissions, advertising fees, user charges, and additional revenue from event ticket sales on the platform. Dineout competes with platforms like Zomato, EazyDiner, BookMyTable among others.

Post-COVID, the restaurant table booking industry in India has undergone a transformation. Both Swiggy and Zomato are now focusing on offering more than just table reservations, expanding into booking experiences. 

Many restaurants now host live events, making bookings extend beyond just lunch or dinner, further boosting the platform’s scalability. This has opened up the opportunity for Swiggy and Zomato to extract more revenue from users in the dining-out space. 

Zomato once again has been ahead of Swiggy in the race and has acquired Paytm’s live ticketing business in a deal valued at over INR 2,000 Cr. Will Swiggy also jump in with both feet into this mix? 

But Dineout as a product itself is looking a bit pale in comparison to what Zomato has planned. Will Swiggy look to beef up this vertical in the next few months? There are signs.  In fact, back in 2022, Swiggy acquired Stepping Out, an experiential events platform that hosts a variety of events, including night markets, live music shows, concerts, and comedy nights. Stepping Out is currently part of Dineout.

In September 2024, Dhruvish Thakkar was appointed as AVP for revenue and growth at Swiggy Dineout. Thakkar is another former Flipkart executive jumping over to Swiggy, and has led growth for fashion, beauty, social commerce, gaming, and healthcare categories at his previous employers. 

Sriharsha Majety Steps Out Of The Limelight 

The hiring for leadership across verticals is critical for Swiggy ahead of a potential IPO. Not only does it add a wealth of relevant industry experience to the company’s leadership, but their experience of scaling up retail and ecommerce giants such as Flipkart would be critical for Swiggy in the long run.

Interestingly, with the various new leaders in place over the past year, Swiggy is preparing for life as a public company, where CEO Sriharsha Majety cannot take complete control of the show as he has done for the past decade. As a result, Swiggy is building depth in the leadership and management layers across food delivery, quick commerce and dining out. 

The biggest challenge for this group of leaders will be profitability. While Swiggy might fall short of Zomato on the valuation mark at the time of IPO, that’s not really the attractive part for investors. All eyes will be on whether Swiggy has cracked the formula needed to come out of the red and into profits. 

Only then will the scale built over the years come into the picture. 

Naturally, there is a strong spotlight on the people and the leaders taking Swiggy to the IPO pole and beyond. Can they guide the Swiggy ship to the right bay at this critical time for one of India’s most prominent startups?

Update 5.30 PM, September 21, 2024

The images have been updated.

[Edited By Nikhil Subramaniam]

The post Swiggy’s Core: Who’s Driving The IPO-Bound Giant Towards Profitability? appeared first on Inc42 Media.

Can you name the people behind Ola Electric? Beyond Bhavish Aggarwal, not many names come to mind. 

Ola, a brand valued at around $9 Bn, spans across Ola Consumer (formerly Ola Cabs) at $2 Bn, Ola Electric at close to $6 Bn, and Ola Krutrim at $1 Bn. Yet, aside from CEO Bhavish Aggarwal and perhaps his brother Ankush Aggarwal, there aren’t many names that have made it to the headlines.

At Ola Electric, for instance, the organisational structure is deep even with several decision-making layers. That’s not a surprise given the breadth and depth of Ola Electric’s operations. 

The company is looking to create a vertically integrated EV stack and as such there are three major components — manufacturing, battery or cell manufacturing and EV infrastructure such as charging stations. 

Away from the limelight, several noted industry players have come on board to direct the company in the post-IPO world. And it’s not just about names, but how critical these functions are if Ola Electric has to prove the naysayers wrong. 

So, in that sense, these leaders will have their tasks cut out. 

Ola Electric’s hiring strategy seemingly revolves around bringing in experts for its diverse operations, focusing on EV manufacturing, cell production, charging infrastructure, and R&D. 

With subsidiaries in Europe, the UK, and the US, Ola Electric is positioning itself as a major and resourceful player in the global EV race, while its domestic production arm, Ola Cell Technologies, aims to reduce import costs and secure supply chain independence.

Still, the company’s journey has faced some hurdles. As several of its key executives have joined in the last two years, frequent executive exits have raised concerns about its long-term stability. That’s not surprising given the relatively young age of Ola Electric overall. 

Furthermore, while Ola Electric IPO was made a huge success by cutting down its valuation by 30%, the real problems of investors in terms of earning per share, EBITDA, and P/E ratio continue to haunt the company. And, this has started reflecting on the stock markets too

Soon after its flat listing in the first half of August, the stock hit an all-time high on August 20 when it was trading at 157.53. In less than two weeks of listing, Ola Electric stock price had more than doubled, but now the stock is settling close to the INR 110 mark, over the potential long path to profitability. 

Despite impressive infrastructure, which includes 250 hypercharger stations across 17 states, 870 experience centres, cell manufacturing, the largest two-wheeler manufacturing capability in India and its technological prowess with 88 patents and 217 patent applications, Ola Electric has yet to present a profitable equation to investors.

The People Driving Ola Electric 

Before we delve into who heads what, it’s important to understand the organisation structure.

Over the past few years, Ola Electric has brought on Shaun William Calvert, former deputy CEO of Vietnam’s Vinfast to oversee Ola FutureFactory. Calvert is responsible for leading a team of 874 women workers to keep things running smoothly at the core manufacturing unit for Ola Electric. 

Then, there’s Hyun Shik Park, previously head of cell operations at LG’s so-called Mother Factory at Ochang in South Korea. Park now leads the Ola Cells Gigafactory and even earns more than Aggarwal, showing just how critical he is to the company’s future.

While the gross salary of Aggarwal was INR 2.99 Cr in FY24, Park earned INR 8.7 Cr in FY24, the highest among senior management in the company and its subsidiaries. Additionally, Park received 17.3 lakh shares in Ola Electric during the fiscal year, potentially worth over INR 13 Cr to be vested in the next 4-5 years.

While Calvert and Park joined Ola Electric last year, another key member is Suvonil Chatterjee, who once led design at Flipkart. Now the chief technology and product officer at Ola Electric since 2021, Chatterjee is seen as the second most influential figure in the Ola group. 

For instance, he has also played a key role in developing the Ola Krutrim platform and Ola Maps.

Ramkripa Ananthan — many might have spotted her driving an Ola bike onto the stage at Ola Sankalp events. A former Mahindra designer who designed the likes of Mahindra Thar and Mahindra XUV 700 and now Ola bikes, Ananthan is a automobile designer-veteran and fittingly leads the vehicle design team at Ola Electric.  

Harish Abichandani, a former CFO at Flipkart’s Ekart division, has emerged as another key executive member at Ola Electric, where he has been leading the finance department since last year. Abichandani has been associated with Ola Electric for the past six years in various capacities. He currently serves as a director for several Ola entities, including Ola Electric Technologies, Ola Financial Services, Ola Electric Charging, Ola Fleet, and Ola Stores.

Getting Down To The Cell

Unlike most of its peers, Ola Electric has started manufacturing its own cells. It is worth noting that building cells in India is extremely important for the company because, for every INR 100 spent on an electric scooter, over INR 32 goes towards importing cells and other components. 

Since March 31, 2024, Ola Cell Technologies has developed the capability to produce 1.4 GWh at the company’s Gigafactory in Krishnanagar, Tamil Nadu, located near the Ola Futurefactory.

However, this is not going to reduce the cell prices for Ola Electric. Instead, the company has planned to heavily invest in cell manufacturing for the next three years in a row to meet the targets per year as promised under the PLI scheme to the Indian government.

While Bhavish Aggarwal has been monitoring and controlling the Ola brands and hence essentially even micromanages the executive decisions across the brands. 

Besides Park, sources talk about Vishal Chaturvedi as being another key leader at Ola Cell Technologies.

Chaturvedi is the business head at Ola Cell and Park is the expert in battery manufacturing, and therefore the COO of this subsidiary. Besides the duo, associate director Rajkumar K leads the mechanical cell design team for battery structural parts and packs.

Who’s Running The EV Show

Under CEO Aggarwal, the Ola Electric Technologies features four executives running the show. We have spoken about Ananthan, Chatterjee and Calvert briefly above. But Samraj Jabez Dhinagar, the head of vehicle engineering is another key pillar. 

Ananthan, who joined Ola Electric in July 2022, heads the vehicle design unit and the bike concepts unveiled by the company on August 15, 2023 were designed under her purview. A BITS Pilani and IIT Bombay alumni, Ananthan took home INR 1.6 Cr in FY24, while Calvert was paid INR 4.8 Cr in FY24.

Given his sweeping role across verticals, Chatterjee is the highest-paid executive in this division and earned INR 5.3 Cr in FY24.

All of them except Chatterjee have joined in 2022 or after, which does raise some concerns, but their collective depth of experience is a key strength, and there are many questions about Aggarwal’s claims from the past. 

Is Ola Electric Slipping On Targets

The annual production targets for Gigafactory and Futurefactory have also been lowered in the official RHP in comparison to what was initially promoted before the company had to make disclosures. The company had earlier aimed to produce over 1 Mn cars at the Futurefactory, a plan that has now been shelved entirely. 

While Giagfactory’s estimated target capacity is now capped at 20 GWh, the 1 Mn production of E4Ws has been fully shelved. The current installed capacity of the Futurefactory stands at 679K, less than 1 Mn, and that’s just for two-wheelers. 

Bhavish Aggarwal has always been known to set aggressive targets, but now with Ola Electric required to disclose such targets to the regulatory, the company has had to curb some of that enthusiasm. 

There have also been exits in the top management, which is said to be a key factor in Ola Electric rejigging some of its targets. These include Slokarth Das, head of planning and strategy, Saurabh Sarda, head of partnership and corporate affairs, and Shikharr Sood, head of talent acquisition.

Will Post-IPO Blues Hit Ola Electric?

Despite having a short term success at the bourses soon after listing, Ola Electric is at a crossroads. And as such, its people will be a key success factor for the company. As a public company, Bhavish Aggarwal will need to let go of some of the aggression that we have witnessed in the past. 

After all, there could be deeper ramifications now than just the ire of a few private shareholders. 

While its extensive infrastructure, significant investments in technology and R&D, and a moderate valuation successfully attracted a pool of investors, concerns over profitability and basic financial health cannot be ignored. 

For instance, the company sold 3.26 Lakh two-wheelers in FY24, it also registered a net loss of INR 1,584 Cr, which effectively means a loss of INR 48,500 on every scooter sold, given that Ola does not yet offer services for EV charging to other OEMs. 

Plus, in the first three months of FY24 i.e April-June 2023, EV subsidies were up to INR 40,000 per scooter sold, which was reduced to INR 15,000 from June 2023 onwards. This has been further reduced to INR 10,000, which many expect will cool down the EV market. 

One particular calculation by the Morning Context, using the high-low method to calculate the breakeven, shows that Ola Electric may have to sell at least 2.24 Mn per year to turn profitable. 

And this by itself could be enough and more pressure for the key leaders at Ola Electric. For the first few years, these leaders have shown that Ola Electric can pull off aggressive growth. Now with the added responsibility of proposed new products — three-wheelers and superbikes — the same team has to show that Ola Electric can grow in a profitable way as well.

[Edited By Nikhil Subramaniam]

The post Bhavish Aggarwal’s Inner Circle: The Key People Driving Ola Electric appeared first on Inc42 Media.

super.money, a fintech venture backed by Flipkart, recently introduced a co-branded credit card in partnership with Utkarsh Small Finance Bank. Dubbed as superCard, this new offering allows users to secure credit cards with limits starting as low as INR 90 by making deposits ranging from INR 100 to INR 10 lakh.

The platform, operated by Scapic Innovations, which Flipkart acquired in 2020, has already launched three financial products: UPI services, personal loans via the Flipkart app, and the superCard—a co-branded Rupay credit card.

However, the company has broader ambitions.

“We will have six products in the market in the coming weeks,” revealed Prakash Sikaria, Founder and CEO of super.money, during an interview with Inc42. He further emphasised that super.money operates as an independent entity, with Flipkart acting solely as an investor. Sikaria also hinted at external fundraising plans, saying, “This is something we will plan in December.”

The super.money app, launched in beta mode two months ago, has witnessed impressive growth, reaching 10 Mn UPI transactions and over 1 Mn app downloads. Sikaria shared that the company has been working on the project for more than nine months, and its primary focus is on integrating credit with UPI.

“Our focus has always been on credit, and we’re bringing that to UPI. The SuperCard Rupay card is our first product in this space,” Sikaria stated.

In a highly competitive fintech landscape, Super.Money aims to differentiate itself with a streamlined user interface.

“Many UPI apps today feel like banks, with cluttered interfaces. We wanted to bring back the fun and simplicity in payments, whether it’s through credit cards or UPI,” Sikaria explained. He added that the platform is designed to appeal to young, affluent users in India, offering a fast and vibrant experience.

After superCard, superCash And superDeposits To Be Launched Soon 

Sikaria revealed that the company would soon offer fixed deposits (FDs) and credit lines via UPI, a feature recently launched by NPCI. The introduction of unsecured credit cards is also on the agenda, aimed at users who typically graduate from secured to unsecured products.

“We’re building products to cater to this emerging economy, where even small transactions are becoming possible through UPI,” he said.

super.money’s current product line-up includes:

• superUPI
• superCards (secured and unsecured)
• superCash (secured and unsecured credit lines)
• superDeposits (FDs)

It is primarily targeting young professionals aged 20 to 35 with steady incomes.

“This group represents the vibrant Indian economy, and we feel they’re currently underserved by banks and fintech companies,” said Sikaria, outlining the company’s strategy to fill a gap in the market.

One of the company’s key focuses is on offering credit to users who may not qualify for traditional credit cards. “Many users, especially younger ones, are not eligible for traditional credit cards because they lack credit bureau profiles. We believe secured products can address this gap,” Sikaria explained.

On the TAM size, Sikaria averred that there are around 100 Mn credit cards in circulation, with 40 to 50 Mn users. He further added that the TAM for secured products could be as much as 5x that, reaching around 200-230 Mn users. “We see this as a significant opportunity, with secured payment products becoming a large part of the market,” he added.

On PhonePe Rivalry

With UPI, ULI and other credit products, Flipkart-backed super.money seems to be now competing with its spin-off sister company PhonePe. Both Flipkart and PhonePe are currently owned by US commerce giant Walmart. 

While PhonePe with 7 Bn transactions in the last month has held the lion’s share 46% of the UPI usage in India, super.money, too, has shown impressive growth and has registered over 10 Mn transactions in its very second month. 

And, amid the NPCI’s proposed 30% market cap limit for TPAPs from December 2024, which would force PhonePe and Google Pay to cut down their market shares from existing 46% and 36% to maximum 30%, super.money aims to be the 5th largest UPI player by the end of 2024.

Currently Axis Bank App is the 5th largest player with 108 Mn monthly transactions. 

Does this mean super.money is directly competing with PhonePe?

Sikaria clarified that their goals differ. “PhonePe is primarily a payments company. We’re focused on being a credit-first company with being more like a modern-day Bajaj Finance or SBI Cards, centered around financial services.”

External Fundraising On The Cards

Although super.money is currently well-funded, Sikaria disclosed plans to raise external capital. The company is expected to consider this move in December, depending on the performance of its products in the market.

“We’ll take a call on how much to raise and from where, once we’ve gathered more data and completed our next phase of product development,” he said.

With the backing of Flipkart and a clear focus on addressing gaps in the credit market, super.money is positioning itself as a key player with the aim of cross-selling Flipkart users first.

The post Flipkart’s Super.money Plans To Raise External Funds, To Launch FDs, Credit Lines Via UPI appeared first on Inc42 Media.

The recent BYJU’S battle between the company’s founders and its investors over the rights issue and corporate governance lapses is arguably the most high-profile tussle of its kind. But it’s just the latest one in a long line of such battles. 

From Snapdeal vs SoftBank in 2017, to the major Flipkart sagas involving cofounder Sachin Bansal and Tiger Global in 2016, followers by the other cofounder Binny Bansal and his fallout with Walmart in 2018. And then there was Bhavish Aggarwal’s stand-off with SoftBank in 2019 regarding a possible Ola-Uber merger. 

And now it’s the turn of WestBridge Ventures which is clashing with Shaadi.com’s founder over an alleged SHA clause violation, which grants the investor a mandatory exit from the company. WestBridge invested in Shaadi.com through the WestBridge Ventures II Holdings fund in 2006. Eighteen years later, the shareholders’ agreement between the two parties is at the centre of a legal dispute across national borders and jurisdictions. 

The case was heard in the Singapore High Court, ICC Tribunal, Singapore Court of Appeal as well as being heard in Indian forums such as the Bombay High Court, NCLT, and NCLAT. Many say that this is a landmark case because it could influence future disputes as well, by:

• Determining jurisdiction areas for cases being heard in multiple countries
• Determining the extent of arbitration in legal disputes
• Enforcing orders of various courts, and
• Outlining legal remedies for corporate oppression in India,

Founded by Anupam Mittal and his brother Anand Mittal in 1997, Shaadi.com (People Interactive (India)) has been one of the most popular online matchmaking platform in India and many other countries including Pakistan, Bangladesh, and have its presence in other countries including UAE, UK, and US.

The company was heavily impacted during the Covid and after having registered profit of INR 8.5 Cr in FY21, it recorded a loss of INR 13.5 Cr in FY22. The company has not filed its FY23 financial statements yet, so we don’t know whether Shaadi.com has been able to get back in the black after March 2022.

Before we delve into the nitty-gritty of the case, let’s first set the context and understand the nature of the dispute between the two parties.

Anupam Mittal Vs WestBridge: The Story So Far

Back in 2006, Mauritius-based private equity fund WestBridge Ventures which has invested in over 150 companies in the last 20 years (with AUM in India having crossed $10 Bn), invested INR 166 Cr in Shaadi.com’s parent company People Interactive (India). As a result, both the investor and the company entered into a series of agreements, including:

• Shareholders’ Agreement (SHA)
• Share Subscription Agreement (SSA)
• Share Purchase Agreement (SPA)
• And, First Supplementary Subscription-Cum-Shareholders’ Agreement (SSSA) in 2008

According to the ASI petition copy filed in the Singapore High Court, clause 3.4 of the SHA granted WestBridge certain contractual rights, including exit rights by means of:

• An IPO within five years
• The sale of WestBridge’s shares to any independent third party, except a significant competitor
• Redemption and buyback options if an IPO is not held within five years
• Drag-along rights if People Interactive fails to buyback shares within 180 days of exercising the buyback option

Since 2017, the SHA’s clauses have led to a dispute between Mittal and WestBridge, and it escalated as Mittal failed to offer an amicable exit to WestBridge. 

With the five-year obligation long overdue, WestBridge exercised its buyback option, mandating that the company convert its 1,000 Series A1 Preference Shares into 580,779 equity shares and buy back the said equity shares.

According to the audit report seen by Inc42, while the company completed the conversion of the preference shares into 580,779 equity shares and allotted them to WestBridge on December 22, 2020, it could not complete the buyback.

Shobhita Annie Mani, General Counsel, WestBridge was appointed nominee director in 2019. 

Subsequently, WestBridge issued a drag-along notice to the founders on October 8, 2021. This incidentally mandates that the group liquidate the shares of the minority shareholders including the founder and either buy them or sell them to a direct competitor. 

The Rise Of The Dispute

According to court filings, both parties had been fully committed to the agreement clauses until issues arose in 2017 when WestBridge entered talks with People Interactive competitor Info Edge to sell its shares. 

It’s important to note that Info Edge runs another matchmaking platform Jeevansathi.com, which is a direct competitor to Shaadi.com. This is in compliance with the terms of the SHA, which say that if Shaadi.com fails to facilitate a buyback, the concerned investor is free to sell shares to anyone, including significant competitors. 

The drag-along rights could potentially jeopardise Shaadi.com in a very detrimental way, as it opens the path for Info Edge to execute a takeover. 

If Info Edge’s Jeevansathi.com were to acquire the majority shareholding, it would mark the end of the road for the founders and promoters of Shaadi.com. 

According to Mittal’s petition at the NCLT, while Mittal holds a 30% stake in People Interactive (India), WestBridge controls 44.3% of the shareholding. In this case, enforcing drag-along rights would mean that Shaadi.com’s Mittal has to mandatorily sell his shares along with WestBridge. 

For context, as per reports, BharatMatrimony.com has a market share of over 50-55% among matrimonial platforms, Shaadi.com has around 25-30%, and Jeevansathi.com holds about 10%.

Given the potential impact on Shaadi.com, Mittal filed a petition in the NCLT and refused to provide consent to the sale of WestBridge as well as his shares to Info Edge.

This initiated a legal battle between the two parties, spanning courts in two countries and involving at least half a dozen courts and quasi-judicial bodies.

How The Legal Battle Unfolded

In its submission to the Singapore High Court, WestBridge says that the SHA makes it clear that the contract is governed by the laws of India. Further, Arbitration Proceedings were stated to be as per International Chamber of Commerce Rules and the seat of arbitration shall be Singapore. 

And, the enforcement of the award shall be subject to the provisions of Indian laws.

Since People Interactive failed to comply with the SHA, WestBridge approached the Singapore courts seeking a permanent injunction, which was eventually granted by both the Singapore High Court and the country’s Supreme Court.

In his submission to the Singapore courts, Mittal stated that disputes related to oppression and mismanagement are not arbitrable because the NCLT has exclusive jurisdiction to adjudicate these disputes. Mittal has alleged that WestBridge colluded with the other directors of the company with the intention to wrest control of the management of the day-to-day operations of the Company in a manner contrary to the interests of the Company. 

Mittal further claimed that the disputes are contractual in nature as argued by WestBridge itself. 

The disputes referred to the NCLT fall outside the scope of the arbitration agreement, Mittal argued, and said that the arbitration agreement would be unworkable and liable to be declared void under Indian law.

While both the Bombay High Court and the NCLT have not yet addressed the merits of corporate oppression and mismanagement, they granted Mittal interim relief from the injunction order based on these arguments. 

Now, the NCLT is set to hear the case on October 30, and the NCLAT will hear it on September 18, 2024. 

Understanding The Jurisdictional Issues

Multiple lawyers consulted by Inc42 believe that under Indian law, such disputes are not subject to arbitration, as the NCLT holds exclusive jurisdiction over them. However, under Singapore law, claims of oppression and mismanagement can be resolved through arbitration.

Aaushi Doshi, associate partner at IndiaLaw LLP, explained that Singapore law is governed by the ICC (International Chamber of Commerce), and the arbitration agreement was subject to Singapore law. The parties have not only chosen to arbitrate, but have also chosen “to arbitrate under Singapore law in Singapore” in accordance with the rules of the International Chamber of Commerce (“ICC”).

Therefore, it was within the jurisdiction of the Singapore court to consider claims of oppression through arbitration.

Doshi added that the Singapore court adopted a broader interpretation. While this broader interpretation was not expressly consented to, the arbitration clause itself serves as express consent, establishing Singapore as the jurisdiction according to the terms of the agreement. 

The Singapore High Court noted that Mittal and other People Interactive directors violated a permanent anti-suit injunction issued by the court by starting proceedings with the NCLT, and then the Bombay High Court.

The court maintained that since Singapore law is the governing law, the disputes between the parties can be arbitrated under this law, and even if Indian law governed the arbitration agreement, the dispute would still fall within the scope of the arbitration agreement.

However, enforcing this would be complicated. 

Piyush Agarwal, a partner at Acquilaw, explained that Indian law is clear on this matter. This arbitration is contrary to the laws of India as intra-company disputes are non-arbitrable in India and hence enforcement would be difficult/refused as it is contrary to the public policy of India, he added. 

The NCLT has exclusive jurisdiction over these types of disputes, and no civil court has the authority to interfere in matters handled by the NCLT or the Appellate Tribunal (NCLAT).

Further, even if the Singapore Courts have imposed an anti-suit injunction against Mittal, the first issue is that the enforcement proceedings cannot be done in India which would be the case here, Agarwal told Inc42.

This is something that the Bombay High Court also observed, “a final award issued by the ICC Tribunal dealing with issues of corporate oppression cannot be enforced in India as such disputes are not capable of being arbitrated under Indian law, a recognised ground to resist enforcement of a foreign award under Section 48(2)(a) of the Indian Arbitration & Conciliation Act 1996.”

A Landmark Judgement For Startups And VCs?

The case judgments have sparked discussions across startup ecosystems in the US, UK, Australia, Singapore, China, and many other countries, highlighting the pros and cons of such situations and exploring the appropriate legal remedies.

An early-stage fund manager told Inc42, “This situation is quite typical for Indian startups, as very few go public within five years of funding. When this occurred, early-stage investors often had to wait 7-10 years to secure an exit. Fortunately, this has improved, with founders now better prepared to facilitate exits.”

In reviewing the case, there have been numerous instances where founders have failed to provide exits within the agreed timeline. However, such issues should ideally be resolved amicably, with both parties negotiating around the table. 

The fund manager added that while WestBridge must adhere to its contracts with LPs, actions should not come at the expense of the company’s well-being. Unfortunately, the current case seems to have damaged the VC’s brand to a certain extent. 

The case also presents how Singapore’s judiciary has simply gone by the arbitration agreement and imposed a fine of $100K on Mittal and other directors for disobeying their judgement while the Indian judiciary bodies including NCLT and Bombay High Court have looked at the merits of their argument. The ICC tribunal judgement could have a severe impact on Shaadi.com by relinquishing the control of the promoters, and the cases of oppression and mismanagement will no longer be heard in India if the anti-suit injunction order is adhered to.

While all eyes are now on the NCLAT which will look into the merits of the NCLT interim order, for startup founders and VCs, any adverse ruling could open a can of worms and a litany of litigations.

[Edited By Nikhil Subramaniam]

The post Inside The Messy Split Between Anupam Mittal’s Shaadi.com And WestBridge appeared first on Inc42 Media.

A few months ago, I asked a CRED executive, “How do you justify the CRED’s value-to-revenue (EV/R) multiple?”

The answer came: “Well, you have to see this in a context. It’s similar to what many fintech companies currently have.”

The Bengaluru-based fintech giant has often been the target of ridicule for a muddled revenue model, a sprawl of products and its high valuation despite a ton of losses. 

But in 2024, the answers to many of these questions are becoming increasingly clear. This year, the company launched a new product for personal finance management called CRED Money to go with an updated credit card and bill payments experience.

Besides this, there was the eye-catching acquisition of Kuvera, which CRED is leveraging to take on investment tech giants such as Groww, Zerodha, Upstox, Angel One, Paytm Money and others. 

The agenda is clear: Together with the handful of products launched last year, CRED is looking to push forward on the revenue front. Today, CRED is a platform that caters to UPI payments, billing for credit cards, utilities and more, vehicle management, travel experiences, ecommerce, rewards and plenty more. 

But are these various pieces of the CRED puzzle actually contributing to its top and bottom line? And if so, which of them has the biggest upside? 

Before we look at the individual products and the monetisation potential within each of them, it’s important to recap CRED’s financial state overall before many of these products hit the market.  

In its last reported financials for FY23, CRED saw a significant surge in revenue, reaching INR 1,484 Cr or roughly 250% higher than FY22. But, at the same time, CRED losses grew slightly (5%) from INR 1,280 Cr to INR 1,347 Cr in FY23. 

The company claims to have achieved an 80% reduction in customer acquisition costs and a drop in marketing expenses (27%) from INR 976 Cr to INR 713 Cr in FY23. Despite this rationalisation in costs, CRED was only able to extract just over INR 2 for every rupee it invested in marketing in FY23.

This is one of the reasons why the company has taken the platform or super app approach, looking to cross-sell services and products to its users. We have covered this particular aspect, and from a strategic point of view, CRED seems to have the right formula, but is it working? 

Given CRED’s valuation of $6.4 Bn, some valuation experts consulted by Inc42 consider the Kunal Shah-led startup to be overvalued. 

“Having registered an impressive growth last year while keeping the expenses in check, CRED is moving in the right direction by integrating more features such as Money to enrich consumers’ experience and launching better-margin products and services, such as travel, insurance and wealth management products which are expected to drive revenue and profitability,” a valuation expert told Inc42.

Let’s dive in and find out how each vertical contributes to the CRED revenue machine. 

CRED’s FY23 Revenue Breakdown

In contracts with customers or merchants that include multiple services, CRED divides the revenue based on the individual price of each service. This price is usually determined by what the company charges customers or by calculating the expected cost plus a margin.

1. Revenue From Loans: This is the biggest contributor to the revenue. CRED charges a 1% to 2% fee on loans facilitated and distributed by CRED Cash and CRED Flash. The fee is charged for acquiring the borrower, KYC facilitation, and customer service including monitoring of the loan or the loan portfolio for the NBFC and lending partners. Lending partners also share a piece of the interest paid by borrowers, which is accrued over time based on repayment schedules. 
2. Convenience Fees: CRED earns a convenience fee for facilitating rental transactions, educational fees and other bill payments. This is usually around 1% to 2.5% of the monetary value of transactions processed, but in some cases, special deals can be brokered with institutions and billers that can result in a higher fee.
3. Advertisement Fees: If you open CRED, you are more than likely to see ads for D2C brands, travel plans and more. This is part of CRED’s engagement-centric features, where it claims to offer brands access to premium users and in turn charges fees related to advertising, for events such as clicks and conversions. CRED claims to offer 10% higher order and transaction value from its users, and 15% higher retention rate to its brand partners, which is part of its pitch for the ad services
4. Service Fees From Merchants: The company charges a percentage of the transaction value from service providers.
5. Other Income: CRED also earns income from technical infrastructure fees, which merchants typically pay for using its services. The revenue is calculated as a percentage of the income earned by the service recipient, depending on the partner.

Over the years, CRED has added various pieces to this above list — the insurance commission from CRED Garage and Kuvera being two examples — and as CRED’s super app strategy gets fleshed out, more such revenue pieces will be used to plug any gaps. 

Importantly, the UPI product has been key in converting the user base from low-frequency actions for credit card payments to high-frequency actions like daily small-ticket purchases. Garage or CRED Escapes (travel) or the CRED Store are all part of this effort to boost engagement among the most active users.

What New Revenue Streams Is CRED Banking On?

The above breakdown is applicable for FY23 only. Since March 2023, CRED has built or acquired new products which have significantly tweaked the revenue model.

The Critical Payment Aggregator Pillar

First up is the payments aggregator licence, which brings in 1.75%-4% per transaction as processing fee for CRED. However, the company has had to spend to set up the PA infrastructure and there is a high compliance burden on PAs as per RBI’s latest changes. 

The payment aggregator licence will allow CRED to leverage its reach to acquire more partner brands and third-party merchants. Plus, the PA licence is critical for CRED to expand its commerce plays, where payments from customers to merchants can be settled in one go, instead of multiple operations. This reduces payment processing costs for CRED. 

“A PA licence enables direct payment processing, enhancing the platform’s offerings like CRED Pay and CRED RentPay. However, it comes with regulatory challenges, including strict monitoring and compliance, similar to what Paytm has undergone. In case restrictions are slapped on a business, they can impact innovations and product scope,” Abhinav Paliwal, cofounder and CEO of PayNet Systems which develops a white-label neobanking software earlier told Inc42.

CRED has so far relied on third-parties such as Cashfree, Razorpay for payments gateway services, but having a PA licence means CRED has more direct control. The startup is also said to be developing its own payments gateway, as per sources, which will further help the company cut the reliance and spending on partnerships. 

The CRED Travel Plan

Last year, CRED also launched CRED Travel, which was earlier called Escapes. Here, the company partners with various hotels and travel brands to offer curated travel experiences. The company earns a commission on bookings made through its platform, and each of these experiences is on the premium side, which is the differentiation that CRED is banking on

While CRED has positioned itself as a premium player to capture a portion of this lucrative luxury travel market segment, this segment is comparatively smaller in India and estimated to be around $3 Bn market. However, this is a crucial piece for CRED in its premium super-app play. Other fintech super apps such as Paytm or PhonePe offer typical flight and hotel booking on their platform where there is higher competition and relatively low margins. 

This strategic focus on high-value offerings aligns with CRED’s target demographic of creditworthy individuals who are likely to spend more on travel experiences. And this also ties into the CRED Garage product philosophy. 

Where CRED Garage Is Headed

Today, CRED claims to have over 4 Mn vehicles ‘parked’ on its Garage platform, which was launched with much fanfare last year. 

Here, the startup offers services like vehicle insurance renewal, FASTag recharges, and roadside assistance through partnerships. The company earns commissions on the transactions made for these services through its platform. The product allows the company for targeted advertising opportunities for auto brands and dealerships and further monetisation opportunities on the platform.

Insurance brokerages, on average, get 10%-15% of the total premium amount processed through their platform. It’s not clear exactly where CRED falls in this range, but unlike other platforms where users specifically look for insurance, CRED Garage is a lifestyle play and in the long run, insurance will just be one piece of its revenue stack. 

Kuvera’s Big Plans 

In February this year, CRED made its long-awaited push into investments with the acquisition of Kuvera. Interestingly, Kuvera is a free investment platform offering direct plans at zero commissions. In fact, this is a key USP for the platform and many have questioned how Kuvera sustains itself. 

Instead of fees from individuals, Kuvera earns revenue through B2B services i.e. working with large investment houses, and market data analytics.

Kuvera has assets worth $1.4 Bn+ under management, 300K users, an average SIP size of roughly INR 5K, but because of its free model, it pales in comparison to other players. 

For instance, Zerodha earned $820 Mn in FY23, and Groww reported $150 Mn+ in revenue, but Kuvera’s operational revenue decreased from INR 90 Lakh in FY22 to INR 62 Lakh.

One senior executive at Kuvera told Inc42 optimistically, “The numbers are before the acquisition of course. You could expect a 20x+ revenue growth in the next two years.” So how do CRED and Kuvera hope to kickstart monetisation at scale?

Well, for one, Kuvera plans to add more investment products such as alternative investment funds and portfolio management services which will be paid services.

But the executive quoted above pointed to something else altogether, “If you look at CRED’s marketing campaign, it has been much more effective than the nearest competition. Kuvera will benefit from similar campaign programmes. There are certain points identified in the case of existing products and their market placements which will be addressed in the ongoing fiscal year.” 

Improving consumer engagement, focusing on the order investment size and restructuring the product portfolio are high on the agenda for Kuvera. Kuvera being a recognisable name in the direct mutual fund industry, CRED is likely to continue to using the brand name even in the future. 

Finally, Singing The UPI Tune

For so long, CRED had shied away from UPI and then came the realisation that it had to convert its low-frequency usage to high-frequency. CRED Pay is the key piece of the super app puzzle. It’s the UPI payments service that grabs the average fintech consumer and as their credit score improves, CRED starts pushing other services to these users. 

Despite having just one percent of the transactions, CRED has captured over 2.37% of the transaction value, registering the highest transaction value per consumer. This underscores the company’s claims that its customers are typically more spendy than the UPI users using rival apps. 

We have said it before — without UPI, the Indian super app story crumbles as this is the top-of-the-funnel standard feature that all users expect in fintech apps these days. Without UPI, CRED does not have users returning on a daily basis, and growing the UPI base means CRED has had to spend heavily on cashback. 

However, in the long run, this spending can create a captive base of users, who can be regularly plied with other services by Shah and team. 

CRED Money: The Next Big Thing? 

Most recently, CRED made a high-profile entry into the personal finance management space. This is an opportunity that many startups have tried to capture, but the monetisation outlook has always remained bleak. 

CRED would be hoping that CRED Money will be the second strongest habit-creation product after UPI payments. It’s worth noting that since CRED’s Happay acquisition in 2021, the corporate expense management platform has registered a 2.5x growth from FY22 to FY23. 

Learnings from Happay have contributed to CRED Money. Besides allowing users to analyse spends, CRED Money will remind them of recurring payments that will surely drive higher usage of CRED’s own services for these payments. In particular, the Money product offers a great potential for CRED to scale up revenue from bill payments and other recurring payments such as insurance premia, EMIs for loan and more. 

Why CRED Is Not Worried About The Competition 

One could say that the fintech super app space is one of the most competitive battles in the Indian startup ecosystem. From Paytm to PhonePe to Google Pay to Groww, and even Flipkart and Jio Financial Services, everyone wants a piece of this action. 

Planning a super app and launching products is one thing, but scaling it up will be just as critical for CRED. However, unlike other platforms, CRED’s marketing strategy has been about treating its users as members, while offering products in the form of experiences.    

PhonePe invested billions of dollars in scaling it up, just like Paytm or Google Pay, Amazon Pay or others. While the market is undoubtedly large, competition makes it hard to acquire and retain users, which is where perhaps CRED is looking to differentiate itself by going after the cream of the market. 

But those leading CRED believe the company has now successfully created an Apple-like premium niche and ecosystem. But this has not yet translated into that other very Apple thing: profits.

Vertical integration is undoubtedly super critical for super apps. “The existing user base, which manages their credit cards and expenses via CRED may prefer to consolidate their financial activities under one roof, thereby allowing CRED to gain some mileage and catch up with Zerodha and Groww,” Kalindhi Bhatia, partner at transactions law firm BTG Advaya, told Inc42 earlier about the super app strategy. 

In the early days, CRED struggled to retain users because its offerings were too limited. As it added more products over the years, CRED is also changing and embracing users that have high aspirations but perhaps don’t yet qualify as premium users. 

The clearest indication of this change is CRED’s high reliance on personal loans for revenue generation. As it looks to scale up, CRED may be forced to cede some ground as far as the premium target audience is concerned. How will this change CRED in the long run?

[With inputs from Nikhil Subramaniam]

The post CRED’s Super App Revenue Stack appeared first on Inc42 Media.

This isn’t your typical Inc42 article — it’s a reality check for India’s startup ecosystem.

Ola Electric, now public, faces a new level of scrutiny. No more startup bravado; it’s time for hard facts. As more Indian startups eye IPOs, industry giants like Ola and Bhavish Aggarwal set the standard.

Our fact-check isn’t just about one company—it’s about elevating transparency across the board. In the public arena, hype doesn’t cut it. We’re here to separate truth from fiction and raise the bar for accountability in India’s tech sector.

Ola Electric founder and CEO Bhavish Aggarwal is known for making big and bold claims. While some of his more whimsical announcements like the April Fool’s jokes about ‘Ola Solo and Ola AirPro,’ have entertained many, issues arise when some of the other claims blur the line between claims and reality.

For instance, on August 15, 2022, Aggarwal announced plans to launch an Ola Electric car with a range of over 500 km and an acceleration from 0-100 km/h in less than 4 seconds by 2024. 

While launching an electric vehicle is often regarded as easier than developing an internal combustion engine (ICE) vehicle, this timeline seemed overly ambitious at the time, especially when established companies like Tata, Mahindra and others had spent over two years just testing a fully developed electric car.

In 2022, when the announcement was made, Ola Electric had not yet developed or tested the E4W platforms, sources previously confirmed to Inc42. At that time, they only had plans to launch six electric cars across two different platforms.

As of 2024, it’s become clear that developing such complex products takes more time than the headlines suggest; Ola has currently shelved its plans to build four-wheelers.

In 2022, the company even claimed that its Ola FutureFactory would produce 1 Mn electric four-wheelers (E4Ws), 10 Mn electric two-wheelers (E2Ws), and 100 GWh of battery cells per year from its Ola Gigafactory. 

However, in its red herring prospectus, Ola Electric has not mentioned anything about the car, the company has yet to reach the 1 Mn E2Ws capability mark and has not delved into plans to go beyond 20 GWh.

“Bhavish Aggarwal knows how to stay in the news, and all this talk helps him carry out a free marketing campaign,” says the founder of an electric vehicle company. “He’s a great businessman who knows how to sell, while others, Ather for example, has led by building great products first, but struggle to generate the same level of hype.” 

However, it’s not unusual for companies to set ambitious targets and later pivot for various reasons—this is the nature of startups. What’s problematic, though, are baseless claims and overblown promises.

“While it’s fascinating to see an Indian company directly taking on big techs, it is also noteworthy that Ola Electric is now a public company, and Bhavish Aggarwal must be more cautious about what he says in public,” said an investor who has exited from Ola Electric.

It’s inarguable that what Ola Electric has achieved so far is a rare feat as no other Indian electric vehicle company is even closer, not even in terms of vision. This is despite the fact that the company started from scratch and initially did not have any exposure to the EVs unlike the corporates Tata and Mahindra.

But are there holes in the claims which are a major part of this vision? 

Despite Ola Electric now being a public company, Aggarwal made several claims during this year’s Independence Day event called Ola Sankalp that lack evidence or seem exaggerated. At the very least, the data seems to be cherry-picked. Let’s examine some of them.

Is Ola The Largest EV Company?

Claim: Right after a beautiful poem recited by Piyush Mishra, screen behind Aggarwal displayed, “Largest EV Company in the world” (*excluding China).” 

While the founder and CEO further clarified this by saying Ola Electric is the largest electric two-wheeler company in the world, there’s something to be said about selling a particular perception even when it’s far from the truth. 

And that’s before we even ask, why should China be excluded from the tally.

Fact: Ignoring a competitor doesn’t change the facts. Can you imagine a world without China? Excluding a country that makes up nearly 20% of the global population just to show a better ranking is facetious.

For the context, Yadea, a Chinese two wheeler maker sold over 16.5 Mn units (comprised of 4.9 Mn units of electric scooters and 11.6 Mn units of electric bicycles) of E2Ws in 2023 across 100+ countries and claims to be the number one E2W manufacturer in the world for the last seven years in a row. In contrast, Ola Electric sold around 3 Lakh scooters in 2023. Yadea recorded a revenue of $4.8 Bn in last four quarters.

Interestingly, Ola Krutrim later announced a partnership with Chinese tech giant Lenovo for a data centre. In fact, the displayed statement, ‘the largest EV company in the world’ was later contradicted by his own presentation. 

The Largest EV Company Or The 5th Largest?

Claim: “Among all EV companies, we are the 5th largest EV company in the world by market cap, across all two-wheelers and four-wheelers. One day… we will be number one.”

Clearly, Aggarwal knows that Ola Electric is not the largest EV company in the world, even if he wants to exclude China. 

Fact: Ola Electric is not the 5th largest EV company by market valuation. It’s not the largest EV company in India either, as claimed.  

While Ola Electric is currently valued at INR 58,699 Cr or roughly $7 Bn, Tata Passenger Electric Mobility Ltd. (TPEML) and Mahindra Electric Automobile Ltd. (MEAL) are both valued at about INR 82,000 Cr or about $10 Bn. 

Moreover, the list shown in the presentation doesn’t specify that it includes only publicly listed companies. So here are the top EV companies in the world.

Is Ola Electric the 4th Largest EV Company by Revenue?

Claim: “By revenue, we are the fourth-largest EV company in the world… within three years.”

Fact: Again, Aggarwal and Ola Electric exclude China, but let’s move on from that. 

Even then, the numbers still don’t support this claim. US-based Lucid Motors, for instance, registered higher revenue at $618 Mn (April 2023 to March 2024) vs Ola Electric’s $600 Mn (April 2023 to March 2024).

Another listed EV giant, Sweden’s Polestar reported revenue of $890 Mn in the period, but didn’t find mention in Aggarwal’s slides. Perhaps, because the parent company is Geely, a Chinese OEM.

And we must also point out that Ola Electric was incorporated back in 2017, so whatever revenue it has scaled up to now, has come in seven years, and not three as Aggarwal claimed. Indeed, the time spent in R&D and building the manufacturing infrastructure before the sales began was critical for Ola Electric’s revenue today. 

Is Ola Gigafactory The First To Produce Cells in India?

Claim: Vishal Chaturvedi, the business head of Ola Cells, claimed Ola has built India’s first Lithium-ion cell manufacturing facility.

Fact: Log9 Materials, another cell manufacturing startup, claimed this spot in 2023, much before Ola had even laid the foundation for its facility. 

In April 2023, Log9 commercially launched India’s first indigenously made Lithium-ion battery cell, manufactured at its Bengaluru facility. Log9’s cells were the first large-format, mass-produced cells to receive BIS certification in India in April 2024. 

On the other hand, Ola Electric received BIS certification for its Bharat 4680 cells on May 13, 2024.

Is The Ola Gigafactory 100 GWh Capacity Just Clickbait?

Claim: During the presentation, Aggarwal reiterated his ambition of building the world’s largest 100 GWh Gigafactory in India.

Fact: We can put this down purely to ambition, because as per regulatory disclosures, Ola Electric did not disclose any plans for expanding beyond 20 GWh as of now, and that’s at the end of 2026. 

The Moonshot: Bodhi, India’s First AI Chip By 2026

This is not so much a false claim, but rather a far-fetched notion — at least, at the moment. Arguably, the most critical announcement from the Ola group was the development of India’s first AI chip. 

At the event, it was claimed that the Bodhi chip would be able to process 64K frames per second, outperforming the competition’s 55.7K frames per second, and is 33% more efficient. 

But it’s said to be coming in 2026, so we don’t yet know how far the competition will reach. Chip giants might have a headstart over Ola Krutrim thanks to their existing architectures and expertise.

If successful, Ola Krutrim will become a rival to the likes of Nvidia, AMD, and Intel — all of which have seen some halcyon years as the AI revolution has resulted in a massive boom for processing power. 

Ola has partnered with global companies such as ARM and Untether AI to build the chips, for AI, general compute, and edge compute.

But it’s quite obvious that designing, and manufacturing a chip is far more complex than just claiming raw performance improvements on paper. 

It took Apple over a decade to perfect its Apple Silicon chips, for instance, and that’s just for very specific Apple-designed hardware. Building an all-purpose AI chip is even more challenging. 

When it comes to AI chips, Intel, once the world’s top chip manufacturer, has struggled to compete with Nvidia and AMD. Intel’s Gaudi AI chip, despite its promising specs, has not matched Nvidia’s H series.

Moreover, Ola currently plans to remain fabless, but the company has yet to finalize the foundry for manufacturing the chip. In such a scenario, building AI chips by 2026 seems ambitious and pure hyperbole, again at least at this point in time. 

Aggarwal and Ola have always chased new plans aggressively, and in the case of Ola Electric and Krutrim, that aggression is on full display. This is truly a case of easier said than done. 

[Edited by Nikhil Subramaniam]

Update | August 19, 12:35 PM

The initial figure for BYD Auto Market Cap was originally in CNY. It has now been converted to USD.

The post Fact-Checking Ola’s Sankalp: Do Bhavish Aggarwal’s Claims Hold Up? appeared first on Inc42 Media.

“September 27, 2023, RBI barred us from operating as a payment aggregator. October, 2023, we faced an existential crisis. Our terminal valuation was zero,” Instamojo cofounder Sampad Swain recalls the disruption that would set off an existential crisis for the payments aggregator.

Until September, the Bengaluru-based startup was said to be making close to INR 1 Cr in monthly profit. “We were on track to register $1.5 Mn in profits for FY24,” he tells us.

But then the RBI returned Instamojo’s PA license in September, 2023 because of the company’s net worth less than INR 15 Cr at the time of application that dates back to 2021. This was a body blow to the company’s ambitions of becoming a payments giant.

Swain explained that even though the shortfall on the company’s side was just INR 60 Lakh, it fell short of the RBI-prescribed minimum amount. In fact, the issue dates back to 2021 when Instamojo had nearly $4 Mn in its US accounts.

However, regulations are regulations.

“They returned our application. Unlike some others who were rejected, ours was returned, meaning we will be eligible to reapply after a year,” the cofounder and CEO says, but now as that deadline approaches, Swain is reconsidering where Instamojo needs to go.

He goes on: “Who doesn’t want full control of the payments value chain end-to-end? However, it involves significant costs and human resources to meet compliance requirements. But then it had to become just a fraction of our business.”

From Payments To Digital Commerce

For Swain and Instamojo, the RBI action came as a moment of introspection. The cofounder says this was the moment the startup decided it wanted to be the Microsoft for small businesses rather than the HDFC bank.

Then came the pivot to Digital Commerce as a Service (DCaaS) with a product that enables small businesses to set up their digital commerce operations, by simplifying the process for creating an online store and setting up a multichannel presence. 

Unlike the likes of Unicommerce, Increff, Browntape, and Easyecom which have been majorly known for their inventory management systems, warehousing solutions along with other ecommerce solutions such as order management, purchase management etc, and are more suitable for large businesses that are in the 10-to-100 journey, whereas Instamojo is looking to be the GTM enabler for 0-to-1 and 1-to-10 businesses, or those that are in the initial stages of their journey. 

It’s a model that’s best exemplified by Shopify globally. 

In India, Instamojo will compete with the likes of Dukaan, Bikayi, Shopify and DotPe among others, but while these companies are targeting the new-to-ecommerce merchants, in the long run, their path will collide with players who are catering to large retail enterprises and brands. 

In comparison to Unicommerce which has been catering to the likes of boAt, Mamaearth and has currently around 3,505 clients including SMBs and enterprises, Instamojo wants to play a volume game.

Even if the margins are lower, the volume could go up to millions, given that India has over 65 Mn MSMEs. This kind of volume would work for us in the long run, believes Swain.

It goes without saying that pivoting wasn’t easy for Instamojo. Payments accounted for almost 80% of the company’s revenue till then. Working with PAs like Cashfree, Razorpay, and PayU meant that Instamojo’s payments division was no longer a revenue stream for the company.

There has been some restructuring in terms of headcounts as well.  The company had to lay off around 20% of the workforce directly associated with its in-house payments aggregator operations. And, this was followed by firming up the strategy to acquire merchants and refining the product-market fit. Here’s a look at Instamojo’s suite of features: 

For Swain, this was not about attracting big brands and large retail giants. The company has taken an MSME-first approach. “For example, some just need a payment link to share with their customers. We have a solution for that. Some SMEs sell through Instagram. They have been advertising and maintaining a presence on Instagram but needed a landing page with payment integration. We now offer this in the form of online pages.” the CEO says. 

Swain also claims that some customers have been with Instamojo for more than three years before the pivot, and the startup has managed to retain almost half of such active customers. But the question is can Instamojo compete against the Shopify juggernaut, or indeed against the likes of Dukaan and DotPe .  

Can Instamojo Crack Profit?

The global market for ecommerce enablers is massive, and the likes of Shopify, Wix, WooCommerce, and US-based BigCommerce have managed to grab a lot of upwardly mobile entrepreneurs in India as well. Among startups, we have the likes of Dukaan, Bikayi, DotPe, and Nammacart actively chasing the MSME segment for digital commerce solutions.

Backed by investors like Lightspeed and Matrix, Dukaan pivoted to the model after failing to establish a product-market fit in kirana tech. The startup has raised more than $20 Mn till date across multiple rounds but has struggled to scale up revenue, which was at INR 10 Cr in FY23, with net loss at INR 35 Cr. 

Similarly DotPe, which had a GTM strategy around restaurants and eateries, expanded to ecommerce SaaS at large, combining payments-related features such as point of sale devices and QR codes. DotPe has so far raised over $90 Mn in funding from the likes of Temasek, InfoEdge, Google and PayU. 

DotPe claims to have over 7.5 Mn merchants so far.  In FY23, it reported a loss of INR 72 Cr on a revenue base of INR 36.9 Cr. These numbers do not paint a healthy picture of unit economics in this space. 

Instamojo will have to grapple with the problems of sustainability and unit economics just like its competition. The startup is eyeing profitability again by Q3 FY25, and has sought 18 months from its investors to achieve profitability and revenue figures of the past. 

What’s Instamojo Banking On?

There’s a lot of customer insight being carried forward from the payments product to the digital commerce solution. For one, the experience of the last 12 years will be a key strength, the cofounder says.

“We know exactly what the consumer problems are, how much they can afford while moving from 0 to 1, and then scaling up there on. Our products have been carefully designed around the same. At the same time, we are well aware of the risk. Seven out of ten businesses go down in this phase of expansion. We have a broader and better understanding of these realities,” he explains.

He also acknowledges that Instamojo’s target audience doesn’t want to invest much on the tech side, and are looking for individual solutions rather than a full suite. This has informed how Instamojo has built its products.

Swain also claims that Instamojo’s payments industry partnerships will be key for MSMEs. “We know how much bargaining power we have to leverage with payments partners. This is something that our competitors don’t know.”

Further, unlike other startups where the annual attrition rate is more than 20%-25%, Instamojo claims to have under 3% attrition over the transition period. “Despite having offered lower salaries than the competition, people have not left us, showing confidence in the products that we build,” Swain claims.

The biggest threat for Instamojo is Shopify, the Canada-based listed ecommerce SaaS giant, which is currently valued at $7.3 Bn. Shopify offers a similar feature set in its platform, including store creator, website builder, analytics, B2B-specific features, advertising and marketing tools and much more.

Most importantly, Shopify stores get access to thousands of plugins that make it easy for brand owners or operators to pick and choose what features they want to add to their stores.

While Shopify is more feature rich, it is costlier. Pricing varies from INR 18,000 to INR 21 Lakh per annum depending on the store size and volume. Some might say that in the Indian context, Spotify is better suited for businesses that have scaled up to a certain size and want to target overseas customers, according to a retail proprietor who has subscribed to Unicommerce’s SaaS solution.

After-sales support is another area where Swain claims to have an edge over others, thanks to the company’s experience of dealing with smaller merchants in the past. But most platforms have moved to automated help and support systems, which may be more cost efficient to scale up.

Among the Indian rivals, Dukaan has moved to AI-powered customer support — to much controversy, one must add. But Instamojo and Swain did not detail how the company is building its competitive edge in this regard.

Can Instamojo Get Its Mojo Back?

Before the RBI’s notification, in FY22,  Instamojo reported INR 7 Cr in revenue from IT services, while INR 38 Cr from payments.The company’s employee benefit expenses, including salaries, recruitment charges, and provident, were down to INR 14 Cr.

Essentially, Instamojo was profitable where most of the competition was struggling. Now, the company aims to be profitable again by the end of 2024 or in early 2025. “This is not a goal, but our survival instinct,” clarifies Swain.

Having regained 60% of its pre-September 2023 revenue, Swain believes that having survived thus far, Instamojo can only go to strength from here on. And he also credited the company’s ‘bootstrapped’ mentality.

Unlike Shopify and others who have spent millions in acquiring users, Instamojo plans to take it easy when it comes to advertising. “Instamojo’s last ad was in September 2021. Yet, we were profitable because of our consumers who have been doing the marketing for us,” Swain says boldly.

The past eight to ten months have been about going back to the drawing board. Having laid off 15-20% of the staff from its payments compliance and related services, a leaner Instamojo is now focussing its energies on hiring for the inside sales and support teams.

Meanwhile, this restructuring has created opportunities for cross-selling, allowing the company to offer ecommerce services to existing and lost customers. The RBI notification surely sent many customers to rival platforms, and many might have already signed up with rivals for ecommerce SaaS.

Despite Instamojo’s enthusiasm, the fact is that many merchants and MSME sellers have been slow on the uptake when it comes to ecommerce SaaS. Several of them have turned to marketplaces such as Amazon, Meesho and Flipkart which also have such products dedicated to enabling ecommerce adoption.

Plus, the bruising experience of kirana tech startups in India has also poked holes in the MSME tech thesis. While Swain and Instamojo are bullish, it’s clear that the pivot from payments to ecommerce SaaS comes with a set of challenges that even existing players have not figured out the answers to.

The post Behind Instamojo’s Bold Pivot From Payments To Shopify Challenger appeared first on Inc42 Media.

It started with a tweet on July 8, 2024, when Ola founder and CEO Bhavish Aggarwal announced the launch of Ola Maps for developers. The CEO also officially announced that Ola Cabs was moving away from Google Maps, the company’s mapping partner until then. 

Incidentally, this came on the heels of Aggarwal’s tussle with Microsoft-owned LinkedIn and the company migrating away from Microsoft’s cloud solution Azure. So the move from Google to Ola Maps naturally attracted a lot of attention on social media. 

Since then, Ola Maps has been in the news for various reasons. 

For one, Aggarwal claimed that Google Maps reduced prices for certain core APIs by up to 70% in response to the Ola Maps launch.

But Developers that use the Google Maps API told Inc42 that Google had already announced a price reduction a few months before Aggarwal tweeted about Ola Maps. “We knew about it for at least a month before the announcement. Google, being a big company, likely planned it further in advance,” said the founder of a route planning and optimisation startup.

Then, Ola was hit by a legal notice from listed mapping major MapmyIndia for alleged data theft and reverse engineering Ola Maps by duplicating MapmyIndia APIs. Soon after, Aggarwal dismissed this notice as being opportunistic. 

But out of nowhere, India’s mapping services space has become a hotbed of competition, controversy and allegations. Ola and Aggarwal are at the centre of this frenzy, and the CEO is supremely confident that Ola Maps will be the next big thing from the house of Ola.  

Sources told Inc42 that the CEO is keen on spinning off Ola Maps as a separate entity and Aggarwal has eyes on creating yet another unicorn, after taking Ola, Ola Electric and most recently Krutrim to the $1 Bn valuation club. 

“A spin-off is on the cards[A few years down the line]; however, at present, the company needs a lot of nurturing from the Ola ecosystem. Once the product nears maturity and the brand achieves a sizable clientele outside the ecosystem, it will be something to look into,” a senior employee working on the platform told Inc42. 

But does Ola Maps even have a shot in this market, where the incumbents have decades of expertise and experience? 

Ola Maps Joins India’s Digital Mapping Frenzy

For the past 18 months, Ola Maps has been developed by Ola Cabs’ parent company ANI Technologies, building on the 2021 acquisition of Pune-based startup GeoSpoc. 

Unlike Ola Krutrim and Ola Electric, which were independent entities from inception and shared the Ola brand name and the company’s resources, Ola Maps is currently part of Ola Cabs’ parent company ANI Technologies.

This is why there is some speculation about Ola spinning off Ola Maps into a separate entity and offering it to developers and other product startups as an API-based service. Aggarwal on X mentioned that Ola Cabs has been spending around INR 100 Cr on third-party mapping services.

It will be interesting to see how Ola differentiates itself from the host of players that make up the mapping market. Although Google Maps and MapmyIndia are the two most dominant players, there are others such as Apple Maps, Dutch giant HERE Technologies, TomTom, MapBox, OpenStreetMaps among others. 

The digital maps and location intelligence services market consists of digital maps services, navigation solutions and telematics for business as well as consumer applications. And most of these companies have products that cater to both B2B and B2C or either of these verticals.  

The opportunity in the digital mapping space is very large. For instance, MapmyIndia’s operating revenue nearly doubled in the past two fiscal years from INR 200 Cr in FY22 to INR 379.4 Cr in FY24.

It is hard to estimate how much Google Maps is earning from India, as the tech giant does not disclose numbers for Google Maps nor its business in India. We do know that most service providers that operate at scale rely on Google Maps.

Swiggy and Zomato, for instance, would be contributing significantly to Google Maps revenue in India, given the millions of orders these platforms process daily for food delivery and quick commerce. Uber India too is a major customer for Google Maps, and Google Maps is pre-installed on millions of Android devices. 

It is hard to fight dominance of this scale, but MapmyIndia has looked to do that through customer acquisition and leading an antitrust battle with Google Maps, as we have written about in the past. 

For context, Google Maps entered the Indian market in 2007, a decade after MapmyIndia’s first product. Last year, MapmyIndia CEO Rohan Verma told Inc42 that MapmyIndia offers a superior product thanks to speed limit indicators, pothole indicators, 3D junction view (for exits and flyovers), several of which are still missing from Google Maps.

However, dethroning Google is no easy task, particularly because of its extensive tech industry network, deep pockets and Android’s dominance in the smartphone market due to which most Android devices come preloaded with Google Maps. 

For MapMyIndia and other majors in the space, it’s the B2B market which includes ride-hailing services, automobile, enterprise solutions, and delivery services that’s been the key addressable market.  

MapMyIndia claims to have captured over 80% of the connected vehicle market, where its apps and devices are installed on-board by the OEM. It also claims to be working with distribution companies, particularly in the food and beverages space. 

So the question is where can Ola even compete in such a market, where two large players already have deep roots. 

Ola’s Maps Journey From 2021

Ola’s journey into the mapping world began after the Indian government changed the guidelines for geospatial data in early 2021. The guidelines restricted foreign companies to a 1-metre accuracy and mandated the use of APIs for such companies from authorised domestic licensees. No such restrictions are applicable for Indian companies. 

The 2021 Guidelines liberalised the entire approach to how an entity could collect the mapping data. Before, it was heavily guarded. And, one needed to have a license and approval from the Indian government to enter the mapping data / streetview data collection.

“This was a major reason why Google could not be directly involved in mapping data collection in India before 2021. Instead, it has had to partner with entities such as Tech Mahindra to collect data for mapping solutions,” a former India-based Google Maps developer told Inc42. 

It was in this India-first milieu that Aggarwal set the roadmap for Ola Maps after the GeoSpoc acquisition. 

Aggarwal’s thesis was that domestic map solutions are critical to democratise access to digital services for all Indians, especially outside the metros. 

He also said that multimodal transportation options such as drones, autonomous vehicles or other new-ge connected vehicles will require more detailed geospatial data, including high-definition and three-dimensional (3D) maps. 

In its first Maps blog, Ola claimed that existing maps do not address challenges such as inaccuracy, inconsistency, varying street names, frequent changes in road networks, non-standardised streets, potholes, and road quality issues. 

Some of these problems are incidentally also MapmyIndia’s USP as Verma told us in January last year. 

But Ola Maps does offer a big upside for Aggarwal and Ola’s many verticals:

1. Cutting Costs: The company will no longer have to spend INR 100 Cr on mapping APIs and SDKs 
2. New Revenue Stream: The in-house mapping solutions is a new revenue stream for Ola 
3. Data Ownership: Ola Maps allows the company to have complete control over user location data, which feeds into other Ola businesses such as ride-hailing, Ola Electric as well as any other verticals launched by the company, including Ola’s recent push into food delivery with ONDC

Of course, competition is beneficial for the entire ecosystem, since this will create a race to offer more features at better prices. 

But building a mapping platform is no easy task. During an interaction with Inc42, a few weeks back, MapmyIndia CEO Verma said, “It is a huge infrastructural task to create a solid foundation of accurate maps based on ground reality for a large country like India (3.2+ Mn sq km to 6.6 Mn sq km!), and then an even more herculean task to maintain and keep the maps updated as the landscape changes.”

According to him, it is very hard to firstly build and maintain maps, and secondly make it into a viable business. “Many players have tried and failed after a few years,” Verma said. 

Ola Maps, which first appeared on the company’s EVs and inside Ola Cabs, is now being offered to developers.

For a moment, let’s put aside the controversy around MapmyIndia’s legal notice to Ola and see how the latter claims to have built Ola Maps.  

As per the company’s statements, it acquired data from Open Street Maps under a licence agreement, as well and from government sources, while also deploying sensors in some Ola Cabs and across the data operations fleet such as cameras, radar, and LiDAR. 

By processing this data, Ola said it developed a suite of APIs and SDKs for B2B use cases. Ola claimed that its maps platform ingested more than 5 Mn messages per second from various sensors and telemetry sources. The petabytes of data is collated, normalised, anonymised, and stored in a data lakehouse. Data streams from various sources are further divided into pipelines to collect relevant data for training AI models, analytics, and data ops for maps. 

The final output is stored in map databases for tiles, places, and routes systems. Ola Electric, meanwhile, has shelved its electric project which was unveiled in 2022, so for now, Ola will instead be relying on its EV two-wheelers and its fleet of cabs for further data collection. 

Suvonil Chatterjee, the chief technology and product officer of Ola Electric, said in a tweet that AI is at the heart of Ola Maps. The company leverages natural language processing for contextual searches, real-time traffic prediction, dynamic routing algorithms, and automated map updates, Chatterjee said. 

What Ola Can Learn From Apple Maps

While the Indian ecosystem has largely applauded the launch, some maps users pointed out bugs and shortcomings such as Ola’s reliance on Google Autocomplete API, routing issues and even about Ola using SDKs from other mapping solutions such as MapBox.

“The APIs offered by Google Maps are simply much more extensive, but the start by Ola Maps is promising. However, with Ola Maps currently being constrained to the Ola ecosystem, most issues are still not public as drivers rarely report them,” according to a founder of location-based services startup.

Moreover, some APIs are difficult to build in terms of accuracy and seamlessness and require multiple datasets to work together. Take for instance, Google Maps’ Places APIs. Industry insiders believe this is especially difficult to develop, because Google relies on high-quality data from Search and other products. This is partly why Google’s Maps APIs are so feature-rich. 

In fact, mapping platforms have transformed into super apps / super platforms incorporating a slew of vertical requirements. Users can directly reserve a table using Google Maps or seek appointments with a doctor or make inquiries about what products a nearby kirana store has in stock. 

MapmyIndia’s consumer app Mappls has partnered with ONDC to incorporate some of these features and more into its products, and the company has also tied up with wearables maker boAt to introduce some features for smartwatches, a category where devices running Google Maps and Apple Maps are typically more expensive than boAt’s smartwatches. 

Apple Maps has also built such features into its APIs but not all of these are available in India. In the US, where Apple is in a much more dominant position, these APIs are more feature-rich. 

What these feature-rich mapping solutions tell us is that mapping apps are no longer just about directions or finding the fastest route between two points. Maps apps are moving towards super apps in some ways. 

Apple’s example is most apt for Ola. Apple Maps was heavily criticised at launch in 2012 for having poor accuracy and mislabelled information. It took the company more than a decade to come close to Google in terms of service quality and features. 

It wasn’t easy for Apple, but having a revenue-generating machine such as the iPhone did help in staying the course. Does Ola have the tenacity that Apple showed? 

For Ola to directly take on Google Maps or Apple Maps, it is critical to add some of these consumer-friendly features, since they can have a snowball effect and bring more B2B customers  on board as well. For Ola Maps, the arduous task begins now. 

Ola Maps might well find itself in the unicorn club if Aggarwal decides to spin it off, but that will still be a valuation game. Dethroning Google, MapmyIndia and even Apple Maps won’t be as simple as going from point A to point B.

[Edited by Nikhil Subramaniam]

The post A Long Road For Ola Maps: Can Bhavish Aggarwal Dethrone Google Maps, MapmyIndia? appeared first on Inc42 Media.

Finance minister (FM) Nirmala Sitharaman is set to present the Union Budget 2024 on July 23, 2024, for the 7th time in a row. Over the last five union budgets, excluding this year’s interim budget, the Indian startup community has amassed a list of long-pending expectations. 

While jotting down the list of expectations weeks before the FM’s budget speech, industry stakeholders told us that the country’s startup sector needs big reforms on the tax front. Not to mention, the taxation issue has proven to be the Achilles’ heel for Indian startups, impacting overall funding in the ecosystem.

For context — While a recent Inc42 survey of startup investors reveals the end of the funding winter, the Indian startup funding, in contrast, slipped 1.8% year-on-year (YoY) to settle at $5.3 Bn in the first six months (H1) of 2024. 

The paradox, as per several industry experts, is that the ecosystem is crying for reforms on the tax front, while the overall sentiment of investors towards Indian startups and founders seems vibrant.

Nevertheless, before we delve any deeper into the demands and requests of the stakeholders, let’s steal a glance at the reforms that ought to be implemented with much empathy to ensure the comprehensive development of the startup state.

Founders, VCs Demand A Full & Final Resolution Of Angel Tax

The story of the infamous angel tax starts with the introduction of Section 56(2)(viib) in the Income Tax Act, 1961 on March 16, 2012. The Government of India included this subsection to keep shell companies at bay and tighten its noose on the generation and circulation of black money. This tax is payable on capital raised by unlisted companies if the value of the shares issued to investors exceeds their fair market value (FMV).

Despite over 52 notifications and clarifications by various bodies under the DPIIT, Ministry of Commerce and Industry, and the Ministry of Finance, the issue remains unresolved. In fact, according to the DPIIT secretary, Rajesh Singh, the DPIIT has recommended the removal of angel tax for startups multiple times.

According to Siddarth Pai, founding partner, CFO, and ESG officer of 3one4 Capital, “The exemption criteria stated in the Feb 19, 2019, DPIIT circular are extremely onerous for any startup. The bar on startups opting for the exemption from dealing in shares and securities, capital contributions, and giving loans and advances prevent them from creating ESOP trusts, subsidiaries, or JV entities. Given the 200% penalty for any violation for seven years since they last raised funds, it’s a 17-year bar (10 years as a startup + 7 years after) from pursuing such routine transactions. This feedback has been given since 2019 but to no avail.”

Additionally, so far, hardly about 9K of the 1 Lakh+ DPIIT startups have received exemptions from angel tax.

Echoing Pai’s sentiment, Sandiip Bhammer, founder and co-managing partner of Green Frontier Capital, said that a broader exemption framework that can be extended to all DPIIT-registered startups is the need of the hour. In addition, a streamlined and clear exemption process would assist startup founders in reducing administrative burdens and uncertainty around the exemption process.

Fairness & Transparency To Make Section 68 Less Scarier

Section 68 of the Income Tax Act deals with unexplained cash. Under this, startups are required to disclose complete details of their income, along with investments for a particular fiscal year, and any lapses in doing so can attract a penalty of up to 78%. 

While investments are generally not categorised as income from other sources, however, if not disclosed properly, assessing officers may classify them as unexplained tax, which could result in penalties.

To resolve this, Archit Gupta, cofounder and CEO of ClearTax, suggests a few reforms that will protect startups from being burdened under Section 68. 

According to Gupta, the Indian tax authorities need to provide clear guidelines on the documentation required to substantiate investments received by startups. In addition, the country needs a mechanism under which investments received from certain recognised sources are treated as genuine unless proven otherwise by the authorities.

Gupta goes on to add that Indian startups are in dire need of a dedicated fast-track dispute resolution mechanism, specifically due to Section 68, which makes them vulnerable to the discretion of assessing officers.

In addition, the ClearTax CEO demands the participation of the representatives of the Indian startup ecosystem, along with crucial industry associations and experts, in formulating policies under Section 68. He believes this to help the government aid startups with amendments that are fair and hold little ambiguity.

Need A One-Stop Solution For Valuation Reports  

Currently, startups need to submit various valuation reports from different experts (registered valuers, merchant bankers, and CAs) to different entities like the RBI for FEMA requirements, the MCA, and the Income Tax Department for the same amount of funding.

While these incur a huge cost for startups, more often than not, these valuation reports do not conclude the same value of the startup. 

The core issue is that tax authorities compare actual performance to projections and reject valuation reports if there is a deviation of more than 10%.

Pai said, “This is at the core of the angel tax issue. Not meeting projections is a commercial risk, not a taxable event. The entire premise of angel tax is deeply flawed and nothing but its removal can solve the issue.”

Last year, the IT department made changes to Rule 11 UA, introducing several valuation methods to provide more clarity and flexibility to startups and investors. Non-resident investors now have access to five valuation methods, including the Comparable Company Multiple Method, Probability Weighted Expected Return Method, Option Pricing Method, Milestone Analysis Method, and Replacement Cost Method. 

However, as per Pai, this does not solve the issue.

Jitesh Agarwal, founder and CEO of Treelife, believes that the current requirement for startups to obtain valuation reports from SEBI-registered Category I Merchant Bankers for income tax purposes imposes significant financial burdens, especially for those raising smaller funding rounds. 

To alleviate this, the specific mandate to secure a valuation from a CAT-1 SEBI registered Merchant Banker should be relaxed for startups. This change would reduce costs and simplify the funding process, making it more accessible for emerging businesses.

Notably, T.V. Mohandas Pai, the former CFO of Infosys and partner at Aarin Capital, too, has recommended the use of a single valuation report multiple times.

ESOPs & Redomicile Taxation Reforms

In India, Employee Stock Option Plans (ESOPs) are considered part of salary and are taxed under the Income Tax Act of 1961. The taxable amount is the difference between the market value of the shares when you get them and the price you paid. This amount is added to your income and taxed under one’s tax bracket. 

Also, if employees sell their shares after holding them for more than two years, they are required to pay a long-term capital gains tax of 20% on any profit above INR 1 lakh in a year. However, if they sell their share within two years, the profit is treated as a short-term gain. This gain is added to the income and taxed as per the income bracket. 

The initial market value of the shares (not the price you paid) is used to calculate the capital gains, which reduces the taxable profit. Moreover, ESOPs are taxed twice — at the time of being granted and when being sold. 

According to experts, the overall ESOP taxation process is currently very complex due to factors like market value and exercise price, which leads to double taxation issues for employees.

On ESOP taxation reform policy, Gupta of Cleartax demands ESOPs, held for over two years, to be taxed only at the time of sale. 

Agarwal of Treelife further suggests that a policy needs to be implemented where taxation on the exercise of ESOPs is deferred until the occurrence of a significant company event, such as a merger, IPO, acquisition, or third-party liquidity event. This change would align the tax impact with actual financial gains for employees, reducing the upfront financial burden and potentially enhancing employee retention and motivation.

Now moving onto the issue of redomicile, or as we prefer to call it — “Desh Wapsi”. Currently, several Indian startups desire to shift their base back to the country. While a few, including PhonePe, Razorpay and Groww have already done it, others like Meesho, Udaan, and Zepto are in the process. 

However, the only setback is that the redomicile to India is a cost-heavy affair, as it requires startups to shell out massively in exit taxes and long-term capital gains. 

For instance, PhonePe had to cough up INR 8,000 Cr to shift its headquarters back to India. On the other hand, Razorpay is mulling its merger with the India entity at a lower valuation to minimise the tax blow.

While industry stakeholders demand respite from tax burdens for startups looking for “Desh Wapsi”, they suggest that negotiating and signing bilateral tax treaties with key jurisdictions are expected to provide clarity on tax liabilities, prevent double taxation, and offer favourable tax treatment to entities relocating under specified conditions.

According to Gupta, advance rulings or certifications from tax authorities regarding the tax implications of redomiciling will go a long way in providing certainty to startups and their investors. Similarly, implementing transitional relief measures to mitigate the immediate tax impact of relocating, such as phased taxation or deferred tax payments over a specified period, is another way to go.

The industry experts Inc42 spoke with also seek tax exemptions or reductions for strategic relocations, especially for startups in priority sectors or those bringing substantial economic value and job creation to India. They also demand clear guidelines on the indirect tax implications, such as GST, for startups relocating their operations.

Meanwhile, Pai, who has closely worked with GIFT IFSC, mentioned that the “Onshoring Indian Innovation to GIFT IFSC” report by the IFSCA includes a comprehensive scheme to help startups relocate to India in a tax-free manner. 

This initiative builds on the 2021 scheme to relocate funds to GIFT IFSC. Indian founders are hopeful that the upcoming budget will endorse this scheme, allowing flipped startups to redomicile to India with least or zilch tax burden. This move has the potential to spur many relocations and provide a strong pipeline of startups to tap into the Indian capital markets.

Corporate Tax & Other Demons

While much has been highlighted above, Startups hope the budget could signal at least a change in the area GST rationalisation. 

Ramesh Bafna, CFO of Zepto, states that easing of the GST registration compliance through a proposed Tatkal system will address lengthy approvals time, allowing for faster expansion. 

Moreover, releasing accumulated input tax credit (ITC) through proposals like selling ITC as tradable scrips, providing refunds for a stipulated period, and permitting cross-utilisation of CGST and IGST credits across group GST registrations will enable effective use of funds for business operations. 

These measures, once implemented, will create a more conducive environment for startups, fostering innovation and economic growth in India. Any clarification and ease in regulations would benefit the startup ecosystem, helping it grow and achieve the PM’s vision for 1,000 unicorns.

Meanwhile, there is also a need to address the tax dispute issue. Addressing the elephant in the room, Gupta of ClearTax said that startups that wish to contest tax demands must deposit 20% of the tax amount upfront. 

DPIIT-registered startups should be allowed either a reduced deposit rate or given leeway regarding the timing and amount of these deposits. This change would help protect the cash reserves of startups, which is a critical metric for their operation and growth.

A high corporate tax rate is another long-pending pain point for startups, which many like Gupta want to be lowered in a bid to get respite from tax burden and improve cash flow in the crucial early years of operation.

“The rates and holding periods between listed and unlisted, as well as foreign and domestic investors, should be bridged. It’s diverting domestic capital away from Indian startups and making the ecosystem overly reliant on foreign capital for survival,” said Pai.

The Blueprint For Startup Success

So far, tax reforms for startups have not been as consistence as they should be. This, in turn, has only complicated the current state of Indian startups, per startup founders and VCs.

To support the growth of startups in India in the long run, Sitharaman’s strategic blueprint should be aligned to duly addressing the aforementioned areas. Building clear and transparent tax policies and implementing measures to reduce tax burden should rank high on FM’s priority list.

And, to support these developments, DPIIT also needs to take a few steps starting with the very definition of startups. Gupta said, “There is ambiguity in the definition of what constitutes a ‘genuine startup’ eligible for exemption. Providing clearer criteria and guidelines can prevent misuse of the exemption and provide certainty to startups and investors alike.”

To sum it all up, offering tax credits and incentives for research and development (R&D) activities will encourage innovation and technological advancements. Facilitating the redomiciling of startups to India by minimising tax liabilities and ensuring a smooth transition is also a crucial part of the game. Furthermore, ESOP taxation reforms should align tax impact with actual financial gains for employees, promoting retention and maximising benefits. 

Addressing specific tax issues such as the elimination of Section 56(2)(viib) for DPIIT-registered startups and providing clear guidelines for Section 68 to differentiate genuine investments are critical steps. The requirement for multiple valuation reports should be removed, and the effective corporate tax rate for startups should be reduced to 10-15%. 

Incorporating these strategic measures into Budget 2024 will pave the way for a more favourable and supportive environment for startups in India, unlocking their full potential and driving economic growth.

The post Union Budget 2024: Startup Founders, VC Need Escape From Complex Tax Maze, Brutal Compliances appeared first on Inc42 Media.

For the last decade, Uber and Ola have controlled over 70% of the Indian online ride-hailing market. But in the past two years, startups and platforms such as BluSmart, InDrive, Rapido, Namma Yatri, Red Taxi, and Snap E Cabs have tried to wrestle the duopoly and grab market share.

While we have written about how BluSmart has scaled up in the past, US-headquartered InDrive is looking to become the second large global player to make inroads in India after Uber. 

In fact, Uber is already looking to customise its offerings in sync with what InDrive offers. 

Founded in 2012 in Yakutsk, Russia, InDrive incorporated in the US in 2018, after divesting the Russia business completely. Today the app has a presence in over 749 cities across 46 countries. In 2022 and 2023, it was the second most downloaded ride-hailing app worldwide based on Google Play and App Store data. 

The high number of downloads can be attributed to the high demand among consumers for alternatives to the ‘Uber + Ola’ duopoly in ride-hailing. At least that is the case in India where a number of platforms have emerged post the pandemic.

Part of this wave, InDrive made its India entry in 2022 and has since expanded to 12 Indian cities including Delhi NCR, Bengaluru, Mumbai, Chennai, Kolkata, Chandigarh, Jaipur, Lucknow and Ludhiana.

What makes InDrive so compelling is its peer-to-peer, fair-price setting model, where passengers and drivers negotiate fares among themselves. It offers ride-hailing, intercity, freight, and delivery services in India, just like many of its competitors, but it is the pricing model which has become a key moat. 

Relief From Ride-Hailing Pains

There’s little doubt that Uber and Ola created the market for ride-hailing apps in India and solved several of the challenges around early adoption on both the driver and rider side. 

But we have written extensively about the problems that are yet to be solved, particularly with Ola and its many attempts in the past. 

In fact, most of the competitors to Uber India and Ola are banking on the fact that customers are frustrated with the existing options and complained about complacency due to the duopolistic nature of the market. 

In particular, arbitrary ride cancellations and surge pricing are the big targets for the new ride-hailing brigade. InDrive claims to solve both by offering price negotiation between driver and rider and zero surge fees.

Speaking to Inc42, InDrive country head Pratip Mazumder said, “We provide freedom of choice to both driver partners and riders. They can decide if they want to take a ride at a certain price or not. Both sides of the marketplace can decide for themselves. This model offers freedom and does not charge any kind of surge fee. Two people can agree on a price without the platform intervening.”

The price negotiation feature allows riders and drivers to come to a mutually agreed rate while the default payment mode remains cash to the drivers and hence the cancellation due to price or payment modes is very low, he claimed. “We see significantly low cancellations and these are mostly due to navigation errors or wrong pick-up addresses.” 

Driver-Centric Models Emerge 

Uber and Ola have also faced criticism from drivers, who have gone on strike multiple times over the years, demanding fair platform commissions and better earnings predictability. 

Both platforms charge 20%-25% commission from drivers, with an extra 5% for GST. When accounting for vehicle maintenance, fuel costs and other expenses, app-based drivers see much of their earnings erased. In some cases, car loan EMIs further reduce the net earnings. 

Further, the commission structure is ever-changing due to incentives and deductions by the platforms, leaving drivers at the mercy of whatever the companies decide. For years, drivers on Ola and Uber looked for alternatives that could disrupt this model, and it is only in the past two years that these have emerged, partly fuelled by VC funding. 

For instance, JusPay-backed Namma Yatri partnered with Bengaluru-based Autorickshaw Drivers Union (ARDU) to launch its service in 2022. JusPay has raised over $88 Mn in its lifetime for its fintech platform, but saw the opportunity to diversify into mobility. 

Namma Yatri has largely been incubated within JusPay though it is now run as a separate product. It started with zero commission and currently offers two payment options to auto-rickshaw drivers: INR 25 for unlimited trips per day or INR 3.50 per trip with no charges after 10 trips. 

However, auto-rickshaw union ARDU has reportedly ended its partnership with Namma Yatri in recent weeks, which calls into question the sustainability of new models. 

Similarly, ride-hailing platform Rapido faced extensive pushback on its earlier bike-hailing service in many cities, and eventually it expanded into autos and cabs as well. It also introduced a zero-commission model for drivers, and currently allows users to set a higher price per ride to get guaranteed rides. 

EV-centric mobility startup BluSmart is another example of a VC-funded platform that is looking to challenge the duopoly. Founded in 2019 the company claims to be on course to reach INR 800 Cr in revenue in FY25. And it looked to find a niche by employing drivers who are paid fixed salaries as well as performance-based incentives.

In comparison, InDrive takes 10% commission per ride which includes a 5% platform commission as well as the GST for the ride. Mazumder added that this is also one of the reasons why InDrive has been able to offer fair pricing in comparison to other platforms for drivers, which goes a long way towards solving ride cancellations. 

However, it must be noted that other companies are experimenting with similar models depending on the vehicle being used for the service, as we will see below. 

Can InDrive Dethrone Ola & Uber?

InDrive’s entry and rise to prominence in terms of the user base has forced Uber’s hand and led to similar changes in Rapido. For instance, the price negotiation feature has been so appealing that Uber has begun piloting Uber Flex in around 12 smaller cities in India before a potential launch in metros and Tier 1 cities.

Here’s where it gets interesting. Can InDrive survive against Uber Flex once it’s fully launched? It’s worth mentioning that the platform is already present in 125 cities across India. 

The largest player, Ola Cabs, is already present in over 150+ cities in India. Rapido, with its bike taxi service as its key offering, has now expanded its presence to over 100 cities. The old veteran, Meru Cabs, currently has a presence in 24 cities. Then, there are Quick Ride, BlaBlaCar, Jugnoo, and other apps operating in almost a dozen cities. Besides, there are a few fast-growing players such as BluSmart, which is currently operational in Delhi NCR and Bengaluru, and Red Taxi in six cities.

Backed by the Karnataka State Driver’s Council, Bengaluru witnessed the launch of a new ride-hailing service called Nagara Metered Auto Drive, which charges government-fixed fares of INR 30 for the first 2 km and INR 15 per additional km.

In such a scenario, it’s not going to be an easy ride for InDrive in India to survive and then compete with the top players. The platform was initially launched with zero commission and later revised to 5%, similar to how BluSmart changed its policy from no surge pricing to rush hour pricing as it strived for profitability.

InDrive’s Path To Profitability

Besides the operational challenges, profitability has been a significant pain point for both Uber and Ola. 

Even if Uber registered a staggering $1.9 Bn profit for 2023 globally, Uber India’s loss widened from INR 216 Cr in FY22 to INR 311 Cr in FY23. Uber India’s revenue also increased to INR 2,666 Cr in FY23 from INR 1,726 Cr in FY22, which is definitely encouraging for the company despite the losses. 

Ola Cabs’ parent entity, ANI Technologies, managed to cut its losses by nearly 50% to INR 772 Cr during FY23 against INR 1,522 Cr in FY22. ANI Technologies recorded a 42% growth in scale to INR 2,799 Cr for FY23 as compared to INR 1,970 Cr in FY22. Despite high commissions, both companies are still posting significant losses. 

Similarly, Rapido, which claims to offer a zero-commission model for drivers with a daily subscription fee, reported a 53.6% widened standalone loss of INR 674.5 Cr in FY23 against INR 439 Cr in FY22. Rapido’s bottom line was hurt despite its operating revenue rising more than threefold to INR 443 Cr during the year under review from INR 144.8 Cr in FY22.

In terms of scale, InDrive is the smallest player among these standout platforms in the ride-hailing market. However, according to the InDrive data shared with Inc42, its monthly active users in India are growing at 20% while the Y-o-Y rides have grown by 29%.

So what’s InDrive’s path to profitability? Mazumder said the challenge in the Indian market is that it is very complex with diverse states, cities, languages, and aspirations. He also claimed that InDrive’s vision of ensuring fairness and solving problems transparently is critical for people to accept and love the product, and once that happens, profitability will follow.

That may have been true for many startups in the past, but the reality is that competing against VC-funded players who have already scaled up to a large extent will not be easy or inexpensive. 

The company recently closed a $150 Mn round led by General Catalyst, taking its total lifetime funding to over $380 Mn. How much of that will be allocated for India? 

Instead of directly responding about the financial performance of the India business, Mazumder said, “If we can solve for India, we can solve for the world. Our CEO has a clear vision of reaching a billion-plus people. We aim to challenge injustice, provide access to better jobs, and improve quality of life. Profitability is an outcome of scale, product value, and market acceptance.” 

So what kind of product innovation is InDrive looking at? Interestingly, the company is going forward with a ‘super app’ vision, so it’s quite bullish on the depth of the Indian market. “So if you look at the app, we already offer normal cab rides, we have moto rides, and we have deliveries over 20 kg. This is how we are trying to create more use cases for the Indian market,” added Mazumder.

Like Ola, Uber, BluSmart and other players, InDrive also plans to go green soon in India. Mazumder believes that the company will enter the space once charging is not as big a problem as it is today. At the moment, InDrive is looking at ways to solve the charging infrastructure problem and plans to have a significant EV build-up in the near future. 

But for now, the big question is: does InDrive India have enough fuel in its tank to outpace BluSmart, Rapido and others in the race against Uber India and Ola? 

[Edited by Nikhil Subramaniam]

The post Can Ride-Hailing Hotshot InDrive Smash The Ola-Uber Duopoly In India? appeared first on Inc42 Media.

As the Indian government pursues its vision of Viksit Bharat@2047, the focus is on nurturing a low-carbon economy. The high cost of gasoline and its growing shortage are pushing developed nations towards electric alternatives. And India, too, is looking forward to a decarbonised ecosystem, be it shifting freight from road to railways or the robust growth of electric vehicles (EVs) by 2030.    

On the back of growing EV demand, the Indian government approved Phase II of the FAME (Faster Adoption and Manufacturing of Electric Vehicles) scheme with an outlay of INR 10K Cr for three years, starting from April 1, 2019. The aim was to incentivise EV makers to promote domestic manufacturing of electric vehicles. The scheme was extended until March 31, 2024, and a four-month programme called the Electric Mobility Promotion Scheme (EMPS) was introduced in April this year to service OEMs during general elections.

However, all’s not well in a country that has never considered electric vehicles a passim fancy. In May 2023, the ministry of heavy industries (MHI), in charge of FAME II, issued show-cause notices to leading electric two-wheeler (E2W) players, including Hero Electric, Okinawa Autotech, Ampere Vehicles (Greaves Cotton), Benling India, Revolt Intellicorp and Amo Mobility. 

The allegation: Violation of FAME II manufacturing norms (more on that later) that may result in certain 2W models getting deregistered. The MHI also asked these companies to refund the entire subsidy amount worth INR 469 Cr spent on their models.

On March 27, 2024, debarment orders were issued to Hero Electric and Benling India, which means these companies cannot leverage the government’s schemes in the future. Okinawa received interim relief as its case was pending in the Delhi High Court.

An MHI official told Inc42 on condition of anonymity. “Non-compliance was established on various occasions. For instance, we tested a Benling India scooter and found almost all components were imported [as per FAME II, at least 50% should be locally manufactured]. Okinawa will also get the debarment order after the Delhi High Court disposes of the case.”

This may well be routine proceedings for the Ministry of Heavy Industries, but the issue may escalate into something more worrying.

“At least three to five OEMs may shut down in the following months, affecting 1K dealerships and more than 5K jobs,” an industry insider closely following the developments said when asked about the potential impact.

According to a report published in August 2023 by the Society of Manufacturers of Electric Vehicles (SMEV), with government subsidies on hold for 22 months, EV OEMs have suffered losses above INR 9,075 Cr.

Again, many dealers had no choice but to opt for legal proceedings against these companies for not meeting the demand as per the dealership agreements.

Speaking to Inc42, Vinkesh Gulati, chairman (Research & Academy) at the Federation of Automobile Dealers Association, revealed an intriguing scenario. According to him, some manufacturers initially fulfilled the PMP norms by purchasing imported components from local vendors. It was an ingenious supply chain where Vendor A imported the components and sold them to Vendor B. Next, Vendor B sold those to Vendor C, and finally, the OEMs purchased those components from Vendor C. 

However, it would be unfair to blame the OEMs alone, given the inadequate manufacturing infrastructure that led to the component crunch at home, said Gulati. 

How Hero Electric & Okinawa Pioneered EVs

Once the commanding force of the Indian E2W space with a combined market share of 70%, Okinawa and Hero Electric’s contributions have now shrunk to less than 1%. Their manufacturing units have been shut down for more than a year, although Okinawa and Benling India are reportedly rolling out a few batches now and then. 

Hero Electric and Okinawa were long lauded for bringing electric two-wheelers to the mainstream by lowering sticker prices. These companies started with lead-acid batteries to keep costs low and consistently commanded more than 50% of the market share in FY20 and FY21. But it dropped to 46% in FY22.

Okinawa’s founder, Jeetender Sharma, claimed several nifty innovations and was confident about the company’s future. “We were among the first ventures in India to mass manufacture high-speed electric scooters. With a top speed of 55 kmph, a loading capacity of 150 kg, a battery range of 88-90 km per charge and enough power in its motor to climb flyovers, the Okinawa Ridge was our breakthrough EV. The Ridge was greatly appreciated in the nascent Indian market, with more than 10K units sold in the first year. Naysayers said I would not even cross 500 units in the first year, but they were wrong,” he told the media a few years ago.  

Just before the lockdown, Okinawa used to sell more than 4.5K units a month, but Hero Electric soon surpassed it, reaching monthly sales of 6K+ EV two-wheelers. But in spite of creating an all-new E2W market in India, early entrants like Hero Electric, Okinawa, Benling India and Ampere heavily depended on imports for the supply of components, according to EV experts. Had India established a robust supply chain in early days, the subsidy misappropriation by wrongfully declaring imported components as locally produced could have been prevented, bringing EVs within striking distance of ICE-powered vehicles by now.   

The Anatomy Of A ‘Faulty’ Business Model

Commenting on the latest developments, Deb Mukherji, CEO of Clean Mobility Solution India, said, “Credit must be given where it is due. Both Hero Electric and Okinawa ushered in the E2W era here. But their dependency on imports cannot be overlooked. They used to purchase all their kits and components from China.” 

No doubt assembly and incremental value-additions (if any) came later. But what happened then could be likened to a trading model, according to Mukherji. 

“Such a model is adopted for two reasons. One may go for it if the business deals in low-value commodities such as toys and candles, which are cheaper to import and have no quality concerns involved. Or you may go for it if there is a strict cost advantage and competition is based solely on price,” he added.

However, the second option is always risky and short-term. If one is selling at INR 100 today, someone may offer it at INR 90 tomorrow, forcing others to lower their prices. Competing purely on cost is unsustainable because someone can always undercut the price.

As the market developed and demand grew, these companies were under significant pressure. They tried to shift to the next level of manufacturing but manufacturing prowess was not their strength.

According to an analyst who did not want to be named, a close look at the companies’ financials would reveal how their dependency on FAME II incentives increased annually, rising from 1% to 20% of the operational revenue. It was understandable in the beginning when they had to import all components. But unlike other players, they maintained the same approach even when local component manufacturers were around. Their expenses also reveal little or no allocation for R&D, indicating a lack of long-term focus.

Randheer Singh, CEO of the EV value chain consulting ForeSee Advisors and former director of NITI Aayog, concurred saying that Hero Electric’s and Okinawa’s decline in market share could be attributed to intense competition from brands like Ola and TVS, which excel in affordability and extensive service networks. Product quality and the recent subsidy withdrawal for non-compliance have also impacted their market positioning.  

Singh believes enhancing product reliability and leveraging government incentives will be crucial for their comeback.

FAME II Violation Hurts EV Ecosystem  

The Indian government’s ambitious subsidy scheme to promote EVs was marred by alleged norms violations after whistleblowers started complaining in 2022. But before we enter the contentious ground, a quick look at the backstory will not be out of context.

The government launched the National Electric Mobility Mission Plan (NEMMP) in 2013 to promote hybrid and electric vehicles, aiming to hit 6-7 Mn sales by 2020 and enhance fuel security. Since EVs cost 30-40% more than their ICE counterparts, the FAME programme was introduced under NEMMP in March 2015 to make these ‘green’ vehicles more affordable through subsidies.

The first phase of FAME continued until March 31, 2019, with an allocation of INR 895 Cr, out of which INR 529 Cr was released. The remaining amount was reallocated to the FAME II scheme.

FAME I focussed on early market creation through demand incentives, in-house technology development and domestic production to help the industry reach self-sufficient economies of scale. It provided demand incentives for the adoption of 2.8 Lakh EVs (2Ws, 3Ws and 4Ws) and 425 electric and hybrid buses, besides the development of 520 charging stations.

FAME II came into force in April 2019 (FY20) for a three-year span, with an allocation of INR 10K Cr (including the remaining INR 366 Cr from FAME I). However, with the onset of the Covid-19 pandemic in 2020 and the following socio-economic setbacks, its subsidy period was extended to March 2024. Its focus areas included financial incentives for EV purchase, charging infrastructure development and all other related activities.

But the flagship scheme’s timeline got disrupted again. Based on the feedback from industry stakeholders, FAME II was overhauled in June 2021 and upfront costs were lowered to ensure faster EV adoption. Earlier, the government used to offer an incentive of INR 10K per kilowatt-hour (kWh indicates energy consumed per hour) for two-wheelers, but this was revised to INR 15K per kWh, with the maximum cap rising from 20% to 40% of the vehicle cost.

Maximum ex-factory prices for 2Ws, 3Ws and 4Ws remained unchanged at INR 1.5 Lakh, INR 5 Lakh and INR 15 Lakh, respectively, for manufacturers to avail of FAME II incentives.

EV makers were mandated to use locally produced components such as battery packs, traction motors, controllers, vehicle control units, onboard chargers and instrument panels in a phased manner. All other components must be sourced locally to meet FAME II compliance and obtain subsidies under the scheme. Subsequently, OEMs had to declare domestic value addition (DVA), a metric indicating how much value an EV manufacturer has created locally for every EV unit. At least 50% of vehicle components should be sourced from India to qualify for the FAME II incentive scheme.

Things took a bad turn when the MHI received several letters from whistleblowers between April and September 2022. They claimed that EV manufacturers such as Okinawa, Hero Electric, Ampere and Benling India had flouted FAME II procurement norms and imported components, which were supposed to be manufactured or assembled in India.

According to these letters, some of the components such as DC-DC converter, electronic throttle, vehicle control unit, onboard charger, traction motor and traction motor controller were supposed to be sourced locally from April 1, 2020. But a few E2W OEMs continued to use imported parts even after the deadline.

This violates the PMP framework of the FAME II scheme.

The MHI probed as many as 13 EV companies. Among these, six E2W players, including Hero Electric, Okinawa, Ampere Vehicles (Greaves Cotton), Benling India, Revolt Intellicorp and Amo Mobility, allegedly violated PMP/DVA norms. Others, such as Ather Energy, Ola Electric, TVS and Vida (from Hero MotoCorp), were accused of violating pricing norms. 

An MHI official told Inc42 that Hero Electric, Okinawa, Benling India and others had confessed during the probe that most of their components were imported. Among these were chassis, wheel rims, electric switches, steering locks, braking systems, suspensions, light sets and even body panels.

The tests were carried out by the International Centre for Automotive Technology (ICAT). In its strip-down analysis report, ICAT said both Hero Electric and Okinawa imported DC-DC converters, traction motors, onboard chargers, wheel rims and buzzers in FY22 and FY23.

“We are not even talking about controllers and motors,” the MHI official said. “In the case of Okinawa, we found even the tyres, horns and seats were imported. Literally, the entire scooter. How could we pass it off?”

After receiving the show-cause notice last year, Hero MotoCorp, TVS Motor Company, Ather Energy and Ola Electric deposited around INR 300 Cr as a penalty for violating the guidelines under the FAME scheme. 

A source close to the development made another point. “The certification process of the testing agencies had their interpretational issues at the time. Also, some OEMs used to send one model for certification and sold another variant post-certification. Even if they incorporated locally made components for testing purposes, the rest of the models featured imported parts.”

Rebuttal From The OEMs: What Hero Electric And Others Have To Say

Although most EV players have refunded past subsidies and publicly admitted wrongdoing, Hero Electric, Okinawa and Benling India have approached the court for a resolution.

According to a press statement by the industry body SMEV, the MHI owes the OEMs INR 1,200 Cr [unpaid earlier subsidies for which invoices were submitted]. If the ministry’s demand for a subsidy refund of INR 469 Cr under FAME II is actualised, it will have INR 1,669 Cr in all. This means the INR 2K Cr budget for the E2W sector will remain largely non-disbursed. In that case, the non-compliance becomes a non-issue, although the FAME II scheme would have become a complete non-starter [minus the subsidies].

A former SMEV official further argued if the certified models breached the FAME II framework, the responsibility should first fall on the testing agencies, not the OEMs.

The testing agencies in question include the Automotive Research Association of India (ARAI) in Pune, Maharashtra; the International Centre for Automotive Technology (ICAT) at Manesar, Haryana; the Global Automotive Research Centre at Oragadam, Tamil Nadu, and the National Automotive Test Tracks at Pithampur, Madhya Pradesh.

“Has the MHI punished any of these testing agencies? No. But they are punishing the OEMs who sold the models certified by these agencies,” a senior official working for Hero Electric said, requesting anonymity. “The MHI is asking for refunds at a time when these subsidies have already been paid to end users. We wanted to recall buyers’ subsidies and deposit them back to the ministry, but didn’t get approval for the same,” he added.

“Although Ampere, Amo and Revolt paid their dues, their models have still not been approved by the MHI. So, paying the subsidy back does not offer them any lifeline. As we no longer have financial backing, we won’t be able to compete with other players loaded with subsidies,” the employee observed. 

He also brought forward another anomaly. “Govt officials have alleged that we bought components from a vendor whose certification had already expired. Four-wheeler OEMs did it but the exception was extended to them for another year. We didn’t have that advantage, but rules must be the same for everyone. Approval for a new vendor would have taken months and we had no choice but to purchase components from the same company.”

The MHI official mentioned above called it a feeble excuse. “Per the PMP framework, different deadlines were set for component imports. After consultations with industry representatives, those timelines were specifically tailored for two-wheelers, three-wheelers and four-wheelers. So there should have been no bottlenecks regarding procurement.”

While Hero Electric officially declined to comment on these allegations and counter-allegations, Okinawa Autotech did not respond to Inc42 queries till the time of publishing this article. 

How The Legal Spat Panned Out

In September 2022, the customs commissioner in Ludhiana (the jurisdiction covers Punjab, Himachal Pradesh, and Chandigarh) issued a show-cause notice to Hero Electric under Section 28(9)(b) of the Customs Act, 1962. The notice alleged that the company imported whole e-scooters instead of their components.

In its response on February 14, 2023, Hero Electric claimed to have sufficient evidence to prove that only parts, not entire scooters, were imported.

In July 2023, after Hero Electric models were deregistered from the FAME subsidy portal, the company filed a petition in the Punjab and Haryana High Court. The petition argued that despite the company’s response, the Customs did not follow any procedures or take steps to finalise the proceedings on the show-cause notice.

On July 27, the HC directed the Indian government to complete the proceedings by issuing a final order on the show-cause notice by November 27, 2023.

In April 2024, the company filed another petition against the Indian government’s deregistration and debarment order. This will be heard on July 30, 2024.

In November 2023, Okinawa Autotech approached the Delhi High Court challenging the MHI order dated October 9, 2023, which deregistered Okinawa scooters from the FAME II portal and demanded a refund of the entire subsidy amount of INR 116.85 Cr.

Benling India also approached the Delhi High Court in May 2024, challenging the show-cause notice issued on May 25, 2023, and the debarment order dated March 7, 2023. The company argued that the scooter in question was obtained from a third party and, therefore, the company was not liable for any foreign components fitted in the vehicle.

Meanwhile, Hero Electric was taken to the Delhi High Court for non-payment of rent. The owner of the premise alleged that rent worth INR 68 Lakh had not been paid and requested arbitration. These matters, too, will be heard on July 23, 2024.

Kaybee Overseas, a vendor of Hero Electric, filed a petition regarding non-payment. Another dealer, Aurum Automobile, also approached the Delhi High Court Mediation and Conciliation Centre for a settlement with the company.

In April 2024, the Delhi HC appointed a sole arbitrator to adjudicate the dispute between Okinawa and Goyal Ebike, one of Okinawa’s dealers. Goyal Ebike alleged that Okinawa failed to supply its e-scooters despite multiple calls and email messages. The case will be heard on July 15, 2024.

EV Majors In A Deep Hole

The legal storm overtook the EV companies when Hero Electric was looking for strategic partners to raise $250 Mn and Okinawa was aiming to bag $100 Mn. They raised part of the capital through compulsorily convertible preference shares (CCPS) and compulsory convertible debentures (CCD), but the plan went south as the news of model deregistration and subsidy refund hit the headlines.

The current turmoil has brought the three companies to the brink of closure. Hero Electric’s plant has reportedly remained idle for the past 15 months, while the Benling India unit in Manesar has been non-operational for more than a year. Okinawa, too, is facing similar challenges, as it has invested substantially to set up a second unit in Karoli, Rajasthan (the first one is in Alwar). To fulfil some outstanding orders and thus avoid legal conflicts with their dealers, Okinawa and Benling have intermittently resumed operations and paid their workers daily wages, sources from these companies told Inc42.

More stories of suffering follow. More than 80% of permanent employees in Hero Electric and Benling have been laid off since May 2023. At Benling India, nearly all employees have been dismissed, barring four or five, said a former senior employee.

A host of component suppliers have not been paid yet and 1K+ dealers have run out of supplies after regular production has gone on hold. Assuming each dealership employed around five people, each supporting a family of four, nearly 20K lives have been impacted.

The MHI decision has impacted thousands of people. Vendors have not received payments for component supplies, and dealers face supply shortages after regular production is put on hold. This has affected 1K+ dealerships nationwide, affecting nearly 20,000 lives (assuming each dealership employed around five people and each supported a family of four).

Numerous dealerships listed on these companies’ websites have shut down, with some switching to other brands. When queried, sales staff cite a lack of support from these brands as the reason for the shift.

How the dealers are trying to sell these e-scooters now can be gleaned from a recent interaction. When we called a Benling India dealer regarding the availability of those E2Ws, he said, “We currently have two scooters in stock, but could not communicate with the company for the past few months. If you want to buy, I can offer some parts and provide a personal guarantee. But I cannot extend that assurance on behalf of the brand.”

This has impacted the owners as well. A significant number of users have not been getting after-sales services and support from these brands.

Summing up the situation, one of the E2W founders said, “Although this may not have been the MHI’s intention, it has overlooked the humane angle here when it implemented the decision. The MHI is primarily at fault in this scenario. The goal should have been to enforce the law in real-time, but the ministry failed miserably. After identifying the FAME II violation, it should have issued a warning and extended the deadline by a few months. Such extreme punishments are typically reserved for repeat violations, not for the first-time offenders, especially in a nascent market.”

Driving the adoption of EVs in India is not just about nurturing a new industry and market but is also critical for India’s sustainable development goals. The hurdles such as the FAME-II violation severely dent the confidence of the EV ecosystem, but execution and implementation gaps from the government side have also resulted in value erosion for the companies. For the sake of India’s EV future, many in the industry hope this is the last such fracas between EV makers and policymakers.

[Edited by Sanghamitra Mandal]

The post Will FAME-II Violation Blow Hero Electric, Okinawa And Benling India Off The EV Highway? appeared first on Inc42 Media.

The nuanced world of venture capital, a financial superhighway connecting visionary founders and investors, may not yet be past its golden era. However, VC firms are becoming more realistic, overcoming the fear of missing out (FOMO) and moving away from astronomical valuations. A thorough analysis of returns and growth potential is the new watchword after the funding winter, and most VC funds are now cautious about investing until startups can offer compelling propositions and solid numbers.    

Unlike many of its storied peers, Singapore-based Vertex Ventures Southeast Asia and India (VVSEAI) was quite active even during the recent turbulence. Set up in 2010, it is one of the biggest and oldest investors in SEA and closed its fifth fund in September 2023 with a corpus of $541 Mn. Interestingly, Fund V is nearly 80% larger than the previous one ($305 Mn) raised in 2019 and has surpassed its target of $450 Mn.

The latest fund is supported by existing and new limited partners (LPs), including sovereign wealth funds, financial institutions, corporate houses and family offices across Asia and the EU. Japan Investment Corporation (JIC), International Finance Corporation (IFC) and DEG (a German development finance institution) are the new LPs onboarded for Fund V.

The early stage VC fund has already invested in around 30 Indian startups across its funds. Among these are IPO-hopeful FirstCry (Vertex has exited the business), India’s first D2C unicorn Licious, profitable fintech app Kissht, leading audio content platform KukuFM and fintech AI platform Signzy. In fact, Vertex has funded a host of AI startups, such as Threado AI, Active.Ai (sold to Gupshup), Attentive and Validus, even before AI and GenAI took centre stage.

In 2022, the fund led a $9 Mn Series A round in its portfolio company BeepKart, a Bengaluru-based e-retailer of pre-owned two-wheelers. In January 2024, it also took part in the $6.3 Mn Series A funding of Mumbai-based on-demand manufacturing platform Karkhana.io. This investment was made from Vertex Ventures Fund V. In 2021, Karkhana.io also secured its pre-Series A funding worth $1.2 Mn from Vertex.

Asked about its diverse range of India investments, Piyush Kharbanda, general partner at VVSEAI, emphasised the fund’s market expertise and constant search for sustainable startups. “We don’t look for vanity metrics like high valuations. Our partners working for a country-specific market are not parachuted, either. They have a profound understanding of the local market and make the decisions accordingly.”

An alumnus of Delhi College of Engineering and IIM-Ahmedabad, Kharbanda joined the fund in 2016 and worked closely with a number of startups such as Kissht, KukuFM, Signzy, Ayu Health, BeepKart, Tortoise, Threado and Certa.

In this edition of Moneyball, Inc42 has an exclusive interaction with Kharbanda, who speaks about the evolving VC landscape, emerging sectors, fintech’s regulatory hurdles and why the omnipotent AI may only operate as an in-built component across existing platforms. Here are the edited excerpts. 

Inc42: What are the key verticals Vertex targets? Does your investment focus vary based on the market you are in – it won’t be the same for India and Indonesia?

Piyush Kharbanda: Vertex caters to multiple geographies, including Singapore, Indonesia, India, Vietnam and Thailand. But we do not operate as outsiders parachuting into different markets. Instead, we draw upon our local expertise and work with dedicated teams to focus on local investments and growth sectors.

The fund house is guided by a unified set of themes, but we understand that each market is unique and the specifics vary. For instance, consumption [consumer trends] is a significant theme in emerging markets like India and Indonesia. Therefore, our India investments span beauty and personal care brands, pre-owned two-wheeler platforms, healthcare and more. 

Depending on the market, our investment strategy adopts different approaches to the same themes, including consumer technology, fintech, SaaS, local and cross-border software solutions, health and wellness, mobility and sustainability/climate-related initiatives.

Inc42: How many startups have you invested in, and how many are part of Fund V? Please tell us about your follow-on investment strategy.

 Piyush Kharbanda: We manage an active portfolio of 52 startups and have invested in 80 businesses. Among these, approximately 30 are Indian startups. Fund V is quite active and has already backed nine companies, five of which are Indian ventures. 

We have also seen some notable exits, including FirstCry, XpressBees and Recko, among several others. 

Our investments range from $2 Mn to $10-12 Mn. We consider ourselves long-term investors, reserving capital for follow-on rounds. On average, we commit $10-12 Mn per company, depending on its size, scale and scope.

Inc42: How long does it take to write a cheque after a startup pitch?

Piyush Kharbanda: We engage with startups well before they raise the money. It takes three to six weeks to initiate due diligence and issue a term sheet. An additional six weeks are required to complete due diligence and finalise the deal. This process can be faster sometimes, but closing an investment takes about three months.

Inc42: How does Vertex support portfolio companies beyond funding? 

Piyush Kharbanda: Every venture fund supports its startups, but the extent of that support often hinges on the size of its portfolio. We have a manageable portfolio at Vertex, allowing us to allocate time and resources to each company. Our partnerships team also leverages our extensive global network to help portfolio companies.

Active business development is a crucial part of our investment strategy. Recently, we organised a CIO meetup in Japan, giving our startups access to prominent Japanese corporations. In another instance, we introduced large clients to a portfolio company called Certa. These initiatives underscore our commitment to fostering meaningful connections and opportunities for our startups.

Inc42: What about the exit strategy at Vertex?

Piyush Kharbanda: We have to consider exit from Day 1 because we are accountable to our partners. It is not an easy conversation, though, as you typically seek to work with someone aiming to build a lasting legacy business. But we must discuss these matters with our founders at times.

We are very transparent during these discussions, regardless of the startup’s stage or condition. Our founders also understand our perspective and recognise its importance. It doesn’t mean we bring up exits at every board meeting, but there are appropriate times for such interactions.

We ensure that the founders are aware of the exit options, not just for our benefit but also for theirs. This involves staying in touch with competitors, potential strategic acquirers and everyone else in the ecosystem. This approach helps build a better business and opens the door for a favourable outcome. Then again, we are always mindful of the business model’s sustainability. So, these are critical conversations integral to building a business and developing an exit strategy.

Inc42: Early stage funding saw a 29% decline in FY24, compared to a 17% dip in overall startup funding. Why did early-stage investors lose interest?

Piyush Kharbanda: We are on an upward trajectory if you consider the trend during 2017-2024. The spike in 2020 and 2021 was an exception. An influx of cheap capital drove it and many startups secured funding with ease. But the market has since normalised and investors are now more cautious, focussing on sustainable business models.  

Inc42: A valuation reversal is underway, with dozens of unicorns and soonicorns losing their coveted status. What’s your take as an investor?

Piyush Kharbanda: We don’t focus on unicorn status as it is a vanity metric. The trend reflects the aftermath of the 2021-22 valuation surge when many startups were overvalued without sustainable business models or unit economics. Some of these entities may bounce back. Others will fail to raise capital or may soon seek funding at lower valuations.

Inc42: Which emerging sectors will grow significantly in the next three to four years? Is the current hype around AI sustainable?

Piyush Kharbanda: AI is crucial for the future of software. But it will become a feature within existing platforms rather than being the sole focus of standalone companies. Not every company can become AI-native or immediately disrupt all industry segments. But yes, established players with strong distribution networks will continue to thrive.

Beyond AI, we are bullish on the consumption economy, especially new consumer brands, cross-border B2B platforms and technology marketplaces. These sectors have substantial growth potential.

Inc42: What about regulatory issues? Do they impact VC investments such as in fintech?

Piyush Kharbanda: These issues should not affect businesses adhering to the law. We have not invested in fringe or under-regulated sectors, as success in financial services demands agility and strict compliance with regulations.

Inc42: VCs like Rocketship claim to be 100% outbound and data-driven, but many others rely on networks for deal hunting. What does Vertex do?

Piyush Kharbanda: Vertex works with exceptional founders, taps into thriving markets and nurtures robust business models. There must be a place and time for data to stay at the centre of these core elements for effective outcomes. The strategic use of data is paramount at this point. Just think about how the efficacy of a business model is validated through data over time. 

On the other hand, cultivating strong relationships remains equally critical for long-term success. Many would underscore the human element when deciding upon a VC partner or a startup founder. Our global network also helps us understand where markets will be tomorrow rather than where they are today. 

I would say there is no right or wrong answer here. Even within Vertex, people have different perspectives and put more weight on one aspect or another. Some people lean towards market-driven investments. Others are more founder-driven and value founders’ vision. Again, some may focus on business models and data. The beauty of the VC model is that all three approaches can work. 

As a team, we consistently ask each other probing questions to ensure a clear understanding of all critical factors. We are intellectually honest with each other and very transparent. This helps us do what we are doing.

Inc42: How do you see the VC landscape especially, investments in hardware and sustainability evolving over the next five years, given that current investment levels in these certain segments are still low?

Piyush Kharbanda: A collective ecosystem is out there and VCs are part of it. They focus on different segments based on their expertise and priorities. But as you said, there are certain sectors which are underinvested. We need a broader ecosystem to address that, as we don’t have enough people with a deep understanding of how to invest in areas like, say, hardware. [I am also one of those people lacking special knowledge.]

These investment cycles may evolve slowly, but certain sectors will soon gain momentum. Hardware, for instance, will see more expertise being built and attract more investments. We have witnessed this in the semiconductor space and other areas. I think it is just a matter of a few more cycles before these sectors become extremely relevant.            

As for the VC ecosystem, we are at a crossroads. We are going to see a lot of churn following a prolonged funding winter. Some big names may struggle to raise capital, and consequently, some large funds may have to reduce their subsequent fund sizes. We may also see new managers spinning out of existing VCs and setting up CVCs. Meanwhile, smaller funds which have spun out may become larger and gain prominence. Overall, there will be a lot of churn in the next five to seven years across the ecosystem.

[Edited by Sanghamitra Mandal]

The post Vertex Ventures’ Piyush Kharbanda On Why Big Investments In Deeptech, Sustainability Are Still A Few Cycles Away appeared first on Inc42 Media.

In March 2023, Vineet Gupta, a confectionery store owner from Roorkee, and his wife Anjali were looking for the best investment options, not only for savings but also something that would give them guaranteed returns with minimal risk.

“My son scored over 97% in 10th grade. We wanted to save money for his higher studies,” Vineet said.

This is when they learned about the agritech investment platform Growpital from Google ads and on YouTube videos, which promised a tax-free 15% return on investments.

“There are no risks involved,” Growpital’s executives assured the couple via phone calls, he recalled. Further, since it’s an agricultural investment, there will be no taxes.

After speaking to multiple such salespeople, and watching webinars and interviews on YouTube, the Guptas decided to invest what they described as their entire life savings into Growpital — a whopping INR 32 Lakh for three years.

As per Growpital’s investment model, the couple was supposed to receive around 15% returns on a half-yearly basis plus any bonuses. But as it turns out that was just a story. 

“We have received just one such payout last year from Growpital. After that, there have been no payouts. Now, we are unable to sleep at night, losing hope. We don’t have any money left to continue our only child’s education,” Vineet told Inc42. 

Interestingly, all payouts to investment partners were made to their respective Growpital wallets which many of the investor-partners either reinvested or did not withdraw before the SEBI’s order.

He is just one among over 5,200 investor-partners (as per SEBI records) who are now stuck in limbo after investing in Growpital. The extent of their plight is clear from interviews that Inc42 conducted with 15 such investor-partners over the past few weeks. 

Another investor Manoj (name changed) told us he was diagnosed with a severe mental illness after learning that he might not see any returns from the INR 20 Lakh invested with Growpital. 

From plans to hit a revenue of INR 400 Cr in FY24 to inching towards a shutdown with every passing day, the Growpital story and promise have completely soured in the last six months. 

• Over 5K investor-partners have stopped receiving instalments for the last six months
• Growpital’s employee count has reduced from around 100 to less than five, according to various sources close to the development 
• What’s more the main investing platform i.e. Growpital’s website is not operational leaving investor-partners knocking on several doors for their returns

As reported by Inc42 in January this year, SEBI froze all the company accounts, leading to day-to-day operations coming to a halt. In an email response to Inc42, Rituraj Sharma of Growpital said that the total amount frozen by SEBI in bank accounts of entities is approx INR 50 Cr. 

Besides this, the Ministry of Corporate Affairs imposed a penalty of INR 1.47 Cr on Yotta Agro, its partner entity which manages the farm properties and its directors including SHarma.

Growpital’s ‘False’ Promises

Founded by Rituraj Sharma in 2020, Jaipur-based Growpital was touted as one of the fastest-growing agritech investment platforms, offering 10%-18% returns on investments, and allowing investor-partners to invest as little as INR 5,000.

These investments were reportedly used for farming, and once the produce was sold, the firm claimed to have generated profits. These profits were then distributed among the investor-partners according to their respective investment plans.

Operated through a group of entities, the startup claimed to have raised funds for farming across 14 states in India for 70-plus crops, including fruits, vegetables, oilseeds, medicinal crops, and other cash crops.

To enable this, Growpital claimed to have partnered with various entities for farming and selling produce in the market. By collaborating with farmers, it provided standardised farming procedures. The platform compared its model to a mutual fund, cultivating a variety of crops across its agricultural projects.

Until SEBI issued its interim order in January 2024, the details of which we will see later in the article, Growpital had raised over INR 192 Cr. Interestingly, just before SEBI’s order, Growpital had increased discounts on its investment plans, which dozens of people subscribed to. Many of its plans were available only for a brief window, creating a sense of urgency among investor-partners.

In response to our query, Sharma claimed, “We had voluntarily also stopped taking any new contributions in the given structure w.e.f. 26 January, 2024, i.e. prior to the SEBI’s order and intimation in this regard was given to all partners on 8 January 2024 itself. This decision was in line with our business and commercial projections for deployment of funds on the farmlands.”

However, in January 2024, the company had in fact promised massive rewards too, from 0.5% to 1% of the invested amount as referral bonus during certain periods such as the consecration of the Ram Mandir at Ayodhya in January 2024, which was incidentally just a week before SEBI’s adverse order.

Understanding The Modus Operandi

Founder Sharma had set up numerous entities to operate the entire plan. These include:

• Farm Silo Tech LLP (Growpital): This platform acted as an interface between investor-partners and promoters, sharing all the investments plan details and luring investor-partners to invest in as partners in ZF Project LLPs.
• Yotta Agro Ventures Pvt Ltd: A DPIIT-registered startup entity that acquired properties such as farms on lease through agreements with other parties.
• ZF Project 1 LLP: This LLP was used for agreements with Indian investor-partners for fundraising, making them partners in the LLP. However, only the designated partner, Sharma, managed day-to-day operations. ZF stands for Zetta Farms.
• ZF Project 2 LLP: This LLP included institutional or B2B investor-partners
• ZF Project 3 LLP: This LLP was for NRI investor-partners only.

When investor-partners used the Growpital platform, they became partners in an LLP created by Growpital, with their investments treated as capital contributions to these LLPs. The pooled investments were claimed to be directed towards agricultural projects managed either by an in-house team or in collaboration with established market players. 

The returns or profits from these projects were promised as returns on the investment made through Growpital. 

The ZF Project LLPs had agreed with Yotta Agro Ventures, which stated: 

• Yotta Agro would purchase or buy back all the agricultural produce from ZF Project LLPs.
• ZF Project LLPs would produce based on the requirements of Yotta Agro.
• ZF Project would get a definite price for the produce with a minimum premium of 30% over the cost incurred.
• Yotta Agro would maintain and monitor the agricultural work on the land without being bound by any maximum or minimum target regarding the quantity, quality, or type of produce.
• The price received by ZF for the produce would not be influenced by market prices.

Profits from the sale of agricultural produce were then distributed to the partners aka Growpital investor-partners, excluding the designated partners, as stipulated in the LLP agreement.

To get investor-partners on board and keep their investments coming, Growpital and Sharma routinely shared images of farms and produce with investor-partners, looking to boost their confidence in the model and attract further investments.

The platform derived credibility from Yotta Agro Ventures, since the startup had ties to government bodies and was registered with the DPIIT. He marketed these ties to attract investments in the LLP.

Some of the claims he submitted in the Rajasthan High Court while filing a petition against SEBI include:

• Yotta Agro Ventures received startup recognition from the  Department for Promotion of Industry and Internal Trade (DPIIT)
• Received INR 18 Lakh in grants from the Department of Agriculture
• Received an appreciation letter from the Nagaland government’s District Planning and Development Board
• Signed an MoU with the Nagaland government
• Received a Rubber Nursery project under the supervision of the Rubber Board of India and Ministry of Commerce and Industry

Everything appeared fine on the surface, with investor-partners continuing to invest until SEBI’s interim order on January 29, 2024. 

However, as alleged by SEBI in its order, Growpital was operating without the requisite regulatory licences and that the business was run in an illegal and fraudulent way. 

Incidentally, the founder Rituraj Sharma has been on bail since 2021 in an unrelated case where he had allegedly defrauded another individual for INR 17 Lakh.  

Why SEBI Termed Growpital ‘Illegal’

“There are no tangible assets owned by the ZF Project LLPs and the lands for farming are provided by Yotta Agro Ventures and the LLPs are used to deploy funds for growing and selling of crops. This kind of structuring makes it clear that the LLPs are mere conduits for pooling of funds in the guise of ‘capital contribution’, and actual operations are carried out through Yotta Agro Ventures.” – SEBI Order

In its January 29 interim order, SEBI called the Growpital business illegal and reiterated the same in its confirmatory order later in April. What exactly was the regulator’s problem with Growpital?

Interestingly, to investigate the matter fully, a SEBI official invested INR 5,000 through Growpital in June 2023 and then gained access to the documents shared with investor-partners. The regulator is known to undertake such investments to understand the extent of the illegality, if there is any. 

Post its investigations, SEBI cited multiple reasons for deeming the business illegal. Most importantly, it termed the fundraising scheme identical to a “Collective Investment Scheme (CIS)” even though Growpital was not registered as a CIS with the regulator.

Explaining the applicability of CIS and Growpital’s argument, Ravi Prakash, associate partner at Corporate Professionals, said that Growpital’s argument that its operations through various LLPs did not fall under the CIS regulations was flawed. 

While the platform claimed that investor-partners contributions in the LLP were capital contributions, no securities were issued in exchange and the contributions were in the form of partnership interests, placing them outside SEBI’s jurisdiction.

The definition of a CIS under Section 11AA of the SEBI Act includes any scheme where contributions are pooled and used for the scheme, with profits or returns promised to investor-partners. SEBI found that Growpital’s model met these conditions. 

“Funds were pooled and invested in agricultural projects with returns promised to investor-partners, fitting the CIS criteria despite being structured as LLPs, making SEBI’s jurisdiction applicable,” added Prakash.

Experts also pointed out that the Growpital website promoted investment opportunities similar to mutual funds. The LLP structure, with no cap on partners or contributions, was allegedly misused for a covert investment scheme. The various LLPs created by Growpital, lacking tangible assets and using Yotta Agro Ventures for operations, pooled funds under the guise of ‘capital contribution.’

Growpital acknowledged that partners joined the LLP to earn profits. The platform argued profit distribution capped at the LLP’s net profits did not meet Section 11AA(2)(ii) of the SEBI Act.

According to Section 11AA(2)(ii) of the SEBI Act, a scheme would be termed as CIS, if the contributions or payments are made to the scheme by investor-partners in exchange for future profits, income, produce or property from the scheme.

Interestingly, during an AMA, a SEBI official even asked cofounder Sharma about this issue, who explained that as none of the LLPs had reached INR 100 Cr in contributions individually, the model cannot be deemed to be a CIS.

MCA’s Parallel Probe

But at around the same time as SEBI, another regulatory body also began investigating Growpital. 

Sharma’s other entity, Yotta Agro, along with ZF Project LLPs, was under the scanner of the Ministry Of Corporate Affairs. 

Abhishek Modak, an investor who used the Growpital platform, complained to the MCA in December 2023 that the company did not file its Form 3 and Form 4, despite having collected over INR 40 Cr from 400+ investor-partners. 

It’s worth noting that Form 3 is required to be filed for information with regard to LLP agreement and changes, if any, while Form 4 is required to be filed for new appointment or cessation and changes in details pertaining designated partners or partners.

“While the LLP agreement has been amended more than 12 times with new investor-partners being added to the agreement list, the same was not being filed with the MCA. The MCA filing does not show us as partners even,” Growpital investor Geeta Vidyarthi told us.

In its investigation, the MCA also found that Yotta Agro had raised INR 1.47 Cr through non-convertible debentures from Tyke Invest from some 183 investors at an interest rate of 19%. 

Despite having filed the PAS-3 form (for private placement offer), the cofounder pitched to the public to raise funds and also used an ‘AMA’ video on YouTube, which has now been deleted.

In its order on May 6, 2024, the MCA observed that Yotta Agro had violated Section 42(7) of the Companies Act, 2013, and imposed a penalty of INR 1 Cr on Yotta Agro and INR 23,78,500 each on its directors, Rituraj Sharma and Krishna Joshi. 

Simply put, Section 42(7) says private placement offers must not be publicly advertised.  

The MCA further ordered the company and its directors to refund all the money to the 183 investor-partners with 19% interest as promised.

In a WhatsApp group, Sharma circulated a message stating that he was planning to file a petition against the MCA’s order. Out of two months given to appeal against the order, it’s been more than a month since the order, yet neither Sharma nor Yotta Agro has filed the appeal yet. 

“The entity on which the penalty has been imposed shall take available legal recourse against the said penalty,” said Sharma.

Behind The Alleged ‘Fraud’

Inc42 spoke to over a dozen investor-partners who alleged that Growpital has committed fraud by keeping investor-partners and partners in the dark.

Firstly, Sharma, as the designated partner of the LLPs, kept investor-partners uninformed on certain accounts. 

For instance, Vidyarthi, one of the investor-partners quoted above, told us that despite Sharma sharing images of farms and impressive production numbers, he didn’t share the actual locations of these farms.

“The farms were part of Yotta Agro Ventures and he said that he couldn’t share the locations of these farms since it is a separate business,” said Vidyarthi. 

Sharma also started a farm tourism business under Yotta Agro, but investor-partners were not informed about this new model even though it was directly associated with the farming business of ZF Project LLPs. The revenue from these activities was not shared with the investor-partners, alleged investors.

SEBI also observed discrepancies in the numbers shared by Sharma and the company. For instance, the number of unique crops for which information was submitted was 42, but Growpital actually claimed to be growing over 70 crops in its partner farms.

The farm projections shared with SEBI did not have any details on how the projections were made.

In one of his videos in December 2023, Growpital founder Sharma told investor-partners and partners that the platform has closed revenue of INR 110 Cr in the first nine months of FY24, and another INR 250 Cr-INR 300 Cr was expected by March 2024.

The revenue breakup from various farms was full of holes according to the people we spoke to. 

As shown in Growpital’s claims below, at least 85% of the projected revenues for FY25 were supposed to be derived from land parcels in Assam and Nagaland. However, no revenue has been claimed from these farms till date. 

Further, there were claims that 84% (INR 61.7 Cr out of a total of INR 73.8 Cr) of the total revenues was derived from jeera or cumin seeds farmed on a 75 acre farm in Barmer, Rajasthan. 

Another investor-partner told us jeera needs at least four months to grow, so farms growing jeera can only cultivate jeera between November 2022 and March 2023. On an average, Indian farms can produce around 700 Kg of jeera each season per acre of farm. At the price quoted by Growpital in its revenue breakdown, the platform would need to have access to around 2,500 acres of jeera cultivation in one cycle.

But as per Growpital’s disclosures to SEBI it only has 503 acres of farms dedicated to growing jeera. This is barely one-fifth of the required acreage for the revenue claimed. 

We asked about this irregularity and Sharma said, “This is part of the ongoing investigation and we have clarified the same to the SEBI. Accordingly, it is better to await the outcome of legal process in this regard.”  

Investor-partners further allege that Sharma was never truthful with them or SEBI on multiple fronts, including claims about requesting an inspection of farms from SEBI.

Further, in an AMA with investor-partners, he claimed to have 73K acres of farming land which is far from the truth. According to the documents shared with SEBI, he did not have more than 13K acres of land for farming.

Roughly 5,100 acres of this was awarded by the government of Nagaland for farming, as per Sharma’s claims, but he did not provide the locations of these farms or any proof of the allotment from authorities in Nagaland.

On the varying figures regarding the land area, Sharma replied, “There is a distinction between land area over which we had acquired the right or interest to cultivate and the land on which cultivation was happening as on the date of the SEBI order. We had plans to expand land under cultivation after January, 2024, which could not be put in place due to the SEBI order.  We had approx 60,000 Acres of Land area over which we had acquired the right or interest to cultivate the land, out of which cultivation was going on approximately 13,000 acres as on the date of the freeze order.”

The Fight Ahead For investor-partners

While Sharma continues to assure investor-partners that he will fight and appeal against SEBI, the Securities Appellate Tribunal (SAT) and the MCA and even claimed he would approach courts, things have not been in his favour so far.

His appeal against SEBI in the Rajasthan High Court was disposed of and he was told to appeal in the SAT. While the matter is still pending, SAT refused to offer any interim relief to Sharma.

Investor-partners meanwhile are still figuring out the legal remedies available. Maulik Lakhani, meanwhile has written to RoC, Jaipur and has complained to the Jaipur Police, on behalf of a group of investor-partners.

“The biggest problem for us is that we have to work daily to get our monthly bread and butter. Investments in Growpital were supposed to be our passive investments like mutual funds. We have kids who we barely manage to give our time to and at the same time, Growpital funds are our life savings which we can’t afford to lose,” one such investor-partner told us. 

Lakhani said, “We have already hired an advocate in this regard and have prepared the legal documents on behalf of certain investors. Once SAT order is out, we will explore our legal options, starting with FIR.”

Investor-partners say that SEBI needs to disburse the frozen funds, as most of the investors don’t even have funds to pursue any legal fight. 

While SEBI issued its confirmatory order on April 26, the investigation is still on. The SAT is set to pronounce its order on July 10, 2024. Inc42 will update the story on the basis of the SAT’s order or the status of the hearing.

In his response to Inc42, Sharma reiterated his stance stating, “We reaffirm our position that the LLPs established for agricultural activities operate as legitimate businesses, with individuals and corporate entities making capital contributions and becoming partners. We have meticulously adhered to all provisions stipulated under the LLP Act 2008 and its regulations.”

And it would also seem that Sharma has moved on — despite the thousands of investor-partners complaining and protesting. 

Will the Growpital investor-partners left in the lurch be able to express their gratitude to authorities in a similar manner?

[Edited by Nikhil Subramaniam]

The post How Growpital’s Investment Model Left 5K+ Investor-Partners In The Lurch appeared first on Inc42 Media.

Cofounded by Polygon’s Sandeep Nailwal, San Francisco-based Sentient has raised $85 Mn in a seed funding round co-led by Peter Thiel’s Founders Fund, Pantera Capital, and Framework Ventures. The blockchain-based AI startup also got backing from Robot Ventures, Delphi, Republic, Arrington Capital and few other VCs.

Besides Nailwal, Sentient Foundation counts Pramod Viswanath (Forrest G. Hamrick Professor of Engineering at Princeton University), and Himanshu Tyagi (Professor and Scientist at IISc Bangalore) as cofounders. 

Sensys, an open source AI venture development company is also part of the launch team for the startup which was founded in January 2024. 

Sentient is built on the Polygon CDK chain and aims to develop an open-source decentralised AI and, eventually, AGI. “Sentient is building on Polygon technology, that’s my main reason to support it,” Nailwal said to Inc42.

Speaking to Inc42, cofounder Tyagi said, “The funding will be utilised to scale our engineering team and the platform. Since we are committed to delivering results, it also requires building a supportive ecosystem — the developers’ community. That’s where the funds will be used.”

On the roadmap ahead, Tyagi said that Sentient will enter the testnet phase within the next two months. “Sentient is lean and thin, and we wish to remain so. The current team size is 20, and we will add a few more members,” he added.

How Sentient Differs From OpenAI And Google’s Gemini

There are over 70,000 AI projects listed on platforms like GitHub, GitLab, and OneDev. Most of them seem to be either redundant or replicas of existing AI projects. Why is there a need for another AI project like Sentient?

Nailwal has earlier explained the idea behind Sentient which is to build an open world through blockchain to achieve transparency and fairness, as opposed to a closed world dominated by large companies. He noted that the rapid development of centralised AI and its integration into daily life has brought humanity to a crossroads. 

“We can choose either a closed world controlled by a few closed-source models operated by large enterprises or an open world with open-source models and verifiable reasoning. The latter can only be achieved by using blockchain to make AI more transparent and fair,” he said at an event earlier this year. 

Tyagi stated that the difference lies in Sentient’s approach versus the AI giants such as OpenAI, Google or Meta. Most existing AI projects are either closed-source or semi-closed, with some not disclosing their data or technology. 

For example, Meta’s Llama is only partially open source because it releases model views but not the data used to create those models. Releasing such data would have legal implications due to the unknown contents within large datasets, as seen in cases where datasets contained inappropriate images.

“With Sentient’s open-source architecture, issues like plagiarism and backdoor attacks can be better monitored, similar to smart contracts on blockchain. The code and data need to be open source for better auditing and transparency,” said Tyagi.

Sentient has been developed based on the Open, Monetizable, and Loyal (OML) model, where community members are invited to develop for Sentient and will be rewarded accordingly. Nailwal has previously voiced concerns about developers not being truly rewarded for their work. The intersection of blockchain and AI enables the OML model, which Sentient claims benefits all stakeholders.

When asked about issuing a token to incentivise the community, Tyagi responded, “Eventually, something like that will be done. But monetisation and value distribution are separate points. We need to create powerful, useful AI that stands at par with leading AI technologies. When our AI is used, everyone who contributed will be rewarded through the blockchain protocol, which can take one to one and a half years.”

Crypto+AI: What Does That Mean?

In a statement shared with Inc42, Nailwal said that AI centralisation and its resulting safety issues are the biggest challenges humanity currently faces. Crypto and blockchain are the only ways to counter centralisation; hence, all efforts should be made to make something work on that front, however hard it might be. I have always hoped that the Polygon ecosystem puts its effort into that front.”

While other crypto projects have ventured into the AI space, the idea was to explore AI use cases for a particular crypto. However, Nailwal defines Sentient as a cloud-sourced AI company using blockchain incentives, but fundamentally an AI company.

“Sentient differs by focusing on what crypto can do for AI, creating a decentralised infrastructure that could compete with the likes of Google and AWS. Our long-term goal is to build an AI economy for all, enabled by an open-source ecosystem,” added Tyagi.

He also mentioned the importance of AI agents for blockchain functions and the need to ensure they perform as expected, drawing parallels to privacy and reliability concerns in enterprise AI. Sentient aims to enable a new AI economy where contributors are rewarded fairly, not just using open projects to build resumes for big companies.

Nailwal has set the goal of building an open AGI, which will require significant infrastructure. 

Tyagi noted, “We are taking one step at a time. Our ethos is to have a strong team of experts who came together for this mission. We believe a lot of AI development is happening outside large companies. We start with foundational models and align our efforts with ongoing benchmarks and research. Sentient is a research-first company, continually building and evolving.”

[With inputs from Debarghya Sil]

Update: 8 PM | July 4, 2024

The headquarters of the company has been updated.

The post Sandeep Nailwal’s New Venture Sentient Raises $85 Mn To Take On OpenAI, Llama appeared first on Inc42 Media.

What happened when tech giant Google flexed its muscles and delisted 10+ popular Indian apps from its world-leading app store, citing the long pendency of billing compliance? Well, homegrown Internet companies got angry; #EvilGoogle started trending and government intervention was sought to redeem the situation.

A temporary truce is in place, but Indian developers are now actively seeking a robust alternative. And that’s where fintech giant’s PhonePe four-year plan comes into the play, with a made-for-India Indus Appstore.

Much of this narrative is familiar. Once again, Google is up in arms, trying to ensure that all Play Store apps, annually earning $1 Mn or more, use its billing system so that it can collect 30% commission on every in-app purchase — more on the current fee structure later.

Google has been at it since 2020, allowing a year’s grace period for non-compliant apps to integrate the technology. After that, the tech giant faced roller-coaster legal battles in India regarding its alleged market dominance and anti-competitive practices on Play Store. Petitions have also been filed before the NCLAT against Play Store’s billing policy. 

Unsurprisingly, Google lost its initial lawsuits and was fined a little over INR 1,337 Cr and INR 936 Cr in two separate cases by the Competition Commission of India (CCI). After all, the tech behemoth owns the Android operating system, and Google Play Store, a leviathan of an app marketplace, comes preloaded on almost all Android smartphones. The reach and the convenience typically make the Play Store the go-to choice. Hence, it might have hit Google harder when Walmart-owned PhonePe launched the Indus Appstore in February this year to challenge Google’s dominance.

No doubt Google restored the apps after MeitY’s (ministry of electronics and information technology) intervention. But it is merely an extension of the payment deadline, and the tech giant will continue to send invoices to ‘non-compliant’ apps. Unless developers from all categories are ready to shell out the 30% ‘Google tax’ and want to abide by the company’s aggressive approach (the outright ban slapped on the Indian apps is proof enough).

The timing of Indus’ launch could not have been better. Indus went live on February 21, just ten days before Google made its delisting announcement on March 1, and nearly throttled a host of major apps such as Matrimony.com, Jeevansaathi, Shaadi, Naukri, 99acres, KukuFM and STAGE, among others. In essence, the all-new app store had a fortuitous entry amid a growing clamour for fair industry practices, while developers started looking for an India-focussed robust alternative. 

In contrast, the Indus Appstore offers a hyper-localised and affordable pp marketplace, aligning better with Indian customers through multilingual solutions.

Within three months of its launch, the new app store has started to make a dent in Google’s ‘alleged’ monopoly, as it offers a developer-friendly environment, charges zero commission on in-app transactions for the first year and has zero publishing fee. (Google charges a one-time publishing fee of $25, but Apple’s App Store is more expensive as it charges $99 per year.) It lists more than 2 Lakh apps across 45 categories and has surpassed 2 Mn installs, a PhonePe spokesperson told Inc42.  

Indus supports 12 Indian languages for access to localised content and has introduced a host of India-specific features such as voice search,  video-led discovery, multi-format ads and more.

“We are seeing a steady increase in the number of users. The app store has gained significant traction since its launch, especially in Tier II cities, which account for 45% of the user base. Popular app categories include finance, games, social media, entertainment, tools, communication and shopping,” the Indus Appstore and PhonePe spokesperson added.

For context, PhonePe has moved its domicile from Singapore to India, shifting all businesses and subsidiaries to India, including the Indus Appstore. Besides this, it had also been fully hived off from Flipkart, which had acquired PhonePe, and currently Walmart is the majority owner of PhonePe.

Why Google Play Store Has Won So Far 

Indus is not the first app marketplace to challenge the Play Store. Earlier, there were several app stores such as Nokia Download (SymbianOS), Download Fun, Pocket Gear, GetJar, Handango, Handmark and MiKandi. Others like Opera Mobile Store, BlackBerry World and HP App followed suit after the Play Store was launched in 2012. But challenging Google’s monopoly in the app marketplace was not possible even for pure-play tech companies like Opera, Firefox or others.

While Google fights lawsuits in various courts over industry practices and commission rates, will Indus be able to gain a strong position in the app marketplace? Before we delve into the pros and cons of the new app store’s success potential, let us look at the existing marketplaces and their fee structures.

Going by how Google Play Store stacks up compared to the competition, will it be fair to suggest that its contentious billing policy may pave the path for success for the likes of Indus? Amit Ranjan, founder of SlideShare (acquired by LinkedIn for $120 Mn) and architect of the Indian government’s project DigiLocker, said the priorities would tend to differ in this case. 

“Building an app store requires deep technical expertise and a strong technical team. The business aspect comes later. You also need to maintain ‘cyber hygiene’ by tracking and filtering out fraudulent apps. This is an ongoing process, and any misstep will directly impact the store’s reputation,” Ranjan told Inc42.

Ranjan has a point. Consider how Opera Mobile Store was fully decommissioned last year, although it catered to 130 Mn+ monthly active users and clocked 1 Mn daily downloads of apps at one point. The reason for shuttering: Opera was allegedly involved in unfair and illegal data transactions.

Even the Google Play Store drew flak and suspended or removed around 4.7K fraudulent loan apps between April 2021 and August 2023, according to Rajya Sabha data. Therefore, nothing short of a robust tech ecosystem and stringent compliance can ensure success for independent app stores despite significant download numbers. 

Nevertheless, a few Android app stores like Samsung have thrived as they have built robust technology and business ecosystems. Interestingly, Google has reportedly struck a deal with the Samsung Galaxy Store to keep its Play Store as the default app marketplace on Samsung mobiles. According to media reports, Google offered Samsung exclusive gaming content, deals and events on the Play Store and YouTube and agreed to ‘white label’ its Play Store as the Galaxy Store so that Samsung could maintain its branding.

When negotiating with Samsung, Google preferred a lump sum payment model over a user-focussed payment strategy.

Will these ‘agreements’ make it difficult for developers and users to opt for alternative app stores? We have an intriguing parallel here. In an antitrust lawsuit held in the US last year, states and the federal government questioned Google’s stand regarding its search engine dominance and how it tried to squash competition by paying Apple and other tech companies to ensure that Google search remained the default option. The search giant defended itself by saying none of these agreements were ‘exclusive’ in nature and users could easily change default settings and opt for other search options.

Although Inc42 cannot independently verify whether similar ‘business deals’ are impacting the app economy in India, Google’s agreements with different OEMs cannot be ignored. And these may warrant more scrutiny from the regulators in the near future (more on these challenges later). Incidentally, a company spokesperson has confirmed that the new app store no longer caters to the Samsung Galaxy Store.  

A user-friendly interface, a supply-demand match (enough engaging apps across categories are required to keep users coming back) and a robust revenue model for developers and publishers are also critical for an app marketplace to survive, according to Karan Lakhwani, India head at the app intelligence firm AppTweak. The major challenge is surpassing the Play Store’s consumer experience, validated by reviews, ratings and download numbers, he added.

How PhonePe Joined The App Store Bandwagon

Google Play Store may enjoy cutting-edge tech prowess and a better business network, but the biggest USP of Indus Appstore is its made-in-India tag, according to the PhonePe spokesperson. 

“Most users are driven to download and use the app store because it is made in India, for India. On the other hand, the developer-friendly ethos of the app store makes it an ideal platform for app creators – that’s the general feedback. They also think the integrated phone login, targeted advertising and engaging features will help them reach niche audiences, driving widespread adoption and engagement,” PhonePe said.

However, the Indus Appstore was not built in a day. Here is a brief look at the backstory, from the initial launch of Mofirst by three IIT-Bombay alumni to many pivots and developments – first as a smartphone maker and then as an app bazaar. Eventually, the company was acquired and rebranded by PhonePe after an intense valuation dispute with key stakeholders, including Affle. 

Many think that the Indus Appstore will soon emerge as the darling of the Indian market, offering unique features to empower consumers and enhance user delight.

How Indus Appstore Is Building A Moat Against Google Play

Indus parent PhonePe is aware that no standalone app store can counter Play Store’s power of innovation and deep pockets. However, it has a long-term plan to take on Google’s ubiquitous app marketplace by leveraging its knowledge of the local market and the subsequent rise in user base. 

Unlike other independent app stores that looked to take on Google, PhonePe holds an edge with more than 535 Mn registered users and 260 Mn monthly active users (MAU), which guarantees a significant number of quality users, and, hence, monetary success for developers.

However, this may not be comparable to what one earns on the Google Play Store or Apple App Store. 

PhonePe aims to create a moat around its app store business by partnering with smartphone makers such as Nokia and Lava. The goal is to pre-install Indus Appstore on up to 300 Mn devices by the end of 2024.

“Our collaborations will ensure seamless app installations and updates. We want to make the Indus Appstore a default choice on smartphones in India, signifying a shift towards a more inclusive, autonomous and developer-friendly app ecosystem,” the company’s spokesperson said.

PhonePe has also acquired a payment aggregator licence from the RBI to enable seamless in-app transactions (payment aggregators allow clients to accept various payment methods and disburse to multiple stakeholders). 

PhonePe Technology Services, a wholly owned subsidiary of the group, was also issued an account aggregator (AA) licence by the RBI. AAs typically share financial data across accounts and institutions securely so that financial information users or FIUs (like lenders or insurers) can make informed decisions. However, no data can be shared without the explicit consent of account holders.

“Some of our clients are keen to be on the Indus Appstore,” said Lakhwani of AppTweak. “I understand that its way of communication and advertising is very different from others. Google Play Store requires a different set of app metadata to succeed. So does Apple. And Indus, too, has a different strategy. Each has created a unique strategy for its app store to succeed.”

However, to attract more users, the company must target different segments uniquely, which Koo should have done when it tried to become as a Twitter killer.

“There’s always a value-seeking user, a discount-seeking user and a luxury or premium user seeking a high-quality experience. Indus should target different types by tailoring its communications to highlight discounts, user experience or specific apps,” said Lakhwani.

Can Indus Become The Atmanirbhar App Store? 

For a long time, Indian entrepreneurs and app developers have demanded that a truly Indian app store be built to look after their interests and counter the Play Store. Paytm founder and CEO Vijay Shekhar Sharma was particularly vocal, saying Google’s charges were costlier than the business taxes the internet businesses paid in India. Paytm also launched a mini app store, and a few more popped up, thinking it was an opportune moment. One such entity was Mitron, a short video app that hurriedly launched an app discovery platform. However, none of these lasted for long after the initial euphoria died.

Given these ground realities, can PhonePe’s app store topple the Google Play Store this time? Two of the five experts with whom Inc42 spoke doubted whether it would be viable in the long run due to Google’s near-monopoly across the Android ecosystem. 

For instance, the entire Android market can be split into five major segments – the licensable OS market for smart mobile devices (smartphones, tablets, and more), app stores, web search services and online video hosting platforms (OVHP). Google has standardised agreements with various companies to maintain its dominance in these segments. Its crucial agreements with OEMs encompass mobile application distribution, anti-fragmentation (for seamless versioning), Android compatibility commitment, revenue sharing and mobile service distribution/placement bonus.

OEMs must adhere to these stringent agreements, which prevent them from developing Android non-compatible hardware. Moreover, they can only include Google Mobile Services (a collection of applications and APIs such as Google Search, Chrome, Gmail, Google Maps, YouTube and more that help support functionality across devices) after signing the mobile application distribution and anti-fragmentation agreements. 

Also, Android prevents installations from third-party sources. When users manually download apps from a third-party app store, they receive multiple security warnings that the apps sourced from elsewhere may harm the device. These warnings often deter users, while developers have little choice but to operate through the Play Store.

Of course, such ‘trade practices’ under the guise of security have been challenged worldwide, including in India. The CCI had already fined the tech giant, but these penalties have been challenged in the Supreme Court. In a separate case, Winzo Games is also fighting a case in the apex court regarding these ‘security warnings’ and other issues. 

Elsewhere, in the Epic Games versus Google case, a California jury found that the latter violated antitrust laws (laws to ensure economic competitiveness and counter monopoly) in Google Play Store’s billing practices. The presiding judge will announce the measures to be undertaken in 2024. 

In May 2022, the European Commission and the Competition and Markets Authority also probed Google Play Store’s business practices. South Korean regulators are also investigating Play Store’s billing, including a formal review of Google’s compliance with new billing regulations.

Rameesh Kailasam, CEO at IndiaTech.Org, a think tank for Indian tech startups, pointed out that the Play Store makes in-app purchases prohibitively expensive and economically unviable for startups and internet economy companies.

To begin with, 15-30% commissions are an issue if transactions are done within the Google Play Billing system. Google came with an alternate billing system, where the app developers can use their payment gateways but have to pay a service fee of 11-26%, which is currently being investigated by CCI. But until now, it has not been a win-win for small developers, paying a cut to one of the world’s richest tech companies.

“Moreover, many of these apps are built outside India despite catering to the Indian market. It means the income from apps or the commission does not accrue to India. Although Google allows for some bypass routes, these are still prohibitively costly,” Kailasam added.

Even when developers list their apps on another app store, integrating them with Google Ads requires Google Play Store listing IDs. Therefore, anyone looking for a wider reach through Google’s pay-per-click advertising platform is compelled to list the apps on the Play Store.

But there’s more to this narrative. While developers struggle to cope with all sorts of arm-twisting, winning a business battle with an industry heavyweight could be too difficult, as the Aptoide App Store soon found out. The Portugal-based mobile app marketplace runs on the Android OS, and the store can be accessed and installed via the store’s official page. Moreover, unlike Google, developers can manage their stores on the platform.

“With Aptoide, that moment [of contention] came in 2018. We took Google to court after the tech Goliath tried by all means unnecessary to suffocate the company’s activity and kill the competition,” founders Paulo Trezentos and Álvaro Pinto shared on their website. “They told users that Aptoide was a menace to the mobile society. They made Aptoide’s app vanish from Android phones without warning. They kept circling more wagons around Google Play Store, making Android app downloads increasingly difficult outside of the platform.”

Google eventually lost the case. The courts and the European Commission found it guilty of abusing its dominant position and anti-competitive behaviour. The tech giant was heavily fined and ordered to backtrack.

But one thing is clear. Given its influence, capital and resources, it will always be tough to beat Google at its own game. Closer home, it will be even more difficult. After all, 95% of smartphones in India run on Android and the Google Play Store has been the default app store for most of these users.

Just like Aptoide, PhonePe or even Walmart may have to lock horns with Google sooner or later for a greater market share. However, the success of the Indus Appstore will largely depend on its ability to deliver a superior user and developer experience that can convince all stakeholders to give it a shot. 

PhonePe’s founder and CEO Sameer Nigam once said that a billion people or more could not be dictated regarding app discovery or transaction if they wanted a change. Indus and PhonePe could be heralding that change.

[Edited by Sanghamitra Mandal]

The post An App Store For India: Can PhonePe’s Indus Loosen Google’s Grip? appeared first on Inc42 Media.

Karnataka’s information technology and biotechnology (IT/BT) and rural development and panchayati raj (RDPR) minister Priyank Kharge expects the state to attract investment of $6.2 Bn in technology sectors such as biotechnology, AI, semiconductors, AVGC (animation, visual effects, gaming, and comics), and healthtech from the US and Europe. 

Following the visit of a delegation of the IT/BT department to the US, the UK, and Europe to attract investments, Kharge said that the deals with the companies, institutions in these places are at various stages, ranging from signing a letter of intent to proposals pending before the State High-Level Clearance Committee (SHLCC).

Responding to Inc42’s query on the materialisation of these deals, the minister said, “We have set a deadline of 180 days for the key conversions.”

During its trip, the delegation held meetings with companies like SAP Labs, Bloom Energy, Ambient Photonics, Arm Holdings, and Waters Corporation. Besides, the members also met Vinod Dham, the founder of IndoUS Venture Partners, which has invested in Indian startups such as Snapdeal and Myntra in the past.

According to a statement issued by the state’s IT/BT department, the delegation also had discussions with several German companies that are looking to expand to India in the areas of semiconductors, electronics, and heavy industries.  

The department reached out to these companies for investment in Karnataka and is optimistic about attracting mega investments. The IT/BT department also conducted roadshows across four countries – the UK (in London), France (in Paris and Annecy), Switzerland (in Geneva), and Germany (in Munich).

Besides, while 25 French SMEs have already their presence in India, 50 more are in the queue to expand their presence here, thanks to anchor investors such as Airbus, Capgemini and other companies, said an IT/BT official.

The ministry organised the trip to pitch Karnataka as an investment hub for companies across sectors like electronics, IT, and biotech. Besides, one of the key agendas for the visit was to get more international investors at the Bengaluru Tech Summit 2024, which will be held in November this year.

The delegates also participated in the London Tech Week and the International Animated Film Festival at Annecy.

Kharge told the media that the idea behind such visits is to solidify Karnataka’s position as the number one investment destination and skill development and innovation capital.

Besides, Karnataka is likely to sign a memorandum of understanding with Stanford Biodesign for the latter’s medtech startup mentorship and accelerator programme. The initiative is part of the plans of the biodesign department of Stanford University to expand its ‘Founders Forum’ initiative to Bengaluru. A team from Stanford Biodesign is expected to visit Karnataka next month for this.

Meanwhile, the department of IT/BT said that it is currently working on preparing a ‘Startup Directory’, which will have details of all the startups in the state, their brief profiles and turnover. Besides, it is also working on an online startup platform to connect with VCs.

“The startup portal that will help connect startups and investors will go live within a month,” said Kharge. 

In a previous conversation with Inc42, Kharge said that the Karnataka government is engaging directly with VCs to discuss funding, exits, and more

“We have asked VCs what steps we should take to ensure better collaboration and support for startups. It may require bringing them together on a single platform for assessing ideas or providing mentorship and networking opportunities beyond just funding,” he said, adding that the state would announce a new collaboration framework for startups and VCs within the next few months after the Lok Sabha polls.

Karnataka’s capital Bengaluru is hailed as the Silicon Valley of India, with startups based out of the city dominating funding trends over the years. However, the trend witnessed a change last month, when Delhi NCR took the top spot in terms of funding. Bengaluru-based startups cumulatively raised $115 Mn in May, trailing Mumbai and Delhi NCR. 

The post Karnataka To Attract $6.2 Bn In Tech Investments From US, UK, And Europe: Priyank Kharge appeared first on Inc42 Media.

In July 2021, when Zomato filed for its IPO, there was no precedent for the food delivery market. Zomato had recorded a loss of INR 886 Cr in FY21 and was not profitable, a critical consideration for investors looking at a fresh IPO.

Despite all misgivings, the market sentiment for Zomato was positive. Few big tech companies or startups had gone for an IPO before Zomato. As a well-known brand for many Indians in tier I, II, and III cities, Zomato managed to bring in more than enough interest.

The IPO was subscribed 38.25 times, and Zomato listed at a premium of over 51% compared to the issue price. 

And now, the focus is on Swiggy, which, fortunately or unfortunately, has Zomato as a benchmark. 

Zomato has recovered from past losses and is trading at an all-time high. An investment of INR 1 lakh a year ago would have yielded over 200% profit today, showing investor confidence in the business.

Bengaluru-based delivery and quick commerce giant, Swiggy submitted draft papers to SEBI on April 30 for a confidential filing. While we don’t know the particulars of the IPO, Swiggy plans to raise approximately $1.25 Bn from the IPO, with a fresh issue of $450 Mn and an offer for sale (OFS) component worth $800 Mn. And, $90 Mn through pre-IPO placement.

After LIC, Paytm, Coal India, General Insurance and Reliance Power, this will be the sixth-largest IPO in the Indian market.

For Swiggy, the situation is clearer. With Zomato already listed, there is little room for overvalued pricing. If Swiggy’s pricing is accurate and the market remains positive, the IPO could easily be oversubscribed.

Drawing a parallel with Zomato, Umesh Chandra Paliwal, cofounder of UnlistedZone, said the current environment is positive for companies looking to raise funds via IPOs. The success of Zomato, which has delivered good returns and recently achieved profitability, sets a favourable precedent for Swiggy. 

“Zomato has become profitable in its food delivery business, although its Hyperpure and Quick commerce segments are still incurring losses. Quick commerce is expected to become more significant than the food delivery business in the future. We believe Swiggy, given its market position and potential growth in Quick commerce, should achieve profitability within the next two years,” said Paliwal.

If Swiggy is to replicate Zomato’s success, a clear barometer would be the company’s performance in the unlisted market. So how are grey market traders looking at Swiggy? 

Swiggy In The Grey Market

One caveat before we look at the analysis: Swiggy stocks are currently available only in tranches. Due to the limited supply, the stocks are not even being traded on multiple platforms, according to grey market analysts. 

Inc42 checked up to six unlisted market platforms where Swiggy stocks are traded, and saw share prices ranging between INR 320 and INR380.

Confirming this, UnlistedZone’s Paliwal said Swiggy’s stock is being traded very sparingly in the unlisted market so this traction is still inadequate to gauge the potential IPO sentiment. 

In January 2022, the company raised about $700 Mn at a $10.7 Bn valuation, led by US-based asset management company Invesco and Dutch investor Prosus Ventures. 

However, Invesco cut Swiggy’s valuation twice in 2023 before raising the value of its investment in Swiggy to over $12.7 Bn. In line with this, Baron Capital also raised the value of its investment in Swiggy to over $15 Bn this week.  

Currently, in the grey market, Swiggy is trading at a valuation of $9 Bn to $9.5 Bn, which could see some adjustments with Baron Capital’s markup. 

Abhishek Ginodia, cofounder of pre-IPO platform Altius Investech, said that since Swiggy shares were introduced in the unlisted space, they have been trading in the range of INR 320-INR 350, which is at a valuation of $9 Bn-$9.5 Bn. 

Trades are also limited as cheque sizes have been restricted to INR 5 Cr and above. 

Based on the available information, Paliwal estimates Swiggy’s IPO valuation to be around $10 Bn. On the other hand, Ginodia expects the IPO valuation to be around $11 Bn-$12 Bn, approximately 30-40% lower than Zomato’s current market cap.

A managing partner of an auditing firm closely working with Swiggy said the IPO is the ultimate exit strategy for most investors, particularly late-stage ones. To offer them a profitable exit, the valuation could be anywhere between $12 Bn to $14 Bn, depending on how the pre-IPO round goes. “This is why Swiggy shares could also see a decline initially, as many might consider it overpriced,” they added.

Swiggy Vs Zomato: How The Two Giants Compare

Despite Swiggy surpassing Zomato in revenue till FY 23, Zomato has always led the way, from building the food delivery industry to going public.

Swiggy has no choice but to directly compare Zomato’s bottom line and scale while justifying its pricing. And, it falls short on multiple accounts compared to Zomato which has recorded a 67% rise in revenue for FY 24.

Swiggy lags in monthly active users (MAU) and gross order value (GOV). Zomato claims over 30 Mn MAUs, while Swiggy has around 24 Mn. Zomato’s GOV is $3.1 Bn, compared to Swiggy’s $2.6 Bn.

Ginodia points out that quick commerce is Swiggy’s key differentiator. “Swiggy and Zomato have similar revenue rates, but Zomato has performed better. Zomato improved its performance by reducing losses from Blinkit, while Swiggy’s quick commerce business negatively impacts its contribution margin by 50%. This could result in Swiggy’s IPO being valued lower than Zomato’s,” said Ginodia.

While Swiggy’s food delivery services have become profitable, the quick commerce segment, Instamart, has incurred significant losses despite revenue growth. 

As per sources, who have seen Swiggy’s disclosures as of September 2023 (H1FY24), the company has touched INR 4,735 Cr in revenue from food delivery and quick commerce. 

Thanks to this momentum, Swiggy is on course to report over 20% higher revenue in FY24, from the INR 8,260 Cr it reported in FY23. 

While we don’t know the loss for FY24, Swiggy trimmed its net loss to around $207 Mn (INR 1,730 Cr) in the first nine months of the fiscal year. Sources did not indicate whether Swiggy would finish FY24 with a profit, after it reported a net loss of INR 4,179.3 Cr in FY23.

Will Confidential Draft Papers Sway Investors?

Swiggy has opted for the confidential route for its IPO. Will this create confusion among investors?

A managing partner of an audit firm explained that this means Swiggy’s draft red herring prospectus (DRHP) won’t be immediately available for public scrutiny. Swiggy can control the flow of information for a little longer. However, the papers will still be shared with institutional investors, so it won’t impact the overall IPO. 

The confidential filing strategy helps the company control the narrative for a bit longer and is beneficial for the pre-IPO round.

Does the lack of a public DRHP raise concerns about transparency for potential retail investors?

Paliwal explained, “Filing confidential draft papers is unlikely to impact investor confidence negatively. IPO investors typically fall into three categories: QIB, HNI, and Retail. QIBs usually have access to detailed business and financial information, while HNI and retail investors rely more on the grey market premium (GMP). Therefore, we do not foresee any adverse effects on investor confidence.”

Zomato And Swiggy’s Interlinked Future

Market analysts and experts believe that the timing for Swiggy to go for IPO couldn’t be better, especially with Zomato trading at an all-time high for several weeks. There has been some weakness in the stock in the last month or so, however, when there has roughly been a 12% drop in Zomato share price. 

This indicates that Zomato is not yet a stable stock and could be more vulnerable to market volatility. Paliwal thinks the timing looks favourable for Swiggy, however, when one compares the market to one year ago. 

The IPO market is lively, and Zomato’s strong performance in the past year has yielded significant returns for investors. Swiggy, being valued lower than Zomato, might attract investors seeking value opportunities. They may sell Zomato shares to buy Swiggy shares, hoping for similar or better returns.

Others also said that the IPO momentum is strong which is a good factor for new IPOs, but Ginodia believes Swiggy faces challenges in its core business, especially with the focus shifting towards quick commerce, where it has lost ground as highlighted by our data above.

Beyond immediate factors, broader market trends and shifts in consumer behaviour are crucial. 

The increasing adoption of online food delivery and quick commerce offers significant growth opportunities for Swiggy even as competition has grown in the latter — with the rise of Zepto and the imminent entry of Reliance Jio and Flipkart. 

Strategic partnerships and cutting per-order costs will be crucial for Swiggy, even as it explores ways to improve the customer experience, which has lagged behind the competition.

Ultimately, the success of the Swiggy IPO will depend on the company’s ability to effectively communicate its growth strategy and financial roadmap to investors and show that it indeed has a clear path to profits, like Zomato. 

After a decade-long duopoly and trying to outpace its archrival, Swiggy is realising that after all, its fortunes are more closely linked to Zomato than it may want to believe. 

[Edited by Nikhil Subramaniam]

The post Can Swiggy’s High Valuation Stand Up To The IPO Test? Here’s What Grey Market Indicates appeared first on Inc42 Media.

With the BJP-led National Democratic Alliance securing 290 out of 543 seats in the general election, Prime Minister Narendra Modi is poised to be sworn in for his third term. 

However, this time, the PM won’t command the same majority as before, with the ruling BJP winning 240 seats and its alliance partners securing 50 seats, unlike the previous election where they surpassed 350 seats.

The BJP’s victory for the third consecutive term has raised optimism among certain Indian startups and VCs. And there are reasons for that. Over the past decade, the number of startups has surged from a few hundred in 2014 to 1.38 lakh currently, plus the previous two Modi-led governments were seen as being bullish on Indian startups through policy as well. 

The introduction of the Startup India initiative in 2015 was a significant stride towards promoting entrepreneurship, offering policy support and encouragement. Measures like self-certification for startups under labour and environmental laws aimed to reduce compliance burdens. 

The establishment of the Fund of Funds for Startups scheme, managed by SIDBI, has facilitated funding, complemented by regulatory reforms that have simplified business processes, with over 50 implemented since 2016.

Notably, concerted efforts have been made to promote female entrepreneurship, including earmarking funds for women-led startups. Additionally, the government’s establishment of over 10,000 Atal Tinkering Labs in schools fosters innovation among students, underscoring its commitment to nurturing a dynamic startup ecosystem in India.

However, expectations are higher this time. Speaking to Inc42, T.V. Mohandas Pai, the former CFO of Infosys and partner at Aarin Capital, emphasised the need for funding support. He stated, “We must establish a INR 50,000 Cr fund through various entities in the next five years. With the economy at $3.6 Tn this year, we’re lagging behind in AI and other frontier technologies due to inadequate investment.”

Repeal Angel Tax

Angel tax continues to harass startups, and stakeholders across the ecosystem and Pai stressed that angel tax must be abolished. “The opposition included its removal in their manifesto, despite being the ones to introduce it. The Modi government should repeal the law to eliminate angel tax.”

Angel tax pertains to the taxation of capital raised by unlisted companies through the issuance of shares, where the share price surpasses the fair market value of the shares. The excess amount is considered as income and taxed at the startup’s hands, as per Section 56(2)(viib) of the Income Tax Act, 1961.

Initially introduced to combat money laundering via the issuance of shares at a premium substantially higher than their fair market value, angel tax has often impacted genuine startups, raising concerns within the entrepreneurial ecosystem.

In response, the Indian government has taken measures to alleviate the burden of angel tax on startups, including providing exemptions for eligible startups meeting specific criteria. However, this has resulted in creating numerous restrictions for startups, as evidenced by the fact that out of 1,14,902 startups registered with the Department for Promotion of Industry and Internal Trade, only 10,939 have applied for exemption from angel tax thus far.

“And they must, once again, resolve all disputes promptly and refrain from harassing people with unnecessary complications. Furthermore, suppose income tax officers lose a case in the high court. In that case, they should be penalised because only a certain group of people are deliberately causing such issues for reasons known to them,” Pai added.

Create INR 50K Cr Fund To Address The Capital Issue

During its first term in 2016, the Modi government launched the Fund of Funds for Startups (FFS). Through this scheme, the government has facilitated investments worth INR 17,354 crore in 928 Indian startups as of December 18, 2023.

Pai believes that since the startup fund is either exhausted or nearing exhaustion, the government should initiate another fund because startup funding remains insufficient. 

“For instance, deeptech and startups that have high gestation models don’t receive adequate funding. Once you establish a foundation, attention must be directed towards areas like deeptech and frontier technologies, which have not been adequately supported.”

Highlighting that over INR 8 Lakh Cr worth of subsidies are provided to farmers and others, Pai questioned, “Why not allocate additional funds to startups, which represent the next generation and create significant employment opportunities?

Additionally, he bemoaned the lack of participation by insurance companies in the investment pool for the startup ecosystem. “Globally, insurance companies are the largest investors, but in India, despite having a balance sheet of 65 lakh crores, they have invested minimally in startups. They should have invested, as it makes sense in the long term through funds of funds. However, this significant source of capital remains untapped,” the Aarin Capital partner remarked.

He believes that one of the priorities for the new government in the next five years should be to establish an INR 50,000 Cr fund through various entities. Despite the measurable progress in GDP, sectors such as AI and new emerging technologies are lagging behind in India due to inadequate investments.

Ease Of Doing Business: Address The Regulatory Cracks

While the Modi government deserves credit for introducing a fast-track tax dispute resolution mechanism, self-certification for startups under labour and environmental laws to reduce compliance burden, and tax incentives for startups, including a three-year income tax exemption, there is much more to be done, and some steps have even been taken in the reverse, believes Pai.

Pai criticised the government for making taxation laws complex. “I believe in the last 10 years, more controls have been implemented to grant more power to the taxman than in the previous 10 years. Although refunds and assessments have been expedited for the vast majority of people in the last three years, which is commendable, disputes have not decreased.” 

He pointed out that despite more refunds being issued last year, disputes have not decreased and that in fact, the amount involved in disputes has increased. This indicates that the dispute resolution process has been unsuccessful, which eventually hurts the ease of doing business, just as angel tax.

Additionally, Pai highlighted some RBI restrictions for startups that could have an adverse effect on investments in fintech startups. “Despite having $650 Bn in FDI equity inflow, there are too many restrictions and excessive documentation, which has resulted in a decline in FDI. Even though many big startups are returning to India today, they had previously left to establish domiciles outside. 

Now they are returning because they believe listing in India will provide them with better value. This decision is purely driven by self-interest, which is positive because India is an attractive market. However, the government could have done more for startups to foster a more positive environment, which they have not done.”

Pointing out the unnecessary requirements of three separate valuation reports, Pai said. “When two parties engage in a transaction, they determine the premium and provide a valuation report. However, remitting money takes longer because banks often misplace documents. The process should mirror that of the public market. It’s commendable that shares have been dematerialised, which allows for better tracking of investments in startups and funds. Therefore, it is essential to implement these measures. The IBC has prepared a document that I believe the government should follow.”

Reflecting on the achievements of the past 10 years, Pai asserted that the Modi government has made significant strides for startups by envisioning initiatives like Startup India and Stand-up India.

Moreover, the government has successfully propelled a digital revolution by establishing digital public infrastructure (DPI), which has been highly beneficial for startups.

The post Repeal Angel Tax & Set Up INR 50K Cr Startup Fund: Mohandas Pai Urges Modi 3.0 Govt appeared first on Inc42 Media.

In this brilliant yet turbulent era of generative AI (GenAI), OpenAI’s ChatGPT is undoubtedly one of the best breakthroughs. Using natural language understanding and processing (NLU & NLP), the intelligent chatbot has been built on a series of foundational large language models, or LLMs, ‘deep-learning’ from human languages, behaviours and knowledge repositories and generating new content in multiple formats and multiple languages. 

Whether it is a search generated on the World Wide Web, a complex piece of code writing, or the making of a creative wonder, ChatGPT can transform the output every time, demonstrating the true potential of the ongoing AI revolution. OpenAI further claims that its flagship GPT-4o (‘o’ stands for omni) is faster than the chatbot’s predecessors and will sound more conversational in responding to prompts.

Could this be a definitive step towards the concept of artificial general intelligence, a computing ecosystem on par with human intelligence, with the capability to self-learn? It is a matter of endless debate, with no concrete conclusion in sight. Meanwhile, the GenAI market across industries will likely witness a phenomenal surge from an estimated $67.2 Bn in 2024 to $967.6 Bn by 2032, growing at a CAGR of 39.6% during the forecast period.  

McKinsey & Company further estimates that GenAI and other technologies can automate work activities that currently absorb 60-70% of employees’ time. Combining GenAI with different technologies will also add 0.5 to 3.4 percentage points annually to productivity growth. As this is bound to create a huge economic impact, Google, Meta, Amazon and their ilk have rushed to commercialise their AI projects to tap into the market.

However, Microsoft remains ahead in this race due to its $13 Bn investment in OpenAI. Consequently, it has an exclusive licence to use the underlying model of the groundbreaking technology, although others can receive outputs from the public API. Microsoft’s Copilot currently uses the more advanced GPT-4 Turbo LLM, resulting in enhanced AI capabilities. 

Indian tech companies are not far behind. A handful of homegrown conglomerates, such as Reliance (Jio), TCS, Infosys and Mahindra & Mahindra, are already working on a slew of GenAI projects. A NASSCOM-BCG report estimates that the country’s AI market may reach $17 Bn by 2027, growing at an annualised rate of 25-30% during 2024-2027. 

But this time, the credit for developing an India-focussed equivalent of ChatGPT goes to the Bengaluru-based GenAI startup CoRover.ai. Powered by proprietary cognitive AI technology, the startup launched BharatGPT in December 2023, claiming it to be India’s first-ever large language model. To be sure, it is one of the largest GenAI conversational platforms, gaining traction from more than a billion users in less than six months.   

As GenAI platforms produce new content by processing massive amounts of existing data used to train algorithms, their output – in spite of its near-human excellence – mimics what we already know or tend to perceive. Because most of the training material is in English and comes from Western resources, these tools often fail to serve a diversified global audience or identify cultural nuances. 

That is why global versions of GenAI applications may not always be adequate for India-specific queries, exposing algorithmic biases against the country’s societal contexts. 

Here is a quick experiment we carried out at Inc42 to understand how GenAI falls short of community expectations. When we asked Copilot Designer (an image creator tool powered by OpenAI’s DALL-E) for a portrait of Lord Rama, the images it produced resembled Greek gods whom none of us could recognise as the iconic Indian figure. 

Such examples abound, not only in the Indian context but elsewhere. Google had to halt Gemini AI’s image generation capabilities earlier this year after it was blasted on social media for producing historically inaccurate images.  

Recognising this socio-cultural gap in existing systems, entrepreneurs and developers from India have started working on a GenAI ecosystem tailored for Indian consumption, therefore yielding better contextual outputs across all formats.

The need for India-focussed GenAI platforms led to a host of indigenous developments, such as BharatGPT, Ola Krutrim, and Project Indus (a Tech Mahindra venture including 40 different Indic languages). Each initiative is trying to overcome the language challenges pan-Indian users are bound to face in real life and now in the AI world. 

“The idea is to provide equal access to knowledge and information to all Indians regardless of their background,” says Ankush Sabharwal, founder and CEO of CoRover.ai. 

To avoid any misunderstanding, let us clarify that Sabharwal’s flagship GenAI BharatGPT must not be confused with Reliance Jio’s Bharat GPT. The confusion arose when Akash Ambani, chairman of Reliance Jio Infocomm, spoke at the IIT-Bombay Techfest 2023 and mentioned that the company was working with the premier institution to launch a homegrown AI model called Bharat GPT. 

According to him, the programme is part of Reliance Jio’s broader vision (Jio 2.0) to create a comprehensive AI ecosystem.  

On the other hand, CoRover.ai applied for the BharatGPT trademark in February 2023 and filed for a patent on the BharatGPT LLM model. 

Inside CoRover’s BharatGPT

Before we delve deeper into the LLM’s benefits and use cases, a quick look at its tech components will not be out of context. BharatGPT (GPT stands for generative pre-trained transformers) typically contains encoders for encoding/inputting information and sequences for deep learning and decoders for generating new sequences based on the input. It is further fine-tuned for conversational applications with the help of supervised learning and, at times, human feedback. 

The LLM also uses advanced techniques like word embedding for resource-efficient natural language processing. Simply put, word embedding is used in NLP for word vectorisation or converting words and phrases from human vocabulary into a set of real numbers, which is required for capturing syntactic and semantic information, text classification and text analysis. 

For instance, the word ‘Apple’ could be used as a company name or as a fruit in different contexts. In such cases, word embedding can help capture the most appropriate meaning based on the language and the region, sector and domain, user and business details and specific use cases. Also, faster ML means less burden on GPUs and other computing resources.        

The multilingual application covering audio, video and text has been developed with the government-funded BHASHINI project, the National Language Translation Mission (NLTM) operating under MeitY. BharatGPT offers voice modality integration in more than 14 Indian languages and text modality in all 22 official Indian languages mentioned in the Indian Constitution. Globally, it supports 120+ languages compared to 80+, supported by ChatGPT.

BharatGPT enables a number of features, such as integration with payment gateways, Aadhaar-based eKYC authentication, dialogue management and sentiment analysis. It also claims an accuracy rate of 90%. More importantly, a homegrown LLM will focus more on data localisation, leading to better data security.

How BharatGPT Is Building Use Cases Across Enterprises

Unlike ChatGPT, CoRover’s BharatGPT has been designed for the B2B segment and it has paid rich dividends. “Currently, more than 60 organisations are using our services and we have received 900+ inbound leads so far,” claims Sabharwal, underscoring the startup’s early-mover advantage. The company has secured projects worth over INR 100 Cr scheduled for the next 12 months

It has already onboarded a host of industry leaders and storied organisations, such as LIC, NPCI, HUL, Oracle, Digital India, Mahindra & Mahindra, IRCTC, VRL, KSRTC and redBus. Others like SEBI, India’s capital market regulator, will soon integrate BharatGPT into their existing platforms. 

Using the startup’s BharatGPT model, one can create text-, voice- and video-enabled multilingual virtual assistants (VAs) in no time by drawing information from content/documents specific to the business/use case. Depending on organisational requirements, data files are made accessible to the corresponding BharatGPT VA and generate answers and references from those resources.

Businesses can also integrate a custom knowledge base with enterprise resource planning (ERP) systems, customer relationship management (CRM) tools or application programming interfaces (APIs) for real-time transactions.

End consumers can start using a VA as soon as an organisation/business integrates the bot and facilitates engagement, says Sabharwal. Moreover, the end product is vertical, and the output solely depends on the data fed to a specific chatbot.

A look at an educational project brings further clarity here. If a chatbot built on BharatGPT is to be used for standard V learning, it will be primarily trained on standard V curricula and will respond in sync with the predetermined academic level. Ask a question on the same topic that requires more details expected from a standard XII student, and the response may not be adequate. 

BharatGPT generates output based on curated training materials/datasets instead of relying on random resources. It also limits the scope of generating wrong output, as was the case with Copilot Designer or Google’s Gemini, and the accuracy level remains high. 

Now, let us take a look at the website of National Payments Corporation of India (NPCI) to understand how the chatbot is operating in layers.

“If a person is asking pre-fed questions – say, from the FAQ list – the VA called Pai will respond directly. If Pai can’t fetch the response directly, it will use BharatGPT to come up with the answers, along with the references,” explained Sabharwal.

Similarly, CoRover, along with the Indian Railway Catering and Tourism Corporation (IRCTC), has developed another VA called RailGPT. The mobile application provides information, assistance and a bouquet of services to users while the bot understands user requests and responses in a conversational manner.

Interestingly, the startup recently announced it would shut down its overseas subsidiaries to focus more on the domestic market. 

“Earlier, we opened companies in the US and the UK. Today, we are closing them down. We have requested our partners to handle the legal aspects. Of course, our long-term plan is to cater to those markets. But just now, we are experiencing significant demand here in India and want to prioritise the Indian market first,” said Sabharwal. 

BharatGPT’s Multilingual Edge: Will It Nurture An Inclusive Culture?

According to a recent IBM survey, about 59% of Indian enterprises (companies with more than 1K employees) actively use AI in their businesses. Industry experts also think the country is poised to emerge as the largest market in the conversational AI segment, given its language census data. As per the 2011 census, India has 121 languages, each spoken by 10K people or more. Overall, more than 19.5K languages or dialects are spoken in this subcontinent. 

In a polyglot nation like India, the inability to communicate in local languages can have a heavy impact on the economy. Many liken it to a tariff on trade, increasing the difficulty and costs of doing business across India. On the other hand, talent acquisition based solely on language proficiency has been expensive and inadequate for most companies.

In fact, language and cultural barriers have a profound social impact. Consider this: More than 50K people from Punjab, Uttar Pradesh, West Bengal, Bihar, Odisha and other states reside in Chennai and its suburbs. However, the majority of them do not speak Tamil and often face difficulties when interacting with the local police or registering complaints. Chennai Police also struggled to cope with this communication challenge, which impacted their investigations.

To address this issue, the state police department partnered with CoRover to launch video bot kiosks where users can communicate in multiple languages and GenAI tools can process the information efficiently.

“We have more than 130 Cr users who have access to our virtual assistants,” said Sabharwal. “If you ask me, we have the highest amount of data here, the Indian conversational data. We support the largest set of languages, whether Indian or global.”

As Sabharwal emphasises, one of the most important aspects of GenAI in the future will be improving access to information. Although 90% of the Indian population does not speak English, more than 90% of the information is currently only available in English, which is a substantial gap. 

“With BharatGPT-like LLMs, people speaking different languages will have equal access to all available information,” he added.

The Bottom Line

According to research data by CB Insights, GenAI was the lone bright spot in 2023 amid a harsh funding winter, bagging 48% of the total AI investments, a substantial jump from a meagre 8% in the previous year. Despite a ‘down’ trend in deal size and count, AI startups worldwide raised $42.5 Bn in 2023 across 2.5K equity rounds.

Closer home, India’s GenAI market is expected to grow exponentially in the next few years, surpassing $17 Bn by 2030 from $1.1 Bn in 2023, growing at a CAGR of 48%, per an Inc42 report. The country’s startup ecosystem already comprises 70+ GenAI ventures and counting, pursuing the vision of ‘making AI in India’ and ‘making AI work for India.

With BharatGPT and its ilk (Ola Krutrim, Hanooman AI and more) taking charge and cementing their positions as the cornerstone of India’s conversational AI landscape, India is well prepared for a new era of digital empowerment, where language barriers are dissolved and access to information is democratised. It could be the beginning of a transformative future where AI augments human capabilities and creates an inclusive culture amid diversities to propel the nation towards economic and societal cohesion. 

However, industry experts still doubt whether the world is ready for a large-scale GenAI makeover or if the current traction is another FOMO. The new technology has many challenges, from biases and inaccuracies to deepfakes and hallucinations, which can trigger disasters in a tech-driven, knowledge-centric world.  

As IBM aptly points out in its survey, the top barriers to developing trustworthy and ethical AI are the lack of an AI strategy, company guidelines and AI governance and management tools that work across all data environments. Unless these are addressed, grandiose predictions may turn into zany outcomes in a dystopian world.

[Edited by Sanghamitra Mandal]

The post How BharatGPT’s Indic-First LLM Is Bridging Language Barriers, Empowering Enterprises appeared first on Inc42 Media.

The number of credit cards reached 100 Mn in 2024, a 400% jump from 20 Mn in 2014 to over 102 Mn by April 2024. 

Despite a remarkable rise in UPI payments due to the digital payment platform’s speed and convenience, India’s credit card market has not taken much of a hit. For instance, the total number of credit cards rose to 10.18 Cr in FY24, compared to 8.53 Cr in the previous financial year (a 19% jump), according to the RBI. 

Similarly, YoY credit card spending in FY24 surged by 27% to reach INR 18.26 Lakh Cr compared to nearly INR 14 Lakh Cr in the previous financial year. The reason: The growing adoption of digital payments across Bharat since the Covid-19 pandemic and rise in discretionary spending in metros and beyond.  

Given these trends, credit cards remain a small but premium and most lucrative segment to cater to. However, in a seemingly counterintuitive approach, most Indian banks and NBFCs continue to focus on the lending market for two primary reasons. 

First, the loan market (both secured and unsecured) is much bigger. Second and more important, credit cards incur high operational costs involving reward programmes, fraud protection, customer services and more. Also, small sellers are unwilling to accept payments via credit cards as they are liable to pay a merchant discount rate (MDR) amounting to 1-3% of the transaction value.

The small percentage of credit card users in India poses another hurdle. According to the Federal Reserve data, 82% of U.S. adults had credit cards in 2022. In contrast, 5.5% of Indians hold credit cards, according to latest industry estimates. 

On the other hand, popular loan products like personal loans or even very short-term loans (think of payday loans) for emergencies are quite straightforward in structure and operational costs are typically less. Therefore, most fintechs partner with banks and NBFCs to cater to the loan market. However, with the RBI keeping a strict vigil on lending norms, KYC and advanced security measures, many are now compelled to look beyond lending. 

To be sure, a few fintech platforms have entered the credit card market with co-branded cards, BNPL (buy now, pay later) offerings and hassle-free credit card bill payments. But none managed to stand out except the fintech unicorn CRED, a member-only app that exclusively services credit card holders with a credit score of minimum of 750.

Set up in 2018 by Kunal Shah, CRED aims to provide a premium experience to credit card users through a range of exclusive products and services. Not Everyone Gets It, says its tagline, amply illustrating the unique concept driving its business vision. 

Besides its routine offerings, CRED has introduced a host of value-added services over the years, such as CRED Cash and CRED Mint, CRED UPI (integration with the UPI platform for secure transactions by generating UPI codes), Tap to Pay (NFC-enabled instant payment by tapping one’s smartphone on a merchant’s PoS device) without requiring any physical card and CRED RentPay, with provision for setting up auto-payment. 

The platform has recently launched a bouquet of services such as Garage, a vehicle management platform to keep track of car spending and enable Fastag recharge for toll payments, and Escapes, a selection of curated accommodations for specific destinations, diverging from its pure-play financial offerings.

In 2023, CRED acquihired Spenny, a microsavings platform that helped people save and invest tiny amounts in mutual funds and digital gold. Earlier this year, it also acquired online wealth management platform Kuvera in a cash-and-stock deal. Additionally, the fintech platform has obtained in-principal approval from the RBI to operate as a payment aggregator. It has also set up a Dreamplug AA Tech Solutions subsidiary and intends to acquire an account aggregator licence.

For context, PAs are third-party service providers enabling customers and businesses to make and receive payments online. On the other hand, account aggregators (AAs) are RBI-regulated intermediaries with NBFC-AA licences, enabling financial data-sharing between financial information providers (FIPs) and financial information users (FIUs) within the AA network. 

For instance, the AA ecosystem can help a lending bank (FIU, in this case) access the financial data of a potential borrower from another bank where the person has an account (here, the bank where the borrower has an account is the FIP). All data is accessed and shared securely and digitally, but no data-sharing is possible without the account holder’s digital consent (more on CRED’s role as a PA and a potential AA later).

Talking of numbers, currently 11 Mn use the platform for the monthly bill payments of their credit cards and UPI payments. Over 4 Mn vehicles are parked on CRED Garage, which was launched just last year.

A Close Look At CRED’s Design Thinking For Product Development

Considered quite a business buzzword nowadays, design thinking is all about an iterative process that dives deep into customer requirements, goes beyond conventional assumptions and comes up with innovative solutions.      

When quizzed about CRED’s design thinking approach, a former senior executive explained it candidly. “Take a look at Microsoft. Its operating system is hugely popular, commanding 72% of the [laptop] OS market, while Apple’s macOS accounts for 14.73%. Similarly, Google’s Android OS dominates the mobile space with more than 70% of the market share compared to Apple’s 28%. Yet, Apple’s revenue surpasses Google’s parent Alphabet and Microsoft by 40% and 120%, respectively. That’s because Apple has better identified their potential consumers and focuses on offering experience, while others focus on products.” 

According to the former exec, Shah is pursuing a similar approach for CRED.

The company has identified its user base — affluent and trustworthy Indian consumers. The design thinking is to enable financial progress for the trustworthy with products that improve their lives and lifestyles. 

And, perceiving credit cards and credit scores — a metric for trust — CRED launched the first product as credit card bill payment. This included reminders to pay bills on time, insights into their card usage patterns. 

Further to reward financial prudence, CRED came up with a host of instant gratification instruments including coins, cashback, merchant offers, vouchers for bill payment, as well as access to a curated selection of premium experiences across lifestyle products and travel. CRED Escapes and Store have been further designed to drive engagement and reward members for financial prudence with unique offers.

Garage has similarly been launched to serve their members’ vehicle-related needs. A platform where members could pay challans, recharge FAStag, and renew insurance policies, all on CRED.

CRED has its challenges, though, including market saturation and increasing customer acquisition cost (CAC). Consider this. According to the CRIF High Mark report, among credit card holders in the youngest age bracket of 18-25 years, 81% have one credit card, 12% have two cards, 3.6% have three cards, and 2.4% have more than three cards. Hence the total number of credit card holders indeed is less than 100 Mn.

Now CRED has already acquired over 11 Mn users and given its credit score cut off 750 (significantly higher than 650, minimum to have to qualify for credit cards), bringing the rest to its fold could be a near-impossible task. Even if it is theoretically possible, one simply can not afford to spend a huge amount on customer acquisition to capture the market. 

To mitigate such risks and overcome other business hurdles while aiming to attain long term sustainability, CRED has been working on five areas mentioned below:

• Building a unique portfolio of products: Instead of creating entirely new products, CRED aims to offer unique experiences by enhancing existing ones. Take, for example, the design makeover of CRED UPI during this cricket season. The cricket edition flaunted a rhodium-toned interactive skin, resembling the look and feel of a premium credit card or a designer wallet. Along with that came mega rewards for consecutive transactions and luxury drops at select locations across India to ensure that such lifestyle upgrades become valued experiences which go beyond transactions. Garage and Escapes are other additions to its benefit-first product portfolio.
• Developing multiple revenue streams: As per FY23 financials, currently 90% of its revenues come from Cred Cash or personal loans, utility bill payments, Cred Max and insurance services. The company hopes to channel new avenues of income through businesses acquired by CRED but run independently (like Kuvera), as well as from PA fees. 
• Reducing costs: CRED constantly evaluates its operating expenses to keep tabs on cash flow and stay cost-efficient. It has also handed out pink slips multiple times despite a 3.5x rise in revenue to INR 1400 Cr in FY23. Access to a PA licence will further help reduce costs.
• Building compliance and long-term trust: CRED aims to build a trusted ecosystem by obtaining licences from major regulatory bodies like the RBI, SEBI and IRDAI and strictly adhering to all compliance norms.
• Working on IPO plans: CRED is reportedly accelerating its IPO plans and may file the DRHP as soon as it reaches breakeven. An initial public offering is the best way to raise funds to reduce debt burdens, acquire target companies and pursue long-term goals. Again, a publicly traded company is trusted more by all stakeholders. However, the IPO exercise will be more challenging than it seems initially; the devil is in the details.

CRED’s Kuvera Move Will Drive Horizontal & Vertical Growth

As the UPI ecosystem evolves, fintech companies seek to generate multiple revenue streams through cross-selling. Whether it is Paytm, Google Pay, PhonePe or Amazon Pay, cross-selling has become the critical focus of these apps, leading to stiff competition.

With a vast UPI consumer base on board, every fintech platform wants to get into lending and investments to increase its revenue. But now that the RBI is zealously monitoring all lending operations, UPI platforms tend to focus on wealth management. CRED is also moving into this space, but with a difference.

“CRED faces limited competition compared to Paytm Money, PhonePe and Groww, as it aims to monetise a high-quality customer base and emulate the profitability achieved by wealth management platforms like Zerodha and Groww,” said Ankur Bansal, cofounder and director of Blacksoil Capital, a Mumbai-based financial services provider.

The acquisition of the wealth management platform Kuvera syncs well with this purpose.  

Kuvera, with assets worth $1.4 Bn+ under management for its 300K users, has become a preferred platform among India’s affluent investors. The average SIP size on Kuvera has reached INR 5K, twice the industry average, while total mutual investment amounts exceed INR 12 Lakh ($14,450), five times higher than the norm.

Kuvera, thus, fits into the CREDverse in terms of target customers and value creation. The acquisition also aims to fulfil the following short-term and long-term goals.  

• Customer acquisition beyond CRED: According to a CRED statement, Kuvera will continue to operate independently and serve beyond CRED members.  
• Vertical integration: CRED needs to cater to its users’ wealth management needs. Kuvera, with SEBI’s Investment Advisor (IA) licence, offers the opportunity to enter this segment. 
• Speed up operations: Acquiring a licensed entity eliminates the need to meet compliance requirements and undergo long waiting periods.

While the acquisitions of Kuvera and Spenny add to CRED’s curated user base, there are more advantages.

“The existing user base, which manages their credit cards and expenses via the CRED platform, may prefer to consolidate their financial activities under one roof, thereby allowing CRED to gain some mileage and catch up with Zerodha and Groww,” observed Kalindhi Bhatia, partner at BTG Advaya, a leading transactional law firm based in Mumbai.

But there is another glitch. By acquiring licensed entities, CRED may have avoided the extensive scrutiny and long wait periods involved in setting up these businesses. However, from an ongoing compliance standpoint, the platform has to follow various sector-specific regulations. For instance, SEBI regulations are there for stocks, mutual funds and financial advisory; IRDAI looks after insurance, and the RBI monitors payment aggregation, KYC and more. So, it can still be an uphill task for CRED to comply with multiple requirements from the get-go, added Bhatia.  

How CRED’s PA Licence Will Bring Value, Increase Revenue

Third-party payment aggregators are costly affairs, to say the least. PAs usually charge 1.75%-4% per transaction as processing fees, in addition to set-up costs and annual maintenance fees. 

“The payment aggregator licence will allow CRED to leverage its payment processing services for partner brands and third-party merchants. Of course, the play here lacks clarity as the PA sector is now saturated. But it will help CRED reduce external costs incurred by relying on third-party PAs as and when required,” said Bhatia.

Currently, CRED’s partner brands are responsible for paying the PA charges, as the fintech platform does not offer these services or cover these costs.

Now that CRED’s wholly owned subsidiary Dreamplug Paytech Services has been granted in-principal approval for the PA licence from the RBI, merchandise costs may likely to go down and the platform can leverage a brand new revenue channel.

“A PA licence enables direct payment processing, enhancing the platform’s offerings like CRED Pay and CRED RentPay. However, it comes with regulatory challenges, including strict monitoring and compliance, similar to what Paytm has undergone. In case restrictions are slapped on a business, they can impact innovations and product scope,” said Abhinav Paliwal, cofounder and CEO of PayNet Systems, a white-label neobanking software platform catering to new-age fintechs. 

Nevertheless, the PA licence will be instrumental in trust-building, user base expansion and brand positioning. There can also be a possible shift in branding – from ‘exclusive’ to ‘more inclusive’ – while retaining the premium service aspects, he added.

Account Aggregator Licence For Seamless Operations

To break new ground, CRED reportedly had plans to obtain an account aggregator (AA) licence via Dreamplug AA Tech Solutions. As explained, the AA framework helps simplify financial services like loans and credit facilities by providing a fast, comprehensive and transparent way to share verified financial data among regulated entities.

According to sources close to the development, the company has not applied for the AA license yet. “Our approach to licences is to apply for those that will enable us to provide a better member experience while remaining compliant with the letter and spirit of regulations,” said a company official without wanting to be named.

As CRED is now involved in business operations regulated by the RBI, SEBI and IRDAI, acquiring an AA licence is required to ensure a seamless experience across its products and services. In simple terms, an AA licence will enable CRED users to consent to data sharing without investing time and effort to provide all essential details whenever the need arises. 

“Instead, CRED’s subsidiary will enable secure financial data sharing and boost capabilities in service areas like CRED Mint,” said Paliwal of PayNet.

Pratekk Agarwaal, founder and general partner at GrowthCap Ventures, a Mumbai-based early stage VC firm, noted that obtaining these licences would strengthen CRED’s fintech portfolio and regulatory compliance. However, exploring synergies and optimising customer journeys to enhance user engagement would be essential, given its reliance on partner channels.

Bhatia of BTG Advaya underscores yet another point. With these licences in its kitty, it looks like CRED intends to validate a user’s financial credentials internally rather than relying on external agencies. Since the platform enables lending services and payment gateways, it can carry out stipulated KYC verifications and assess a user’s financial rating pretty swiftly. 

CRED Is Building The Top 1% Club; Here’s A Glimpse Of What To Expect

Popular opinions and market research data often highlight that the larger the TAM (total addressable market), the bigger the growth opportunity. However, CRED has changed tack. Instead of exploring the untapped market for humungous growth, it has been focussing on members’ requirements to build new value propositions for its curated community. 

A former CRED executive, quoted earlier in this article, concurred. 

“Take Garage, for instance. More than 70% of CRED members might own vehicles. Hence, they must analyse and understand what they spend on their vehicles. CRED has made it extremely convenient by putting all relevant data in one place. Your FASTag payments are here. You get to know the last servicing cost and how much you spend on your vehicle every month. Is your car leaking money? This is crucial as you no longer have to feed the data separately to manage your vehicle expenditure,” he added.

Similarly, there is Escapes, another feature to help members with their travel plans. Almost all CRED members travel at least twice a year. Of course, critics may say that the fintech is deviating from its business model but that is not the case. CRED is simply catering to what its members like to have on the platform, the executive said.

However, cross-selling does not always work. 

According to Bansal of Blacksoil Capital, a consumer’s preference will be the deciding factor here. For example, most users are accustomed to using traditional OTAs like MakeMyTrip or EaseMyTrip, and many will be using corresponding co-branded credit cards. In such a scenario, CRED may not expect significant cross-selling on Escapes, at least not initially. But even a small income will keep the vertical sustainable, as CRED will not acquire physical assets (like hotels) to keep it going. Instead, the platform hopes to drive Escapes engagements with rewards, vouchers and the luxury experiences it offers. 

Paliwal from PayNet assumes that CRED may attempt to cross-sell its new products to existing users and ensure that its acquired customer base uses its current offerings. (Data usage in such cases must comply with applicable privacy laws.) Presumably, the idea is to emerge as a one-stop shop for all things finance, from managing expenses to making payments to wealth management and more.

All these are for the top 1%, of course. But there could be exceptions.

Although the platform has set ‘Brand CRED’ apart as exclusive, it is now allowing certain acquisitions to run independently and making their offerings more inclusive to drive customer acquisition and build a large consumer base.

Interestingly, CRED struggled initially for keeping its offerings too limited, which did not resonate well with early users. Soon, however, it learnt to broaden its service horizon and introduced more substantial offerings, such as managing one’s entire bunch of bills more efficiently without missing a single payment date. In other words, it turned to ‘convenience’ to carve its niche despite the ‘exclusivity’ tag. Now, standing at the crossroads, is it taking a page out of its old playbook again to sprint ahead?     

“There seems to be a shift in the business approach compared to its original offering. Think of the first tagline – linked to a user’s creditworthiness. If CRED executes this phase well and becomes useful to customers [rather than being just another product in the market], its new tagline should be: Everyone must get it,” said Paliwal. 

Will There Be Hurdles Ahead As CRED Expands?

Whether it is Happay (a corporate expense management platform), or Kuvera, CRED is not only diversifying its revenue streams through multiple offerings but also allowing other brands to grow independently. This further ensures risk diversification, a necessity in a post-pandemic landscape impacted by a prolonged funding winter. 

Additionally, regulation and compliance issues continue to impact fintech platforms, and handling belligerent customers turns out to be difficult. Last year, when Happay corporate cards issued by SBM Bank (India) were unexpectedly blocked from the midnight of March 31, several users took to X (formerly Twitter) and criticised the business for its poor communication policy. However, the incident took place mainly because the bank failed to update its KYC details in sync with the RBI’s guidelines.

It did not impact Brand CRED, but it certainly revealed the kind of turbulence a fintech company might suddenly face. 

Under regulatory scrutiny, it may not be a smooth journey ahead for CRED. However, analysts believe that CRED is better equipped to tackle regulatory hiccups than Paytm, which slipped on KYC compliance. In fact, it is the sheer volume that often makes the difference. Paytm faltered trying to manage more than 300 Mn users. But for CRED, it will be just 15 Mn, a more manageable number.

Considering the impact of regulatory challenges on fintechs like Instamojo, Paytm, Slice and many others, would it also be an issue for CRED?

Bansal thinks fintechs must be ready to plug every possible loophole. “While building a fintech brand, you can’t shy away from regulators for long. It will not help the brand grow. It is only natural for CRED to seek regulatory compliance to incorporate more products and services and build user trust. Razorpay has also gone through similar cycles. So, regulatory compliance will be part and parcel of a business if it wants to be part of a new asset class. However, CRED has acquired a fresh set of businesses and managing them is easier said than done.”

As CRED strives to balance exclusivity, a broader customer base and a diversified product portfolio through strategic acquisitions, it has positioned itself as a versatile fintech company. However, the real test lies in preserving its premium brand identity while navigating the intricacies of regulatory compliance and diverse market demands.

[Edited by Sanghamitra Mandal]

Update | May 29, 2024, 13.40

The total number of CRED members has been updated based on further input from the company.

The post Decoding The CREDverse appeared first on Inc42 Media.

Bitcoin (BTC) made a stunning comeback at long last, hitting more than $73K in March 2024, soaring past its previous peak of almost $69K in November 2021 and clocking a 300% jump from November 2022, when it slumped below $20K. Given its remarkable rally, the combined market cap of the cryptocurrencies in circulation shot up to $2.5 Tn, just 10% short of the all-time high of $2.8 Tn, as per industry data.

Crypto enthusiasts across the globe are delighted. The tide has presumably turned after the 2022 downturn and a wave of bankruptcies following an elaborate scam by Sam Bankman-Fried’s FTX, the world’s third-largest cryptocurrency exchange by volume. Investors lost billions of dollars in bank-run-like situations at the time, and virtual digital assets (VDAs) appeared to be tainted for good. In the wake of the huge financial fraud, many central banks played the stern gatekeeper, safeguarding investor money from scams and manipulation.

Interestingly, crypto’s rapid rise might not have been possible without the launch of Bitcoin ETFs (approved by the U.S. SEC to ensure gains from price movements by trading ETF shares without owning the digital asset), the UK’s nod for crypto-backed exchange-traded notes (eETNs), and the phenomenal Bitcoin halving in April 2024 that would control its supply and push the price up. In fact, a few price prediction systems estimate BTC to breach $84K by October this year.

That is not to say that cryptos, in general, and BTC, in particular, have shaded their infamous volatility. By the time we are publishing this article, BTC has dropped $66K, and the flourish chart shows price fluctuations similar to standard stock markets. But unlike the previous bull run in 2021, primarily pushed by amateur traders looking to get rich overnight, the crypto market now has the imprimatur of financial regulators. 

This indicates the emergence of a mature landscape where stakeholders are ready to abide by more stringent policies and the market is no longer shunned by FIs and professional wealth managers. In the US alone, more than $7 Bn had been initially invested in new crypto products, according to Bloomberg data. The inflow will likely increase as the US Federal Reserve indicates interest rate cuts in H2 2024 and more investors turn to riskier assets for better returns.  

India Is Witnessing A Surge, Too; Will It Continue? 

In India, crypto exchanges have also witnessed a giant leap in trading volume despite existing hurdles and the absence of a well-structured regulatory framework. The latter has been a work in progress since 2021, although the country has set up a clear-cut tax structure and a well-defined registration-and-reporting framework, eliminating many of the ambiguities. This has helped build a more favourable regulatory climate, leading to a level playing field.    

According to the latest report by Hashed Emergent, a web3 venture capital firm, the country claimed the top spot for on-chain adoption in 2023 among 150+ nations, saw 1K+ Web3 startups (built on blockchain technology and user-controlled) thriving and set up more than 35 Mn crypto trading accounts on top Indian exchanges. 

India now ranks among the top five countries in peer-to-peer (P2P) crypto trading and 75% of Indian users opting for centralised exchanges (CEXs) are aged below 35, a demographic dividend no country can ignore. After all, the future can be all about decentralisation, whether it is currency or finance, and young Indians can easily leverage these benefits for a long time.

All this despite the overwhelming tax burden and the stringent regulations that India has imposed on the crypto industry in recent years. Since 2022, the country has levied a 30% tax on the earnings from digital asset transfers (including cryptocurrencies, non-fungible tokens or NFTs and more), a 1% TDS (tax deducted at source) on the buyer’s payment if it surpasses the threshold and no deduction is allowed except the acquisition cost. A person receiving crypto assets as a gift is liable to pay taxes, but a VDA loss cannot offset any other income.

The Reserve Bank of India also threw a spanner in the works in April 2018, prohibiting banks and other regulated financial entities from dealing with crypto exchanges. The Supreme Court set aside the RBI order in March 2020, but more than a dozen crypto startups had to cease operations by then.  

The latest mandate came in December 2023, when India banned nine offshore crypto exchanges citing ‘non-compliance’ with local tax and anti-money laundering laws. According to the Prevention of Money Laundering ACT (PMLA) 2002, VDA service providers must register with the Financial Intelligence Unit (FIU operates under the finance ministry), which acts as a reporting entity for the control, administration and safekeeping of VDAs.

The ban on these global platforms sent Indian users rushing to homegrown players like CoinSwitch and CoinDCX etc. In the absence of big names like Binance, Coinbase and KuCoin, Indian crypto exchanges were once again holding sway and business is booming (more on that later). 

Several exchanges such as Binance and KuKoin recently registered with FIU-India and received in-principle approval. The total number of VDA SPs has now increased to 47 and they adhere to the tax laws outlined in the Finance Act, 2022. However, the entire list has yet to be made public. 

The pecking order has also changed in recent years. Although most top exchanges remain operational, there has been a notable shift in market share. For instance, ZebPay, India’s largest crypto exchange (by users, volume) until 2018, slipped to the fourth spot in 2024. WazirX, in spite of its fallout with Binance and the ongoing probe by the Enforcement Directorate under FEMA and PMLA, it has retained the second spot (by userbase) in the Indian market. 

Inc42 spoke with nearly a dozen crypto platforms in India to comprehend the current landscape, the changes witnessed in recent years, upcoming trends and whether the industry may return to pre-taxation times.

From Recovery To Growth: The Crypto Industry In India Has Come A Long Way

Asked whether the enthusiasm around the recent surge in crypto could eventually collapse under the tax burden, Shivam Thakral, cofounder and CEO of BuyUcoin, said that the Indian crypto market went through a period of adjustment and adaptation after the tax laws came into effect in 2022 and heavily impacted the industry. Initially, these regulatory measures created uncertainties and cautious sentiment among market participants. 

“However, as regulatory clarity improved and users gained confidence in compliance frameworks, the market showed resilience and began to recover. This underscores the growing acceptance and integration of cryptocurrencies within the Indian financial ecosystem, paving the path for sustained growth and innovation,” Thakral told Inc42.

Most founders of crypto startups also believe that 2024 will mark the industry’s growth phase and may lure investors with new products like derivatives, spurring a further surge in trading activity. Even SEBI is now reportedly mulling to regulate the same. 

According to Edu Patel, founder and CEO of Mudrex, crypto trading volume in India peaked between 2019 and 2021 but saw a decline in the next two years due to three black swan events. 

Along with those came rising inflation, high interest rates (the RBI’s hawkish policy stance to keep inflation under control) and macroeconomic headwinds, leading to a global slump in trading volumes.

“However, there was a [more sustainable] surge in 2024, especially in March, when we recorded the highest trade volume. We have witnessed consistent growth ever since,” added Patel.

Rajagopal Menon, VP at WazirX, said the government’s mandate on territory-agnostic tax compliance and the ban imposed on overseas crypto majors created a level playing field. 

“Following the announcement, domestic exchanges witnessed a surge in volume. WazirX saw a 250% increase in deposits and a 100% rise in transaction value within a week. Subsequently, a few foreign exchanges have stepped forward to comply with Indian tax laws, which is a fair move,” he added.

The tax pushback initially landed local exchanges in deep trouble. According to a study released by the Delhi-based think tank Esya Centre, the heavy tax burden on all transactions of virtual assets saw a cumulative trade volume worth INR 32K Cr shift from Indian crypto exchanges to foreign ones between February and October 2022. 

Most Indian users shifted their base to international platforms like Binance, OKX, Kraken and Coinbase during that period. However, with the ban on global crypto exchanges and the inaccessibility of their apps and platforms, most active traders had no choice but to shift back to Indian platforms. 

ZebPay’s CEO, Rahul Pagidipati, also believed the second crypto rally would be more sustainable than before. “The previous crypto cycle saw a massive inflow of retail investors on ZebPay. It was primarily due to the rise in crypto exchanges and the positive market sentiment in 2020-2021.

Macroeconomic stimulus such as a reduction in interest rates during this period led to a rapid rise in participation in the financial markets sector. While the market corrected in the year 2021-22, we have seen a healthy rise in participation since then and we anticipate FY 2024-25 to be one of the best years in this market cycle,” he added.

Bitcoin Is No Longer The Big Boss Of Crypto In India

Could that be a landmark in the history of cryptocurrencies? Not globally, of course, and not right now. Bitcoin still accounts for more than 50% of the crypto market cap, and India is no exception. But a look at the major Indian exchanges (ZebPay, Mudrex, BuyUcoin and Unocoin) shows that BTC has traded at No. 2 on many occasions.

However, the price performances of the other two prominent altcoins – Ethereum and Ripple – have seen enough fluctuations and downturns. In fact, they have yet to make it to the top five most-transacted coins on WazirX.

Although WazirX did not provide year-wise details, Menon said that the top five tokens between 2019 and 2023 were Bitcoin, Shiba Inu, USDT, Dogecoin and WRX (the last one is the token introduced by WazirX).

Tether, a cryptocurrency stablecoin launched by the eponymous brand, is fiercely fighting Bitcoin. In the current calendar year (2024), the value of Bitcoin transactions on WazirX has reached $8.2 Bn, while Tether has clocked more than $7.7 Bn. Shiba Inu, Dogecoin and WRX recorded $5 Bn, $3.3 Bn, and $3.2 Bn, respectively.

According to Thakral of BuyUcoin, the Indian landscape featuring top-traded cryptocurrencies underwent significant changes during 2019-2023. In 2019, established cryptocurrencies such as Bitcoin, Ethereum, Ripple, Litecoin and Bitcoin Cash (BCH) dominated the market due to their global recognition and high liquidity. But the years that followed saw the rise of new contenders amid shifts in market narratives. 

The Hashed Emergent report still rates Bitcoin and Ethereum as the most favoured assets among Indian traders. But altcoins like Chainlink (an Ethereum token), Matic (by Polygon), Cardano/ADA and Polkadot/DOT have gained prominence due to varied preferences and the need for asset diversification.

The latter half of 2023 saw the emergence of AI and GPU-based projects particularly Fethch.ai, Render, Akashnet, Bittensor, SingularityNet. These trends underscore the maturation and the speed of building in the blockchain industry, said Thakral.

The rise of meme coins like Shiba Inu and Dogecoin in India is surprising, too. Meme ‘stonks’ gained prominence in the heady days of 2021 when the YOLO mindset (and Covid subsidies) pushed newbie retail investors towards counter-intuitive risk-taking.

But the question is: Does the Indian crypto community really think these altcoins have good investment potential? Or is it simply indulging in these VDAs based on speculative anticipation? Getting rid of BTC may not be possible just yet. Meanwhile, celebrity advocates of meme coins like Elon Musk (he promoted Dogecoin several times to push its price) may try to make them worthwhile for investors looking at less-explored assets. 

Still, routinely investing in meme coins for good returns is a far cry. Right now, it is mostly wait-and-watch for retail investors. Although hero investors in meme coins like the Roaring Kitty are back on social media (a Fortune report says), will they be able to lead crypto’s comeback season and attract more altcoin believers?

Can Crypto In India Push Past Existing Hurdles To Kickstart FY25?

The Internet and Mobile Association of India (IAMAI), an industry lobby under which the Blockchain and Crypto Assets Council (BACC) operated since its inception in 2017, initially fought and won against the RBI gag order. However, in the face of mounting regulatory conflicts, IAMAI distanced itself and dismantled the crypto body in July 2022.

Undeterred by this setback, major crypto exchanges, startups and other stakeholders across the Web3 verticals banded together to form a new entity – the Bharat Web3 Association (BWA) – in November 2022. This new lobby is not only continuing the fight for the industry but also accelerating efforts to raise awareness, set industry standards, nurture the local talent pool and protect consumers’ interests in India.

In April this year, the  BWA took a significant step by introducing a set of guidelines for listing tokens on member VDA platforms. These address all aspects of VDAs — assets tokenised on existing blockchains or units of value generated on the blockchain or other distributed ledger technology (DLT) networks.

It is important to note that tokens involved in Airdrops (unsolicited deposits in numerous wallets for marketing), NFTs and ICOs/IEOs/IDOs (similar to IPOs in traditional financial markets), as well as standard disclosures outlining associated risks, fall outside the scope of these guidelines, showcasing the industry’s commitment to self-regulation.

Although the general elections are yet to be over, the BWA has put forward its recommendations for the upcoming Financial Bill in June/July 2024. Additionally, VDA platforms are expected to follow existing operational frameworks and protocols during the token listing, including announcement dates, comprehensive project disclosures, safeguards against market abuses, technical evaluations and thorough staging and testing before public offerings. 

Among the key recommendations are: 

• Recognising the Web3 sector under startup initiatives
• Forming a task force with members from the industry for regulatory requirements
• Reducing the rate of TDS on transfer of VDAs to 0.01% from 1%
• Re-examining the flat rate of 30% applicable to incomes from VDA transfers
• Allowing offsetting of losses

When asked about the potential impact of these guidelines, Sathvik Vishwanath, the cofounder and CEO of Unocoin, emphasised that regulatory clarity and investor confidence would be the key growth drivers in the crypto space. It will not only foster innovation and entrepreneurship within the industry but also pave the way for sustainable development. In fact, collaboration between industry stakeholders and regulatory bodies is crucial to create a conducive environment for growth.

Jyotsna Hirdyani, head of South Asia at Bitget, concurred, adding that the market is poised for expansion as institutional interest continues to grow and technological innovations advance.

As the Indian crypto community strides through regulatory hurdles and embraces innovation, collaboration between stakeholders and regulatory bodies remains critical for sustained growth and development in this dynamic ecosystem.

Can crypto in India overcome the hurdles after the recent rally and a modicum of stability gained over the years? Or will it continue to struggle as roadblocks get bigger? To change the fortunes of Indian cryptocurrency firms and millions of investors, the government must make a clear-cut policy decision without dragging its feet.

[Edited by Sanghamitra Mandal]

The post Is The Indian Crypto Community Coming Of Age? appeared first on Inc42 Media.

Autonomous driving is the future, says a McKinsey report, which claims self-driving vehicles would become a $300 Bn-$400 Bn revenue opportunity by 2035.

In fact, seven out of the top 10 companies by market cap  — Apple (till Feb, 2024), Microsoft, Nvidia, Saudi Aramco, Google, Amazon and TSMC — have been actively researching autonomous driving in some capacity. 

And that doesn’t even include automobile companies such as Daimler AG, Tesla, Volkswagen and Toyota, all of whom have eyes on autonomous vehicles. Indian OEMs including Tata Motors and Mahindra Auto have stepped into the entry levels of autonomous driving. 

But there’s a big chasm between these plans and making autonomous vehicles a reality. 

“Neither the technology nor the regulations world over pertaining to autonomous driving are ready. It will take at least 5-7 years for autonomous vehicles (Level 4 & 5) to become a practical solution especially for regions outside US & Europe,” claimed Ashutosh Agrawal, director of product development (AI for autonomous driving) at Bosch. 

The German engineering giant lends its autonomous driving-related products to many companies including Daimler AG, VW, etc. Agrawal believes that the entire ecosystem still lacks readiness to pull off fully autonomous vehicles. 

For instance, Apple, having spent over $10 Bn and a decade on its autonomous vehicle project, shelved it in February this year. And Bosch’s Agrawal believes that the size of the company does not matter, but rather the focus and expertise that is needed to make self-driving vehicles a reality.

And where the need is technology, startups are likely to have the edge. Despite Nitin Gadkari, the union minister of road transport and highways, stating that driverless cars will never come to India, a slew of Indian startups such as Minus Zero, Flux Auto and Swaayatt Robots are making a buzz, even at this early stage. 

The Hype For Swaayatt Robots

While the landscape is still evolving, if you ask industry experts, there is a lot of bullishness around what Swaayatt Robots is doing. The Bhopal-based startup has showcased over 80 demonstrations so far and many believe it is close to showcasing true L5 autonomous driving. Take the below demo, for instance, which drew plenty of media buzz and comparisons between the startup’s founder Sanjeev Sharma and Tesla chief Elon Musk.

What has grabbed the attention of observers is that Swaayatt’s demos are on Indian roads and in offroad conditions, where traffic and road infrastructure are simply not on par with the US or Europe.

For context, Level 5 AVs can run on their own without any humans behind the wheel, a feat which has not yet been achieved by Tesla or indeed any major automotive company. “None of them have been able to achieve what Swaayatt Robots has showcased so far,” added Deb Mukherji MD of Anglian Omega Group.

But Swaayatt and its founder Sharma have flown under the radar, relatively speaking. And given the tall claims by industry insiders as well as the praise from public figures, we wanted to see what the hype around Swaayatt Robots is all about. 

As per the Society of Automotive Engineers International, autonomous driving is categorised into six levels, ranging from Level 0 to Level 5. Swaayatt is going for Level 5 autonomous driving, like many other companies, but it is yet to publicly showcase the full capabilities it is trying to build.

Put simply, Swaayatt has demonstrated an autonomous vehicle that’s close to Level 5 in some ways. The company claims to have already tested for over 60,000 Kms across various terrains.  These tests were conducted with a human pilot, so there is still some ways to go before the company can claim full L5 autonomy.

Over A Decade In The Making

Sharma’s journey in the autonomous vehicle space began over 15 years ago. The inception of Swaayatt Robots dates back to January 2009, when Sharma was an engineering student at IIT-Roorkee.

“I was studying electrical engineering at that time and was greatly inspired by the videos of MIT’s team at the DARPA Grand Challenge. Those videos sparked a lifelong ambition within me. Solving autonomous driving in the world’s most challenging traffic scenarios became my goal,” he told Inc42. 

He began building the mathematical foundation that’s needed for autonomous driving and research towards motion planning, machine decision-making, reinforcement learning and other branches of machine learning.

After graduating in 2011, Sharma continued his research on motion planning (the process of breaking down a desired robotic movement task into discrete and sophisticated motions) and explored algorithms to enable autonomous vehicles and robots to navigate high-traffic environments at Ariel University’s Paslin Laboratory for Robotics and Autonomous Vehicles in Israel. 

Having pursued his PhD for almost a year at University of Massachusetts, Sharma deferred his PhD plans to full time pursue the project of autonomous driving.

Between 2011 and 2014, Sharma built a strong knowledge base at global engineering institutions and his research was also published in noted journals. “It was in 2014 when I became fully immersed in this project,” the founder recalled. 

From 2015 to 2021, Swaayatt operated on a bootstrapped budget, with Sharma investing INR 80 Lakh into the company. By 2017, the company had showcased almost 36 demos. 

The Tech Powering Swaayatt

What goes into building an autonomous vehicle? It comprises sensors, high-end CPUs and GPUs, algorithms that aid in motion planning and decision-making, machine vision capabilities, as well as radars for object detection and tracking, and LiDAR tech for 3D mapping and objection detection.

Swaayatt is using a combination of these sensors — primarily cameras and LiDARs in somecases — to aid in bidirectional traffic navigation, see through dense fog, and enable off-road and night driving.  

On the hardware side, Swaayatt has used one of the most cost-effective camera technologies for abstract imaging even as most competitors including Tesla deploy the more expensive LiDAR tech. 

It must be noted that Swaayatt has, however, used LiDARs for the 3D mapping and high speed driving algorithms that allow its vehicles to navigate through dense fog.

For years, it has been claimed that autonomous vehicles won’t work in India where road infrastructure is not the best, compared to the western countries. According to the many experts we spoke to, it’s easier to ‘train’ the car using predictive algorithms in the US, UK and parts of Europe given more stringent enforcement of driver safety norms, clear demarcation of lanes and other advantages of infrastructure. 

“Our goal is to enable vehicles to navigate not only structured environments and traffic dynamics typical of Western roads but also the chaotic traffic dynamics prevalent on Indian roads. Additionally, our research aims to enable vehicles to contextually understand their environment using only a cellular camera,” Sharma clarified.

Typically, predictive algorithms fail in India due to obstacles such as stray animals, proliferation of manually-operated rickshaws and unpredictability of drivers. 

Tesla uses auto regressive reinforcement learning, which relies on a system trained on driver data, which in turn trains the AI driving model. Keeping the Indian roads and traffic in mind, Swaayatt uses reinforcement learning along with human feedback to help vehicles navigate through the traffic without a driver. Sharma claims the company has developed nearly a dozen individual algorithms so far in this regard to aid in autonomous navigation.

“We are primarily an algorithms R&D company. We engage in research across various projects in theoretical computer science and applied mathematics, which are integral to AI,” Sharma added.

One of Swaayatt’s algorithms is the Ellipsoidal Constrained Agent Navigation or ECAN. This is an online path planner that allows solving the problem of autonomous navigation in completely unknown and unseen environments, while modelling the autonomous navigation problem, i.e., avoiding obstacles and guiding the agent towards a goal.

Computation happens on-the-fly as the agent or autonomous driver navigates in the environment towards a goal location.

“The demonstration on November 15, 2017, aimed to showcase our Level 5 automation capabilities. It illustrated the decision-making framework, which encapsulates all the necessary capabilities to ensure Level 5 negotiation,” explained Sharma.

Then, there is the DGN-I, another proprietary algorithm developed by Swaayatt Robots, that simultaneously detects obstacles and segments detected elements on the road, at a speed of 15.66 Bn floating point operations per second. 

The Autonomous Competition

Besides Swaayatt, multiple Indian startups such as Minus Zero and Flux Auto have been working on self-driving capabilities. Founded in 2021, Bengaluru-based Minus Zero claims to be close to developing self-driving vehicle platform.

Y Combinator-backed Flux Auto’s core focus is on commercial vehicles such as forklifts, which it enables through an autonomous driving kit.  

Globally, companies such as UK-based Wayve could also become formidable competition for Swaayatt in markets such as the US and Europe. 

Sharma claims that what sets Swaayatt apart is that it has invented the technology that will power L5 autonomous vehicles in the future, thanks to its approach of building the full stack in-house. He also said that Swaayatt’s vehicles will be capable of navigating freely and the tech can be applied to a range of vehicles. 

Sharma insisted that Swaayatt autonomous driving capabilities can work in various challenging scenarios, both on solid roads including narrow lanes and high traffic areas, as well as off-road operations. Further, the energy consumption by Swaayatt Robots are 80% less than that of the competitors, claimed Sharma.

So far, Swaayatt has demonstrated autonomous vehicle capabilities at a relative speed of 60 Kmph, but it is capable of even higher speeds, the founder claimed, adding, “While others have showcased their technology on empty roads, we’ve tackled real-world chaotic traffic situations.”

In comparison with the global counterparts, Randheer Singh, former director of NITI Aayog said, “Swaayatt’s technology is designed for high variability in road and traffic conditions, potentially giving it an edge in environments where other systems like Tesla’s FSD or Google’s Waymo might struggle due to their reliance on well-marked, predictable settings. Waymo, however, excels in urban environment navigation and has reached Level 4 autonomy in limited areas.

Waymo generally leads in terms of navigational accuracy in its operational domains, due to extensive testing and refined sensor fusion technologies. Tesla’s FSD has faced challenges with regulatory scrutiny and reliability concerns. Swaayatt’s accuracy in diverse conditions remains a critical area for observation as they scale.”

Of course, these are still early days in the autonomous vehicle space in India and there’s no certainty around which model is best suited for success. Companies also need to continuously refine their go-to-market strategy and B2B adoption is seen as the primary channel for these early movers.

Swaayatt has also been developing its own map eliminating any dependency on external providers such as Google Maps, HERE or TomTom.

The Roadblocks For Autonomous Vehicles 

Just a few months ago, Musk said in a Twitter Spaces interaction that to make fully self-driving tech, companies have to essentially build a rudimentary Artificial General Intelligence (AGI) which is then integrated into a car. Sharma seconded Musk on this.  

“You build autonomous driving, you essentially build AGI. This isn’t just my opinion; it’s widely recognised among those who delve into theoretical science and mathematics,” he explained. 

But there are multiple challenges that need to be hurdled. This includes technological and regulatory gaps.

For instance in the state of California, driverless cars and robotaxis are allowed basis of permits basis, but the state is mulling stricter norms. This comes after a robotaxi from Alphabet’s Waymo was torched by angry members of the public after a collision with a cyclist. This followed another major incident from earlier where a robotaxi hit a pedestrian and dragged them for six metres before stopping.

A fully autonomous system has to account for all possibilities, including what pedestrians are wearing. A Google Waymo vehicle for instance, stopped, after looking at a pedestrian with a ‘STOP’ symbol on their T-shirt.  

Hallucinations on ChatGPT, Google Gemini and other chatbots are alarming, but potential incidents or accidents with driverless vehicles could cost real human lives. 

Bosch’s Agrawal said that despite having attained Level 4 autonomous driving, some of the key players went back to ‘Level 2.5’ because of the high costs involved in developing LiDaR-based systems.

Even Tesla is said to have been teaching its algorithms using LiDAR; however, the company might not install LiDAR in the production-ready AVs but would use the learnings only. 

The availability of hardware capabilities for L5 AV technology also needs to be proven. Ajesh Saklecha, cofounder of Ozone Motors and TRiDE Mobility said, “So far we have seen multiple demonstrations across the world. These were strictly in lab conditions. Can the same hardware operate for at least 10-12 hours continuously with the same set of performance?” 

And then there is the business side of things. There have been umpteen instances of startups getting the tech right but not able to sustain a business, due to failure on the go-to-market side or getting the timing wrong.

Swaayatt will need to answer these questions in the long run, but for now, Sharma is eyeing a fresh fundraise to further improve the technology that allows driving through fog and in rainy weather. The company also has plans to introduce its product in the North American market markets first, where the competition is undoubtedly high and the standards for automotives is far different than in India. 

So far, the startup has raised $3 Mn funding at a valuation of around $90 Mn. Sharma claimed that Swaayatt Robots is in advanced stages of talks for a Pre-Series A round worth $10 Mn from Indian and US-based investors. It also plans to finalise a Series A round of $1.5 Bn by the end of FY25, however, a lot has to go right before that happens. 

The first product from Swaayatt’s stables is likely to hit the market by the end of 2025, Sharma claimed. The company is targeting OEMs as well as consumers, for whom it is looking at launching an after-market accessory that can be integrated with existing vehicle models. 

According to Mukherji and others we spoke with, Swaayatt Robots will be the ChatGPT moment for autonomous vehicles as soon as it launches in the US. As for when the tech will be ready for launch in India, that’s a question no one can answer right now.

[Edited By Nikhil Subramaniam]

The post Swaayatt Robots: Is This Autonomous Driving Startup Just Hype Or The Future Of Vehicles? appeared first on Inc42 Media.