Rapido was reportedly raising $100M last fortnight to expand its presence in India, which continued to expand during the election wave. 

Road Less Traveled 

2014 saw the first-ever Big Billion Day sale at Flipkart. 

They had grown swiftly and began to give Amazon a run for their money in India. Naturally, this ensured that they would also attract the best talent. 

Aravind Sanka graduated from IIT Bhubaneshwar in 2012. He had been with Flipkart since then and was part of the logistics team at Ekart. 

At Flipkart, he was deeply involved in expanding Ekart from 10 cities to 100. He showed early signs of leadership as he spearheaded the initiative for the last-mile logistics service at Ekart. 

Aravind’s time at Ekart enabled him to figure out a clear market gap for intracity trucks. Idle times in truck last-mile logistics were as high as 70%. He took this idea to his long-time friend Pavan Guntupalli, as they attended a summer programme in 2014. 

Pavan was a software engineer at Samsung and shared Aravind’s strong desire to start something of their own. They crossed paths with Rishikesh Ramanath, an entrepreneur running his fintech firm right out of college.

The three bonded immediately and were ready to tackle the problem Aravind had brought to them. 

In 2014, TheKarrier was born.  

India was losing over USD 45 Bn a year due to inefficiencies in logistics, driven significantly by the nascent last-mile logistics sector. The major reason for this is technology’s low involvement in last-mile logistics.

The Karrier aimed to provide on-demand logistics for intracity delivery for businesses and individuals. It would work on a marketplace model and earn a percentage of each transaction on the platform. 

In less than a year, they would process over 1,000 orders monthly and oversee a fleet of 300 trucks. In May 2015, they raised USD 234 K to scale the business to multiple cities. 

They would soon realise that they were fighting a losing battle. 

Different from the taxi segment, stakeholders on both sides of the last-mile logistics segment were non-tech savvy and incapable of understanding and dealing with technology. 

This led to difficulties in scaling, and along with the constant credit-availability issues due to the business’s nature, they decided to pivot. 

Bangalore’s traffic would provide them with the inspiration they needed. 

Disrupting Rush Hour

Constantly troubled by the rising traffic in the city and unable to easily commute easily from point to point, something had to be done. 

The trio noticed how two-wheelers navigated the city’s traffic comfortably compared to four-wheeled and larger vehicles. 

Most people also preferred their two-wheelers for shorter distances, despite the availability of Ola and Uber. 

However, many didn’t own two-wheelers or felt uncomfortable riding one in the city’s erratic traffic. 

The trio conceptualised a platform to match people needing a ride with experienced two-wheeler riders, creating an easily accessible, more efficient transport system. 

To validate their idea, they conducted surveys to understand potential customers’ needs and pilot the service with a few users. With positive signals from the early tests, they built a mobile application that enabled customers to book a ride or “match” with nearby two-wheeler riders, also called “captains”. 

Rapido was launched in November 2015, starting only with a few dozen captains. 

Rapido quickly grew to over 100 captains, and with their customers saving both time and money, they rapidly achieved product market fit. 

As the company grew and entered new markets, Rapido understood that safety would need to be their top priority. 

They had stringent checks and ensured captains completed a comprehensive test ride process before coming on board. This included inspecting the vehicle, verifying documents, and completing mandated training and certification. 

Rapido also leveraged technology to constantly monitor each rider’s speed and notify the rider if the rider was speeding. They also installed an SOS button within the app and partnered with leading local ambulance services if needed. 

Within the first six months, by mid-2016, the app had been downloaded over 50,000 times. Their fleet grew to over 400, completing 1.25 Lakh rides, with over 85% of the rides coming from repeat customers. 

Rapido was here to stay, ready to tussle with the big boys.

Odd Even Luck

In 2016, the taxi service market was dominated by giants Ola and Uber.

They were fighting for prominence and growing aggressively. With deep pockets, there was no scope for any new player to take a share of the pie. Most investors had placed their bets on one of the two, convinced that the sector was already accounted for.

Aravind knew the trick of drawing investors’ attention. He realised the need to showcase to investors that the founders had the conviction to ‘make it big’ rather than the idea itself being ‘big’. 

Investors had two strong perceptions about the mobility market in India. 

The first was that the founders didn’t focus on unit economics. The second was that the space was a two-player market run by Ola and Uber.

Aravind saw the loophole here. He played his two trump cards – geography and unit economics. 

Having succeeded in the Bangalore pilot and entering the Delhi market, the team focused on asset utilisation, logistics, and people transport.

The team was also convinced that they were not taking a share of the pie but enlarging it. He identified a huge blue ocean in the Tier II and III cities where online ride-hailing had yet to penetrate.

However, investors were still not convinced of Rapido’s moat. They wanted to see the product evolve.

But Aravind decided to leverage each investor’s call. When he had an impression that the investor liked the idea but wasn’t keen on investing in it, he sought the references of other investors to pitch them. This helped him build a top-of-the-funnel network of investors.

The big breakthrough for Rapido would come in early 2016. 

The Delhi government would introduce the odd-even four-wheeler scheme to reduce pollution levels. This would give a much-needed impetus to ride-sharing, carpooling, and bike taxi services.

As many more bike-pooling apps launched in the capital region to take advantage of the Odd-Even framework, Aravind saw an opportunity to grow Rapido’s customer base. 

During the two-week pilot period of the Odd-Even framework, Rapido ran free rides from the Malviya Nagar and Hauz Khas metro stations in Delhi to boost last-mile connectivity. They also doubled their fleet size for this period, pre-empting the high demand for service during this time. 

Investors slowly grew to comprehend the product’s differentiation and gained the conviction that the founders had thought through the product’s evolution. 

As competitors NOW and Bikxie raised angel funding rounds in the first quarter of the year, Rapido’s growth and success would see them raise an undisclosed amount in Pre-Series A funding as April ended. 

The bike-taxi sector was taking India for a ride. 

Mobility Riches

India’s taxi market was massive at a large $8B

Yet, it was underpinned by a substandard customer experience. Conventionally, daily commuters had to choose between the hassle-free comfort of owning a car and the low capital expenditure of opting for a taxi.

Uber and Ola identified the customer pain points early on. Leveraging technology, they offered customers comfort with no capital expenditure.

“When a cab is right outside the door, why own a car?” had become a popular global notion.

Riding on increasing digital penetration and a bullish investment climate, Uber and Ola had already positioned themselves as market giants.

Taking a share of their pie was difficult. The founders went back to the drawing board to figure out a plan.

Sub-segmenting the population by income, he identified market insights to narrow down his target market.

The upper-income category never opted for taxi services because they owned a vehicle. The lower-income category did not present a lucrative market because they had lower internet penetration. Aravind focused on the affluent middle income.

A deeper market analysis revealed a white space in the segment. Daily commuters in the Tier 2 and Tier 3 cities were unwilling to spend more to cover the same distance. 

Substituting the luxurious four-wheeler with a cheaper two-wheeler is a viable value proposition.

The bike taxi market in India was estimated to be ~$908 MM in 2019, with a projection to grow to ~$2B by 2028 at a modest CAGR of 10.39%

Targeting this market also enabled employment generation by onboarding Captains on their platform. A huge market disruption opportunity existed. 

The team needed to spread the word about their product.

Highway to Heaven

Meanwhile, Rapido was scaling exponentially. 

Operational revenue jumped 12x from ~INR 80 lakh in FY 2018 to ~INR 10.6 Cr in FY 2019.  Of this, bike taxi services accounted for ~70%, with the remaining 30% earned through delivery services.

The average Rapido ride in 2019 spanned 6 kilometres and cost around ~INR 55. Rapido earned a 20 percent commission on these rides, with the remaining amount going towards the bike ‘captains’, to use Rapido’s terminology for their bike riders.

This meant for an average ride, Rapido would earn around ~INR 11. Given its earnings of around INR ~6.8 Cr from bike taxi services, this would mean that Rapido was facilitating upwards of 61 lakh bike taxi trips a year, or ~17,000 trips a day.  

By FY2020, this number jumped to 100,000 per day. But breakneck growth came at the cost of profitability.

For every ~11 rupees earned on an average ride, Rapido was spending ~31 rupees on marketing expenditures. But more was needed; Rapido had to be a platform in ride-hailers and ride-providers. So it spent another ~16 rupees on incentivising its ‘captains’.

Employee costs added a further ~INR 13 to the bill, with miscellaneous costs such as contracted labourer, infrastructure and software development and payment gateway charges adding another ~11 per ride.

All in all, Rapido spent ~INR 72 rupees per ride to earn ~ INR 10, making a loss of ~INR 62 per ride.  

Aggregating over 61 lakh bike trips a year, plus accounting for the losses attributable to its delivery service, Rapido declared losses of INR 53 Cr in 2019.

But Rapido was chasing economies of scale, by winning growth. 

Between 2019 and 2020, Rapido’s operational revenue jumped ~9x from INR 9.8 Cr to 92 Cr, with losses increasing by a significantly lesser 5x.

Rapido wanted to grow even faster and needed more cash to burn.

Gridlocked Gears

By 2020, Rapido had over 3 Cr downloads, ~INR 1.5 Cr registered users, and 15 lakh drivers across 95 cities. 

What set Rapido apart from Ola and Uber (other than the mode of its transportation) was its key customer base—almost ~50 per cent of its users were coming from Tier II cities and using Rapido for their daily commute needs.

To reduce the switching costs of such users (from buses or metros), Rapido launched a monthly subscription service similar to bus/metro passes, and offered discounts. In just one year, subscription revenue would add ~INR 5 Cr to Rapido’s topline.

It enhanced its application’s offerings with live tracking, easy payments, speed limit tracking, instant grievance redressal and seamless withdrawal of money for its captains (as opposed to weekly payouts).

Rapido was ready to scale rapidly. But then, COVID struck.

And with it came mandatory, countrywide lockdowns, which could spell doom for a business dependent on people going places.  

Rapido had to pivot fast. And that’s where its organised fleet of bikes came to the rescue.

It joined hands with Big Basket and Bigbazaar and eventually even the local governments of Delhi and Bangalore to deliver essential services, ranging from food packets to COVID-19 relief items.

Rapido continued to adapt to the evolving situation and soon started ‘Rapido Local’, a person-to-person delivery service that allows consumers to send and receive food, groceries, and medicines.

It also beefed up its B2B logistics layer, offering ‘Rapido Store’, a person-to-person delivery service for local businesses. And that was not all. It launched a bike rental service in 6 cities and initiated an auto-hiring service in 14 cities.  

As the restrictions ended, it started aggressive performance marketing campaigns to expand operations to 200 cities.

Having successfully survived the pandemic, it raised USD 200 million in a funding round, bringing its valuation to USD 800 million.

The unheralded logistics and mobility startup was knocking at the doors of being a unicorn.

Navigating Through Chaos

Traffic jams are a big headache in India’s largest cities. 

In Bengaluru, for example, travelling during rush hour can take 63% longer than usual. It’s a story similar to that of Delhi and Mumbai. This is one reason why bike taxis have become so popular. They’re a quick, affordable way to travel, especially for short trips like going from a bus stop to a metro station.

However, the pandemic changed the dynamics of the business.

When the pandemic hit, companies like Rapido faced tough times. With fewer people travelling, Rapido had to find new ways to keep going. Since they didn’t own any bikes themselves, they focused on helping their million-plus Captains stay employed. 

They shifted from taxi rides to delivering food and packages, which kept their business alive when rides were down.

During the lockdown, Rapido’s strategic pivot involved utilising its fleet to deliver food and packages. Capitalising on its pre-existing infrastructure, Rapido allowed Captains to toggle between ride-sharing and delivery tasks. This flexibility proved crucial as the core bike-taxi services dwindled.

In 2021, the sector recovered quickly from the pandemic lows, driven by three key external factors.

A significant drop in India’s daily COVID-19 cases in 2021 eased movement restrictions and reduced public travel anxieties. The necessity for transportation among India’s 90% blue- and grey-collar workforce, who cannot work remotely, underscored the need for reliable and safe commute options.

Finally, private operators like Rapido guaranteed higher frequency and better sanitation of their vehicles than public transport, boosting public confidence.

The bike taxi market in India, valued at ~1,000 Cr in 2021, also saw growth from an unexpected quarter: food delivery. Platforms like Swiggy and Zomato, overwhelmed by pandemic-induced demand, turned to Rapido for delivery personnel. 

By mid-2021, business-to-business (B2B) deliveries accounted for 30% of Rapido’s total rides, and the company earned a 5-10% commission on each transaction.

Yet, this growth trajectory wasn’t smooth. 

The sector’s expansion brought Rapido into conflict with regulatory bodies. In regions like Karnataka and Maharashtra, legal challenges regarding the legitimacy of app-based auto services have created significant roadblocks. Moreover, protests in states like Maharashtra and Telangana have spotlighted the platform’s ongoing regulatory and operational challenges.

It was time to diversify.

Rides the Auto Wave

After the pandemic, many people started to see air-conditioned vehicles with rolled-up windows as less safe due to ventilation concerns. 

Autos, which are open on the sides, naturally allow for more airflow, making them feel safer for passengers concerned about health. This shift in preference has shaped Rapido’s business, pushing them to expand their services to include auto-taxis.

In 2022, they launched this service in 25 cities, aiming to expand quickly. This move was not just about diversification but also about increasing the amount they earn from each customer. 

By charging more for auto rides—Rs 14-16 per kilometre compared to Rs 8 for bike taxis—they could increase their overall earnings despite the higher operational costs of autos.

While autos allow Rapido to charge higher rates, the cost per customer goes down because autos can carry more than one passenger at a time. 

This pricing strategy helps increase the Gross Merchandise Value (GMV) and the earnings per ride. This is especially significant in smaller cities (tier-2 and tier-3), where Rapido has used its experience from scaling the bike-taxi model to ensure a steady supply of autos.

Rapido faces stiff competition from established players like Ola and Uber in the auto segment. These companies have deeper pockets and can subsidise their new ventures through profits from other parts of their business, like cabs. 

However, Rapido could leverage its cost management skills or raise funds to compete effectively. It was attacking the premium player’s low-cost segment with an advantage. 

Rapido did both.

Rapido launched Rapido Local and Rapido Store, extending its delivery and logistics services across over 100 cities. These new services aim to tap into the growing demand for quick local deliveries, further diversifying Rapido’s revenue streams. This was to help the nascent auto-taxi business.

At the end of 2022, the shift in business strategy started to deliver results.

By mid-2022, Rapido had sustained 60% of the market share in the bike-taxi segment. In the auto-taxi market, they onboarded over 100,000 drivers and completed a million rides across 25 cities. 

Their revenue has nearly doubled yearly, reaching INR 144.77 Crore in FY22, up from INR 75.61 Crore in FY19.

With the successful raise of $180 million in a Series D funding round, Rapido was well-positioned to strengthen and expand its operations further.

The streets might be crowded, but Rapido is making bold moves to ensure they’re not just another player but a leading force to reckon with.

Road to Revolution

Uber and Ola launched bike taxis to rival Rapido. 

Rapido decided to shake things up by announcing its entry to cab taxi services in 2023. However, there was a twist.

Traditionally, companies like Uber and Ola take a 20-25% cut from every ride, making it tough for drivers to earn a good income. 

Rapido’s approach is different. For a flat fee of Rs 500 per month, drivers can earn up to Rs 10,000 from rides. This model is cost-effective for drivers and allows them to earn more without worrying about losing a significant percentage of their earnings.

The reason behind this strategy was clear. Get more supply of drivers.

Due to their reliability, Uber and Ola have secured a loyal customer and driver base over the years. For Rapido, directly competing with these giants by traditional means might not be effective. Thus, the subscription model offers a unique alternative, providing new incentives for drivers to join Rapido without the burden of high commission rates.

The new strategy is already promising results in Hyderabad, where Rapido has captured a 23–25% market share in the cab segment shortly after launching. Interestingly, 15% of the drivers who have signed up are new to the cab driving profession, suggesting that Rapido’s model appeals to those previously hesitant to join the ride-sharing economy.

Rapido isn’t stopping with cabs. 

They’re expanding their services to include innovative options like booking metro tickets in Chennai through a partnership with the Open Network for Digital Commerce (ONDC). To integrate their transportation offerings further, they’re also considering adding bus ticketing services in collaboration with Zingbus.

With recent fundraising of $70M and a significant jump in revenue to INR 443 Crore in FY23, Rapido is on a fast track to expansion. The company has acquired 20 million customers and recorded 307 million orders in the last financial year alone, proving its innovative approach is paying off.

India’s megacities, where competition is fierce and the demand for reliable transportation is ever-growing, Rapido is making moves that promise to transform the landscape of urban mobility. 

Rapido has effectively become the leader of the low-cost shared mobility market, which will continue to expand. Uber’s India mobility revenue is ~700 Cr, while Rapido is expected to end FY24 with 600 Cr of revenue. It is also close to profitability. 

The company is valued at ~10x of trailing revenue. If it manages to grow at even ~50% each year is ~7.5x of revenue. Uber is globally valued at ~4.5x of revenue, showing Rapido is being priced for growth. 

Rapido has scaled to almost 1.7 million rides daily, reaching 18% of market share in its market. Its existence has always been questioned as the third wheel in India’s mobility market, but it has emerged as a big player in the shadows. 

Rapido’s scale proves that with innovation and insight, even the newest players can redefine an industry. It looks set to emerge as a winner and a key player in India’s shared mobility market.

Writing: Bhoomika, Parth, Raghav, Vishal and Aviral Design: Omkar and Chandra

From INR 7K Cr debt in 2019 to closing FY23 with just INR 1.5K Cr in debt, CCD started last fortnight and FY24 with a 15% stock market bump

Rise And Grind

Veerappa Gangaiah Siddhartha Hegde was born in a family with a 140-year coffee-growing history in Chikkamagaluru, Karnataka.

Initially, he was keen on joining the Indian Army. Over time, he developed an interest in finance and aspired to become an investment banker.

He earned his master’s degree in economics from Mangalore University. At the start of his career, VG Siddhartha invested heavily in the stock market. When he was 24, he was employed by JM Financial and Investment Consultancy in Mumbai. 

He worked there as a Management Trainee/Intern in portfolio management and securities trading on the Indian Stock Market.

After spending two years with JM Financial, Siddhartha returned to Bangalore.

In 1984, he launched his investment and venture capital firm, Sivan Securities, in Bangalore. He began investing the profits from his start-up in buying coffee plantations in Karnataka’s Chikmagalur district.

By 1985, Siddhartha had started investing full-time in stocks and acquired 10,000 acres of coffee farms.

Around this time, he became interested in his family’s coffee business. In 1993, he set up a coffee trading company called Amalgamated Bean Company (ABC) with an annual turnover of over INR 6 Cr, scaling it to INR 2.5K Cr. over the years.

With the aid of ABC, Siddhartha could trade over 20,000 tonnes of coffee from his crops, which were now producing 3,000 tonnes yearly. As a result, the business grew to become the 2nd largest exporter from India in about two years.

Soon, an interaction with the owners of Tchibo, a German coffee chain, helped Siddhartha look for a larger opportunity. He decided to open his cafe chain in a country with no formative cultural grounding in cappuccinos. 

He opened Cafe Coffee Day’s first outlet on Bangalore’s upscale Brigade Road in 1996 with the tagline ‘A lot can happen over a cup of coffee’.

CCD was born.

Brewing a Storm

The business quickly gained significant recognition for its ground-breaking idea, which allowed millennials to converse while enjoying their preferred beverage.

Once the Indian government opened up the economy in the early 1990s, it led to a rapid increase in income for the Indian upper and middle classes.

The IT Industry was growing, and India became the epicentre of this growth. Young Indians started travelling to other countries for business and work. They had disposable income, and their desire to try new things and have conversations over coffee at a cafe grew rapidly.

Siddhartha could see this only growing from here, and the success of Brigade Road Cafe made it clear that India will have hundreds and thousands of such cafes.

CCD did three things to ensure that they stayed ahead of the business.

Knowing the value-conscious Indians, CCD focused on affordability so that everyone, from college students to professionals, could afford a coffee at a CCD.

The chain then focused on accessibility to ensure a cafe in almost every other neighbourhood. Finally, the focus involved building product acceptability by considering the tastes and preferences of Indian consumers. 

Word of mouth did the rest, and people flocked to CCDs. Siddhartha took his time to understand and build this playbook.

From 1996, it grew to only 18 outlets until 2001, as he wanted to ensure they had a solid base before they pressed the accelerator.

The consistency across all cafes, the brand and the top-of-mind awareness ensured that CCD tables were well occupied. 

It was time for them to push the paddle.

A Perfect Blend

By 2004, CCD had opened its 150th cafe, including ten book-and-coffee outlets. 

They had cracked the secret recipe for growth and were onto something extraordinary. To fuel this remarkable growth of retail outlets, Siddhartha needed money.  

That’s when he turned to leverage his existing network of friends and family, who were happy to help him take their 140-year-old coffee business to a new height.

By 2006, CCD was expanding and growing in India and abroad. They needed a strong financial backer with an understanding of international markets to fuel this growth. Siddhartha raised $20 million from the India arm of a leading American VC firm.

The aspiration of becoming a Global brand took CCD from India to Vienna, the world’s coffee capital. By 2008, CCD opened a cafe in Vienna, and now the world was having conversations at a CCD.

CCD was now available in 102 cities with over 620 outlets. It was way ahead of its competitors like Barista regarding network and growth. By the end of the year, CCD planned to cross 900 outlets and clock a revenue of more than INR 700 Cr.

Is India Brewing a Specialty Coffee Revolution?

Investors loved the growth story, and by 2010, KKR, and other leading investors, had pumped $210 million into CDR (Coffee Day Resorts). This relationship was a huge positive, but time would tell how it would eventually play out. 

CCD touched an approximate revenue of $45M in 2010 and generated employment for 5000 employees. It owned 1K+ cafes in 135 cities.

CCD adopted the vertical integration model early on. CCD owns its plantations, produces coffee, prepares espresso machines, and creates furniture for its outlets. This model enabled cost-cutting and quality control at the same time. 

The cafe chain delved into a culture where people could now bond professionally and personally over a classic non-alcoholic beverage, delicious food, and craft fully architected seating spaces. 

It served cult favourite international drinks like cappuccino, latte, and traditional Indian beverages. It marked a successful attempt at building access to homegrown brand spaces, giving a taste of a similar, if not better, experience than other international food labels prevailing at that time.

CCD had the world for the taking. 

Grounds For Celebration

Siddhartha’s next goal was to make CCD the world’s top 3 retail coffee brands.

Purely on coffee number outlets, he aimed to design 2K stores in India and 200 overseas, mostly in Eastern Europe, to compete with Starbucks, Tim Hortons, and other premium coffee brands globally in the next three years. 

The proposition was simple. Step into a CCD outlet for a universal bonding experience over coffee, making work fun and informal. 57% of CCD’s revenue came from the 20-30 age group who preferred the comforts and aesthetics of a cafe to work and socialise.

It became popular for its seasonals and festive food and beverage delicacies. Further, it partnered with complimentary brands like Dunkin Donuts. 

It progressed with the international culture of getting coffee on the go and launched CCD Express. The new service offered a range on the go for customers who preferred quick service and premium tastes, and it was available in airports and movie halls.

By 2011, CCD had expanded its network to more than 1000 bistros across India and was growing fast.

After sailing through for more than a decade without any serious competition, CCD started to feel the heat in 2012 with the arrival of international chains in India, including Starbucks and Costa Coffee. 

In the face of competition, CCD differentiated itself based on affordable coffee, good ambience, and quality service.

Backward integration meant CCD could beat its competition on price and scale to corners of the country where its competitors could only dream of going, like Leh in Kashmir.

A small cappuccino at a CCD outlet in New Delhi cost INR 79, while a Barista offered the same product for INR 90 and Starbucks for INR 120. 

The price was a moat.

While CCD targeted young people who wanted to pay at most $1 to $1.50 for a coffee, it also opened a few lounge-style outlets focused on premium customers, who did not mind spending more money on added services.

The dizzying growth of CCD was unstoppable. 

Bean There, Doin’ That

By 2015 CCD had expanded to 1,513 cafes across 219 cities in India. 

These were all buzzing. The second largest player by store count was Barista Coffee, which had 165 cafes, while Starbucks operated less than 100 outlets nationwide.

With the expansion plans playing out nicely, Siddhartha decided it was time to access the public markets to raise capital and continue the unfettered growth. 

Coffee Day Enterprises Ltd (CDEL), the parent company of the Coffee Day Group, which housed CCD outlets, went public in October 2015.

CCD was the 2^nd homegrown food and beverage company to go public, after restaurateur Speciality Restaurants Ltd in May 2012.

The response to the IPO was tepid. The listing saw the company garner a valuation north of $1B, but on November 2, when its shares debuted on BSE, it ended the day at INR 270.15 apiece, down ~18% from its issue price of INR 328.

The disappointing IPO was attributed to CDEL’s varied business interests, while their existing investors considered them ‘balancers’, which would play out in the long run. CDEL had business interests in real estate (technology parks), logistics, financial services, hospitality, and information technology. 

As of FY14, CDEL’s coffee business—which included CCD, a coffee vending machine business, an export business, and a chain of coffee retail stores, Fresh & Ground—reported INR 1,144 Cr in revenue, accounting for 50% of its total revenue. The group’s logistics business accounted for 36.9% of revenue, followed by financial services (7.53%) and technology parks (3.30%).

The public markets wanted to buy a coffee consumer story. They were interested in something other than logistics, hospitality or financial services. Within a year of CCD’s initial public offering, 2,000 bistros had spread nationwide. CCD also began to take on debt to service all of its expansion. 

However, the company had to slow its expansion because of cutthroat competition. 

Spilling Beans

The 7,000 Cr explosively growing coffee market kept attracting players. 

Although the combination of affordable coffee, free internet, air-conditioned bistros, and many food options made for a killer combination, CCD needed to do more to differentiate itself. New competitors like Chaayos, Chai Point, and Blue Tokai entered and competed across price points.

CCD looked to consolidate its leadership. 

The period of rapid network expansion was followed by a period of purging. The company started to shut down non-profitable stores to trim its losses. They realised that they had to change their strategy to fight competition.

In 2016, CCD started Cafe Concerts, which attracted a younger crowd. The concerts aimed at bringing some of the best young musical talent to perform at their bistros across the major metros. 

The first concerts co-occurred in February across Mumbai, Pune, and Bengaluru.

The same year, CCD partnered with Freecharge, a financial services company, to encourage cashless outlet exchanges.

Their creative marketing and promotional strategies to drive sales were paying off, as CCD grew to INR 60 Cr in FY19 from INR 8 Cr in FY17.

But all was not well. 

Total liabilities and debt had grown from 1,300 Cr in 2011 to 6,574 crore as of March 2019. Between 2014 and 2019, Siddhartha and CDEL promoter group’s four private holding companies pledged shares worth INR 3,522 Cr as security to raise these huge loans. 

There was also an instance wherein the Income Tax department raided CDEL’s offices and uncovered concealed income of INR 650+ Cr.

Siddhartha was looking for ways to pay off some of the debt. He began by selling off 20.41% of his investment in Mindtree, making a profit of INR 2,858 Cr. There were also reports that Siddhartha was in talks with investors including Coca-Cola to sell part of his stake in CCD to bring down the debt. However, the company and Coca-Cola never confirmed those reports.

In January 2018, Café Coffee Day’s share price touched an all-time high, taking the company’s market capitalisation to more than $1Bn. However, the rising debt issue impacted the company’s market valuation. 

It would never touch that height again. 

Pour Decisions

Like most pioneers of his ilk, Siddhartha was a natural risk-taker

Siddhartha was perennially searching for the next big thing. The flip side of this go-getter temperament was a predisposition to spread himself and his sprawling empire too thin.

In the process, Siddhartha racked up personal debt of INR ~1K Cr, over and above the corporate debt of INR 7K+ Cr, to fund the diversification.

To add to the capital-guzzling non-coffee businesses, the flagship cafes were not without their troubles.

7 years after setting foot in India, Starbucks was making its presence felt, having found a balance between its decadent drinks and the Indian palate. With its chic interiors, global appeal, and cultish following, it was priced at a premium of at least 50% to CCD.

On its part, CCD doubled down on affordable positioning, trying to counter Starbucks’ premium play with a volume-first strategy. It followed it up with an expansion spree, taking its store count beyond 1,700.

CCD had already set the base for Starbucks, making the latter’s real estate decisions much easier. 

Many of the outlets were now nearby, cannibalising each other’s business. Critically, with CCDs mushrooming everywhere, the aspirational value took a hit. The cool quotient, so integral to the modern-day café experience, was gone. 

The coffee chain had missed a beat.

The Mindtree stake sale went through, but not without resistance from Mindtree’s promoters and an intervention yet again from tax authorities. The respite offered by the deal was only short-lived.

There was no end to Siddhartha’s battles with liquidity. And the battle scars were now hurting his pride and puncturing his spirit.

In a tragic turn of events, he died by suicide, acknowledging that he had failed to create a profitable business model despite all his efforts.

His demise opened a Pandora’s box for the company, with lenders queuing up to be repaid, investors selling their stakes in CDEL, and market regulator SEBI investigating for suspected fund diversion and lapses in corporate governance.

Covid further ravaged CCD’s cafés, kiosks, and vending machines in one fell swoop. Something had to give.

In December 2020, Malavika Hegde, the founder’s wife, became CEO to steady the ship and salvage the iconic brand.

Dark days had set in for the rising star. 

Better Latte Than Never

The new management began in earnest.

It began by pulling the plug on non-core businesses, shutting down loss-making outlets, and bringing down debt to serviceable levels.

The 90-acre Global Village Tech Park was sold to Blackstone for INR 2,700 Cr. The group then transferred its broking and wealth management business to Shriram Credit for another INR 65 Cr.

Yes, CCD did wealth management and had a tech park. 

The logistics arm was put on sale to cut down debt further. CCD’s store count dropped by more than half in the year ended March 2021.

As the pandemic abated, coffee chains in India found themselves at the intersection of revenge spending and an easy money regime.

Over two decades, CCD and later Starbucks established the archetype of spacious, air-conditioned cafés with elaborate menus, manned by friendly baristas operating exquisite equipment.

Third Wave Coffee and Blue Tokai filled in the void left by CCD’s diminishing presence and the trail left by Starbucks’ increasing footprint, as coffee startups raised $41.4M in 2022 alone.

The new-age coffee chains focused on smaller beverage sizes, localised food menus, and an astute store location strategy to go head-to-head with Starbucks. Multinational chains such as Tim Hortons and Reliance-backed Pret-a-Manger made belated entries into India.

On the other hand, CCD had its hands full managing the debt hangover and insolvency proceedings. 

In January 2023, it came to light that multiple group entities had siphoned ~INR 3,500 Cr to a company fully owned by Siddhartha, unbeknownst to the board and untraced by auditors.

The funds were diverted, ostensibly to help the promoter repay personal debt taken to finance the group businesses. SEBI fined the listed company INR 26 Cr for the serious lapse in corporate governance.

Despite the legal troubles, the group managed to break free of most misfiring legacy businesses, cut the excesses in the café chain, and right-size its kiosk and vending machine footprint.

What remained after the cutting and chopping was still India’s largest café chain, with ~100 more outlets than Starbucks.

While insurgents and late-to-arrive heavyweights plan to expand aggressively, CCD’s unfinished turnaround gives it a massive head start.

Fourth Wave Coffee 

A fourth wave of coffee is underway globally. The first wave was marked by instant, mass-produced coffee.

The second wave, led by Starbucks, was centred on coffee as an experience, making the café the ‘third place’ where people spent time after home and work. 

The subsequent third wave emphasised a deep appreciation of flavors, characterized by coffeehouses brewing their specialty coffees.

The nascent fourth wave focuses on ethical sourcing and sustainability. with brands like Pret-a-Manger, known for 100% organically grown coffee and food prepared at onsite kitchens without additives.

The preference for sustainability challenges the ‘third place’ trope or coffee chains’ expansive use of real estate. It also makes economic sense, given that none of them have a consistent track record of profitability despite achieving critical mass.

Parallelly, small-time players are experimenting with a takeaway-first strategy, wanting to make coffee a grab-and-go experience.

The strategy aims to replicate the success of Indonesia’s Kopi Kenangan, Singapore’s Flash Coffee, and the Philippines’ Pickup Coffee in turning coffee from an indulgent drink into a functional product.

Early adopters include Abcofee, which has 30 cafés in Mumbai and NCR. Some of them lack seating and operate like a reimagined chai tapri, but they offer a cappuccino comparable to that of Starbucks.

CCD could rise like a phoenix as this new wave kicks in. For almost four years, CCD has just been putting out fires, unable to do anything else. 

From this fire, a phoenix could rise. Debt has fallen to 1,000 Cr from 7,000 Cr. The coffee business now drives 90% of the revenue. It is less sagged to move, more nimble, and focused. 

Malavika Hegde had taken CCD alive. 

CCD, by its kiosks and vending machines and its acquired nimbleness post-restructuring, could ride the new wave if it does take off. Similarly, it could pivot to becoming primarily a dispenser provider, taking a leaf from Chai Point. 

Coffee connoisseurs would know that the production process involves grinding the bean before brewing. The grind, more than anything, determines the flavour of the coffee.

CCD has painfully endured the grind of business cycles over the past five years and more. Regardless of what follows, it now appears well-poised to return to full vigour.

Siddhartha’s original idea was to create a coffee culture in our tea-drinking country. His grand vision seems to have finally taken shape for all his flaws as a businessman.

In the almost thirty years of CCD’s existence, India has grown from a coffee backwater to a 30,000 Cr market by 2026. CCD started the revolution, lost its pre-eminence, and is now back in the mix.

Its market cap has crept above 1,000 Cr, and is likely to keep moving northwards. If execution stayed the same way, it will see an expansion of multiple on revenue. It is already at 1,000 Cr, with a 3x multiple with cleaner books already putting it at ~3,000 Cr.

Paring debt and going with the growth of the market could see it climb back upwards of 5,000 Cr in market cap. The resilience of being in the market for three decades will only help.

It still has the largest number of stores, is still the second-largest chain by revenue, and has possibly the widest and deepest brand recall.

True to his tagline, a lot has indeed happened over coffee. As more continues to happen over coffee, CCD may very well remain at the forefront of it all.

Writing: Bhoomika, Abhinay, Anisha, Nikhil, Varun and Aviral Design: Omkar and Stability

Last Quarter, Travel Boutique Online (TBO) filed a DRHP to go public after registering an impressive 2X growth, touching INR 1051 crore in revenue with INR 137 crore in profit, and expanding globally 

Setting An Itinerary

TBO was co-founded by Ankush Nijhawan and Gaurav Bhatnagar.

In 2006, travel grew and changed both in India and abroad. From flight bookings to hotels, many players entered the space. OTAs backed by VCs, like Makemytrip, were quickly expanding.

As they continued building relationships in the ecosystem, they were advised to steer away from the B2C side. The guidance was that it was cluttered and were asked to look at the white space in the online B2B space.

TBO’s founders could see why this was a better strategy. Overnight, they became an online B2B travel platform. 

By 2007, the first ticket was booked on TBO’s platform.

TBO acted as a platform that brought travel suppliers like airlines and hotels together to sell their seat or room inventory to travel buyers.

Travel buyers were small brick-and-mortar agents or corporate agencies who placed orders on behalf of end customers or travellers.

Spoilt for choice between more than 700 airlines and over a million hotels, travel suppliers needed a way to distribute their inventory efficiently and increase revenues. 

In contrast, travel buyers required access to all this inventory per their customers’ travel plans. It was almost impossible for these travel buyers to connect and partner directly with many hotels and airlines.

As an aggregator between the travel supplier and buyer, TBO stepped in to solve this problem.

Speed Of Type

Being B2B-focused, TBO had the early mover advantage.

The company had the trust of their suppliers and buyers who understood their position as a partner and not a competitor.

What started as a 130-employee company serving 180 partners in 2005 over time grew to over 300 employees and included an overseas office in Dubai by 2012

Slowly and steadily, TBO created a niche for itself in the highly competitive space by focusing on its customers’ problems. 

Investors could see the TBO rocket was about to take off, and they wanted a seat. 

In April 2012, TBO raised its first round of funding to fuel its plans for global expansion.

Naspers picked up a 52% stake in the 6-year-old company, heralding a new era as a venture-funded startup. TBO was now a formidable player in the airline business, with an appetite for more.

The quest for growth and higher profitability led to 2 new focus areas – hotels and the overseas travel market.

Frequent Buyers

Air travel was a low-margin volume play for TBO.

It pocketed an average of ~2% on every transaction. On the other hand, given the scattered market, the hotel business promised a handsome return while being more challenging to scale.

Looking for a head start, TBO entered an exclusive tie-up with Amadeus, a Spanish multinational travel major. TBO would host its hotel inventory in the MENA region, a relatively untapped B2B market.

The partnership marked a tipping point for its fledgling international presence. TBO then replicated the model in every market where the latter had a presence.

Ankush and Gaurav deliberately positioned TBO as a synergistic enabler, rather than a disruptor, for both travel suppliers and buyers.

Airlines treated them as their extended distribution arm, enhancing their penetration in fast-growing, albeit smaller, markets. Similarly, hotels viewed them as natural collaborators in growing the size of the pie, and not as competition.

On the other hand, TBO’s offering allowed agents to digitise their operations, facilitating visibility to inventory and helping them unlock deals at par with larger players. The tech stack was critical in reducing information asymmetry and democratising access in the relationship-driven travel market.

Every successful association on the supply or demand side translated into disproportionate network effects for TBO as the intermediary platform.

Alongside the calibrated bets overseas, TBO’s domestic business was ripening. India’s young, aspirational, upwardly mobile population travelled often and farther, representing a progressively expanding market.

In less than five years since the inception of the hotel business, TBO became the Indian market leader for hotel inventory.

Beyond India, TBO now had a noticeable presence in Dubai, Saudi Arabia, Brazil, Eastern Europe and pockets in North America. The overall hotel business had grown to ~40% of the topline.

In 2018, TBO crossed the psychological mark of $1B in gross annual transaction value for the first time. The resounding success of the hotel business had validated the playbook of expanding the breadth of TBO’s services while consciously deepening the market for individual offerings.

Evidently, products centred on providing an experience were more valuable than ones built on utility. With renewed commitment and a hard-earned war chest, TBO diversified into sightseeing, car rentals and cruises.

New Arrivals

The Indian travel buyer market stood at $35.4B in 2019.

Travel management companies or travel agents accounted for 43% of the demand. Agents were expected to sustain their market share based on their ability to customise packages, service first-time travellers and cater to demand from tier 2 and 3 cities.

Taking stock of the market composition, TBO announced an industry-first B2A strategy at the Arabian Travel Mart. B2A stood for ‘Back 2 Agents’ or ‘Business 2 Agents’, acknowledging the trend of travellers going ‘back’ to agents for bookings and recognising agents as the most effective distribution and marketing channel for ‘business’.

Floated as a third alternative to B2C and B2B, B2A attributed travellers’ preference for agents to the cognitive overload associated with browsing travel websites, the residual trust deficit with online avenues and the absence of personal touch required for evolved travel needs. 

The latter part of the strategy viewed agents not just as a link between suppliers and end consumers but as solicitors of, and sounding boards for, all matters of travel and leisure.

TBO empowered its network of 47K agents by rolling out the Roamer App to facilitate communication between agents and their patrons even after the booking transaction. 

Imagine the friendly neighbouring travel agent fully in sync with your daily schedule, forewarning you of follies to avoid in a foreign land. and helping you make ad hoc changes to your itinerary, all on a WhatsApp-like interface.

It was intended to make the traveller-agent equation less sporadic and event-based and more amenable to repeat purchases.

On its part, TBO would help agents cross-sell and maintain stickiness across multi-year customer relationships, translating into sustained demand for the platform.

Similarly, TBO recognised that standalone agents often lost out to bigger peers in bagging corporate deals for want of proprietary tech infrastructure. To solve this pain point, it introduced Paxes, a self-booking corporate tool, enabling its loyal base to make a stronger base while bidding for RFPs.

Roamer and Paxes were free of cost for the agents, with no direct interaction between TBO and the end customers. The unwritten expectation was that agents would consolidate demand acquired from the platforms to purchase TBO’s inventory.

TBO thus created a symbiotic relationship with its agents, while leveraging them as the top of its  funnel.

TBO wanted to go even deeper in its relationships with travel agents.

Suite Deals

TBO rolled out Academy, a virtual learning platform with 100+ short courses. 

It was targeted at making the staff at travel agencies better informed, most of whom had never traveled abroad but were the closest to the travelers while they made their purchase decisions.

While operationally behind the scenes, TBO was one of the official partners of the 2019 ICC Cricket World Cup in England, making a mark at the global stage.

TBO was now active in 100 countries, employing people of 42 nationalities across offices in 26 countries, dealing in 22 currencies and offering services in 9 languages.

TBO was on a roll, and it did not go without notice.

Standard Chartered Private Equity, the PE arm of Standard Chartered Bank, acquired Naspers’ stake in TBO at an enterprise valuation of INR 300 Cr.

With a new investor, TBO focused on pilgrim tourism and honeymoon destinations for growth.

Given its dominant footprint in the Middle East, the Umrah market represented an ideal avenue for recurring demand. TBO then took the inorganic route to expedite the latter.

It acquired Island Hopper and Clickitbookit, two of the largest companies serving travelers to Mauritius, Maldives, Seychelles and Greek Isles, for INR 19 Cr.

TBO had perfected the template of learning what to build from the market and then using technology to enable its network of agents to evangelise and scale it quickly to spur repeat behavior.

 As long as there was travel, TBO could preempt, capture and monetise it sustainably, or so it seemed. Its plans appeared foolproof, its execution flawless.

A virus from China was about to change everything for TBO, travel and travellers worldwide.

The Covid pandemic upended human lives, forced nations into consecutive lockdowns, grounded aeroplanes and turned luxury hotels into zombie structures.

After a purple patch of a decade and a half, the law of averages finally seemed to catch up with TBO.

With the genesis of all its demand brought down to zilch, TBO’s operations were squarely hit, with revenue for the fiscal collapsing by ~75%.

Fight Or Flight

The travel sector was made irrelevant for more than a year during the pandemic. 

As with any industry – only the fittest seemed to survive and witnessed a massive rebound in growth once restrictions eased due to the reduction in the spread of the virus. 

TBO, having ridden out the pandemic, saw 2021 as one of its biggest years since its inception. 

TBO launched two new services at SATTE (South Asia’s Travel and Tourism Exchange) early in the year. Held after two years, the event largely focused on reviving India’s domestic and travel sector. 

TBO Cargo was launched as a facilitator for agents to negotiate the best prices to ship cargo via air and water. TBO Marine would cater to the niche market of the marine industry, enabling customers to swiftly and painlessly get access to global seaman fares. 

Both were meant to provide an all-around immaculate travel management service.  TBO would then strengthen its position as a market leader by acquiring Bengaluru-based Gemini Tours & Travels to function under its Island Hopper brand. 

Island Hopper was already seeing 100% year-over-year growth for the islands it served and had been the top supplier for resorts across the Maldives. Gemini would expand and cement TBO’s presence in the South India market while opening up new luxury hotel avenues in the Maldives. 

TBO would also enter a MoU with the Saudi Tourism Authority via its subsidiary Zamzam.com. This is a means to develop and promote Saudi Arabia as a tourist destination for religious and leisure travellers alike. 

The partnership would be key to fulfilling the Saudi Vision 2030 of 30M Umrah pilgrims and 100M visitors. As part of the deal, TBO would also leverage their e-learning platform, TBO Academy, to promote and raise awareness of Saudi Arabia as a luxury tourist destination. 

The following year would see a major TBO rebrand, as it crossed over 1M hotels and 100K buyers on its platform. A new brand name, TBO.COM, logo, and tagline – “Travel Simplified” would reflect the brand’s transition to a global travel distribution platform

The new identity would mark a significant moment in its journey as it aimed to further simplify the complex travel business and bring its extensive suite of services and products onto a single platform. 

TBO would also complete the acquisition of UK and Ireland-based Bookabed. 

The acquisition would provide a platform for TBO to enter the Irish market and double down on its UK presence. Bookabed, on the other hand, would be able to leverage TBO’s global API business to significantly scale up operations and take advantage of TBO academy to train and educate its agents and partners. 

Late 2022 would launch Paxes, a SaaS-based platform for travel management companies and corporations in India to upgrade their business travel experience. 

Paxes’ mobile-first corporate travel and self-booking solution would take advantage of the rapid, widespread digitisation during the pandemic to tap into the legacy business travel segment. 

Employees could manage their bookings, approvals, and support through the app, while corporates could leverage the inbuilt billing and invoicing services to simplify their operations greatly. 

As the world recovered from the global pandemic and countries opened their gates to travel and tourism again, TBO took essential steps in every direction to cement its position as the industry leader.

Feeling Continental

2023 would be no different.  

TBO strengthened on all fronts, following a technology-first approach to invest in innovations and offerings to simplify travel. 

In anticipation of the upcoming European travel season, TBO strengthened its European product offerings, adding more excursions and support for the extensive rail network. It would also optimise its inventory management and pricing tools to give travel partners across India the best possible options to attract customers

It would also complete the acquisition of Jumbonline, an online distribution subsidiary of Alpitour World, one of Europe’s largest tourism companies. 

Jumboline, an API distributor of products for wholesalers and tour operators, would give TBO access to over 120,000 hotels in Europe, the Caribbean and Africa.

The year would also see TBO enter more strategic partnerships, albeit serving different purposes. 

The first would be with the Attraction World Group (AWG). Through this, TBO would enter the theme park and attractions space and offer customers access to world-famous brands such as Disney, Universal, SeaWorld, etc. 

The next would be with WebEngage, one of the leaders in marketing automation. 

The partnership would reinforce TBO’s technology-first approach. They would leverage WebEngage’s personalised engines and artificial intelligence capabilities to tailor services to agents in their B2A model and serve a more diverse range of travelers worldwide. 

As the year ended, TBO would cross INR 1,050Cr in operating revenue, a 118% increase from the previous year. Profits would register a 306% increase in the same period. 

On the back of this formidable growth, TBO would file for an IPO for the second time, determined to go through, having early withdrawn in 2021 due to the weak market conditions post the pandemic.

Future Voyage 

During a bull market, it’s common for promoters to take advantage of high tides by initiating an Initial Public Offering (IPO) through an offer-for-sale, aiming to capitalise on their investment. 

But that is not the case with TBO.

TBO aims to use the market upswing to generate fresh capital and direct it towards substantive growth. 

This strategy indicates the promoters’ confidence in the company’s prospects and their intention to scale up operations before considering selling a stake.

TBO has outlined a two-pronged strategy for expansion.

The first is to leverage data analytics. By analysing user searches and transactional data on their platform, TBO gains valuable insights into traveler behaviour, preferences, and trends. This intelligence enables suppliers to fine-tune their offerings, ensuring that they cater precisely to the needs of travellers with tailor-made promotions and services. 

The targeted application of data boosts customer satisfaction and enhances revenue efficiency, as evidenced by the revenue per supplier surge from INR 4.4 lakh in Fiscal 2021 to INR 13.66 lakh in 2023.

Growth of 44% on a per supplier basis, incredible by any stretch.

Moreover, TBO’s network is expanding, with monthly transacting buyers exceeding 25,000—a figure projected to surpass 30,000 within the next 12 to 15 months. 

This growth trajectory speaks volumes about the company’s market penetration and the robustness of its business model. The second strategy is to focus on inorganic growth.

This encompasses promotional activities and advertising, both domestically and internationally. 

Historically, the company allocated INR 30 crore over three years for such initiatives. With IPO proceeds, there’s a plan to increase the investment to ₹100 crore substantially. 

This significant boost in marketing expenditure is expected to yield a commensurate increase in visibility and market share. Acquisitions were also central to TBO’s growth blueprint. 

The company is eyeing acquisitions that strengthen its supply chain, geographical reach, and service spectrum. 

Potential targets include entities excelling in supplier aggregation, content creation, and advanced technologies like AI and ML. 

The aim is to construct an ecosystem that complements TBO’s current platform, thereby delivering enhanced value to buyers and suppliers.

Redefining Travel 

As the world witnesses a robust recovery in travel and tourism, TBO stands at the helm, driving innovation in a market poised to grow to an estimated $2.6T by 2027. 

This growth trajectory is underpinned by the changing travel habits of Gen Z, who are exploring beyond traditional destinations to seek ‘insta-worthy’ experiences, thus expanding the market opportunity for both suppliers and buyers within the travel sector​​.

As the travel landscape sees an influx of first-time travellers exploring novel destinations, TBO anticipates a surge in demand for its services. 

The company is strategically positioned to bridge the gap in a fragmented market, where a mere 1.2% of hotels globally are affiliated with top chains and ancillary segments like car rentals and sightseeing are predominantly populated by individual suppliers​​.

TBO’s strategic initiatives are geared towards capitalising on these growth trends by amplifying its platform’s value, developing targeted solutions, and leveraging data as a corporate currency.

Continuing to explore attractive inorganic growth opportunities, 

TBO is likely to invest in ancillary services and acquire businesses that complement and expand its current portfolio to strengthen its market position, offering a competitive edge in a fast-paced, innovation-driven industry​

The future of the travel sector, as envisioned by TBO, is one where technology and personalised experiences reign supreme. With a forward-looking strategy, TBO is positioning itself not just to adapt to the changing landscape of travel but to actively shape it, ensuring that both the company and its customers are at the forefront of the next era of global tourism.

Few may have heard of TBO, yet it has been resilient and kicking for almost 16 years. It is also a tech company, unlike expectations people have from legacy businesses. To build a B2B travel software company is something, to make it go global is another achievement altogether. 

As it heads into the horizon with an IPO looming, things could not be better looking for India’s potentially newest unicorn. 

Writing: Bhoomika, Abhinay, Nikhil, Parth, Raghav and Aviral Design: Omkar and Stability

Last fortnight, bootstrapped electronics startup Noise announced its maiden ever $10M fundraise from iconic electronics maker Bose at a $450M valuation.

Startup Whispers

Gaurav Khatri and Amit Khatri are cousins, born ten years apart in the land of bhujia, Bikaner.

Gaurav’s father was a doctor, and his mother was the Principal at a local government school. Amit’s father worked at State Bank of Bikaner in Jaipur.

The typical middle-class Khatri family, however, consisted mainly of doctors. No wonder the parents wanted both the cousins to become doctors.

Amit, the eldest kid in the family, started preparing diligently for medical exams. Amit was a smart kid at school, but not exactly a topper. He passed Class X board exams with 1st Division, but was also keen to bunk school to watch “Rangeela” in the theatres. 

Amit did not enjoy medical entrance exam prep all. After his class XIIth, Amit was sent to Kota to prepare more diligently. Success, however, kept evading him.

In the meantime, Amit’s father got transferred to Kanpur. After two attempts, Amit moved to Kanpur along with his father. He realised that medicine was not the only career option in his life. 

Amit started preparing for MBA admissions exams.

His target schools weren’t exactly the Tier I IIMs. He would have been pleased if he had gotten to Symbiosis in Pune or Narsee Monjee in Mumbai. At the urge of his friends, he filled up the application form for NIFT too. 

Unfortunately, he couldn’t attend any B-school except NIFT’s Hyderabad campus. He packed his bags, and moved to Hyderabad in 2002. 

At B-school, Amit’s pocket money from his father was INR 3000/- per month. To supplement his earnings, Amit picked up side projects while in college. He would design and source merchandise for colleges and large companies like Satyam and Microsoft, in HiTec City.

He soon discovered that he enjoyed such gigs, and was good at it. In line with his gigs, he secured a summer internship at one of Gurgaon’s leading manufacturing export houses. He landed a PPO a week into his internship, offering him a princely INR 10K/month salary. He took that offer up, thinking that was the best he could get.

He worked hard at the job, often staying late into the night. He was insecure about his career, and reality quickly caught up. His peers, even the ones from Tier 2 colleges, would make between INR 30K-50K / month. 

The comparison was getting on him, and he wanted to prove himself.

Amit was working for brands such as Zara, H&M etc – typically large brands sitting overseas who would send him garment design sketches with specifications, and he would manufacture them and send back actuals. Even though Amit loved his job, he got bored soon.

Recognising the hard work that Amit had put in, his employer wanted him to build out the company’s supply chain out of south-east Asia. He was sent to Hong Kong in 2006. 

At the time, he was given $75/day for his accommodation in Hong Kong. Amit would stay in the nondescript Chongqing mansion at $15/day, saving the difference. 

Amit brought back home a Blackberry after one such Hong Kong trip. Blackberries were a status symbol back then. Everyone around him was in awe and couldn’t believe that the phone price was a fifth of that in India. 

Amit was flooded with requests to bring Blackberrys from HK. He happily obliged, pocketing a hefty margin for every phone sold. 

His self-belief was soaring. He got a lot of appreciation for his work and finally discovered what he enjoyed doing. 

With this self-belief, Amit started his first company, Transcend, in 2007.

Sound of Money 

Amit ploughed in his INR 60K savings and rented a small basement in Gurgaon. 

Transcend merchandised garment accessories, such as buttons and cuff-links, for large multinational brands such as Zara across Hong Kong, China and India. 

At Transcend, Amit got a flavour of what startup life was like. 

There would be days when he would not have the time to have a proper meal nor change clothes. As part of getting order consignments shipped out, he’d spend nights at the factory, dealing with constant fires. Sometimes, he wouldn’t have enough working capital to accept an order, sometimes, the colour of the accessories would start coming off, and sometimes consignments would be stuck. 

The risk of losing an order always loomed large. 

This experience would prove useful when he built Noise— blending his experience dealing with lifestyle-oriented products and good design with the hustle necessary to build a company from scratch.

In India, the buzz for phones was brewing. Consumers were eager and giants like Nokia reign. Amit, with no marketing muscle, sought a niche. People flaunted phones, and craved stylish covers. With no organised Indian brand, cousin Gaurav begged for a Hong Kong import. 

An opportunity beckoned.

Young Gaurav, barely 17, soared from Bikaner to pilot school in Philippines, an aviation ace by 19. But 2009’s industry turbulence grounded him. Undeterred, he took to business school, tech-savvy and confident in India’s gadget boom. He knew the skies would wait.

That’s when he connected with his brother Amit.

Amit had already identified a gap in the smartphone covers market. The duo decided to take the plunge. Noise v1.0 was born in 2014, selling mobile phone cases and covers. 

Will boAt Ride the D2C Wave to Unicorndom?

To their surprise, the first 50 covers sold out within 2 minutes on e-commerce marketplaces. 

The duo was onto something. They were on top of the latest consumer tastes. Their products were loved by their customers. Noise v1.0 had found a way to get into people’s household, through an avenue no one was looking at.

They had set up a factory in India to manufacture the cases and covers locally. By the end of their first year of business, they had clocked ~INR 7-8 Cr of sales. 

By 2015, they were the undisputed market leaders, clocking in a turnover of INR 24 Cr. But that market was stagnating. The Noise had no differentiation. 

Cases and covers had very low barriers to entry. With the rise of e-commerce platforms such as Flipkart and Snapdeal, no real moats existed in the business. Even though it was a cash cow for Noise, the duo wanted to move away from their sole dependence on this product.

Amit and Gaurav were inclined towards smart devices, but none were formally trained.

They decided to enter the smartwatches category in 2016. At the time, smartwatches were tough. One had to figure out an operating system, put algorithms and sensors into it, manufacture the hardware and sell it to consumers who hadn’t used such wearables before.

They enlisted much help from their technology partners in Taiwan and China, who sourced the sensors and design. With time, the duo picked up the ropes. 

Noise invested heavily in R&D to eventually develop the design and technology in-house. The product assembly, UI, and UX development were already happening in India. The idea was to shift the entire supply chain to India eventually.

By 2017, Noise had fully jumped into smartwatches

Creating A Commotion

Noise’s audacious pivot from utilitarian accessories to comparatively high-tech smartwatches had paid off. 

ColorFit and NoiseFit, among other product lines, had picked up. The brand had found its early adopters.

Noise’s positioning of offering aspirational, high-engagement utilities at competitive prices could be simplistic. Failure to strike a delicate balance had been the undoing of many brands, in electronics and otherwise.

Gaurav and Amit were clear that for Noise to take off, they had to remain loyal to their intention of shipping wonderful products at reasonable prices and not just reasonable prices at wonderful prices. New-age Indian buyers were discerning and no longer craved price as much as they respected value.

In September 2016, Apple announced the 1^st-gen Airpods, giving its stamp of approval to a nascent category. Indians had begun transitioning from wired headphones to neckbands and craved wireless stereo (TWS).

Noise had consciously avoided wired earphones due to the commoditised and highly competitive market, dominated by global players such as Sony, JBL and Philips. But TWS fit its positioning. It was yet another opportunity for Noise to create and shape a new user behaviour.

The first Noise TWS buds were launched in 2018. It borrowed from its proven playbook and introduced a limited range of buds with specific use cases.

There were earbuds designed for the immersive experience that gamers looked for. Similarly, heavy callers could have more intuitive controls based on smart gestures.

The market was changing quickly, and prices were correcting even quicker. Within a year, the average price had dropped steeply from around INR 5,000 to just a third of that.

By 2019, Noise stayed ahead of the competition by maintaining high trend responsiveness and agility. About 30% of Noise’s sales happened through its website, a direct source of valuable insights.

The company acted upon them to fix teething issues in a newly introduced product range and to predict the next bestseller. The journey was not without hiccups.

A smartwatch range named Ignite had serious flaws and experienced very high returns. Based on customer feedback, the team stopped shipments and corrected the underlying issue before resuming sales.

The close control was instrumental in the brand’s gradual decline in average returns to below 5% – an appreciable level by industry standards.

Despite ebbs and flows, by early 2020, Noise seemed to be riding the wave and appeared destined to cruise into the future. Unbeknownst to anyone, the tide was about to change abruptly.

The agent of change was an unusual import from one of Noise’s preferred procurement sources – China. 

Make Some Noise For The Desi Boys

COVID-19 upended lives, made people reevaluate their choices, and induced new habits – some irreversible, most others transient.

Health became a priority, and self-care was no longer an afterthought. Measuring heart rates and blood oxygen, regulating stress levels and monitoring sleep quality became all the rage.

Noise’s assiduous groundwork over the previous three years to master design, software, performance, accuracy and application had found its match in the craze to track vitals.

Smartwatch sales saw a sudden uptick. 

The lockdown led to enhanced word of mouth as youngsters took charge of their elders’ health, resulting in multiple Noise users in the same household.

Moreover, as remote work and classes became the default, the lines between home and elsewhere blurred. The creeping fatigue saw people consciously cut down screen time without necessarily reducing tech dependence.

Electronic engagement gradually shifted from the palm to the wrist – more intimate, less intrusive.

Students and professionals also earnestly invested in audio products, driven by the heightened usage, often supported by allowances from their institutes and employers. Noise and its local peers – boAt, UBON and pTron, among others, grew exponentially.

Political developments were yet another benefactor. 

A prolonged skirmish between Indian and Chinese forces at the national borders led to strong anti-China sentiments. What followed was a backlash against Chinese brands such as Realme and Huami, clearing the deck for Indian upstarts.

Noise leveraged the favourable externalities with astute marketing and promotion practices. Brand association with influencers such as Tech Burner, a popular YouTuber with a young, tech-savvy following, built further credibility and accelerated adoption.

By the end of 2020, Noise had amassed an active customer base of 1 million.

Amit’s experience with global fast fashion brands could be seen in how Noise managed its inventory. SKU count was deliberately maintained at around 30, relatively lower than the industry norm.

The emphasis was on achieving quick stock turnarounds, clearing an existing product line before it went out of trend, and having a new line waiting to take over from the old one.

The well-oiled machinery operating behind the scenes was crucial in Noise being able to service 4 orders per minute, and clocking a topline of INR 350 Cr. for FY21. 

What was an annus horribilis for much of the world turned out to be an annus mirabilis for Noise. The company was ready for this. 

Some serendipity, much rigour.

March Of Rebellion

As much as Noise made its mark by all it did in 2020, it stood out by what it chose not to do in 2021 and 2022 – raise venture capital.

The near-zero interest rates maintained by central banks around the globe to help the world cope with the pandemic led to a funding spree. Noise, however, was a notable absence in the party. Put it on Gaurav and Amit not fitting the typical tech founder profile, Noise’s relatively short track record, or just plain business nous of the Khatri brothers.

Staying bootstrapped allowed Noise to avoid the expectations of exponential growth, maintain focus, and operate within its circle of competence. 

Despite the encouraging success, the company did not display any taste for theatrics – no foolhardy urge to sell high-end electronics, no overzealous urge to unduly premium-ize the current offerings, and so on.

Critically, it created a culture of frugality and enterprise within Noise, with every major business decision being painstakingly thought out and executed instead of a spray-and-pray approach. 

More of a sniper than a machine gun

For a brand that built its distribution on Amazon, its customer obsession could make the corner office holders at the Everything Store nod in approval. It was common for Gaurav to switch on the Bluetooth on his phone while travelling by air and get a count of Noise products against peers.

It enabled him to understand Noise’s market standing in real time. He would then get talking to fellow fliers and gain valuable insights to pass on to his teams.

Similarly, Noise had an unconventional approach to business partnerships. It joined hands with Bragi to launch an intelligent range of audio devices powered by the latter’s proprietary OS in India.

Noise also introduced a range of fitness trackers in association with HRX. It then partnered with SBI Card to launch SBI Card PULSE. Cardholders won a Noise ColorFit Pulse Smartwatch as a welcome gift on paying the enrollment fee. Small budget, big impact!

The commitment to low price points, an emphasis on community building, and product design backed and validated by a strong customer database and new alliances and partnerships helped Noise become the leading smartwatch brand in 2021.

Noise led India’s smartwatch market with a 27% share, ahead of boAt, Fire-Boltt, Realme and Amazfit.

Noise had developed a habit of grooming and betting on the winning horse. Four out of the top 10 selling smartwatch models in India in 2021 came from its stable.

Incredible for a company that had no technical background. 

Amplifier 

Having secured pole position in India, Noise set sight on the world stage in 2022.

Smartwatch volumes in India have grown from 2.5 million units in 2020 to around 12 million units in 2022, making it the fastest-growing market in the world.

Noise’s share in the global smartwatch market had grown from under 3% to about 10% during this time, riding exclusively on its Indian business.

It broke into the top 5 smartwatch-selling brands in the world, entering a rarefied set alongside Apple, Samsung, Huawei and Garmin. In the APAC region, it stood third behind Apple and Samsung.

Alongside smartwatches, which accounted for ~70% of the top line, the wireless segment grew at 100% annually, albeit on a smaller base.

It closed FY22 with a revenue of INR 850 Cr, having multiplied 17x over the previous 30 months, dating back to pre-Covid times. Profits stood at INR 36 Cr after absorbing a fall in average selling price across the product range.

As the pandemic receded, Noise mirrored other new-age D2C brands in building an offline presence to buttress online distribution.

In June, it debuted its i1 smart eyewear, boldly stating that it was ready to channel cash flows from smartwatch sales to build for the future. 

The glasses were loaded with motion estimation, motion compensation, a microphone for calls, magnetic charging and hands-free voice control. They were launched at INR 5,999, a significant premium to Noises’s average ticket size.

The new approach could be seen in marketing as well. After years of offbeat methods and frugal brand integrations, Noise roped actress Taapsee Pannu and cricketer Rishabh Pant as ambassadors for a catchy ad campaign.

Something even bigger was on the way.

Towards the end of 2022, the company onboarded Virat Kohli as its face, yet another signal that Noise was now keen to be heard beyond Indian borders. It was a coup, with Noise poaching Kohli from Fire-Boltt in a surprising move.

To put the bowtie on a remarkable year, the company was awarded the Bootstrap Champ award at the Economic Times Startup Awards 2022.

Noise was playing to win. More importantly, it was playing a winning game.

Loud And Clear

In 2023, India emerged as a wearable powerhouse. 

India accounted for 26% of the total units sold worldwide,  surpassing the likes of even the U.S. and China as the largest wearables market in the world by volume.

While the classic forces of rising disposable incomes and exploding internet and smartphone penetration rates played their part in this monumental rise, simple affordability is one of the key drivers behind the industry’s growth.

There were 80+ brands of smartwatches, accounting for ~35% of the market and propelling a remarkable  ~40 percent YoY growth in units sold. A fiercely competitive landscape with brands vying for market share has seen prices drop by half within a year, with average selling prices dropping below INR 2,000.

Likewise, earwear, commanding a significant ~65 per cent of the market, has not remained untouched by competitive pressure, albeit having seen a lower price decline of around ~20 percent.   

Despite the large number of players in the arena, just five companies have captured ~65 percent of the market, with BoAt enjoying considerable dominance over its competitors and Noise as a contender, albeit a distant one, at the second place.

However, a deeper look at the numbers shows that BoAt’s dominance primarily stems from its relatively strong position in the earwear segment.

On the other hand, within the much faster-growing smartwatches segment, Noise and Fire-Boltt are neck-in-neck for the top spot, with both having a 20%+ market share.

Even more noteworthy is that these startups are making their mark even on the global level. With a global market share of around 10 per cent each, they are competing with industry giants like Samsung to become the second largest seller of smartwatches, right below Apple.  

That can play in Noise’s favor. 

Low penetration rates, coupled with the ever-increasing number of features that are being packed in smart watches, is expected to continue fueling the wearables market globally.

Continuous technical developments in this space, especially for health, wellness, and fitness and disease management, will likely open up new growth frontiers for smartwatches.

Apple’s fall detection feature has been widely hailed as a game changer for the aged. Startups worldwide are working on a slew of features that could further enhance the health benefits smartwatches could bring, from fertility and menstruation tracking to diabetic disease management.

Smartwatches are evolving from mere fads for the technically oriented consumer to essential utilities that could improve the lives of the masses.

However, breakneck growth always comes at a cost. Pushing feature-rich, low-price products into the heavily competitive market has severely eaten sellers’ margins. 

Noise was no exception.  

Sound Advice 

Despite a healthy gross margin of ~30 percent (Apple watches have a gross margin of ~35-40 percent), Noise had profit margins of just ~0.07% in 2023.

But it takes less than 10 percent of revenues to run the company. 

With a lean workforce 400, employee costs account for just 4 per cent of revenues. 80 per cent of sales are online, which helps limit operational costs further. 

The bulk of the Noise’s gross margins are going towards advertisement and marketing, which has doubled in the last three years, a testament to the ongoing competitive frenzy in the smart watches pace.

EBITDA margins have also suffered due to the rising cost of procurement, which can also be explained by a competitive frenzy caused by inflation

With 80 per cent of their revenues dependent on smartwatches, it makes sense to go all out to win the war for this market. But this may not be the only play up Noise’s sleeve.

Noise’s ‘champ’ range opens up the underserved market of children’s wearables, allowing parents to monitor various health metrics.

Noise has also launched a smart ring, offering a myriad of health and fitness-related features minus the distracting screen and cellular connectivity of a smartwatch.  

The biggest ace up Noise’s sleeve would be its newest partnership in a space where it trailed market leaders. 

Noise has sold a 2.4 % stake to the global audio giant Bose in a deal that valued it at USD 420 million or 4,000 Cr. With expectations that the two companies will work together on the audio space, Noise’s play in the earwear category may be up for a drastic upheaval – hitherto an under-focused area, given that it accounts for only 20% of its revenue distribution.  

On the cost side, Noise increased its reliance on local manufacturing, with 25% of its products being manufactured in India, and is expected to continue expanding the same. 

Shifting to local manufacturing and increasing economies of scale could improve Noise’s gross margins. 

Swadeshi Beats

Noise announced a JV with ILJIN Electronics, to bolster domestic manufacturing capabilities, 

Noise currently manufactures over 95 per cent of its products in India. Traditionally, this involved the final assembling being done locally and relying on the primary product components of manufacturers from Taiwan and China. 

With this JV, they wants to leverage the expertise of its partner to localise the component manufacturing it currently have to import, fuel category expansion, and stimulate ecosystem-wide growth.

With the ability to internalise manufacturing and lessen reliance on OEMs, Noise has successfully reduced the prices of its products. 

This strategic move has been particularly advantageous amidst the intense price competition in the lower market segment, where many brands are vying for consumer attention with diverse product offerings. 

Lower production costs have enabled Noise to cement its position as the third-largest player in the wearable sector. However, this strategy led to slimmer margins in a business dominated by high volumes, especially in a wearable market home to over 80 smartwatch brands.

It’s little wonder that 98% of Noise’s products were sold at a price point below the 4000 rupee mark.

The recent launch of their highly awaited Smart Luna Ring marks a shift from Noise’s traditional focus on affordability, indicating a fresh strategic path for the brand. 

They have dedicated over a year to the Smart Ring project, tapping into a trend that has already seen rising popularity in Western markets. They also launched their first 4 G-powered smartwatch, Noise Voyage.

With new product launches to expand revenue and cost optimization, Noise’s topline exploded. 

Noise ended FY23 at staggering 1,426 Cr, 10x that of FY20. It was estimated to end FY24 at 2,400 Cr. An incredible journey from just selling mobile covers. 

Profitability is still to be discovered, as competitiveness is eating away at margins. As the market scales and consolidates, winners will see outsized returns. 

India’s consumer market is expected to be one of the largest in the world by 2030, reaching $4Tn. A tech savvy, young population has a hunger for electronics, which itself will be worth $150Bn.

Whereas phones and laptops have had global leaders due to their early advantages, wearables is a segment for Indian players to shine. A massive, world-beating wearables market is spurring fierce competition and innovation. 

Noise could be in pole position to capitalize on this secular macro trend. A unique company that had bootstrapped its way to 4,000 Cr, it looks set to build multiples on top of it.

Writing: Bhoomika, Nikhil, Raj, Shreyas, Tanish, and Aviral Design: Omkar and Chandra

Does it feel like a year has passed?

The 2020s decade has been crazy since it began. A pandemic was followed by a war and another war this year. As interest rates rose this year, assets got pulverised everywhere. 

Crypto saw its two big stars fall as swiftly as they rose. Indian equity markets rallied like there was no tomorrow. Confusing behaviour. Then there was that confusing World Cup we want to forget. This is just the first year where we have officially been pandemic free.

With travel and normalcy coming back, it feels like more than a year passed since we did our last predictions.

Like a judge giving a verdict on a personal case, here we are scoring ourselves 

India SaaS will be among the top 2 funded sectors, with the lowest mortality rates: After finishing second* after Fintech despite seeing only about $1.56Bn in funding in 2023 (down by 78% compared to 2022), India SaaS remains an investor favourite. SaaS will be the all weather sector, which sees consistent growth. It is the “risk-free” sector in the risky business of investing. [While retail appears to be second it includes B2B commerce and D2C brands, which are separate categories] (9/10)

Five or more unicorns will be repriced: 7 unicorns faced public valuation markdowns this year, including BYJU’s, Swiggy, PharmEasy, PineLabs, OLA, Eruditus, and GupShup. Many others have privately been repriced. As capital has become expensive, investors have doubled down on reevaluating their portfolios and many from the list have seen massive (50-75%) devaluations. Gupshup has also lost its unicorn status. It has been a tough year (10/10)

Funding will be higher than 2019 but lower than 2022, with less than five tech IPOs: 2023 was a crash for the Indian ecosystem of unheard proportions. Funding fell ~75%, a collapse not seen in the country’s history. 2023 was lower than the now highs of 2022. But it collapsed so badly, it could barely cross 2016. We went back about 7 years, not 5 that we had expected. 3 startups went public, Mamearth, Zaggle and ideaForge. 2 of these were tech IPOs. We predicted 2 of 3 in this prediction. (6/10)

Climate tech will emerge as a strong theme with $100M+ VC funding: Excluding electric vehicles, which we didn’t include in our definition of climate tech, the category received $200M of funding across multiple new themes. Marketplaces, energy efficiency solutions, storage and testing saw multiple startups being started. The overall environment tech category pulled in $1B+, a strong performance in an otherwise weak year. (10/10)

Fintech will mature, remaining the highest VC funded sector in 2023: Fintech did remain the highest funded sector this year despite capital ingestion dropping to about a third of the 2022 levels. It pulled in $2B+, being the most funded sector yet again. The beginning of the year for the sector was slow, but it caught pace in the 2nd half with big first rounds (10/10)

Two or more D2C roll ups will consolidate in the sector’s moment of reckoning: 2023 was the year of reckoning for the sector, with the original creator of D2C roll ups Thrasio filing for bankruptcy. While we expected the sector to struggle this year, we did not expect it to be so swift with the pioneer. Mensa acquired Times Internet’s house of brands ILN, reorganizing post that. This was perhaps our most prescient prediction (10/10)

In a year that was incredibly hard to predict, we scored a 9.5/10. It is now time to predict 2024. 

#1 At least 3 new VC funds will start with $10M+ fund size, while larger funds will downscale

2023 was the worst year in startup investing since 2016.

It is least expected that new funds will start as there seems to be little activity. The speed of investing slowing is unlikely to pick up in 2024. But this is an excellent time to be investing.

Founders, teams and investors who are serious will remain in the market. As round sizes and valuations rationalize, the market will become attractive for new players with new strategies to enter. 

Has $20Bn Indian VC Reached its 20-Year Peak?

This is likely to catalyse the creation of new small funds with new managers entering the mix. Most or all of these will likely be part of the startup ecosystem. 

At the same time, as the number of opportunities to deploy in startups reduces, funds raised in the peak of 2021/22 are likely to downscale. Some of these funds will likely see team members leave while also reducing the size of deployments. 

Reduction in competition will also make it attractive for newer players to come into the mix. India will likely behave like the early 2000s in the US, post the dot com collapse. It began one of the longest bull runs in startup history, with startups and funds starting then benefiting the most. 

2024 will be the birth and consolidation of funds in India. 

#2 OpenSource AI startups will breakout from India, helping AI raise $300M+ and making it the fastest growing VC segment

2024 is predicted to be the Year of AI, and we agree.

For long, AI was a buzzword decorating startup pitch decks or treated as a side-project in enterprises with 5-6 folks working on it. However, ChatGPT’s success and the plethora of innovations since its launch in late 2022 depict that the hype is real now. 

Many in the ecosystem feel the ecosystem is hyped, but India could have a big play next year onwards. We expect many IT services companies to invest deeper in AI capabilities. 

A Primer on AI

Globally, AI startups have defied the funding winter and raised a record $10b in 2023. Funding will continue to grow 85-100% CAGR in 2024 with ‘Fast & Furious’ filing of patents and aggressive hiring of GenAI talent across sectors. 

AI’s use across industries, workflows, and functions will transform existing ways of work fundamentally. This will vastly improve productivity, reduce the time to launch new products, and reduce costs of R&D and innovation.

In India, the GenAI market was valued at $1.1b in 2023 and is expected to grow at a CAGR of 48% to $17b by 2030

Q3/Q4 of 2023 has already started seeing AI startups from India emerging from stealth and raising big rounds. We have seen Sarvam AI raising a big $41m Series A round to build Gen AI solutions for India’s many languages. Ola founder’s third startup- Krutrim SI Design raising a $24m debt round. There is also Bharat GPT by Corover.ai, Pragna by Soket Labs, Tech Mahindra-backed Project Indus to promote ample competition in the space. 

We are also seeing VC funds being launched to back Indian AI startups.

We are already seeing companies like Sarvam AI work with Indian enterprises to co-build domain-specific AI models on their data. Open-source LLM stacks will promote collaboration in India, allowing enterprises across sectors such as healthcare, autonomous vehicles, manufacturing, and financial services to embed AI into their offerings. 

It will be time to Build for AI Startups in India in 2024.

#3 Bharat startups will breakout to scale, with at least one being valued >$500M

Bharat startups were a ray of hope in a dramatically slow year for the entire ecosystem. 

PocketFM was in the process of closing a $80M round, bootstrapped Astrotalk closed in 300 Cr, while KukuFM and SriMandir had good years. While Sharechat has struggled to grow into its valuation, the newer breed has figured new ways to make money.

Startups like Pocket have expanded globally, while AstroTalk and SriMandir have gone deeper into the Indian market. As the Indian economy has scaled, the Indian consumer market has also deepened to become one of the largest in the world.

Can 2,000 Cr Astrotalk Manifest a Spiritual Unicorn?

As more Indian users new to the internet learn to navigate it, consumer apps focused on this base will tap into newer revenue pools. With this group realising the value of paying for services, the Bharat story will start to pick up.

Expect this to help get at least one company beyond the $500M valuation in 2024

#4 5+ Consumer Brands will cross $100m in annual revenue with positive CM3

When the tide turns, the most resilient and capital-efficient sectors shine through. We saw this in 2023 with the SaaS/ Enterprise tech segment and consumer brands.

The consumer brand opportunity stays strong in India. D2C market is expected to cross $100b by 2025. Fashion and clothing is expected to grow to $43b by 2025 with the highest potential.

In H1CY23, consumer brands saw 3x funding with companies raising $981m vs. $333m in H2CY22. Of these though, Lenskart and FreshToHome accounted for lion’s share with 72% of funding received. We also saw the first D2C brand to IPO- Mamaearth receiving a positive reception.

Liquidity for building patiently was rewarded phenomenally when Titan acquired the remaining shares in Caratlane, giving a bumper exit to its founder Mithun Sacheti. The exit will encourage other consumer brands to learn from CaratLane’s playbook to focus on fundamentals, build sustainably and accelerate the pedal as you become CM2/ CM3 +ve

Is 20,000Cr CaratLane India’s Biggest Startup Turnaround?

Given the flavour of the season, most consumer brands have also focused on turning profitable and grow sustainably than engage in a CAC war to capture market share. Post COVID, some have also started setting up offline stores to build an omni-channel play, strengthen brand recall, and increase market visibility.

Further the first wave of consumer brands which have grown profitably like Lenskart, Boat, Mamaearth, and Noise have helped the next ones learn from their 10-100 journey. The established playbook on GTM, which channel to target for which segment, branding and marketing and building a cost-efficient distribution has helped the emerging ones learn from the virtuous cycle. 

As the market matures, consumer brand investors are also learning from the first cycle of startups that grew big and guiding the next ones under their wing on the potential challenges and fail points in advance to be able to counter it. 

All these learnings will compound to improve the overall profitability index for consumer brands in 2024.  Q3/Q4 has seen funding uptick in consumer brands with companies like Pilgrim, Nathabit, Atomberg raising VC funding and we expect it to stay strong in 2024. 

Can Atomberg Spin a Unicorn in Indian Smart Appliances?

We expect a lot of consumer brands in the $50-99m ARR range to be able to cross the $100m ARR benchmark, and that too with positive CM3. We will be keenly watching companies like CountryDelight, Licious, Sugar Cosmetics, CureFoods, iDFresh, Atomberg, Melorra, Wakefit, and Wooden Street, among others, to hit these milestones in 2024

Consumer brand critics have long scoffed at the size of India’s opportunity and its concentration at the top. Consumer brands in 2024 will show who has the last laugh as they amaze and delight the market.

#5 >50% of tech unicorns that IPO will be profitable

The unraveling of Tech IPO’s listed in 2021/22 in India and their carnage in the public markets made IPO eager tech startups go in deep freeze on their listing plans.

PharmEasy, Mobikwik, Boat deferred their listing plans, Ecom Express stalled it due to market volatility. Still others who were awaiting SEBI approval like Oyo, Snapdeal, Droom, Yatra are re evaluating their listing plans.

While there have been glimmers of success like Tracxn or Droneacharya’s performance post listing, most biggies saw an initial sizzle and eventual fizzle. In the gold rush, investors valued the companies based on the market opportunity or digital GDP growth rather than on their business model or unit economics. Most companies also got listed at expensive valuation with public investors seeing no further upside, leading to some stocks cratering.

As the bubble burst these publicly listed tech companies sharpened their focus on moving to profitability and growing sustainably. Their eventual resilience and recovery started getting rewarded by retail investors. Sample this that, Zomato is up +112% YTD, Paytm at +20% (after a 30% fall last month), Policybazaar at +70%. 

Can Mamaearth be the Mother of Indian Beauty Brands?

Tech pessimists 0, startup optimists 1

This painful lesson has been a blessing in disguise for the next breed of tech startups waiting for IPO. It was as if the older siblings had gone through fire, faced the ultimate test to crawl, and now, walk eventually. This has helped their younger siblings, waiting on the sidelines, to focus on what matters the most to public investors before listing.

India Public Tech

The startups waiting to list have attempted to put their house in order in 2023, vastly improving unit economics and moving to profitability. They have listened to what public investors want and how they will value their stocks.

Tech IPOs that were listed in 2023 have had a relatively smoother reception. Mamaearth is up +25% since listing. Firstcry which plans to list soon is expected to have a profitable FY23.

The next set of tech IPOs will position profitability, free cashflows or margin improvements much more prominently than how aggressively they are or can grow their toplines which is a ‘coming of age’ moment for these companies. We expect 50%+ tech unicorns that IPO in 2024 to be profitable.

#6 Semiconductor startups will raise >$50M to scale

60 companies focusing on semiconductors have been founded in the last 3 years. But just 1 raised 2 million in the same time frame. 

We expect the next year to be different as many of these companies will start seeing early signs of uptick in product and customers. Many of them will get enabled by the deepening focus of India on its semiconductor industry.

Will India’s 60 Year Semiconductor Struggle Finally Yield Chips?

India got over $50B of semiconductor commitments in the last few years. The government has become a huge enabler of the semiconductor industry with PLIs and more support. Western economies increasingly consider India for setting up as China becomes more unpredictable.

Dixon Tech is leading India’s semiconductor push, with expectations of revenue reaching $10Bn+. The DLI scheme that is expected to help 20+ domestic companies will help create an ecosystem.

India’s renewed hardware and manufacturing focus will give these companies a new boost, helping India regain a position of strength in the semiconductor market. 

As the ecosystem deepens next year, younger firms will see revenue and customers come their way. This will lead to attractiveness as an investment opportunity, which they have not been for a long time.

Writing: Bhoomika, Keshav and Aviral Design: Saumya

Zudio, the Tata Group’s value fashion chain, recently launched its biggest store in Jaipur, after an incredible year of surging revenue. 

Making A Statement 

The Tata group has for long been India Inc.’s bellwether. 

With its deep history, the group has created startups inside its wings from day one. Before starting up was even a thing, the Tata group bred entrepreneurs across verticals.  

With its expanse ranging from salt to sea and from coffee to cars, it is symbolic of the Indian consumption story. The business group’s appetite mirrors the ambition of the populace and its big moves are a marker for people’s preferences.

Can Tata’s 20-Year Tech Pivot Spin Up a SuperApp?

Yet fashion retail was a relatively late priority for the Mumbai-based conglomerate, 130 years after its storied origins in 1868.

In 1998, the Mumbai-based conglomerate sold its 50% stake in Lakme to Hindustan Unilever for INR 200 Cr. The group foresaw a much bigger opportunity in multi-format retail than in scaling a cosmetics brand in India.

The sale proceeds from Lakme were quickly deployed to set up Trent, Tata’s retail arm.

It opened the first Westside store in Bangalore. It offered branded fashion apparel, home furnishings and decor.

In 2004, Trent entered a joint venture with the UK retail giant, Tesco, to set up Star Bazaar. The hypermarket chain dealt in staples, beverages, and daily supplies among various products.

Later in 2010, it partnered with Spanish fashion major Inditex to open the first Zara store in India.

By 2016, Westside had scaled up to around 100 stores, under the watchful stewardship of Noel Tata. It seemed imperative to take the brand beyond tier-I cities

Much to the senior management’s surprise, Westside’s aspirational positioning found few takers even in tier-II cities, let alone tier-III and tier-IV India. The brand struggled to take off in small towns like Salem in Tamil Nadu.

The entrenched problem called for original thinking and a stroke of luck. Fashion at Star prices was floated as an idea. It soon became a mandate and an internal tagline for a new offering. 

Zudio was born.

It was designed as a fast fashion brand, offering trendy apparel styles at affordable prices. The plan was to utilise Trent’s vast distribution network and partnerships to quickly scale up and establish a popular footprint.

Retailing The Story

The first Zudio store was opened in 2016.

Coincidentally it was at the same location as the first Westside outlet. The differentiated positioning allowed Trent to apply a calibrated one-two play. 

Westside would consolidate its two-decade-old presence and increase the share of wallet. Zudio, on the other hand, would tap on newer, smaller wallets.

Zudio’s operations were EBITDA-positive from the first month itself. To validate the concept, the team undertook six more trials in smaller cities, such as Nashik and Vadodara.

The brand’s promise of everything under INR 1,000 garnered quick appeal and mass adoption. It also sold bed linen and toiletries in the first nine months. Doubling down on its frugal perception, it did away with the slightest excess and stuck to what worked.

Zudio’s styles were selling like hotcakes. The new recipe had worked wonders.

To its credit, Zudio had cracked the most discerning and fickle-minded segment. Late teens and early 20-somethings thronged its stores.

Almost three-quarters of its men’s and women’s collection was priced at under INR 600. An even bigger chunk of children’s wear retailed at below INR 300.

On the surface, Zudio appeared like a sleeper hit. Random to some while inevitable to others in hindsight.

Given that the pitch was to make high-street style accessible to a broad demographic at prices starting as low as INR 29 in a young, price-sensitive market, success seemed obvious.

But Zudio’s secret sauce was how it made the business model feasible and value accretive. To understand that, one had to look into what it did differently and what it chose not to do.

Most Zudio outlets were located next to a Star Bazaar, not by coincidence but by design. It allowed Trent higher bargaining power as it negotiated with lessors and sellers for more space, becoming an anchor tenant in most cases.

Source: The Morning Context

Further, the line between a Zudio store and an adjacent Star Bazaar would blur, quite literally, on entering the store. This gave buyers a seamless experience while maintaining two distinct storefronts.

It was a ploy to offer everything under one roof, letting the footfalls at one store benefit the other. At the same time, no Zudio shopper left the showroom thinking they had bought their apparel at a hypermarket selling groceries and vegetables.

Zudio was growing inside Star physically and on Trent’s balance sheet like a weed. 

Racking Appeal

Zudio deliberately did not let its outlets resemble a makeshift warehouse. 

It was imperative to keep the stores breathable to induce upwardly mobile purchase decisions. Zudio boldly took an active call to declutter its stores and replenish the stock every eight weeks instead of twelve, which was the industry norm.

World over, fashion retail was notorious for an average discount of 36 to 38% over time, no matter the price point. Despite being a value fashion player, Zudio was conscious of not over-indexing on ‘sale’ to clear its stocks and avoid undue erosion of its margins.

Likewise, despite all the buzz around e-commerce, Zudio shied away from it, much like the UK fast-fashion chain Primark, on which it was modelled. The delivery costs, including reverse logistics, and the deep discounting prevalent at that time made the shiny new thing prohibitively expensive for Zudio.

Zudio owed much of its success to Westside, its spiritual elder sibling. 

Trent’s cautious, profitability-first journey with its flagship mid-range brand gave Zudio a template to follow, the freedom to innovate, and a strong foundation to take off.

By 2017, Trent conspicuously located Zudio stores far from its Westside outlets. To the uninitiated shopper, there was very little in common between the two brands, be it the look and feel of the showrooms or the apparel style they walked out with.

But a closer look at Zudio’s fast-churning merchandise revealed a signature Westside playbook – private labels.

Westside had always maintained a heavy reliance on its brands. Particularly, since 2013, there has been a marked increase in their revenue share from 80% to nearly 100%, translating into healthier margins.

Zudio followed Westside’s trail, a rare feat in an industry where seasoned players such as Aditya Birla Fashion and Retail and Reliance Trends achieved 60% to 75%.

Looking closer would reveal how Zudio mimicked and deviated from Westside’s strategy in equal measure.

You Walked So I Could Run

There was a method to the madness.

While Westside’s store increase was gradual and calculative, Zudio’s expansion appeared to be frenetic on the outside. 

Zudio’s store size averaged 7,000 sq. ft., almost a third of Westside’s. At the latter’s price point, its footprint was unlikely to extend beyond 200 cities. On the other hand, Zudio had a long tail of cities and towns to enter.

Besides, its exclusively offline presence meant that its early promise could be unlocked only by rapidly scaling up its store count.

Zudio’s average selling price was around INR 500, a third of Westside’s. This translated into gross margins of ~40% against Westside, which pushed 60%. For the upstart to match the heavyweight in terms of profits, Zudio had to one-up Westside on revenue by a distance.

Westside continued to account for a majority of Trent’s consolidated revenue. But Zudio had become the growth engine and the centre of gravity for business.

This was in line with a broader shift in Indian fashion retail. Lifestyle International, one of Trent’s rivals, had witnessed something similar. It operated Lifestyle, a Westside peer, and Max Fashion, which competed with Zudio.

Max Fashion, the nimble mass player, had overtaken Lifestyle’s mainstay brand. It offered a window into the mind of the Indian shopper – discerning but fiercely money-minded.

Zooming out, while Zudio was trying to disrupt India’s apparel market, India was disrupting the world. 

The 2010s marked the first decade since the 1960s when India displaced China to become the fastest-growing economy in the world. The world’s largest population and an increasingly aspirational and sophisticated middle class propelled this growth.

Throw the above ingredients together, and you have an apparel market growing nearly threefold in 8 years, reaching a market size comparable to the likes of Germany and the United Kingdom.

But India was destined to overtake them, for it had a unique trump card – its demographic dividend with around half the population under 25.

Out of this demographic emerged a youthful consumer base, with marked differences in requirements and changes vis-à-vis the older generations.

Everyone was following the world’s largest millennial population of 440M

Who Wears The Pants In The House?

Contributing almost 40% of the overall apparel market, women’s wear remained dominated by ethnic wear. 

But by 2019, denim emerged as its fastest-growing segment. This was attributable to the rise in college-going and working women.

Exploding internet and smartphone penetration rates exacerbated the changes in consumer preferences, providing tech-savvy youth with easy access to the latest fashion trends around the globe. 

Social media amplified their reach.

Global brands like H&M, Zara, and Forever 21 moved in to capitalize on these changing tastes through the 2010s. Parfait, Under Armor, and Uniqlo entered the country in 2019.

Alongside these changes, the barriers between the metros and tier II/III cities were also being broken with rise of e-commerce companies like Amazon and Myntra. For the Indian youth, the role of apparel was slowly evolving from mere utility to true fashion.

However, the apparel space retained several of its traditional characteristics.

Almost ~70% of apparel sales happened through unorganised retail channels, dominating tier II/III cities and small towns.

Rising demand for trendy fashion induced by demographic change, the indomitable price-conscious consumer mindset, and the limited presence of organised apparel chains in tier II/III cities and towns – Zudio had found its whitespace.

The behind-the-scenes strategy to operate at such low margins is a case study in business strategy.    

Manufacturing was outsourced, and research and development costs were kept low – Zudio’s designs were trendy but plain and simple to manufacture in bulk. Focusing only on casual wear and lacking product lines like formals also helped reduce costs. 

Finally, Zudio’s clothes were manufactured with a higher blend ratio of poly-viscose to cotton, vis-à-vis Westside.  

Transport and distribution enjoyed significant synergies with the existing supply chain for Westside, with the latter being established over two and a half decades. Trent’s fine-tuned supply chain allowed Zudio to take a product from the design stage to being sold in its stores, within just 12 days.

For the stores, Trent opted for a franchisee-owned-company-operated model. Trent franchised Zudio’s brand, with franchisees taking care of the capital expenditure in setting up a store and bearing rent and electricity costs.

As the franchisor, Trent covered the operating costs of employees, inventory management, transportation, etc. In return, Trent received a neat franchise fee, a 22% share of the gross margins (out of a total gross margin of 38%), and quality control over their stores.

The formula for blitzcaling was ready, for the upstart brand.

Healthy Margins

Zudio leveraged its large umbrella, while learning what would work for it

Zudio’s stores were smaller – around 6,000 to 8,000 sq. ft – almost half as compared to Westside. Locations were picked strategically. 

By 2020, Zudio had 10 stores in Mumbai, and Westside had 13. Most of Westside’s stores were in southern or central Mumbai, the relatively more expensive parts of town. None of Zudio’s were.

For marketing, the answer is simple – nobody seems to have seen a big bang Zudio ad. 

No advertisements, no celebrity endorsements. Limited promotions, no season sales and no discounts.

Just plain, simple, word-of-mouth.

Their strategy worked – besides high footfalls, they enjoy a customer conversion rate twice that of industry margins.

Having crafted a business model that solved for the trendy yet value-conscious Indian consumer, Zudio went all-in on its store expansion program, growing from 7 stores to 80 in three years.

Fast but carefully strategised.

Zudio placed stores in the biggest and most expensive cities like Delhi and Mumbai, seeking to target wallet-light college students and young professionals, but not too many – often just shy of the number of Westside stores in these cities.

On the other hand, relatively less expensive cities, including the likes of Pune, Thane, and Ahmedabad, saw Zudio overtaking Westside stores by a factor of 2-3x.

However, Zudio hardly opened any stores in North India. This was done to avoid stocking winter clothing and reduce inventory risk and costs owing to their limited shelf life.

Zudio meticulously avoided incurring costs wherever it could and instead maximised its efforts and resources that would maximise customer footfalls and conversions.

A minimalist black-and-white aesthetic for its store ambience appealed to the youth and its target customer base and reduced overhead costs. Zudio also organised its racks by price ranges, as opposed to by style or size.

New styles, sourced from social media trends, were added regularly and quickly, given Trent’s fast design-to-store cycle.

They even launched a website – which, fascinatingly, does not sell online. Again, this aligned with their strategy of adding unnecessary cost elements to their value chain. Given Zudio’s low price point and slim profit margins, delivery costs would force Trent to increase product prices.

Instead, their website showcased their fast-changing product lines, acting as a low-cost customer acquisition funnel for their stores. Consequently, average revenue/sq.ft. reached INR 14,000, versus an industry average of INR 8,000-10,000.

The explosive success of these stores attracted even more franchisors keen on setting up Zudio stores.

Buckling Up

The capital expenditure required to set up a Zudio store ranged from INR 1.2 to 1.8 Cr

This was less than half of what is required to set up a Westside store, given the former’s lower size and inexpensive locations.

In exchange, the franchisee would get a 16% share of the gross margins, of the total gross margins of 38%. After accounting for rent and electricity costs, the franchisee would be left with a net margin of 5%. 

Stores can earn anywhere between INR 70 lakh to INR 1 Crore in monthly revenue, yielding a monthly profit range of INR 3.5 – 5 lakh.

The math worked out for Trent too.

For every unit sold, Trent made 5% as its margin. While that may not sound spectacular, Trent’s capital investment was limited to its inventory since the franchisee manages the store investment. The 5% margin translated to a whopping ~60% return on capital

Fuelled by a fast-growing brand presence, customer loyalty, strategic product placement, and a franchisee model, Zudio reached an inflection point just three years after its launch. 

Programs like ‘Zudio Zenn’ turned shopping into a rewards game for millennials with points, badges, referrals and birthday/anniversary bonuses driving engagement.

User-generated campaigns like ZudioStyle and reposting customer-style photos fostered user participation and a sense of community. 

Zudio set up sampling shops and kiosks at major universities to interact with students on-site and acquire new customers. It recruited campus student brand ambassadors and built organic evangelism and micro-influencer networks.

Organising fan meetups in different cities fostered local communities and personal connections with the brand. Specialised festival collections and style tips timed around occasions like Navratri and Diwali connected to cultural moments relevant for youth.

All this led to explosive growth, reflecting heavily in their metrics wherever one chose to look.

170x increase in organic site traffic over 2 years attributed to content and SEO optimization, 43% lift in overall conversion rate from localizing UX and checkout, 2.6x more engagement generated by micro-influencer posts compared to branded content, and 20% higher average order value for customers acquired via influencer collaborations.

It was an incredibly explosive story about to enter a world-shaking disruption. 

Belting The Competition

In the face of a pandemic, Zudio defied odds, opening 50+ outlets in FY21, signaling untapped market potential

Once it figured out the store economics, Trent put Zudio on gasoline and increased its store count by 6X (40 to 233) between March 2019 and 2022, helping it surpass Westside for the first time.

In September 2023, Zudio was present in 120+ cities and boasted a store count of 413 outlets. 

Backed by strong store addition, Zudio’s revenue grew at a staggering growth rate of 94% between FY20-23 from INR 478 crore to INR 3,537 crore, and its revenue share in Trent’s overall revenue increased to 37% in FY23

In FY23, its sales per store jumped ~2x YoY to INR 12 crore with sales/sqft of ~INR17,300, the best in the fashion industry and almost 1.7x of the industry’s average. Improved sales productivity had a rub-off effect on gross margins and EBITDA.

Higher sales/sqft assisted Zudio in offsetting the low gross margin and generating ~INR6,000/sqft gross profit, similar to Westside’s gross profit/sqft despite being one-third of Westside’s average selling price.

Its EBITDA margin also improved by 100 bps in FY23 vs FY22. The asset turnover of 5X and a pay-back period of 1.5 years has made Zudio a preferred bet for franchise partners. 

With a run rate of selling 2 million garments per week in FY 2023 has propelled Tata to shift gears and accelerate the brand’s expansion even further.

Timeless Fashion

Zudio’s achieved almost 4,000 crore in revenue in just 7 years, an astonishing feat for any unit.

Zudio has been able to successfully ride on the wave of fast fashion and bring the ‘fashion street’ affordability & trendiness to the consumer in its vibrant stores in a more convenient way, mainly led by word-of-mouth marketing

The Indian fashion market, the fourth largest in the world with a market size of USD ~69 Bn in 2023, will continue to evolve, and its consumers will continue to upgrade from the large unorganised segment to the organised segment.

Retailer-owned brands will play a pivotal role as they offer shoppers value for money while earning higher margins for retailers, with the potential to develop into autonomous propositions.

There is massive headroom for Zudio to grow, and it also plans to add ~200 stores in FY24 and 125 stores in FY25 and FY26 each.

These could double its already burgeoning revenue. 

In addition to footprint expansion, innovation in the product portfolio, scaling up of the supply chain, 100 per cent contribution from own brands and leveraging digital presence will be key growth drivers.

One of the key challenges for Zudio, in addition to competing with mammoth retailers like Reliance Trends, ABFRL etc., would be its ability to drive premiumisation and do price hikes to counter inflation.

Given its easy-to-recall price ceiling, price hikes would be hard to navigate as a value fashion brand, even to counter inflation. Till now, Zudio has been able to counter the pressure by positioning itself as an aspirational brand.

Despite these challenges, Zudio will remain the most visible retail brand within Tata’s stable. The asset-light model allows it to grow rapidly like a tech company. Despite not being a founder-led firm, it’s a remarkable story of entrepreneurship in a large conglomerate with an insane revenue growth 

The diamond in the rough looks on track to achieve its monumental revenue target of INR 10,000 crore in the next three years. Zudio could be the dream fashion company that nobody thought would succeed.

Writing: Bhoomika, Ajeet, Nikhil, Jayanth, Shreyas and Aviral Design: Abhinav and Stable Diffusion

Perfios raised $229M at a valuation of $900M, deepening its expansion in North America and Europe. 

Street Cred(it)

V. R. Govindrajan was part of India’s first wave of tech entrepreneurs.

Born to a schoolteacher father and a homemaker mother, he completed his engineering and landed in the USA to pursue an MS in Computer Science.

He then spent nearly a decade rising the corporate ladder at behemoths such as Digital Equipment Corporation (DEC) and IBM.

By then, America’s IT industry had become a global economic order’s mainstay. However, an era-defining movement was brewing in India’s nascent tech ecosystem.

Infosys’ story and Wipro’s shift from edible oils to computing had spurred many young Indian professionals to abandon the comforts of their jobs—most dove headfirst into entrepreneurship.

Govindrajan was among those to be bitten by the bug. He moved to India and teamed up with S Parthasarathy to set up Aztec Software in June 1996.

Debasish Chakraborty was among the company’s earliest hires, joining the company in April 1997 as a General Manager in the R&D department.

An alumnus of IIT Kanpur and Kharagpur, he had spent the previous ten years at Wipro and IBM, alternating between Bangalore and the USA.

In its early days, Aztec followed the proven template of building in India to sell in America. The model brought with it challenges involving scale and intense competition.

Despite early promise, India and its fledgling computing talent were yet to earn their storied reputation. Client pitches often began with helping them locate India on the global map, literally and figuratively.

Aztec adjusted to market realities and soon switched to serving as an extension of its customers’ in-house teams. In the process, it created an Outsourced Product Development (OPD) category.

In October 2000, just as the dot com bubble was nearing its imminent burst, the company listed on the bourses with a Rs. 52 crore public offering.

By early 2008, Aztec had grown to over 2,200 employees and had a clientele spread across North America, Europe, India and Australia. 

Govindrajan’s story, however, had only just begun.

Stressed Credit

Come the Global Financial Crisis, a wave of consolidation had begun in the mid-tier IT space in India. 

The effects were immediate – a rising rupee, a slowdown in the US, and a dip in global IT spending. The time was ripe for Aztec to find a partner on the services front to complement its product-side capabilities.

MindTree came in calling for an acquisition, having spotted the natural synergies and driven by its billion-dollar ambitions, valuing Aztec at $90M.

Govindrajan and Chakraborty, also a part of the senior leadership, sold their stakes and exited MindTree. 12 years later, they experienced what today’s savvy entrepreneurs would call a ‘liquidity event’.

The hard-earned riches demanded elaborate upkeep, conscious decision-making, and proactive management.

Like anyone who has ever managed anything more than loose change, the duo sought a tool that provided a single dashboard of their finances. 

An ‘aggregator’, you said?

This was when internet access in India was predominantly through a dial-up connection. Nandan Nilekani was still at his corner office at Infosys; the Aadhar revolution was yet to be conceptualised, and interoperable interfaces meant little more than alliteration.

The only way for Govindrajan and Chakraborty to fix the gap back then was to create the solution they sought. While they were far removed from the world of finance, they were proven masters at product development, offering a starting point.

In a tale reminiscent of many a startup journey, they set out to solve the problem they had faced – using technology at scale.

The company’s objective was to enable retail individuals to consolidate and manage their portfolios and debt in an automated manner.

Govindrajan and Chakraborty chose to stick to their strengths and build a minimum viable product instead of raising capital immediately. A working prototype was ready to be taken to the market in under four months.

Personal Finance One Stop (Perfios) v1.0 was born.

On Borrowed Time

Perfios soon scaled its MVP and launched MyFinance, a cloud-based Personal Finance Management solution, in 2008.  

It aggregated financial data from disparate sources – bank accounts, credit and debit cards, mutual funds, insurers, lenders, and so on – to create a 360-degree view of a user’s financial standing.

In an unassuming effort to create an ‘ecosystem’, Perfios added an accompanying product for Wealth Managers called MyClients in 2009.

A first-of-its-kind product serving a genuine need should have found takers by the dozen. This, unfortunately, wasn’t the case.

All the co-founders’ nous acquired while scaling Aztec was built on working with corporates in India and abroad. They had underestimated the fickle, discerning, passionately tight-fisted Indian retail customer.

Perfios had followed a freemium model with MyFinance. A base version was offered for free to enable potential users to try the platform before inducing them to pay between Rs. 500 and 5,000 for worthwhile add-ons.

However, like the bane of curated research and other boutique services in India, Perfios’ biggest competition was not a similar or an adjacent offering. Instead, the prevalent mindset was that a webpage should load free of cost, the code and the output notwithstanding.

Govindrajan and Chakraborty realised that if to build was human, to monetize was divine, particularly on the Indian internet, with just 93 million users.

By 2011, MyFinance reached a conversion rate of 4 percent. Of every 100 free users, four signed up for the paid features. The number did appear paltry. But it was also the global benchmark for comparable services.

The 4 per cent standard was far from the scale required for Perfios to thrive. The only viable way to grow the business was to acquire a continuous flow of new users, only to see an overwhelming majority always keep their purse strings.

(Under)Writing On The Wall

Govindrajan and Chakraborty could not have been blamed for empathising with Sisyphus.

The Greek mythological character was eternally condemned to repeatedly roll a heavy rock up a hill, only to have it roll down again as it neared the top. Perfios felt a lot like it. 

Perfios learnt that in a freemium business model, you must spend billions in customer acquisition if you want to make billions in premiums. 

What do you make in the end? Zilch.

‘Growth at all costs’ and ‘scale before generating revenue’ were yet to gain widespread acceptance as business methods. Perfios had neither the appetite nor the inclination for an unending pursuit with an unpredictable outcome.

Govindrajan and Chakraborty had wanted to create something bigger than Aztec, with the paydirt they hit at their first venture. But it seemed that the answer lay elsewhere. It was now time for a ‘pivot’.

By 2012, the need for products that make personal finance easier and more accurate for a large population was clear for all to see. 

As a country with low levels of financial literacy and a widespread lack of social security, it was vital for individuals to be up to date with their personal finances and retirement goals. However, finding paying customers and executing this product profitably at scale was very difficult.

Indians got their financial advice from a variety of sources. 

The friendly neighbourhood uncle, the relative who is an insurance agent, and the CA who does the income tax advice at the end of the financial year were all common sources of financial advice.

Picking up on the theme, the founders of Perfios decided to branch out to serve these distributed centres of financial advice, rather than remain end-consumer-facing. 

Old Customers, New Money

They started to work with CAs, wealth managers, and independent financial advisors to sell their existing products. 

However, finding volumes at a profitable scale without burning cash proved to be difficult here too. Finally, in 2014, the founders of Perfios decided to complete the pivot. They had prior experience selling to corporates and companies and it is this segment they turned to when they decided to pivot.

An enterprise customer has a higher means and willingness to pay. Perfios used the same suite of products to target B2B clients. Converting from personal finance datasets Perfios now decided to target digital lending systems

The difficulties faced by the different stakeholders, such as banks and borrowers in the lending process could be solved by the suite of products that Perfios offered. Govindrajan and co were convinced they could simplify the lending process.

After working on a PoC for 12-18 months, they added an analysis layer on top of the original product and took it to banks and financial institutions. The data was being aggregated in a similar way as before. However, the analysis it was doing was more of what an underwriter or a credit manager would be looking for.

There was no such product currently available in this market and it took a lot of evangelisation. They had to convince the financial institutions that they needed this product to simplify their lives. 

Additionally, the push from the government and the early fintech revolution helped Perfios get their initial clients. Fintechs were happy to ally with Perfios to differentiate them from traditional bankers and NBFC.

By 2016, before it raised its first round, Perfios had already got  50-60 customers with the largest financial institutions in the country, including NBFC, banks, and fintech as its clients.

Perfios raised $6.1 million in 2017 in Series A to fuel its expansion

May You Always Live In Interest(ing) Times

Data was growing exponentially. 

The increasing adoption of technology and data science in credit decision-making presented a significant opportunity. Perfios was on the right track to success.

Indian credit industry had 2 significant problems brewing- longer turnaround time and low accuracy in the credit-decision process. Perfios claimed to solve both of them.

Driven by macroeconomic tailwinds, banks and NBFCs sought a core technology platform that aggregated and analysed financial data. The analytics techniques found applications in credit assessment, monitoring, fraud detection, and banking data aggregation.

Perfios struck the iron when it was hot.

Positioning lower TAT and increased accuracy and efficacy as their USPs, Perfios partnered with over 200 banks, NBFCs, and fintech companies globally.

Perfios boasted of a strong client base. Marquee banks like Axis Bank, AU Small Finance Bank, HDFC Bank, and Deutsche Bank partnered with Perfios after realising the potential of the technology.

Leading NBFCs like Aditya Birla Capital, JM Financial, Edelweiss, and Bajaj Finserv integrated the software into their credit decision-making processes. Notable fintechs, including Paytm, CapitalFloat, InCred, and IndiaLends, demonstrated their faith in the potential of this technology.

On the profitability front, the bar turned green when Perfios registered a profit of Rs 4.4 Crores on a topline of Rs 43.6 Crores in March 2019. The founders realised they were all set for the next phase of tremendous growth.

In November 2019, Perfios closed the raise of a Series B round of $50MM. This round saw participation from large PE investors led by Warburg Pincus LLC. Existing investor Bessemer Venture Partners infused more capital by participating in this round.

This round saw the exits of some of the early angel investors. Primary capital secured in this round was focused on three key areas: investing in technology to develop new offerings; international expansion through MENA and Southeast Asia regions; and potential acquisitions.

All this served as validation for Perfios that they were heading in the right direction.

The first step that Perfios took after closing this round was acquiring the IP rights and other assets of digital lending solutions provider FintechLabs Technologies. Based in Noida, the company sold digital lending management software to 40 clients (banks, NBFCs, online marketplaces) across 10 countries in India, Southeast Asia, and the Middle East.

This integration improved the tech for Perfios and opened the Southeast Asia and MENA region gates for them.

Cash And Carry

Third-party credit underwriting was still a white space at the start of the current decade. 

However, a few competitors were raising their heads – from established players like CreditVidhya to new entrants like Crediwatch. But Perfios dominated the market, with a self-proclaimed 90 per cent market share.  

Perfios’ first-mover advantage played out in two key parts as a category-creator in its segment.

The first was that the banking is an industry that works on trust.

Perfios had established its credibility by serving marquee names across banks like Axis, HDFC and NBFCs like Aditya Birla and Bajaj Finserv. This allowed Perfios to significantly expand its client base to 270 domestic financial institutions by the end of 2021. Perfios’ value proposition was clear – it reduced turnaround times for credit decisioning processes from one week to one hour.  

The second advantage Perfios had was the deep expertise in understanding pain points for financial institutions and developing data-driven solutions to resolve them.

Perfios became the only player supporting bank statement analysis for over 1,700 formats across national, co-op, and rural banks. Data extraction processes were refined to an extent where even paper-based statements, printed by dot-matrix printers or photocopied, could be extracted accurately.

Catering to various financial institutions, Perfios built a repository of 175,000 analytical rule engines to implement machine learning and neural network algorithms to categorise transactions, derive risk metrics, and determine credit default probabilities.

For machine learning algorithms, large datasets mean better predictive powers. Leveraging this trait, Perfios developed a tool to assess the creditworthiness of previously unbanked customers without credit histories by analysing income and spending patterns.  

Perfios ended FY 2022 with a run rate of processing over 20 million monthly transactions, translating to a revenue of INR 136 Cr. 

In four years, Perfios more than tripled its revenue. Their EBITDA margin improved significantly, demonstrating a chance of increasing returns to scale. 

The SaaS company had blown up. 

Having established its dominance in the third-party credit underwriting space, Perfios sought to identify the next levers for its growth.

Perfios found them in product diversification and international expansion.

Perfios acquired Mumbai-based Karza, a fintech platform specialising in onboarding automation, risk and fraud analytics, and business intelligence services, vastly expanding its product portfolio.

It now wanted to replicate its success with the Indian banking ecosystem internationally. Having seen early successes by landing key clients such as Malaysia-based RHB Bank Bhd, Perfios was present in over 18 countries across Southeast Asia, the Middle East, and Africa.

Present Value

While doubling down on what’s working, Perfios is also trimming down on what did not – it shut down its first product, the Perfios finance manager, in August 2023.  

It entered the ‘soonicorn’ trajectory with its latest fundraising round valuing it at $900 million. Perfios is on track to earn $100 million in revenue in FY 2024.

Flush with capital, shedding the last vestiges of the past, building an international footprint, and an expanded product portfolio. Perfios considers this the first step in its evolution to a multi-product, multi-domain global SaaS company and jumpstarted the journey through a re-branding exercise.  

In the long term, Perfios aims to diversify from its focus on credit analytics to providing tech and data-driven solutions for end-to-end customer lifecycle management for clients across the BFSI sector.

To this end, it has launched diverse products and services.

Karza’s ‘Klookup’ tool uses recursive search algorithms traversing public domain data to trace and identify individual/enterprise contact details. Perfois will use it to enter the loan collections space. It could also be used by banks, asset management firms, and insurance companies to trace ownership of unclaimed deposits, investments, and insurance policies.

Perfois now also offers automated legal checks for over 3,500+ courts and tribunals in India, allowing it to fulfil due diligence, risk, and compliance requirements for banking and private equity firms.

Through ‘PerSeive’, Perfios promises to mitigate fraud, waste, and abuse for health insurance companies by onboarding and analysing medical records and claim documents.  

Its low-code platform ‘Integreat’, launched in 2018, has now evolved to offer multi-party use cases, allowing customers to build applications targeted towards invoice discounting, P2P lending, and customer onboarding.

It further boosted its product expansion spree by acqui-hiring Fego.ai in September 2023, an open finance platform that allows businesses to embed financial products within their applications using plug-and-play APIs. It’s also an account aggregator offering financial intelligence services.

Today, Perfios has over 300 customers, of which 250 are in India. It derives about 50 per cent of its revenue from banks, 30 per cent from NBFCs, and 20 per cent from fintechs. Unlike conventional wisdom, it is a software company that makes money from Indian customers. 

Perfios has set the scene for its next phase of growth. 

Pricing To Extension

Though Perfios is already a clear market leader within its space of third-party credit underwriting in India, its potential for further growth is still limited.

The problems that Perfios is solving, are staggering in their scale.

Using alternative data points like investment spending, EMI contributions, e-commerce spending and utility bill payments to generate alternative credit scores, Perfios (and its competitors) can bring a huge segment of previously unbanked businesses and individuals (without credit histories) into the banking fold.

This would mitigate a credit gap worth a staggering USD 530 billion for medium and small enterprises in India alone.

Its new levers of growth could be its entry into the underserved spaces of unclaimed assets recovery and insurance fraud mitigation

Estimates peg unclaimed bank accounts, investments, and insurance policies to amount to USD 10 B. The insurance industry loses approximately USD 6 B in fraud every year.

While it establishes a foothold in these whitespaces, Perfios’ future roadmap includes establishing a foothold in the U.S., further geographical and product expansion through inorganic opportunities (perhaps funded by subsequent VC rounds), and an eventual listing on the public bourses within the next three years. 

Perfios has been a long journey since 2008, but it has proved multiple things. Being quiet and building is possible. Selling software to India is possible. Building a $1Bn company just by doing this is possible. 

As it sets its sights globally, the company is on track for an even bigger decade. Perfios could help not just underwrite India’s credit revolution, but the emerging world’s.

Writing: Bhoomika, Nilesh, Nikhil, Shreyas, Vishal and Aviral Design: Chandra and Omkar

Last fortnight, GreyOrange announced it had 5,000 robots in operation all across the world, as it was named Spark’s leading autonomous mobile robot vendor in the world

Sparking Circuits

Akash Gupta and Samay Kohli were students at BITS Pilani. 

In 2007, they met through their shared passion for science and mathematics, which led them to pursue robotics at BITS’ Center for Robotics & Intelligent Systems (CRIS). 

At CRIS, they would go on to build Acyut, India’s first humanoid robot. They then represented the country in global humanoid robotics championships, winning the Gold Medal at the San Francisco RoboOlympics in 2009. 

This would start a long and successful partnership between the two. 

Around the same time, Wolfgang Hoeltgen, an electronics engineer at IBM and an entrepreneur, was organising a science and technology show in Germany. He invited the duo to present Acyut in Hannover. 

Akash and Samay were deeply inspired by Wolfgang’s experience across research, manufacturing, engineering and software development and approached him to act as their mentor. 

This would continue for the next few years, as the duo would contact Wolfgang occasionally to share their ideas with him. 

An internship at C&C Technologies in the United States would give Akash and Samay their first exposure to a product that would later become the heart of their entrepreneurial venture. 

At C&C, a company primarily focused on surveying and mapping terrain, Akash and Samay were tasked with developing a small Disney park (400 sq. ft.) with the special effects entirely automated. This would be the first time Akash and Samay were involved in a project of such scale. 

Shortly after that, the duo started GreyOrange in 2011 from their savings of Rs 5 lakhs during their internship in the US. They initially pursued the field of robotics training and began teaching at universities. 

They immediately understood that dwelling in education was not their cup of tea. They decided to move over to the service industry and began finding business opportunities where they could provide value. 

Before the internet was mainstream in India, a company was building robots.

Thinking, Inside A Box

To truly understand which industry they could fit into, Akash and Samay set themselves some essential criteria. 

They wanted the problem to be global, the solution to the problem to be disruptive enough and the solution to involve both hardware and software. 

In 2012, a visit to a Flipkart warehouse in Delhi gave Akash and Samay the opportunity they were looking for. 

The warehouse was cluttered with piles of different products spread entirely throughout the floor, and people needed help sorting and picking up all the products. 

The chaos at the warehouse made an ideal scenario for the duo to explore. 

They were convinced that they could build an elegant robotics system, backed by complex software, that could help warehouse workers pick and move the products much more efficiently. 

As they had done in the past, they contacted their mentor Wolfgang and presented their newest idea. Upon hearing the idea, he was convinced that it was the perfect match of the duo’s skills and real worldwide demand. 

He immediately flew to India and helped work out a business plan. 

Within a month, he liquidated his life insurance, rented office space, bought a CNC (computer numeric control) and hired engineers. 

Flipkart would give them their first order of Rs 35 Lakhs to build a warehousing solution, and just like that, GreyOrange Robotics would have its start. 

The duo shared a lofty vision, imagining warehouses run entirely and managed by robots. 

They ran into early hurdles though, as the need for a language to allow communication among multiple robots, and of a proper prototyping environment in India, meant that they had to build everything from scratch.

The GreyOrange Butler Robot System was the first product they would start working on. 

It consisted of Butler Robots, autonomous mobile robots, Pick/Put stations where the warehouse employers could interact with the product, Mobile Storage Units and Charging Stations. The centre of the system was GreyMatter, an end-to-end order fulfilment platform that controlled and managed all the devices to drive collaboration.

Alongside the Butler, they set out to build the Sorter, even though they were a team of barely 10. The Sorter would be a mobile warehouse sorting capability to sort packages/products based on rules. 

Armed with a massive vision, changes in e-commerce were afoot

Brain Racking Problems

For two years, the team would switch between building the Butler and the Sorter. 

Building them in parallel was not possible, due to the complexity of the problem. Three years after its conception, the first robot butler system would be installed in Hong Kong, with 10 mobile butler units. 

The Sorter would be a part of the Flipkart warehouses in Bangalore. DTDC would be onboarded soon, and many more were to follow.

The end of 2012 would see GreyOrange receive their first-ever VC funding from the BITS Spark Angel group. 

This group of BITS Pilani alumni globally invested in BITSian-founded Indian startups. The round would see GreyOrange compete with 23 startups and become the only one that received funding. 

GreyOrange saw a massive demand for their robotics solutions as they showed more and more value to their existing customers. 

Flipkart reported picking items from 100-120 in eight hours to 400-600 per hour. DTDC could handle 20-25% more daily volume at each hub. The shipment turnaround of 6-7 hours now dropped to 1-2 hours. 

While more and more companies wished to adopt GreyOrange’s solutions, they chose to be selective in picking who to partner with for their next generation of robots. They preferred installations in Singapore and in international markets.  

They soon moved to Singapore as a base, giving them better operational flexibility and access to the rest of Asia. 

2014 saw GreyOrange raise Rs 54 Crores as its Series A funding, as a means to scale internationally and focus on R&D to improve the autonomy and efficiency of their systems. 

With supply chain efficiencies primed to be a pivotal factor for global trade in the upcoming decade, GreyOrange were right in the midde of solving a massive global pain point. 

GreyOrange Robotics had begun making their mark, not just in India, but across the globe. 

Forklifting Spirits

Samay and Akash recognised the transformative potential of robotics and automation across industries, but as newcomers, they wanted to focus their efforts early on.

By 2015, the e-commerce industry was soaring domestically and globally, revealing scalability gaps. Within this realm, warehousing and fulfilment emerged as labour-intensive bottlenecks in the supply chain. 

Yet, labour shortages were rampant and projected to persist. An astounding 73 per cent of third-party logistics firms highlighted the struggle to secure, train, and retain skilled labour as their foremost challenge. 

Moreover, high training expenses, labour efficiency limitations, and constraints in handling volume within tight timeframes plagued the warehousing sector. The alluring promise of 1-day e-commerce delivery unveiled the vulnerabilities of manual labour.

Technology emerged as the crucial component to facilitate sustainable scaling.

After thorough industry exploration, the team honed in on the e-commerce, burgeoning retail, and consumer goods sectors. The surge in e-commerce and logistics, both internationally and domestically, offered many opportunities.

Around the world, companies were excitedly adopting and investing in warehouse robots. These robots were helping businesses and their workers handle challenges like higher costs, lots of orders, shortage of staff, and tight deadlines, all while making fewer mistakes.

Amazon’s acquisition of Kiva in 2012 was a highlight of this trend. At a time when the global logistics and warehouse robot market was expected to grow to over $125 billion within the next decade, Samay and Akash discovered a niche and went all-in.

They began by locally creating and selling their technology, expanding their customer base.

Around the same time, India introduced the GST (goods and services tax), greatly benefiting GreyOrange. 

This new tax system encouraged businesses, including e-commerce players, to use centralised warehousing instead of having warehouses in each state, which was the norm before GST that aided companies to avoid entry taxes. This shift to centralised warehousing opened doors for automation, where GreyOrange excelled.

By 2016, their customers included prominent names like Flipkart, Myntra, DTDC, GoJavas, and Jabong in the e-commerce and logistics sectors. In just five years, the startup achieved nearly 90% of the market share of India’s warehouse automation market, establishing a near monopoly.

Acknowledging the fierce competition in the industry, they emphasized research and development (R&D), with over a third of their workforce dedicated to it. This strategic focus would open a myriad of opportunities for the team.

A science project had transformed into a real company, with a big moment for the company soon to arrive. 

Loaded Docks

Home Logistics’ Osaka centre selected GreyOrange Butler for warehouse automation in 2017

Despite having numerous alternatives, GreyOrange won. This decision held significance beyond the local context, marking GreyOrange’s foray into the exacting tech landscape of Japan and its stringent requirements.

GreyOrange’s accomplishments shine for their impressive technology skills and knack for navigating an arduous journey. The company’s entry into complex global markets showcased its software, hardware, electrical, and mechanical engineering expertise.

GreyOrange’s progress soared as time passed, achieving a remarkable 300% year-on-year growth by 2017. 

Unstoppable in their pursuit, GreyOrange’s founders harnessed their deep understanding of automation to achieve remarkable success. What began with modestly paid trials swiftly evolved into substantial contracts, with single warehouse deployments worth between $10 million and $20 million.

GreyOrange founders relied on hands-on experience, gathering practical insights during warehouse visits as the automation landscape evolved.

As the autonomous warehouse era began its adoption cycle, GreyOrange’s dedication to continuous improvement remained evident. They focused on agile hardware, holistic software solutions, and platforms to flexibly vary warehouse operations.

Their dedication to high standards led to implementing a “10x KPI,” ensuring that GreyOrange installations delivered a tenfold increase in cost savings or time efficiency for their customers.

With the consignment processing capacity soaring tenfold, GreyOrange’s technology emerged as a potent tool in minimising human errors in labelling and routing, especially valuable for courier companies like DTDC.

Beyond efficiency, GreyOrange was equally dedicated to enhancing customer onboarding, a critical component in their journey. They achieved this by delivering installation times a quarter of the industry average, reducing downtime and optimising resources, unlike the conventional approach of immediate large-scale installations. 

GreyOrange’s robotic “Butlers” real-time capabilities boosted efficiency and curtail costs. As their fleet of robots grew, implementing smart orchestration became paramount. Optimal task assignments reduced onboarding and support costs and streamlined operations to an impressive degree.

Embracing the industry’s advancements, GreyOrange surged ahead, achieving a notable break-even point in 2019, realised within less than a decade since its inception. 

In just five years, their revenue mix also underwent a transformative shift. While remaining a significant contributor, India accounted for 10% of the total revenue, the United States claimed half, and the remainder flowed in from Europe and Japan. 

The company was building from India to the world. 

Plane Spaces

The foundation of GreyOrange’s ambition demanded a corresponding scale of solutions. 

The company would investing over $1 million to set up its U.S. headquarters in Atlanta, Georgia. Spanning a sprawling 110,000 sq. ft. office and warehousing space, this campus strategically positioned GreyOrange to tap into the city’s well-established supply chain and logistics provider network.

Complementing this move, the creation of an R&D unit in Boston aimed to attract top-tier tech talent from renowned educational institutions across the globe.

Meanwhile, GreyOrange expanded its footprint into Japan and Germany as its workforce neared the 600-mark. This expansion necessitated the cultivation of diverse talent and ecosystems across different locations. 

Despite this growth, the company’s commitment to technology remained steadfast, with more than a third of its workforce dedicated to research and development.

In a significant stride forward, GreyOrange introduced its flagship Fulfilment Operating System in December 2019, incorporating the innovative GreyMatter intelligence as a learning layer within Ranger GTP (Butler), Ranger Mobile Sorter (Flexo), and Ranger Picking (PickPal).

Ranger Mobile Sorters transported parcels from receipt to dispatch. Ranger Picking Pickpal collaborates with robots to assist or fulfill tasks. Fulfilment Operating System enhanced store efficiency by precisely packing orders. 

The ranger robots communicate to recalibrate priorities and strategies in real-time, considering commitments, speeds, availability, and windows.

By 2020, the company had scaled to an astonishing 1,000 Cr of revenue. This was not just an incredible feat for an Indian startup but also one for making robots from India. 

Amidst these advancements, GreyOrange was not alone in the race to revolutionise warehouse automation.

Sorting Out The Competition

Amazon set the precedent for nearly a decade before the pandemic instigated a seismic shift in global supply chains. 

Fulfilment operations, especially susceptible due to staffing shortages brought about by social distancing and isolation measures, were suddenly ripe for transformation – an opportunity that robots seemed poised to seize, in part if not in entirety.

GreyOrange was in global contention alongside half a dozen rapidly burgeoning players in warehouse automation and fulfilment management. 

The field included the likes of Geek+, Alibaba’s favoured warehouse robotics creator; InVia, headquartered in Los Angeles, which leased automated robotic technologies to fulfilment centres; Gideon Brothers, a Croatian startup; Berkshire Grey, one that amalgamated AI and robotics to automate the fulfilment processes of retailers, e-commerce entities, and logistics enterprises; Quicktron from Germany and Canada’s Otto Motors, among others.

The space would see massive amounts of capital. Geek+ would raise $2.8B, Berkshire Grey would go public, raising $2.5B, and Invia and Gideon would each raise $200M. 

While emerging challengers showcased their novel innovations, GreyOrange also faced stiff competition from industry stalwarts such as Swisslog, SSI Schaefer, Siemens, Daifuku, and Mitsubishi, all of whom showcased offerings transcending mere robotics and fulfilment, expanding their influence across various domains.

The industry’s ultimate aspiration remained steadfast: developing intelligent, integrated solutions fusing IoT, 5G, edge computing, and real-time computer vision to supplant traditional conveyor-belt assembly lines. 

Key differentiators would be affordability, deployment speed, and scalability. 

GreyOrange’s distinctive strength resided in its ability to deploy systems within a remarkable timeframe of under six months, starkly contrasting to the 12-18 months demanded by conventional automated storage and retrieval systems. 

This accelerated implementation, coupled with the option for gradual scaling, avoided upfront investments and underutilisation during the initial phases, effectively positioning GreyOrange as a formidable contender in its sphere.  

As the fulfilment industry reached a staggering $9 billion, with the promise of swift expansion as automation permeated every facet of production and logistics, the market structure seemed poised to evolve into an oligopoly gradually over time.

However, the world would watch this industry face rapid changes, as the unforeseen challenges brought on by the pandemic would completely disrupt supply chains across the globe.

Bionic Arms Race

Pre-pandemic, the warehousing sector had been on a slow burn

Innovation and automation upgrades were limited due to the prevailing perception of warehousing as a cost centre. Efficiency was often sought through cost reduction rather than technological advancement. 

However, the pandemic proved to be a seismic catalyst, disrupting the supply chain sector and prompting a complete 180-degree shift in approach. As the pandemic unfolded, the traditional methods of scaling operations became untenable. 

This unprecedented situation fueled an unparalleled demand for robotics in the manufacturing sector.

During this crucial juncture, the demand for robots skyrocketed, with large retailers desperately seeking solutions to meet the new needs of efficiency and speed. Amazon deployed an astonishing million robots in its warehouses to accommodate the surge in e-commerce demands, while other retailers needed help managing 20-30K robots.

The post-pandemic era heralded the beginning of the “Robot Wars.” 

In this landscape, Amazon introduced Kiva, Alibaba embraced Geek+, and GreyOrange emerged as the choice for other retailers. The company became a pivotal robot supplier to many prominent clients, including Walmart, H&M, COS, Coupang, and GXO Logistics.

GreyOrange experienced rapid growth across diverse customer bases, applications, and geographic regions, further underscored by achieving a remarkable 170% gross retention in contracted revenue from existing customers in 2021.

The demand for GreyOrange’s omnichannel fulfilment platform grew immensely post-pandemic. 

Retailers worldwide came to acknowledge robotic automation in the fulfilment process. This marked an extraordinary moment when an Indian-origin hardware company was shining on the global stage, actively onboarding customers across diverse countries ranging from the United States to Japan.

In a significant milestone, GreyOrange secured $110 million in funding, strategically fueling global expansion, consolidating market dominance, enhancing the deployment of their industry-defining software platform, and accelerating the adoption of their cutting-edge solutions worldwide.

Despite the growth, 2022 would be a rough year for GreyOrange as they would scale slower than their competitors in the gold rush. The company had a planned IPO at a $1.6Bn that wouldn’t materialize. Investors would nudge for a change. 

The change would come.  

Picked-And-Packed Future

As the company entered 2023, it would see changes in its team

Samay Kohli would move on as the CEO of the company, with his co-founder Akash picking up the mantle. The team would also beef up its management team, looking more like a global organization.

Despite the challenges faced by GreyOrange, its journey would be exceptional. Lacking any sort of ecosystem in India for hardware, it emerged as a global leader. 

Becoming Spark’s leading autonomous mobile robot vendor would be no mean feat. 

As the team is organized for scale, substantial growth still beckons. Retailers worldwide will actively seek avenues to enhance their supply chain capabilities, creating a sustained demand for innovative solutions.

GreyOrange’s estimation of the addressable market further bolsters this conviction. 

Globally, the percentage of smart warehouses remains small, ranging from 8-10%, and some countries, like the UK, possess a mere 2-3% smart warehouses. 

GreyOrange has thus made significant investments into expanding its leadership team. Strategic appointments such as a regional CEO for North America and a global COO are steps to unlock growth potential fully.

It plans to introduce an additional 300 roles spanning engineering, product development, and marketing and assemble a formidable team.

Hitting an estimated $150M in revenue in 2022, the company looked better positioned to win in 2023. 

GreyOrange continues to emphasise product quality and the prowess to introduce pioneering projects. The company’s inception was rooted in the conviction that fulfilling modern demands must rely on something other than technology tailored for a bygone era. 

Remaining true to its foundational principle, GreyOrange recently unveiled a multi-robot orchestration feature, enabling robots from different manufacturers to function collaboratively within a warehouse setting. 

This innovation aligns with their anticipation that by 2026, more than 50% of companies deploying intralogistics robots will embrace a multi-agent orchestration platform.

From a modest courier service in India to a cutting-edge logistics warehouse in Osaka, GreyOrange’s journey has transcended expectations. 

It is a humbling and awe-inspiring embodiment of “Make in India for the World.” The journey has merely commenced as the company progresses, promising a bionic future.

Writing: Bhoomika, Ajeet, Raghav, Mitali, Nikhil and Aviral Design: Omkar and Stable Diffusion

Last fortnight, Waycool was reported to be raising $50M to become India’s first agritech unicorn, possibly being India’s first unicorn of 2023. 

Sowing The Seeds

Sanjay Dasari always considered himself an entrepreneur. 

It was 2015 and he was a recent graduate of Babson College in the US, and had returned to India to explore the new world of business opportunities.

As a millennial and foodie, he was very excited by the food industry and considered opening a food trucks franchise in India.

As part of his research, he visited a prominent vegetable vendor in Chennai’s prime open market to discuss sourcing for his business. 

He was shocked when he saw the unhygienic levels inside the market and how disorganised and chaotic everything was. On further enquiry, he learnt that this vendor claimed to be selling vegetables to some of the top-end hotels and restaurants in city.

Taken aback by that visual, he figured that more people like him must want cleaner, fresher, and better products. Many other food entrepreneurs had become uncomfortable with the traditional food supply ecosystem’s need for hygiene and transparency. 

He was slowly convinced that this was where his focus should be, in the restaurant supply chain business.

His father, Vinod Dasari, the managing director of Ashok Leyland, talked to his colleague Karthik Jayaraman about Sanjay’s project. 

Karthik had an extensive journey in the automotive industry, beginning as an engineer at Tata Motors. A project manager at Timken and most recently at Ashok Leyland, where he ran the MD’s office, managed network expansion, dealer development and corporate development strategy for the company. 

He also had a five-year stint at McKinsey, where he consulted on the automotive and assembly industries. 

During his two-decade-long career, Jayaraman closely viewed how the auto industry perfected supply chain management. He felt applying these basic principles to less organised sectors could create large efficiency benefits. 

He met Sanjay and, impressed by his idea, joined hands to start a retail venture called SunnyBee. They began on mobile food trucks to enter apartment complexes and IT buildings, directly selling hygienically sourced fruits and vegetables to end consumers and small hotels and restaurants.

SunnyBee were using a B2C model to vet a fragmented supply chain before they would revolutionise it. 

Fields Of Fortune

India’s reliance on its agriculture sector is an old tale

The reliance is easily identifiable as a direct product of the vast amounts of arable land and tropical climate available to the country. The sector has been crucial.

It has thus seen different eras of evolution, with changes ordinated in the colonial period influencing much of how these supply chains persist today. 

The concept of agricultural market regulation in India traces its roots back to the British Raj when the sector saw vast production sizes. 

India’s first regulated market, Karanja, was established in 1886 under the Hyderabad Residency Order. It operated towards ensuring a steady supply of raw cotton at reasonable prices to the British rulers for the textile mills in the UK.

This market regulation model was subsequently adopted in other parts of the country. However, progress in this area was made only after India gained independence from the British.

During the 1960s and 1970s, most states in India implemented and enforced the Agricultural Produce Markets Regulation (APMR) Acts, which encompassed all primary wholesale assembling markets, bringing them under regulatory measures. 

But this left a large part of the agri-supply chain ecosystem entirely in the public sector or strongly linked to it.

The GoI then enacted the APMC Act in 2003 with good intentions. 

The idea was to establish an open market for farmers to sell their produce while safeguarding consumers from excessively high farm-to-retail prices, providing minimum support prices (MSPs) for a few crops.

However, in the absence of adequate infrastructure in certain pockets of the supply chain, intermediaries emerged as substitutes, many of whom contributed no apparent value to the agricultural produce. 

They found niches as either marketing channels, transport links to faraway mandis, or buyers of non-MSP crops. This cocktail of inefficiencies resulted in unfavourable outcomes for producers and consumers, leading to cost inflation of ~250% in some cases.

Added to this was the skewed distribution of capacity and inadequate infrastructure for storage, which was a whole different problem.

Seeing this severe problem, SunnyBee secured its first round of financing in 2016 through seed funding from angel investors and impact investors supporting agricultural development, leading them to expand their tech capabilities. 

The problem would only worsen as the SunnyBee team scratched the surface. 

Shelf Life

Most of the perceived wisdom about food storage and logistics came from the West. 

Culturally, in the West, people store and consume food over extended periods. Conversely, India is more of a high-speed supply chain, where the time gap between growing, harvest and consumption is much smaller. 

The US has about 2 million farmers, each with an average of 440-acre piece of land. Meanwhile, the 150 million farmers in India have 2.5 acres each on average. 

Each farm thus produces a relatively small quantity of food, and aggregators are needed to consolidate the production and make it an economically transportable unit. Each unit needs to be broken down again as most vegetable purchases happen in Kirana stores which store small quantities of food. 

Furthermore, each Kirana store has small amounts of different staples like onion, rice and tomato, so there are multiple layers of disaggregation. This adds direct cost to the supply chain, repetitive transport and handling commissions of each player, and physical product loss or damage. 

But the more significant effect is that demand information needs to be communicated to the producer.

The reason is the farmer produces according to their local inputs, such as what the seed seller is telling them, what the neighbouring farmer is doing and what their parents are doing. They need to understand what the broader market for their product looks like. 

This means food production is inelastic. 

While demand from the consumer end may vary a lot, the information doesn’t trickle to the farmer in time, leading to an issue of a push supply chain.

That’s based on the principle that people produce, and the supply chain conveys it to the user and pushes the product onto the user. If the production is not aligned with what the user wants, there will be a surplus and wastage or shortfall of supply.

This is simply unaffordable in a country currently the second-largest gross agricultural producer globally.

In a pull-based supply chain, the demand is predicted, captured, or aggregated, and production and supply happen based on this aggregated demand. If a tech player could get enough data on consumer demand from retailers, it could then accurately forecast the market and provide sure-shot information to the farmer partners so they can produce without uncertainty.

SunnyBee began to see a deeper problem, much bigger than their initial path.

Consuming Leftovers

SunnyBee had focused on South India, directly selling fresh produce to consumers via their mobile food trucks. 

Over time, as they increased consumer traction, they started servicing larger clients in the HoReCa (Hotels, Restaurants, Cafes) space. 

The aha moment was when they saw demand, margins and pull greater from HoReCa. SunnyBee decided to pivot into the B2B model.

SunnyBee would become Waycool. 

Waycool operated in the “farm to fork” space. This consisted of three essential layers – procurement at the farm level, supply chain from farm to cities, and a robust inter-city distribution network.

This was a B2B model with the farmer on one end and the HoReCa Restaurant / Retailer on the other. The Retailer and Restaurant cared about consistent quality and timely delivery, and the Farmer cared about getting a fair price for their produce. 

Due to the lack of transparency, farmers need more information to decide what plant to sow at what time of the year. Waycool, being integrated into this supply chain, could also help. 

In the meantime, the aim was to eliminate the multiple layers of middlemen who plagued the market. 

Food products pass through anywhere from 7 to 15 different intermediaries before reaching the end consumer, compared to two intermediaries in the WayCool supply chain.

Waycool was operating in the biggest market there was in India.

The Indian agricultural sector, which encompasses farming, forestry, livestock, and fisheries, plays a vital role in India, with a recorded GDP of $244 billion in FY17. 

It continued to experience growth, and the sector was projected to expand further, reaching USD 350 billion by 2023 and was expected to reach USD 450 billion by 2028. This growth signifies a compound annual growth rate of 5% during the forecast period

The potential market size for agritech in India is projected to reach $25 billion by 2025, of which only 1% had been achieved. Over $3 billion was invested in the agriculture sector worldwide in 2016, with 53 Indian agritech startups raising ~$30 million.

WayCool would become one of the first B2B agri-tech companies.

Cereal Chillers

WayCool emerged as a game-changer, “chilling” the food industry’s problems.

The total preventable post-harvest losses of food grains amounted to around 10% of total production, equivalent to approximately 20 million metric tons. This was equal to Australia’s annual production.

20% of the Indian population suffers undernourishment; such annual post-harvest losses seemed like a criminal oversight. WayCool implemented a direct supply chain model to fix this, consolidated on a single integrated tech platform, and reduced wastage to ~2%.

WayCool forged partnerships with Government Agriculture bodies, NGOs, and social impact NBFCs, establishing trust with the farming community and developing technology solutions for post-harvest storage. Its platform gained widespread adoption, leading to an annual revenue run rate of 30 crores by August 2017.

WayCool sets itself apart from competitors by integrating physical and digital technology in its supply chain operations. It focused on utilising cutting-edge technology to build a large food distribution business, fostering efficiencies, reducing information asymmetry, and integrating high-quality phygital assets into the supply chain.

It introduced several innovative methods to enhance efficiency, including intelligent cross-docking for dry groceries, AI-led grading of grains and pulses, and robotised handling of fresh produce. 

These initiatives resulted in a remarkable 70% reduction in working hours, making WayCool 50% more efficient than industry standards.

The margins in the agri-food chain can be deceptive. The gross margin when buying tomatoes at ₹8 per kg and selling them for ₹16 may appear attractive, but many costs, such as trucking expenses, remain constant and cannot be reduced further.

With limited scope in reducing these costs, WayCool relied on harnessing technology so farmers could make better-informed decisions encompassing activities from planting and irrigation to harvesting and sales. 

Farmers selling their produce directly to WayCool at the farmgate instead of wholesale markets started seeing the positive effects of the direct supply chain. They saw a 30-40% boost in incomes. Farmers also received immediate digital payments upon delivery to WayCool’s warehouse by eliminating middlemen, avoiding commissions and payment delays. 

These innovations contributed to WayCool’s streamlined supply chain, reduced costs and ensured efficient operations.

As the seeds of improving efficiency were sown, WayCool started reaping the financial fruits with an impressive annual revenue run rate of $35.2 million (INR 250 crore) by 2019. This was a remarkable 20-fold expansion since its last funding of $2.7 million in April 2017. In 2019, they raised $16.9 million (INR 120 crore) through equity and debt. 

With this new round of funding, WayCool was poised to further explore and expand in the market.

Branching Out

Until now, WayCool had been tilling the fertile grounds of South India, planting the seeds of success and mastering the agritech trade.

With a strong foundation of success in South India, WayCool was poised for expansion into new markets. The company’s confidence in its achievements paved the way for venturing into Western India and the Middle East. 

By expanding its reach into these regions, WayCool aimed to replicate its success and establish a strong presence in untapped territories.

WayCool’s strategic pivot from B2C to B2B has proven highly successful. The company generated nearly 90% of its revenue from the B2B channel, catering to clients such as Taj Hotels, Elior, Sodexo, and major national modern trade and online food distributors.

WayCool had established different channels, including food services (hotels, restaurants, caterers), processing and bakeries, general trade (kirana stores and local supermarkets), and modern trade (national supermarket chains and online distribution players) and supplied food items across intercities.

In terms of products, they created a diversified portfolio of fruits and vegetables and staples like rice and dal. Each contributed 40% of its revenue. Branded distribution accounted for 15% of revenue, while dairy products comprised another 5%.

With its “way” of excelling in different parts of the supply chain and distribution channels, WayCool gained a distinct advantage. WayCool became a master of the entire farm-to-fork journey. 

It handled procurement at the farm, managed the supply chain, and ensured smooth inter-city distribution. Its direct interaction with farmers and consumers added an extra layer of effectiveness to its approach.

Despite experiencing strong growth, WayCool continued seeking new opportunities for collaboration and partnerships. 

WayCool also pursued inorganic growth to fuel its expansion by acquiring companies in different supply chain segments.

For example, the acquisition of Benani Foods enabled them to connect their rice and dal farmers with the production of idli dosa batter. Similarly, the acquisition of Farm Taaza facilitated geographical expansion by utilising its warehouse in Hyderabad.

In addition to building its forecasting and analytics capabilities, it also noticed an opportunity in creating consumer packaged goods. It ventured into the space in 2018 through brands such as Madhuram (rice), Kitchenji (staples), and Freshey’s (ready-to-cook). These were to increase maging.

With its robust sourcing networks and technologically integrated supply chain, WayCool positioned itself to meet farmers’ supply and consumers’ demands effectively.

But this increase in scale came with its challenges.

While WayCool managed to increase its revenue, the margins continued to decline. While its revenue increased by ~40% from 200 Cr in FY19 to 300 Cr in 2020 it posted an 81% increase in losses amounting to Rs 97.3 Cr. EBITDA margins worsened from -21.8% to -29.7% in FY20 during the same period.

However, WayCool realised that the agriculture industry couldn’t be changed overnight. 

Patience was the key and they continued to find avenues to improve the agriculture value chain.

WayCool also recognised that farmers, crucial players in the supply chain, often face financial challenges. It took measures to increase productivity and income for farmers.

By 2021, it was the largest agricultural tech platform in the country, reaching 400 Cr of revenue.

Bearing Fruit

WayCool maintained a competitive edge through its streamlined supply chain. 

Operating on an integrated technology platform, the company reduced wastage to less than 2%, resulting in higher gross margins and improved efficiency.

Despite growing competition, WayCool’s revenue skyrocketed by 2.4X to 926 crores in FY22. This growth came with increased losses of 360 crores, reflecting the company’s investments in expansion and innovation.

Its demand-led supply chain model accurately predicts client demand and aligns harvesting and production accordingly. With a solid commitment to efficiency, WayCool stands out as a leading force in the agritech sector.

Building on its success, WayCool raised its Series D round of 117 million dollars.

This funding round valued the company just shy of becoming the first agritech unicorn in India and represented one of the largest rounds for an agritech company in the country. The round comprised a combination of equity and debt to fuel the company’s expansion plans.

With the newly raised capital, WayCool aimed to create a keiretsu of businesses.

The company aimed to deepen and widen its technological capabilities, enhance automation processes, and expand into new categories. Additionally, WayCool sought to strengthen its private-label brands and expand its footprint across different geographical regions.

Utilising the funds, WayCool embarked on a rapid growth trajectory through a series of strategic acquisitions. 

The company acquired Gramworkx, a cloud-based intelligent farm resource management tool. This acquisition empowered farmers by providing guidance, optimisation, and monitoring water utilisation. Gramworkx quantified water consumption patterns and offered analytical insights across fields and soil types, providing valuable data support.

Another significant acquisition was SV Agri, a fully integrated player in Pune’s potato supply chain ecosystem. WayCool leveraged SV Agri’s robust supply chain network to enhance its capabilities in this sector.

Furthermore, WayCool acquired an 80% stake in AllFresh, a company specialising in sourcing and supplying apples and citrus fruits. AllFresh utilised innovative technology and processes to reduce food loss and extend the shelf life of these products. WayCool aimed to leverage AllFresh’s capabilities and tap into its extensive network of apple and citrus growers in Himachal Pradesh, Punjab, Maharashtra, and Madhya Pradesh.

To fuel this growth, they raised another 40 million dollars in venture capital and another 6.5 million dollars in debt.

The company was ready to take off. 

Soil to Sale

To deepen margins, WayCool went deeper on subscription businesses, marketplaces and building out a brand portfolio. 

These would allow it to extract more from its already existing customers. WayCool launched Censa, a comprehensive tech stack as a Software-as-a-Service (SaaS) solution. 

Censa provided an end-to-end solution for companies, addressing various concerns such as farm management, shop floor management, logistics management, and B2B or B2C services.

The solution encompassed farm, processing, distribution, and consumer tech functions. It also offered analytics capabilities for route optimisation and order forecasting, addressing supply chain-related challenges.

WayCool followed up by introducing WayCool 2.0, an online B2B marketplace for retailers across India. This platform facilitated the sourcing and delivery of vegetables and fruits from farms to kiranas and businesses nationwide. 

Leveraging technology and an integrated supply chain, WayCool ensured the entire farm-to-store process was completed within 12 hours, guaranteeing the safety and freshness of the produce.

It noticed that farmers were earning low returns not because of market challenges but inadequate guidance on agricultural practices.

It addressed this by launching WayCool Outgrow, a multilingual app providing intelligence around crop-health management, soil testing and irrigation planning, with features like AI-based disease detection from just an image of the diseased crop and instant guidance on how to treat that crop disease. 

It has been making significant strides in expanding its business across various segments. In line with this vision, the company launched BrandsNext, an entity dedicated to powering its fast-moving consumer goods (FMCG) business.

BrandsNext would serve as an umbrella encompassing all of WayCool’s successful FMCG brands, aiming to enhance its consumer goods portfolio further.

The FMCG business has already substantially contributed to WayCool’s revenue, accounting for approximately 25% of the company’s 1800 crore revenue in FY23. WayCool has set an ambitious target of doubling this contribution by FY24.

WayCool envisions this segment will play an even more significant role in future revenue streams. 

With a targeted income of Rs 6,000 crore by FY25, WayCool aims to increase the contribution from branded products and third-party distribution to 35-40% of the overall revenue.

This strategic shift highlights the company’s focus on developing and marketing its products, moving away from the reliance on commodities sourcing and trading.

Money On The Table

WayCool has now positioned itself on the path to becoming the first agritech unicorn. 

WayCool has also ventured into contract farming of vegetables, initially starting with a 3.5-acre farm in Hosur near Bengaluru. The company has ambitious plans to scale up this initiative to encompass 500 acres, further strengthening its agricultural supply chain and ensuring a steady supply of high-quality produce.

Expanding its reach beyond Indian borders, WayCool has established a distribution arm in the UAE. Through this arm, the company sells around 25 products and operates 30 warehouses across Southern states and Maharashtra, covering an impressive area of approximately 3 lakh square feet. 

This expansion into international markets reflects WayCool’s commitment to broadening its customer base and diversifying its operations.

WayCool’s dedicated R&D arm has driven innovation in the agritech sector. The company has developed numerous farming tools, leading to the successful acquisition of six patents. 

WayCool has filed another 30 patent applications

Building an integrated food ecosystem has secured an airtight position in a mammoth industry.

The pace at which Waycool is rolling is unprecedented in the agriculture sector. Its revenue has increased from INR 400 Cr. in FY21 to INR 1,000 Cr in FY22 to INR 1,800 Cr in FY23. The company plans to achieve a revenue of INR 5,000 Cr by FY25.

WayCool is on a mission to deliver 3 EBITDA positive quarters before it lists in public markets in 2025.

Operating in an unsexy industry, the company has exploded to the forefront. What WayCool has been able to build in less than a decade is way cooler than what meets the eye. 

It is a billion-dollar company in making, a tremendous social impact in farmers lives by removing middlemen, better quality products for customers, reduction in food wastage with better demand estimation, targeting net carbon positive and many more.

Waycool could unlock India’s jammed supply chains for a healthier tomorrow as it continues its innovation.

Writing: Bhoomika, Ajeet, Chandra, Mitali, Tanish and Aviral Design: Abhinav and Chandra

Last fortnight, Canadian Coffee Brand Tim Hortons said it would open in Mumbai, hot on the heels of Nestle citing India as one of the world’s fastest-growing coffee markets.

The Awakening

India’s coffee story began in the 17th century.

Legend has it that Baba Budan, while on a pilgrimage to Mecca, discovered the wonders of coffee. He returned some coffee beans to his native land, Chikmagalur, in present-day Karnataka, India.

Enraptured by the aroma and refreshing taste as many of us today are, Baba Budan planted the coffee beans in the fertile hills of Chikmagalur, where the favourable climate, rich soil, and high altitude of the region proved to be ideal for coffee cultivation. The coffee plants thrived, and the hills of Chikmagalur were soon covered with lush coffee plantations. 

This region became the birthplace of coffee in India and earned the nickname “Coffee Land.”

Word of this newfound treasure spread like wildfire, reaching the ears of the British East India Company, which saw untapped potential in these fertile lands. They gazed upon the rolling hills of the Nilgiris, Coorg, and Wayanad and saw a big opportunity, primarily to export. 

With their colonial might, they fostered the cultivation of coffee.

In the early 1900s, European settlers and officials played a crucial role in introducing the concept of cafes to the country. British-style tea and coffee houses began to pop up in major cities, catering primarily to the colonial elite. 

These cafes provided a space for the British expatriate community to socialize, relax, and engage in intellectual discussions.

Inevitably, cafes also significantly influenced India’s independence movement by the mid 20th century. From then on, cafes naturally became inclusive spaces for creative expression and social interaction.

The 20th century saw the rise of iconic cafes such as the Indian Coffee House, which started in the mid-1900s and became synonymous with intellectual and political discussions. 

The sector faced challenges during the first half of the 20th century, including disease outbreaks and economic downturns. The spread of coffee leaf rust disease in the 1920s severely impacted coffee production, leading to a decline in output. 

However, concerted efforts by the government and the coffee industry helped combat the disease and revive coffee cultivation.

By 1942, The Coffee Board of India was established. 

As India gained independence, it played a crucial role in promoting the growth and development of the industry. In the 1960s, the board focused on improving cultivation practices, providing technical assistance to farmers, and a prime emphasis on marketing Indian coffee globally.

Tailwinds from the export momentum led to the rise of small coffee growers by the 1980s. 

These farmers, encouraged by government policies, started cultivating coffee on smaller plots of land, contributing to increased production. The focus gradually shifted from large estates to small-scale plantations, promoting inclusivity and empowering farmers across the coffee-growing regions.

A Lot Can Happen Over Coffee

By the 90s, there were only a few places where friends could sit down and grab a bite. 

There were hardly any clean, hygienic, air-conditioned places that offered a casual setting and a modern selection of food and beverages. 

The modern Indian cafe story as we know it started in earnest with the launch of Cafe Coffee Day, or CCD, in 1996. 

CCD was founded in 1996 by V.G. Siddhartha, a first-time entrepreneur from Karnataka, India. 

At the time of its inception, the coffee culture in India was predominantly limited to traditional filter coffee shops. Siddhartha recognised the potential for a contemporary coffee chain catering to the emerging urban middle class and young professionals.

In 1996, CCD opened its first outlet on Brigade Road in Bangalore, Karnataka. 

The cafe had a unique concept, combining a European-style cafe ambience with a range of coffee-based beverages. The blend of international coffee culture and local flavours uniquely resonated with the Indian consumer. 

The initial years were challenging for CCD, as they had to create awareness about their brand and convince customers to embrace a new coffee-drinking experience. To attract customers, CCD focused on offering high-quality coffee, freshly brewed in front of the customers, and a comfortable environment for socialising, studying, or conducting meetings. 

CCD used this to gain a loyal customer base and become a go-to destination for coffee enthusiasts.

To ensure a consistent customer experience across its outlets, CCD implemented standardised operating procedures and training programs for its staff. In addition to its physical presence, CCD introduced innovative marketing strategies to enhance its brand visibility. 

With its first outlet in Bangalore, CCD won over the city over time, seeing significant growth due to the IT Industry. After returning from foreign lands, IT employees demanded a semblance of the coffee cafes they had experienced in their stint abroad, and CCD was there to fulfil it.

By 2000, CCD had capitalised on this gap in the market and opened several stores across the country. 

By the turn of the century, India’s coffee revolution had been sparked

Bean There, Done That

The influx of American entertainment post-liberalisation ramped up coffee consumption in India. 

For the generation that came of age in the 2000s, many private TV channels were replacing the staid and old-fashioned Doordarshan. Friends, released in India in 1999, had the “Central Perk” coffee shop where the show’s cast hangs out as a pivotal plot point. 

Further, there was a boom in travel between India and the USA, driven by IT-based outsourcing. 

Initially, global airlines such as Swissair and British Airways began outsourcing their back office work to India; IT companies such as Texas Instruments, American Express, and GE followed. 

Then ITeS services such as Infosys, TCS and Satyam also took the increasingly lucrative Y2K business. This also led many more Indians than before to travel “on-site” to the West. 

This increasing travel and cultural exposure led more Indians to discover the coffee culture and, eventually, the artisanal coffee movement. 

One of the travellers was Ravi Deol, a former marketing executive at Coca-Cola, whose travels in Italy introduced him to modern cafe culture. 

Despite CCD’s existence, he soon realised that making coffee a thing in India would be an uphill struggle. Indians seemed broadly indifferent towards coffee for an audience that lived in one of the primary producers of the commodity.

In 2000, the average Indian drank only about 55 grams of coffee, about 6 cups per person a year or one-tenth of tea consumption.

Due to a lack of knowledge about coffee and coffee consumption domestically being discouraged by the Coffee Board, Deol’s insight was not to sell coffee as a drink but as a lifestyle. 

Barista pioneered a modern, clean layout, with magazines, board games and guitars encouraging consumers to spend more time there. 

It was the first “specialty coffee” cafe in India. 

Deol set up a coffee boot camp for the staff, where he trained them eight hours a day for three weeks on every aspect of brewing coffee. This included the method of packing grounds for espresso, frothing milk for cappuccinos and how to operate the expensive Italian coffee machines he had imported.

Deol also customised the menu and offerings to suit the Indian palate, ​​with some Barista branches being a pure vegetarian, serving cakes and even quiche made without eggs. 

Barista grew enormously, opening 55 outlets in its first year. In 2007, when it was acquired by the Italian coffee giant Lavazza, it had about 200 stores all over the country. 

Even sleeping with one eye open wouldn’t suffice for the storm that was to come

Brewing Success

Despite being a small consumer, India was the world’s sixth-largest coffee producer.

South India is both a huge producer and consumer of coffee. Karnataka accounts for 71% of coffee production in India, followed by Kerala at 21% and Tamil Nadu at 5%. 

Coffee consumption was greater in South India and the love for coffee has been spreading to North India where tea is the preferred beverage. 

2010 India’s coffee market was 1,000 Cr ($160M), compared to Tea’s 5,000 Cr. However, coffee grew rapidly, with the expectation of 10x in 10 years. 

While coffee consumption in the country grew at an average rate of 2 per cent per annum in the 50 years leading up to 2000, it has since picked up and has been growing at about 8-9 per cent per annum since 2000. 

While coffee culture has strong roots in certain states of South India, it was less widely prevalent in other parts of the country. 

In 2011, India exported 70 per cent of its coffee output abroad. This was due to the combination of low domestic demand and the challenges farmers face in obtaining fair prices for their coffee in India.

Most of the coffee produced in India found its way to international markets rather than being consumed domestically.

However, a noticeable shift in the coffee culture in India started to change coffee farmers’ perceptions. Increasing disposable income and a growing tendency to dine out provided the tailwinds for the growing coffee market. 

Unlike in the past, where domestic buyers couldn’t match export prices, the present scenario showcases how modern urban India possesses both the appetite and the income to embrace lifestyle products like coffee.

The evolving coffee culture and the increasing market demand created positive momentum for the coffee industry in India. 

The biggest booster was going to arrive. 

In 2012, Tata, in a joint venture with Starbucks, launched the iconic American coffee chain in Mumbai, indicating that coffee culture in India had finally come of age. 

Starbucks’ entry would catalyse the industry to start a new revolution.

Not Everyone’s Cup Of Tea

As Starbucks opened, Matt Chitharanjan and Namrata Asthana embarked on a coffee expedition across India. 

Inspired by the rich diversity and untapped potential of Indian coffee, they set out to discover hidden coffee estates and forge direct relationships with local farmers.

During their travels, Matt and Namrata encountered remarkable coffee beans grown in different regions of India, each with its unique flavour profiles and characteristics. The experience ignited a desire to bring these extraordinary coffees to a broader audience and create a platform celebrating the country’s coffee heritage.

In 2013, Blue Tokai Coffee was founded in New Delhi with the vision of sourcing, roasting, and serving some of the finest single-origin coffees from across India. 

Blue Tokai Coffee set itself apart by adopting a farm-to-cup approach. Matt and Namrata established direct relationships with coffee growers, working closely with them to ensure fair trade practices, sustainable farming methods, and the highest quality standards.

This approach supported local coffee communities and allowed Blue Tokai to source unique and traceable coffees.

The company’s focus on quality extended to the roasting process.

Blue Tokai invested in state-of-the-art roasting equipment and hired skilled roasters who meticulously roasted each batch of coffee to unlock its full potential. The result was a range of coffees that showcased the nuanced flavours, aromas, and complexities of Indian coffee.

Blue Tokai Coffee quickly gained recognition for its commitment to excellence and the craft of coffee. It opened its first café in Mumbai in 2014, providing customers with a curated coffee experience.

As Starbucks and Cafe Coffee Day scaled, India started to experience a new movement.

Consumer preferences in India were shifting towards brewed, ground, and flavoured coffee culture. This movement, often called the “third wave of coffee,” brought a heightened focus on the quality and craftsmanship of Indian brews. 

Blue Tokai recognised consumers were willing to pay a premium for a unique, high-quality coffee experience.

India’s new coffee revolution was beginning to scale. 

A Cup Above the Rest

In 2016, Blue Tokai was followed by the founding of Third Wave Coffee Roasters.

Driven by enthusiasts of coffee who wanted specialty coffee roasted in smaller batches with custom flavours, the supply began to increase. 

“Specialty coffee” was the common term for this highest-grade coffee. 

The widely accepted definition of specialty is coffee scoring 80 points or above on the 100-point scale used on the Specialty Coffee Association Cupping form. The quest for the highest grade impacted the entire supply chain, including the sourcing locations. 

Typically, specialty coffee needs coffee grown at a single origin or single estate. 

The usage of the word specialty coffee indicates the best flavor of coffee which are produced in special micro-climates. 

The specialty coffee supply chain includes the farmer/estate perfecting the coffee grown on their land for generations. This is followed by the coffee buyer, the roaster and finally the barista who brews your perfect coffee. 

Each supply chain member must maintain the standards of handling specialty coffee as certified by the SCAA.

The process would create defensibility for new chains beginning to scale by 2017. 

Sleepy Owl became one of the first brands to introduce cold brew coffee in India, with ready-to-drink cold brew coffees, brew boxes, brew packs and brew bags. They followed a different distribution strategy, relying on Swiggy/Zomato’s scale. 

By 2018, the growth of specialty coffee was heavily skewed toward big cities. 

In 5 years, Specialty coffeehouses were expected to account for more than half of all café sales in major cities like Bangalore and Chennai. In contrast, they accounted for ~10% overall café sales, indicating their stronger presence in urban areas.

A trifecta of millennials was supercharging the third wave of coffee, quick delivery and economic growth

Taking The Espressoway

QSR astonishingly doubled in the 5 years leading to 2020.

The market was expected to reach nearly 83 thousand crore rupees in size by FY 2025. Coffee was becoming both the main act as well as an accompaniment. 

In February 2020, Lavazza India revealed 69 percent of Indian millennials use coffee as a food companion. Nearly 50 percent opted for coffee as the day’s first meal instead of tea. 

By early 2020, the overall market was worth 10,000 Cr, with retail chains forming a 2,000 Cr market. 

Driven by India’s rapidly shifting coffee preference, specialty Araku Coffee opened its first store in India before the pandemic. 

Manoj Kumar founded Araku, started in the Araku Valley in Andhra Pradesh, as a livelihood project for local tribal populations. Like most coffee players in India, they began with exports. Araku focussed on B2B marketing in Japan, South Korea, and France at very high prices. 

By 2020, it found India lucrative enough to begin. 

Araku noted that the Covid-19 outbreak was “a blessing in disguise” as it led to a spike in coffee consumption, and artisanal brands witnessed a manifold increase in sales. 

Since most Indians were working from home and attending from school at home, they needed to buy coffee and brewing equipment at home. They usually might order this when they go out. 

As more Indians moved up the value chain, they also moved from commodity to speciality coffee. Drinkers started to explore how people are beginning to understand how coffee is grown, processed, and sourced.

More brands proliferated. The Flying Squirrel, Indian Bean, Halli Berri, Estate Craft, Riverine and Bynemara began to pick up. 

Many of these brands source the beans from the Western Ghats, an excellent coffee-growing region. Notably Wayanad, Chikmagalur and Kodagu.

Unlike Starbucks and Barista, who sourced coffee from other manufacturers, many of these companies have estates. They could be called bean-to-cup operators — where the growers are also the retailers.

The revenue had begin to flow. 

Smelling Money

In late 2022, Third Wave would enter discussions to raise a $25M round.

The brand had reached close to 100 Cr of revenue, especially since Starbucks was closing in on 1,000 Cr. Blue Tokai, which was the original brand, would raise $30M. 

It, too would cross 100 Cr, and the specialty coffee space had raised ~1,000 Cr. Blue Tokai was worth almost 1,000 Cr.  

As the tech ecosystem in Bangalore proliferated, the enablers of the tech ecosystem were getting rapidly funded too 

By 2023, coffee beans’ exports dropped from 80% to 60% as supply shifted to cafes locally growing in the market. The “Third Wave Coffee” in terms of the premium artisanal coffee chain was begin experienced by almost everyone in metros. 

The specialty coffee brands had demonstrated demand in metros and Tier 1s. There was a huge market for the taking. 

Specialty coffee makers were deeply interested in penetrating Tier 2 and Tier 3 cities. Tier 1 cities tend to be leaders, with other cities following. 

Due to this, the love for specialty coffee was rising nationally, ensuring that consumers in Bhopal are brewing as easily and as regularly as their counterparts in the metros.    

Plantation owners also interact directly and play on coffee’s production efforts and emotional marketing aspect, which makes a cup splendid for a consumer.

Steaming Ahead

As the specialty coffee market gained momentum, existing players began responding.

Tata Consumer Group launched their direct-to-consumer (D2C) brand, Sonnets by Tata Coffee, offering high-quality single-origin Arabica coffee with options for roast and grind levels. 

Brands like Tata Coffee Grand, Bru, and Nescafe, which dominated the instant coffee segment, began introducing new products to meet evolving consumer preferences. 

D2C channels provide customised experiences, allowing brands to cater directly to coffee connoisseurs and tap into the growing market.

International players like Tim Hortons and Pret A Manger are also drawn to the thriving coffee market in India. With the country’s overall coffee market projected to reach over $4.2 billion by 2025, and the Indian coffee retail chain market expected to hit the $850 million mark by the same year, the potential for growth and success is evident. 

Tim Hortons, known for its premium brand and balanced pricing approach, aims to cater to the passionate on-the-go Gen-Z and millennial crowd. At the same time, Pret A Manger brings its renowned coffee and sandwich offerings to the Indian market.

These international brands recognise the opportunities and wanted to part of India’s evolving coffee culture. The juggernaut of coffee culture growth in India shows no signs of stopping, delivering remarkable results for companies in the industry. 

It is seen no better than in Starbucks, which achieved a significant milestone in the financial year 2023.

Net sales crossed Rs 1,000 crore, representing a remarkable 71% growth compared to the previous year. The company added 71 new stores and entered 15 new cities, including tier 2 cities, to capture the immense untapped potential in these regions.

Even today, on a bustling lane in Indiranagar, one will find many start-up founders & their team members operating from cafes, forcing one to think how, over time, cafes have evolved from hang-out spots to places that foster collaboration, where people come to seek inspiration and build communities. 

Noticing the evolving consumer profiles, cafes are upgrading their infrastructure to a WeWork equivalent, providing power sockets, good internet connectivity, small conference rooms, and delicious coffee. 

With each new player brewing its speciality coffee line, the Indian coffee enthusiast’s palate evolves, creating a positive feedback loop and a unique flywheel for speciality coffee. 

While challenges still exist, such as infrastructure limitations, quality control, and market education, the overall trajectory of the specialty coffee industry in India points towards a bright future. 

India is at the cusp of a coffee revolution, and the future is aromatic.

Writing: Anisha, Ajeet, Bhoomika, Chandra, Mitali, Nilesh and Aviral Design: Omkar

Last fortnight, Whatfix posted strong revenue growth, hot on the heels of a year of consolidation and building for the global market

Dazed but Not Confused

Khadim Batti and Vara Kumar worked with cutting-edge technology and led business intelligence teams at Huawei. 

With educational backgrounds in engineering, they worked day jobs like most common folks. But like many uncommon folks, they thought about building.

The beautiful thing about starting something is that unless you do, you won’t find out if you are onto something big. And if you aren’t, you can always pivot until you make it big. 

Around 2011, the duo began to feel that they worked well as a team and decided to figure out marketing for small and medium businesses (SMBs) by building a ‘SearchEnabler.’

The idea was to build a ‘do-it-yourself’ style solution that would crunch data points from the web and synthesise these into actionable marketing recommendations, especially for social media. 

This simplified marketing and the product hit home for many companies. 

This was when social media gained traction, and their solution found many takers. Within a year, Khadim accumulated 100 customers with a small ticket size.

The ‘DIY’ approach was chosen because they targeted small businesses with a low-cost solution. They could not charge thousands of dollars in training, support and service at a ticket size of $ 20 – 30.  

Khadim soon realised that customers churned out after they used the service a few times. Customers did not realize a return on their purchase and hence did not continue to implement the recommendations provided. 

The solution was less self-servable than they had imagined and charging customers a hefty support fee would decrease purchases anyway. 

They felt they needed to solve the usage problem to retain customers. They could either wrap things up or figure out a way to make the service fully self-serve. 

By 2013, they decided to persist. In their pursuit of fixing the problem, Whatfix emerged as a by-product.

They introduced a ‘fix-it’ button in the product that showed customers exactly the parameters needed to be fixed in their product or website. 

In addition to their marketing service, customers were now returning for the ‘fix-it’ solution. Customers wanted to use it for their customers as a substitute for time spent on training and support. 

This made them realise that the ‘fix-it’ or support problem was perhaps more compelling than the marketing problem they set out to solve. They took the opportunity with both hands. 

After a three-day brainstorming, they decided to shut down SearchEnabler and offer a painkiller solution. 

The time was ripe for a pivot. 

Whole Lotta Problems

In 2014, Whatfix was solving a very fundamental problem. 

About 750 – 800 billion USD worth of enterprise software was sold yearly. Individual enterprises only realise a return on the hundreds of millions of software they buy if their employees utilise it efficiently. 

Whatfix was essentially a guidance layer built on the existing ERP, CRM, or software stack employees use. 

For employees, this would look like getting nudges and guidance through text and videos on demand and as part of their application! Customers received handholding or instructions when the information was important.   

When employees use the intended software well, it better fulfils a purpose, and organisations get a better ROI. Employees also save hours reading complex manuals and training, making fewer mistakes and learning quicker and more effectively with timely and in-context help. 

The application also interacted differently with new and existing users and tailored the communication to specific needs. Whatfix could also be used across various workflows and provide multilingual support. 

Added to this were user-level tracking and customised reports that helped with dynamic analysis and tracking. 

Whatfix began to be called a GPS for software

Experience had made Khadim realise that given the SaaS adoption and expenditure, the right market for their new guidance product was outside India. However, they didn’t take the next flight to Silicon Valley to sell. 

Instead, they set out to get validation and feedback on the product from local Indian companies. 

As a two-person team, they started sending customised cold emails daily to about 25 companies, mostly based out of Bangalore. 

If they were lucky to get a response, they would meet the company to demonstrate their product. Over the first 30 – 40 demos, while they landed only a handful of customers, they received positive reactions and vital feedback that would shape their future product. 

This was a close enough product-market fit for them to aim for the US market. They landed their first two US customers with a similar email approach followed by phone calls.

Khadim gradually refined his sales pitch based on the problem statements that the customers repeated. Initial customers were companies capable of paying $ 2,000 – 3,000 a year. 

With better belief in the product and a ready sales template, they finally brought a sales team to expand the customer base. The mantra was to get feedback, fine-tune the product and scale gradually. 

But, this time, the customers came back and didn’t leave. 

Whatfix was ready to scale.

Software Communication Breakdown

Whatfix raised a $900k seed round in 2015 to fuel the move post the ‘SearchEnabler’ pivot. 

After the initial success with the first few customers, Khadim didn’t jump to scale the solution.

After initial validation in India, they also sought to work closely with their international customers to understand challenges and determine prices. Selling to enterprises was going to be very different from selling to SMBs. 

Enterprises typically spend a few million dollars on software every year. To see a good return on this investment, they were willing to write cheques of $50-100k. While the SMBs used Whatfix to solve for adoption for their customers, large enterprises used it to improve training and support for internal software. 

Pricing too, was a learning journey. At one of the events, when they enquired about the price point, they mistook a monthly price of $8000 for a yearly ask.

This was also when Khadim realised that customers would pay much more for the solution. 

With this pricing point and the need in enterprises, they now unearthed a total addressable market (TAM) of multiple billion dollars for Whatfix.

However, while customers showed interest, sales took work. After introducing the product, the team usually set up multiple follow-up meetings to show a proof of concept followed by a 15-day trial.  

They demonstrated the use cases and ROI on software. It was a product that was more seen than heard. 

Partnering with enterprises also entailed adherence to multiple compliance and security guidelines. They also found ways to make the product usable as browser extensions, modular and comply with various cloud and data privacy limitations. 

With each hurdle passed, the path to more enterprise customers opened up, with Whatfix bagging its first Fortune 10 customer in a couple of years. 

It would take them three years to hit the $1 million revenue mark. 

The next round of funding (Series A) of $3.6M would come almost immediately in 2017. Deal sizes that had started at $50 – 80K were now growing to $500 – 800K. 

By 2018, with investor validation and a more defined product-market fit, Whatfix was beginning to take off. 

When the Growth Levee Breaks

Whatfix had grown by building products and listening to customers.

They listened to customers, built a quick solution, validated early traction, and grew their offerings. This helped to develop through strong word-of-mouth publicity.

It had started as a DIY marketing tool SearchEnabler for SMBs, gaining early traction, and pivoted to build for the market. 

By 2018, the first step towards growth hacking for Whatfix was creating its community. They cold-emailed SMEs to announce the Whatfix community, open to all to use and integrate.

The content was public.

The idea was to keep engaging customers in the community and on the web for 30 days until the product acquired some polish before formally rolling it out.

This led to early traction. Being a new category creator, it immensely helped the Whatfix team when one customer advocated the benefit to others and explained prospects in their language and use cases.

Strong referrals flowed in. 

Whatfix soon had many Fortune 500 and Fortune 1000 customers ready to adopt this new tool, which helped onboard users onto new software and provided in-app guidance and on-demand learning. 

Whatfix had the playbook for growth. It could soon develop many other products and evolve into a comprehensive digital adoption platform.

By 2019, it had reached 30 Cr of revenue, from almost zero a few years back. 

As Whatfix scaled, it became more data-centric, using customer engagement data to develop a leading tracking metric to monitor customer relationships. 

The product and customer success teams monitored this metric and proactively engaged with at-risk customers to improve their experience. Whatfix also used data for internal decisions on price points, investments, optimisation, and experimenting with the entire funnel.

Whatfix’s growth had it staring at a huge market

No Quarter of Slow Growth

The Global digital adoption market or DAP consists of two types of service providers- On-premises and Cloud.

The market was expected to reach USD 4Bn by 2030 at a Compound Annual Growth Rate of 16.2%.

This growth was fuelled by rapid digital transformation and the need for automation that was prevalent across companies of all sizes across all sectors.

As Whatfix and the world entered late 2019, there would be the perfect storm for the greater adoption of digital tools. 

COVID became a huge enabler of the transformation to digital tools. As employees working from home, their need for collaboration and dependence on software tools increased, and DAPs became even more relevant. 

Entering COVID, it had reached a healthy revenue of 60 Cr, with almost 2x growth on the previous year. It was looking at eating the on premise DAP market.

On-premises DAP software had the largest share of the global DAP software market, owing to its advantages like better security features than cloud-based DAP software.

However, as cloud-based services are more accessible, affordable and easy to set up at a fraction of the cost of on-premises services, cloud-based DAP software was expected to grow much faster over the coming years.

Whatfix was placed as one of the main beneficiaries of these tailwinds and had the potential to take the pole position.

But others would not leave it to win everything alone

Good Times Bad Times

By late 2020, Whatfix’s category saw multiple players coming, each raising giant funding. 

WalkMe raised $300M+ to guarantee to enhance user experience through in-app guidance. Pendo raised a total of $450M to become a unicorn. Smaller players like UserLane, Appcues and Apty also picked up.

But the race for the top is a 3 way between WalkMe, Pendo and Whatfix. 

Most of the key features of WalkMe were similar to Whatfix. For a small startup, WalkMe isn’t a preferred solution since it requires a bit of technical knowledge, was priced expensively, and its customer service has a bad reputation among small-medium-sized businesses. 

Whatfix solved this by simultaneously reducing content creation time, creating multi-format content, and fostering a self-serve culture. 

Pendo on the other hand positioned itself as a platform with advanced analytical features and enterprise software. For product analytics and user segmentation, Pendo was a great solution. Big clients like Zendesk, BMC, and Sprinklr chose Pendo to understand and guide their users.

However, there were limited onboarding elements, and a better variety of styling options could exist. It restricts you from creating a smooth onboarding experience. Using it could sometimes be confusing since Pendo had many different features for different use cases. 

The pricing of Pendo was above the market average, which put Whatfix at an advantage

What made Whatfix unique is that they don’t only offer cloud-based interactive guides but also on-premise in-app experiences.

Its flexible pricing was a key strength. 

The company wants the customer to pay only for the features opted by them. The pricing depends on several factors, such as the number of users accessing Whatfix content, the base application on which Whatfix is deployed, the mode of deployment, and others. 

At the end of 2020, Whatfix acquired Airim, which provides an AI-powered Personalization Engine for users and customers. Airim’s technology was integrated with Whatfix to help bolster its artificial intelligence stack to deliver personalised content to every user autonomously – making Whatfix the industry’s first Digital Adoption Solution (DAS) to offer Autonomous Personalization.

This focus on AI long before it was cool would be prescient. 

As the macro trend favours the growth in the topline for Whatfix, to grow the bottom line, Whatfix needed profitable unit economies to run the business at scale

Stairway to Funding Heaven

Whatfix had inherently good margins as it was a software company

Like most other software service providers, Whatfix has three important cost components.

First, salaries and related overheads for the employees who develop the software and manage customers. Next is the hosting and software cost it incurs to deploy and provide its offering. The third is the customer acquisition cost it incurs to market its product.

While the first component, salaries and overheads, is fixed, the software and customer acquisition costs are variable.

Given that the solution is deployed through a browser extension and seems light, we can assume the cost is less than 10%. This cost may be lesser than 5% basis how well-optimised their solution is. For ease of computation, let’s assume it to be 10%.

Assuming this as the software cost, if we look at their filings data, sales & advertisement cost seems to be around 3X the software cost. Considering this relation, we can assume customer acquisition costs to be around 30%.

When we combine this, the overall variable costs will be lesser than 40% which gives Whatfix a contribution margin of 60%. The goal would be to cover fixed costs eventually. 

In a growth phase, the marketing cost is usually high. Over time, Whatfix can deliver an 80% margin, as seen in many SaaS businesses. 

In FY21, it reached the psychological 100 Cr mark, a big win for a company essentially creating a new category. 

Investors tend to love these businesses giving a multiple of 10-15x. 

And that’s why with a growing topline and healthy margins, Whatfix raised a huge $90 million round in 2021 to fuel the growth engine it has built over the years.

It had incredibly built all of it from India.

Immigrant Software

Starting from India, the company only delivers from India today.

Whatfix gets 73% of its business from the USA; around 20% comes from UK, Germany and France; 5% from Australia; and 2% from India. Interestingly, over 90% of the heavy lifting happens out of India!

They have 500-plus customers, 150 of which are part of the Fortune 1000. The company has grown to 650 employees across six U.S., U.K., Germany, Australia and India offices.

FY22 was eventful for the B2B digital adoption solutions provider, which raised $90 million, a 4X jump in its valuation in June of 2021.

During the fiscal, the firm managed to grow its income by 73%, but this growth came with a 33% surge in losses. The operating revenue grew 73% to Rs 172 crore in FY22 from Rs 100 crore in FY21, while the losses mounted to Rs 250 crore. 

To stay ahead, Whatfix consistently has to add new offerings 

Whatfix is fixing the relationship between humans and technology, it takes 37% of employees six months or longer to add value at work. The amount of friction in getting employees up to speed will likely exacerbate the labour and skills shortages companies face. 

With their help, companies save costs by saving time, from faster employee onboarding on internal enterprise tech to increased productivity and less error.

While previously, product analytics was built for software vendors, Whatfix extended this capability to software buyers. Since its launch, Product Analytics has grown approximately 200% quarter-on-quarter (QoQ) by revenue and has been adopted by 100+ customers, including large enterprises like Cisco and UPS.

In mid-2022, Whatfix also acquired Leap.is (previously Jiny.io), a mobile-first onboarding and assistance platform that brings the value of digital adoption platforms to mobile applications. 

The deal marks its largest M&A deal so far.

In late 2022, it launched Whatfix Studio, a more intuitive and powerful iteration of the current content editor. Studio is built on a low-code platform, enabling content creators to leverage its capabilities with little to no technical skills fully.

Competitors had the edge over Whatfix in product analytics, but in 2023, Whatfix launched its version. It allowed software owners to implement end-to-end analytics for the customer independently- and employee-facing applications, eliminating engineering dependency.

But as the world began to reel from a recession in 2023, SaaS companies needed to buckle up to win. As companies started questioning the need for tools, new solutions were sought. 

A storm called AI was coming. 

Rock and Roll

With companies spending billions on new software applications, there is still a wide gap, the digital debt gap, between the exponential rise in technology and Human adaptability.

A Fortune 1000 company uses over 150 software applications, and an average employee uses 16 applications once a week. About 45% of these employees experience digital friction. 

Global software decision-makers reported that more than 40% of their organisation’s software spending in 2022 went to new software licenses and new custom software solutions.

By 2025, 70% of organisations will use digital adoption platforms across the entire technology stack to overcome still insufficient application user experiences

The opportunity was huge, but the competition threatens

With the growing market and rise of AI, big software providers are exploring the digital adoption problems themselves.

Companies to cut costs are not willing to spend extra on DAPs and want the software application providers to provide better adoption features.

Salesforce launched an AI-powered conversational intelligence platform to its CRM to bridge the adoption gap. With companies like Microsoft announcing a co-pilot for coders, a co-pilot for companies to interact with the software is a natural extension. 

Adept, a US-based AI startup, raised an astonishing $450M even before launching a new product to assist people with software. Salesforce and other SaaS tools are building their own AI tools. 

Teaching machines to imitate what people do and replicating it is the classical definition of AI. 

Whatfix has realised this gap and is working on Independent Software Vendor (ISV) Partnership Programs. Whatfix has established strategic partnerships with software vendors, including SAP, Guidewire, Bullhorn, IBS Software, and Icertis, to help customers accelerate user adoption. 

It became one of the only Indian companies to be a leader in a Forrester New Wave platform, being up there with WalkMe and Pendo. 

Despite the threat of AI, Whatfix is positioned well due to its almost decade-long experience of understanding how people interact with products. Its acquisition of Airim will goa long way. As the usage of tools continues to increase, a bridge will always be needed between software and humans. 

Whatfix could be that lucrative bridge that fixes what breaks in global companies.

Writing: Abhinay, Bhoomika, Rajiv, Ritika, Tanish and Aviral Design: Omkar and Chandra

Last fortnight, Foxconn-Vedanta looked to tie up with STM, as India looked to tie up with 4 fabs and upskill 90,000 semiconductor professionals.

An Electrifying Start

John Fleming and Lee De Forest were experiencing some major static. 

At the turn of the 20th century, the world was buzzing about wireless telegraphy. Fleming and Forest had other issues.

The duo’s main challenge was improving technology to make radio communication possible.

They were improving radio receivers to make them selective to better distinguish between radio signals and reduce static interference.

Eventually, their work would spark a revolution in communication that would change the world. Vacuum tubes were the solution. 

In 1904, John Ambrose Fleming invented the first vacuum tube, which he called the diode. As many engineers would know, he also developed Fleming’s right-hand rule. 

However, vacuum tubes had their issues. 

For one, they were bulky and consumed a lot of power. Furthermore, they were unreliable and had a short lifespan. Imagine carrying a 200-pound computer around like a briefcase.

Enter semiconductors. Well, almost.

Lack of understanding hindered the development of semiconductor materials for decades. In the 1920s, research on semiconductors finally took centre stage.

Researchers continued to study the properties of materials like germanium and silicon, which exhibited semiconductor behaviour. The need for more knowledge about the underlying physics of semiconductors hindered progress.

Then came the breakthrough.

In the 1930s, Russell Ohl developed a new solid state device called the “PN Junction”. 

This would be the eventual basis for modern semiconductor technology. Ohl discovered that a piece of silicon could become a better conductor when treated with certain impurities.

The process was called doping

Semiconductors posses the power to act as both a conductor and insulator, hence named “semi”-conductors. Semiconductors thus became ideal for controlling the flow of electricity in electronic devices. 

The transistor built in Bell Labs in 1947 would implement doping.

William Shockley, John Bardeen, and Walter Brattain built on Ohl’s work. The transistor was a tiny semiconductor that could amplify and switch electronic signals.

The fact that it started a revolution was an understatement.

Computing devices, earlier built on vacuum tubes, could perform the same functions as before, but with less power and space. 

It was a “magic wand” for electronics. 

In 1957, William Shockley, one of the co-inventors of the transistor, left Bell Labs and returned to California to start his own semiconductor company. Shockley Semiconductor Laboratory aimed to develop new and innovative semiconductor devices

Due to Shockley’s difficult management style, many key employees left the company.

In 1958, eight of these employees, known as the “traitorous eight” started their own company, Fairchild Semiconductor. 

Fairchild would be the beginning of an explosion of the industry. 

Amplifying Intelligence

The integrated circuit (IC) invention in 1958 was transistors on steroids. 

Electronics became smaller, faster, and more reliable. By the 1960s, ICs were in various products, from military equipment to consumer electronics. 

One of the first landmark products to feature ICs was the 1964 IBM System/360 mainframe computer, which was a small car size and contained over 20,000 ICs

This new change was exploited by none other than Fairchild. As Fairchild scaled, its members started plotting their separate paths.

Before the PayPal mafia, there were the Fairchildren, who eventually created almost $2Tn of market value. The founders of Intel, Kleiner Perkins, and Sequoia Capital began to spin out of Fairchild. 

Intel was founded in 1968 by Robert Noyce, a co-founder of Fairchild Semiconductor. Robert noticed that ICs had their limitations in computing power.

Ths started in 1960s when was tasked by a Japanese calculator manufacturer, Busicom, to design a set of chips for their calculators. The project was assigned to a young engineer named Ted Hoff, who came up with the idea of integrating all the necessary circuits onto a single chip. 

With the power of an entire central processing unit (CPU) on a single chip, this integration of ICs was called a microprocessor. 

Intel developed the first single chip microprocessor, revolutionising the computing industry. 

Hoff’s design eventually led to the creation of the Intel 4004, the world’s first commercially available microprocessor, which was released in 1971. The 4004 had 2,300 transistors and could perform up to 60,000 operations per second. Intel initially used it in calculators, but the world soon realised its potential. 

4004 debuted in cash registers, industrial controllers, and even the Apollo spacecraft.

The success of the 4004 led Intel to develop further microprocessors, including the 8008, 8080. Eventually it created the 8086, which became the basis for the IBM PC and the modern x86 architecture. 

Oceans away, a newly independent country dreamt of space, technology and electronics.

The Indian government established the Electronics Commission in 1964 to promote the electronics industry’s development, including semiconductors. 

The Indian government established several public sector companies to manufacture electronic components, including semiconductors. Some of these companies included Bharat Electronics Limited (BEL), Semiconductor Complex Limited (SCL), and Electronics Corporation of India Limited (ECIL). 

In fact, Fairchild thought of setting up its first semiconductor plant in India, but got dissuaded due to excessive government regulations. India’s companies were primarily focused on producing low-end products and needed the technology or resources to compete with larger international players.

Companies on the other side of the world were eager to start using this technology.

In the early days of the microprocessor industry, Intel had a significant lead in design and manufacturing capabilities, allowing it to dominate the market for several years.

Thanks to semiconductors, world was about to change for the better.

Charging Ahead

Microprocessors changed everything, from personal computing to video game consoles and cars. 

The Altair 8800, introduced in 1975, was the first microprocessor-based personal computer that users could assemble. 

In the space of 2 decades, the world had gone from struggling to compress electronics to a personal computer. 

Apple, founded in 1976, was one of the pioneers of the personal computer industry. The Apple II, introduced in 1977, was one of the first commercially successful personal computers.

As a student named Bill dreamt of putting a computer everywhere, competing with another young man named Steve, India started to go deeper on semiconductors.

In the late 1970s, the Indian government initiated the Technology Policy Statement, which aimed to promote the development of indigenous technology, like semiconductors. 

The Semiconductor Complex (SCL) at Mohali was established in 1983 as part of this initiative to produce high-quality semiconductor products for the Indian market.

Establishing SCL was a significant step for the Indian semiconductor industry. The company aimed to design and manufacture semiconductors, including microprocessors, within India.

In the late 1980s, SCL advanced quickly from the 5-micron process technology to a 0.8-micron process. This rapid progress was impressive and a proud moment for the Indian semiconductor industry.

However, like any other industry the late half of 1980s witnessed a setback. Like the tension of today, tension brewed between the US and Japan. 

The Semiconductor Industry Association (SIA) and the Advanced Electronics Association (AEA), led by Robert Noyce, lobbied Congress to prevent Japanese “dumping” of semiconductors into the American market.

The lack of dumping protections and easier access to capital rendered US firms unable to compete.

As Japanese companies saturated domestic and foreign markets, prices plummeted by 60%. Within a year, the chip industry collapsed.

Micron filed anti-dumping complaints, along with National Semiconductor, Intel, and AMD.

This culminated in 1986’s Semiconductor Trade Agreement, which allowed US firms greater access to the Japanese market. 

This effectively restricted dumping by Japanese enterprises, allowing American businesses to gain a 20% market share in Japan. 

Texas Instruments and Micron, the only two American companies still operating in the Memory industry, reaped enormous profits in the second half of the 1980s. 

As the world of semiconductors remained, India had a deadly shock. 

A massive fire that destroyed SCL. The fire was a huge blow to India’s efforts to develop an indigenous semiconductor industry. 

To fight the loss, the Centre for Electronics Design and Technology (CEDT) was established in Mohali in 1990 to support the design and development of semiconductors. CEDT was a crucial initiative that provided a platform for researching and developing cutting-edge technologies that could be commercialised in India.

Struggling, India would enter a lost decade that would be a generational boom for Asia

An East Asian Circuit

While India was dousing fires, elsewhere in Asia, Taiwan was rising.

The Taiwanese government and the multinational electronics manufacturer Philips were setting up a joint venture for a semiconductor wafer manufacturing plant.

Enter, Dr. Morris Chang. 

Known as the “Father of Semiconductors”, he was a Texas Instruments veteran. Dr. Chang was recruited to lead the plant. 

This industry defining plant was later known as the Taiwan Semiconductor Manufacturing Company, or TSMC.

Over the early 90s, TSMC exploded. Dr. Chang was a visionary. He pioneered the idea of pricing semiconductors ahead of the cost curve, sacrificing early profits to achieve manufacturing scale that would later result in long-term profits.

The semiconductor manufacturing industry, to date, follows this model. He kept TSMC at the top, with repeated investments in improved silicon nodes and expansion of manufacturing capability with a dedicated focus on quality. 

TSMC focused on just manufacturing, which Intel persisted with its full stack approach. In the 90s, Intel was the undisputed king, unperturbed by small fish in Taiwan. 

But by the mid-1990s, TSMC’s growth was outpacing that of the world semiconductor market. This growth eventually led to TSMC being the first Taiwanese company listed on the NYSE. 

Taiwan’s sudden surge changed the entire complexion of the Asian semiconductor market, with India feeling like it had fallen back an entire decade. 

India’s woes were deepened because it had everything Taiwan did, most critically, labour. To understand why, we need to know how semiconductors are created.

Semiconductors are a highly complex yet lightweight product with a capital-intensive production and labor and skill driven assembly. 

The lifecycle of a semiconductor chip can be broken down into several key stages, each of which requires specialised equipment and expertise.

The first stage is chip design, which involves creating the architecture and layout of the chip using specialised computer-aided design software. 

Once the design is finalised, the chip goes into the manufacturing phase, where advanced equipment are used to create the actual physical chip. 

The manufacturing process involves depositing and etching multiple layers of material onto a semiconductor wafer, which is then sliced into individual chips.

After manufacturing, the chips undergo rigorous testing to meet quality and performance standards. This involves using specialised testing equipment and software to measure various parameters, such as power consumption, speed, and temperature.

Once the chips have passed testing, they are packaged and assembled into final products. 

This involves attaching the chip to a substrate, such as a printed circuit board (PCB), and connecting it to other components, such as memory, power supplies, and input/output devices.

After the final products are assembled, they are distributed to customers and end-users, who may use them in various applications. Maintenance and repair may be required to ensure the products continue functioning properly.

Each stage was starting to become multi-billion dollar markets in the late 90s.

The semiconductor supply chain was thus a complex network of companies designing, manufacturing, assembling, testing, and distributing semiconductor components. The supply chain is global, with different stages of the process taking place in different regions.

Taiwan, Korea and Japan were at the forefront.

Conducting Operations Globally

Despite growth, the semiconductor industry was still nascent. 

The onset of personal computers becoming mainstream meant that the semiconductors would too.

The global industry for electronic goods was growing 10% Y-o-Y and by 1995 was valued at $750B. Computers accounted for 47% of worldwide semiconductor sales, consumer electronics at 23%. 

The tech bubble collapse of 1999 would do little to stop the march of semiconductors, as electronics sales kept growing.

By the early 2000s, semiconductors were a ~ $200 B industry, organised into multiple product and geographic segments. Even with the globalisation of the industry, the basic sequence of semiconductor manufacturing remained the same across all product categories. 

The design process was concentrated mainly in the US, Japan, and some parts of Europe.

Manufacturing was spread primarily in East Asia, with cheap labor being the key driver. 

As the decade came to a close, vertical integration was becoming the theme in the industry. Manufacturers hoped to exploit economies of scale to combat the ever-growing demand. 

With large fixed costs involved upfront, foundries producing wider product mixes would lower  firms’ financial risks and expand the range of end-user applications, enabling new opportunities for vertically specialised firms. 

2010 saw Intel reign supreme, with Samsung and Texas Instruments closely behind. The top 10 claimed 50% of the industry’s revenues, firmly establishing dominance year after year. 

But no good thing lasts forever. 

The semiconductor industry was ridden with huge rising R&D costs and ever-prominent cyclicality. The constant effort to make more sophisticated chips to cater to the growing demand would take its toll. 

The world semiconductor market grew only 0.9% in revenue, with tension regarding the macro economy. Driven by the financial crisis, consumers held off purchasing, governments refused to assume more debt, putting all expansion plans to the ground.

Inventories built up, and ripples were sent throughout the industry.

Larger companies with piles of cash vied for competitive positions, and smaller competitors were wiped out. 

2011 was the year of consolidations and mergers. The most notable were $6.5B Texas Instruments–National Semiconductor, $4B Qualcomm–Atheros, and $3.5B Broadcom–NetLogic. 

Technical evolution and the pursuit of smaller gate sizes (Moore’s Law), required an increase of ~20% each year in R&D expenses and design costs to maintain scale and competitiveness.

Intel would dominate microprocessor units, Texas Instruments integrated device manufacturers, TSMC in foundry, while Samsung and Toshiba focused on memory. 

Most other players would either face negative or zero cumulative profits over the decade. Semiconductor players destroyed over $140B in value combined in the 2000s, an unbelievable number for the hot industry.

After two decades in wilderness, Indian electronics was starting to come back.

Homegrown Silicon Valley

In 2012, the electronics market in India was at a fledgling $65B compared to the global market of $2T. 

But the expansion of communications infrastructure in the country, the subsequent penetration of mobile devices, and the government’s drive to extend IT to the grassroots of society put India in an envious position. 

India was slowly transforming from a design hub to R&D and manufacturing to unlock the potential of moving from a service market to a product market. 

India’s ESDM sector grew from $ 65B in 2011 to $ 94B in 2015, as the market contribution of India to the global semiconductor market grew from 2.5% to 3.3% over the same period. 

While India grew in chip design and electronic manufacturing, it struggled to set up Semiconductor Fabrication units. 

A lack of infrastructure, skilled labour, and cheap labor in neighboring countries like China and Vietnam put India far behind. Intel, in 2014, stated no interest in setting up manufacturing facilities in India, a big blow.

Fab manufacturing or foundries were always challenging, necessitating huge upfront capital.

Moreover, India faced major hurdles with a single chip requiring over a hundred gallons of pure water in its manufacturing process. 

Understanding India’s struggles in detail required a look at the competitive landscape, and how far ahead they were.

The global semiconductor industry was dominated by a handful of major players responsible for producing various chips and other semiconductor-based products. 

Intel, the original gangster, created microprocessors end to end and semiconductors.

South Korean giant Samsung was renowned for its advanced manufacturing processes and technological innovations. SK Hynix were the major producer of memory chips, including DRAM and NAND flash. 

US based Qualcomm was the leading producer of mobile processors and wireless communication chips. Broadcom produced chips for the data center, networking, and wireless communication markets. Nvidia specialised in graphics processing units (GPUs) used in gaming, data centers, and artificial intelligence applications.

But in manufacturing, the undisputed champion was Taiwanese

TSMC emerged as a dominant player in the manufacturing space due largely to its state-of-the-art manufacturing facilities and ability to produce high-quality, low-cost chips. Its relentless focus on just manufacturing made it huge.

TSMC had a 53% market share of the global foundry market. 

By 2016, a new technology called AI had started to make waves. Special chips were being used in categories like gaming. In 2017, IoT devices started to become mainstream. Chips were now everywhere, including your fridge.

By 2018, the overall semiconductor had grown to $420B, a category of epic size that refused to stop. Even though it faced cyclical issues, it was enormous.

As the world entered 2019, India was at a crossroads. 

To Sell Like Hot Chips

Indian electronics imports had tripled in just seven years, a huge bill like oil.

Just as there was a push to manufacture, a supply chain destroying event occurred. 

In 2020, the COVID-19 pandemic disrupted supply chains, leading to key component shortages. Despite the challenges, the industry showed remarkable resilience, with companies adapting quickly. Still, shortages abound. 

Companies started to look for alternatives to Chinese supply chains. India had been given a lucky break after the disastrous fire. This time, it was more ready.

India now had rapidly growing electronics market. This increased demand for semiconductor components, attracting investment and spurring local semiconductor manufacturing and assembly capabilities.

India also had a highly skilled and tech-savvy workforce, including many engineers and developers. This helped the country become important in semiconductor design and engineering, with several Indian firms and research institutions specialising in chip design, verification, and testing. 

The booming start-up ecosystem drove further investment and innovation in the semiconductor space, with companies working on emerging technologies such as AI and IoT.

India’s government also significantly promoted the semiconductor industry’s growth with initiatives such as the “Make in India” program, which promoted domestic manufacturing and aimed to reduce the country’s dependence on imports.

Prime Minister Narendra Modi’s government in late 2020 unveiled a $10B incentive plan, offering to cover as much as half of a project’s cost, to lure display and semiconductor fabricators into setting up base in India.

This led to increased investment in manufacturing and assembly facilities, with several major companies, including Intel and Samsung, setting up operations in the country.

As the world emerged from the pandemic in 2021, India became the 2nd largest manufacturer of mobile phones worldwide. India had grown to 300M phones produced. 

Value produced grew from $3Bn in 2014, to $30Bn in 2021.

However, even in 2022, there were still significant challenges facing India’s semiconductor industry, including a lack of infrastructure and the high cost of technology and equipment.

India’s manufacturing push, backed by favourable policies, was timely. The country was positioned strongly to grab a massive opportunity in the electronics hardware space amid COVID-induced supply chain disruptions and global trust deficit around China.

The Modi government program had four key schemes that cover setting up semiconductor fabrication plants in India, plants for producing compounds used in the process, assembly & testing facilities and design linked incentives.

By the summer of 2022, the on-going Russia-Ukraine war exacerbated disruptions on the global supply chains of semiconductors caused by Covid. The warring nations were the major sources of two key materials used in semiconductor manufacturing: neon and palladium.

As Russia and Ukraine fought a physical war, another huge battle was brewing.

Current Conflicts

A deep Silicon cold war began

In late 2022, US president Biden banned the sale of advanced semiconductor chips to China. It also implemented a series of other rules that prevent China from making these chips on its own.

In a replay of US Japan in the 90s, US-China was playing out. 

The US has been at the forefront of cutting-edge chip technology to persist in its dominance; it has controlled various parts of the supply chain.

Most of the assembly work of chips was shipped to China, dominating this end of the supply chain. This put China in a tricky position, they heavily relied on importing these chips from other countries.

To tackle this problem, China started to create a chip supply chain that wholly existed in China from Design to manufacturing and assembly. They successfully made some older generation chips but not the most advanced ones.

The supply chain of chip manufacturing is very monopolistic, with very few choke points. 

Only 3 American companies make the software needed to design advanced chips. Then turning those designs into real chips requires a machine that’s only made by one company, ASML, but this machine requires equipment that’s only made in the US. 

Finally, only Taiwan and South Korea companies can manufacture the most advanced of these chips. 

China has been trying to copy these choke points. This challenged US dominance in the industry, and US-China relations turned more competitive, angered the US.

The US not only banned all US and global companies from selling advanced chips to Chinese companies, but also banned Chinese design companies from using US software and US equipment.

As the Silicon World fought, the semiconductor industry never looked so attractive.

The global semiconductor industry was projected to become a trillion-dollar industry by 2030, another doubling from its scale today.

As the impact of digital on lives and businesses has accelerated, semiconductor markets have boomed, with sales growing by more than 20 percent to about $600B in 2021.

Assuming EBITA margins of 25 to 30 percent, current equity valuations support average revenue growth of 6 to 10 percent up to 2030 across the industry

Semiconductor usage was now far and wide, in cutting edge fields.

The 5G market is projected to reach $667.9 billion by 2026. The AI market is expected to grow at a CAGR of 40.1% from 2020 to 2025. The IoT market is projected to reach $1.5 trillion by 2027. The electric vehicle market is expected to grow at a CAGR of 29.4% from 2020 to 2027, driven by government policies promoting the adoption of electric vehicles. 

At their core are semiconductors, hundreds of billions at stake. India could take up a lot of this demand.

Bridging The Band Gap

India’s declared focus is solely on manufacturing of chips, like Taiwan’s in the 90s.

In early 2023, Indian government doubled down on its $10B plan to woo chip makers, providing subsidies up to 70% of the project’s cost.

Foxconn and Vedanta partnered to set up the first semiconductor plant in Gujarat by 2025, investing 20B$. WITH subsidies in initial capital investment, the state government has also offered subsidised land, electricity and water.

Singaporean group IGSS Ventures has also signed a memorandum of understanding for a 3B$ semiconductor plant in Tamil Nadu. It will be producing wafers ranging from 28nm to 65nm.

ISMC Analog, a consortium between Mumbai-based Next Orbit Ventures and Israeli tech company Tower Semiconductor has also availed government subsidies to set up a 3bn$ chip-making plant in Mysore, which will create 1500 direct and 8500 indirect jobs. 

Karnataka, rightly home to the Silicon Valley of India, has been in the forefront of India’s semiconductor manufacturing ambitions. Already home to 85 fabless chip design units, the state contributes to 50% of India’s electronic product companies and 40% of electronic design firms.

Karnataka already had a semiconductor policy in place from 2009, which set up initiatives to attract companies looking to set up assembly, testing, marking and packaging (ATMP) plants.

Reliance and HCL also want to enter Silicon by investing in ISMC.

Dixon Tech, the biggest contract manufacturer of electronic goods in India, with revenue over 10,000 crore rupees, also entered into a JV with Japan-based Rexxam. It focused manufacturing printed circuit boards(PCBs) under the government’s Production Linked Incentive(PLI) scheme. 

The Ministry of Electronics and Information (MeitY), under its Design Linked Incentive (DLI) Scheme, is looking to incubate 100 domestic companies, start-ups and MSMEs. The scheme has three components – Chip Design infrastructure support, Product Design Linked Incentive and Deployment Linked Incentive.

With almost $50Bn in capital investments in place, we can approximate what the market could look like. 

TSMC Capex of ~$36Bn yearly yields revenue of ~$70Bn, $1 invested at scaled yields $2. If India invests $6Bn per year, gets to $12Bn of revenue. The foundry market is ~$200Bn, putting India in a healthy 6-7% position to win.

The DLI scheme aims to nurture at least 20 domestic companies involved in semiconductor design and facilitate them to achieve turnover of more than INR 15 billion in the next five years.

GoI wants to offset the disabilities in the domestic industry involved in semiconductor design to not only move up in the value-chain but also strengthen the semiconductor chip design ecosystem in the country.

India already has an exceptional semiconductor design talent pool, which comprises up to 20% of the world’s semiconductor design engineers. Moreover, almost all the top 25 global semiconductor design companies have design or R&D centres in India.

It is estimated that India’s consumption of semiconductors will cross $80B by 2026 and $110B by 2030. This requires a domestic ecosystem that can sustain supply without depending on the volatile global supply chain.

Starting in the 1960s, India’s slow slog for semiconductor dominance finally looks like it could take shape. If it cashes in, it could be transformational for tech and India.

Writing: Bhoomika, Mazin, Parth, Raghav, Samarth, Tanish and Aviral Design: Chandra and Omkar

Last fortnight, HealthifyMe released its campaign with Mandira Bedi, hot on the heels of its campaigns with Farhan Akhtar and Sara Ali Khan, as it doubled down on celebrity marketing

Takes Guts to Start a Business

A small experiment can lead to a life-changing insight. 

Tushar Vashisht, an Ivy League alumnus, and a Wall Street banker decided to come back to India to work with Nandan Nilekani on the UID project.

During his stint at the UID project, an interesting group of professionals and entrepreneurs inspired Tushar to take up the path of entrepreneurship.

He and his roommate, Matthew Cherian, started having conversations about the issues around them and the type of venture they would like to create.

Not only did they want to build a business that makes money, but also it has to have a second bottom line of social impact.

Health and education were two sectors that could fit well into their definition.

They were curious to learn more about India and how poverty can impact an individual’s health. They devised an experiment by subsisting for a month on what the average Indian does – just 100 rupees ($2.04) a day.

The maths was simple.Rs 4500 (per capita income) was the total, where they kept one-third for the rent and the rest for food and other necessities.

They started collating and sharing the findings in a blog and applying basic analytics. They did a further experiment when they tried a similar experiment but this time just for Rs 32!

These experiments not only led to significant weight loss for Tushar and Matthew, they also gave them deep insights into health and nutrition.

One critical insight was the excel sheet that they created to document the nutritional value of Indian food was something that did not exist, and everyone they met asked for a copy of it.

User demand followed their experiment, and a new idea was brewing.

Healthify was born in 2012 as an effective and easy-to-use tracking tool for nutrition, focused on India.

Passing the Large Market Test

Around 2012, diet and fitness-related diseases were growing to epidemic proportions. 

There were 60 million diabetics and over 150 million hypertensive people in India. Most of the problem came from a lack of awareness of what people were eating and how much energy they burned daily.

Healthify tried to solve this problem by providing ways to measure calories intake to calories burnt. As one measures these aspects of their lifestyle, they become more aware of what is good for them and what is not.

To make this a habit, a tougher problem in the health & fitness industry, the solution has to be easy and relatable to the audience it caters to. That’s why portions of food intake on Healthify were in katoris, which is an easier way to measure the food intake for most Indians. 

It also has the largest catalogue of Indian food from Puris to Rasgulla, which mades it easier to log the calorie intake with just a click.

On top of these tracking activities, Healthify helped its users by assisting with diet and fitness plans through a network of trained coaches and experts.

Healthify started as a website or a blog in 2012, and by 2013 they launched their android app and an iOS app shortly afterwards.

It was a slow, but sure start. Like many startup journeys, a blog became a website, which became an app. 

By 2014 it had around 1,00,000 users, and it closed its angel round of $1 million.

Healthy Growth

The traction and purpose were interesting to get attention from renowned names as they would like to partner and make India healthier.

With a core team of 16 members and a team of 30 nutritionists, Healthify launched a campaign- HealthifyIndia or ‘SwasthBharat’.

This was a campaign where Healthify partnered with Godrej Nature’s Basket, Manipal Hospitals, Medanta – The Medicity and other large health networks.

As part of this campaign, partners offered Rs 100 crore in products and services to anyone who takes their pledge on the Healthify app. Once users took the pledge, they got Rs. 1,000 worth of products and services from the industry partners to achieve that pledge.

This led to a significant jump in userbase for Healthify, and its userbase crossed 5,00,000 by end of 2015. In 1 year, it had grown 5x, seeing exceptional growth.

By now, it had experimented and finetuned its freemium model. Basic tracking features were free on the app and coaching or customised plans were available by paying a monthly subscription fee.

With good traction and a sound business model, Healthify got a healthy valuation and closed its $ 6M Series A round in early 2016. 

They were attacking a large, hard problem that many wanted to crack

Root of the Indian Problem

HealthifyMe was positioned as a health and fitness app focused on weight loss, which made for a large business opportunity. 

The wellness industry in India was valued at $6BN, dominated by weight loss and beauty treatment services. There were 4.8 million fitness seekers across Mumbai, Delhi and Bengaluru. 

As India grew and her GDP/capita increased, the incidence of lifestyle diseases was expected to increase in line with what has been observed across markets globally. 

We were already guilty of several poor habits as a populace. These included – irregular meal times, lack of exercise, and nutrition. India is home to over 77MM diabetics, 200MM patients suffering from hypertension, and 245MM overweight people. 

We were witness to a growing demand for nutritionists and other healthcare professionals, these professionals had historically faced a tough time connecting with customers. On the other side, customers who wish to connect with healthcare professionals don’t have an easily accessible platform. A growing problem needed urgent solving, and HealthifyMe believed they had the right tools.

In 2016 the company also breached a significant milestone with the launch of ‘Jarvis’, an AI tool to assist coaches in becoming more efficient by learning from their interactions with clients. 

Jarvis was critical in helping their coaches become efficient as it allowed each coach to manage more paying users, thus eventually helping unit economics.

By 2017, the app was witnessing scale. In the first quarter of that year, the company breached 2 million downloads. The product seemed to be working.

Later that year, the company announced the launch of what they claimed was the world’s first-ever conversational Artificial Intelligence (AI)-enabled nutritionist – Ria. Before ChatGPT, HealthifyMe was having conversations with its customers. 

Ria used key learnings obtained from HealthifyMe’s 150 million tracked meals (20 billion+ macro/micronutrients) and 10 million message exchanges (1 billion+ word) between coaches and clients to answer questions relating to nutrition and fitness via both audio and text. 

But it did so at a much more personalised level based on the users’ lifestyle habits, and was available in 10 languages. 

Ria was the logical successor to Jarvis, from assisting coaches to become more efficient, Ria was now replacing coaches. Ria began contributing a significant share of messages directly to users. 

No AI Effort Goes in Vein

The launch of Ria was met with significant optimism. 

Initial data was promising, Ria was handling around 80% of all queries directly instead of passing them on to humans. Ria’s ability to look at each user’s data daily and give opinions was working. Users were sending human coaches 2.5 messages a day on average, that number increased to 2.9 with Ria.

HealthifyMe intended to spin off Ria as a standalone service once its algorithm got stronger and more accurate. The service was bundled with its broader subscription program, which included a human coach. 

Whenever Ria failed a human took over.

In a world where other funded weight loss apps were struggling HealthifyMe was showing signs of breaking out. Apps like Truweight and Obino had 50,000 and 500,000 downloads, respectively. By the end of 2017, HealthifyMe had 3MM users and 200 coaches and was confident that they would touch 5MM users in 2018 on the back of the growth from Ria.

Despite the growth in users and adoption monetization and unit, economics remained unproven. In FY17, the company reported INR 4 Cr. in revenue. 

This was about to change dramatically as the company had scaled downloads impressively. In 2017, a subscription could cost anywhere from INR 999 to 1,699 / month. 

While these numbers may not seem large in absolute terms, they added up over time. A user could pay as much as INR 8,000 for a 6-month subscription. This was necessary as the cost of running the program was high due to the involvement of human coaches. 

This is where Ria was viewed as the silver bullet as it could help drive down costs, thus allowing the company to make their programs cheaper while ensuring they can retain decent contribution margins.

The other challenge the app had was the customer acquisition cost. Assuming a cost per download of INR 50 and based on a conversion rate of 1-2% as highlighted by Tushar in his interviews then, HealthifyMe was paying as much as INR 5,000 for an activated user. This meant that recovering their cost of customer acquisition would not be possible if they didn’t expand margins and ensure high retention.

The company closed FY18 with INR 24 Cr. in revenue and reported a loss of INR 28 Cr. up from INR 23 Cr despite the 6x increase in revenue YoY the year prior. At the same time, the monetization engine had kicked off, unit economics quite clearly remained challenged.

As 2017 drew to a close, the monetization engine started chugging along which resulted in the Series B round of $12MM NEXT was Samsung’s AI-focused fund, and HealthifyMe represented their first-ever investment in India. 

In early 2018 the company had crossed a million MAUs and 4 million lifetime users. 

The company had scaled to over 5 million users, and nearly 20% of them came from international geographies such as MENA, SEA, LATAM.

Customers Don’t Swallow Bitter Pills

The company sustained its growth over the next couple of years.

It grew revenue to INR 44 Cr. and then INR 55 Cr. in FY 19 and 20 as against losses of INR 34 Cr. and INR 37 Cr. each in those years.

Realising that their trainer packages were too costly and hence unscalable, HealthifyMe introduced “Smart Plans” in 2019. 

These were preset diet plans customised according to age, weight, fitness goals, and pre-medical conditions. The Smart Plans cost INR 299 / month, a lot cheaper than a premium subscription. This contributed to 70% of the company’s paid subscriber base.

At the company’s 6th annual tech product conference in Feb 2020, the company also had a slew of new product features, including Smart Plans with fitness celebrities, partnerships with the food delivery and gym apps, and a foray into mental wellness as part of its ambitious growth plans for 2020. 

The company roped in n Mahesh Bhupathi as a strategic advisor for building its new Smart Plan ‘HealthifySmart Legends Edition.

The company also launched strategic partnerships with food and grocery delivery apps like Swiggy and MilkBasket to deliver healthy food and groceries curated by HealthifyMe. 

By Feb 2020, the company had breached INR 100 Cr. ARR mark.

While the new launches successfully expanded the top of the funnel, many users dropped off even before the sign-up process was complete. They found it tedious to fill out answers for the questions the app asked to suggest a personalised diet plan. 

Changing customer behaviour is always hard, no matter what. 

Companies across the board have sunk hundreds of millions of dollars to change behaviour. Thus, even after the users signed up, HealthifyMe was fighting an uphill battle, and it was evident in the drop off of users the app noticed at various stages, evidenced by the MAU / Download ratio.

But a storm was coming that would end up exploding engagement. COVID was a massive boost for the company. 

In May 2020 the app saw a 50% growth in organic sign-ups and retention compared to the January-March quarter. May also saw the company achieve its highest lifetime revenue of US$1 million. 

Seeing the increased traction, the company decided to pull the trigger on – HealthifyStudio. It was launched to add to the momentum the app had gained ever since the pandemic struck. COVID shuttered gyms, but that didn’t hinder fitness enthusiasts. 

Some took to eating healthier, others to jogging, and many went online—straight into the arms of platforms like HealthifyMe. HealthifyStudio was a platform offering live group workout sessions to bank on its burgeoning user base during the lockdown. 

At the time of the launch of HealthfyStudio, the app had 17MM users, out of which 1.8MM were MAUs.

But it wasn’t the only one benefitting from COVID’s tailwinds 

Everyone Gets Pandemic Boosters

As COVID hit the world, health and fitness focussed startups blew up, competing with Healthifyme

Customers had many choices to stay healthy as new players entered the segment. A few key themes emerged.

The most prominent involved attending online workouts of coaches and celebrities. This was localised. Indian players competed amongst themselves.

Cure.Fit raised $400M on this theme. It combined coaching, diet and mental wellness following a subscription revenue model. Sarva Yoga raised $10M to build a Yoga dedicated platform. Mindhouse was started by Zomato co-founders for wellness, raising $10M.

Another big theme was monitoring calories and receiving expert-led personalised coaching.

HealthifyMe emerged as the frontrunner in India by providing India-specific features. But calorie management needs to be localised and can have global competition. 

MyFitnessPal dominates the US market. It exclusively runs calorie databases with 300K food items. A large portion is user generated. MyFitnessPal was a massive outcome for its founders when Under Armour bought it for $475M. But the app was later sold to a PE firm at a loss of $345M, showing how tough the space was even for a leader. 

In the same area was Noom – a giant that raised $700M, with profitability in control. Their main value prop is long-lasting change instead of reliance on a quick fad diet.  Noom offers shorter realistic timelines to hit goal weights. This makes it more appealing for those trying to lose weight for a specific event. 

All these health apps were focused on improving user outcomes, but many of them struggled with monetisation. The reason is that improving health is good to have and not a must-have for most. 

When a solution is not a burning problem for the customer, making money is always a challenge for the business. The business creates value by remaining free but captures very little through monetisation.

HealthifyMe’s usage rocketed in early 2021, but its path to being a money-making business was still being discovered. 

Eyeing Global Dominance

HealthifyMe crossed 25 million downloads in 2021, triggered by the pandemic as the digital health industry gained momentum. 

While achieving a $25M ARR, HealthifyMe raised a series C of $75 M. With $100 M in total funding. HealthifyMe could double down on global markets.

Integrating AI early on, HealthifyMe replicated a similar model of entry of calorie tracking in Singapore, Malaysia, and North America. 

Fifty local health coaches were consulted to understand dietary preferences and calorific values of local foods. Veteran researchers like Sridhar Narayan, a Stanford Graduate School of Business professor, studied the user-generated data.

The top 10% lost more than 20 pounds, validating the accuracy of the program. Following this success, the HealthifyMe health management portfolio expanded

HealthifySmart Legends Edition. It introduced veteran tennis player Mahesh Bhupathi by organising AMA sessions on their diet and fitness plan through Ria. HealthifyStudio launched after the first wave of the pandemic to offer group workout sessions.

Fitpicks launched in collaboration with Swiggy which picked up 12 million users ordering from 700 Swiggy-partnered restaurants curated by HealthifyMe experts. Chronic disease management systems were also introduced for diseases like diabetes. HealthifySense augmented its mental wellness segment to make counsellors and psychologists accessible. 

All these expansionary plans and product launches expanded HealthifyMe’s revenue twofold during FY2022, hitting INR 185.25 Cr. 

In January 2022, it crossed the $50 M revenue run rate aiming to cross $500 M revenue by 2025. With a potential IPO by 2024, HealthifyMe targeted a complete AI-enabled and personalised health and wellness platform for emerging digital health markets. 

That year also saw a breakthrough release of CGM (continuous glucose monitor) sensors and body monitors to understand and improve the body’s metabolic health. 

In May 2022, the upstart launched the HealthifyPro plan. HealthifyMe coaches and Ria would deliver personalised diet plans and choices using health data collected from BIOS, companion sensors, and body monitors. 

The data collected via Bluetooth from HealthifyMe’s Smart Scale would inculcate personalisation through factors like weight, fat percentage, and muscle mass. It helped take a larger step towards making the company “future-ready”.

It kept making further strides into North America, with a fourth of its revenue coming from countries outside India within APAC in 2022. 

The company evolved into an entire health ecosystem starting from a calorie counter. It reached the esoteric $100M revenue rate, a rare feat for the health ecosystem. 

It was staring at a healthy future. But it needed to lose weight to fly

Bleeding Money to Win?

While HealthifyMe was targeting an ambitious plan of clocking $200M of ARR, it also took the brunt of the ongoing funding winter and macroeconomic conditions. 

In late 2022, it announced a layoff of 15-20% of its workforce across non-operational roles to stimulate profitability. In the ongoing funding winter, the company’s losses were reported at INR 157 Cr. This figure was a 10x jump from INR 19 Cr in 2021. 

The major cost of INR 133 Cr was from advertisements and promotions expenses. HealthifyMe burnt INR 1.85 to earn a single unit. Its healthcare consultants got 80 Cr out of 116 Cr coaching revenue, 70% instead of 50% the prior year. This was likely done to attract more coaches. 

It grew from 25M to 30M users in FY22, on a marketing spend of 133Cr. That is a customer acquisition cost (CAC) of ~266 INR or ~$4. It hit 25M users and reached a revenue run rate of $100M. It makes $4/user

With 40% revenue back to coaches, it is ~$2.5 in gross margin, needing to recover $4. 18 months of payback would have this make sense. 

It wasn’t extremely healthy. 

The reason was evident, as HealthifyMe got stuck in a strange conundrum of being useful but not valuable. Most users heavily used the app, but did not see merit in paying for it. 

Adding hardware like the glucose monitor and smart scale is a method of capturing more value. Users are willing to pay for monitoring. They believe they can improve themselves for free, so coaches tend not to be taken up.

The company was operating in a $5Tn global health and wellness market. It would be best if you were a painkiller, but HealthifyMe was a vitamin.

Its expansion into global markets was driven by trying to become a painkiller. The first rationale was getting customers who valued their health, which was more likely in western markets. The second was getting a higher average revenue per user.

The heavy losses can be explained only if the company expects customers acquired to be retained. 

The ability of the company to advertise with celebrities is a plus, implying that it has economic means. It has been around for a decade, with controlled execution trying to win. These are positive indicators in a category that has been excellent for users but a bloodbath for businesses.

The hard way to make money here is finding those customers who want to improve their outcomes but lack motivation. The top health performers don’t need HealthifyMe, the bottom health performers will churn out because they don’t care. 

It is the large middle that can be monetized using the ecosystem.

The ecosystem play will allow HealthifyMe to capture more customer value while also being able to scale its user base significantly. Its goal of building health from India to the world is aspirational because it is rare for a consumer product to be exported from India. 

If it can improve its economy, HealthifyMe could be a force to reckon with, taking health from India to the world.

Writing: Abhinay, Ajeet, Anisha, Bhoomika, Varun and Aviral Design: Abhinav and Saumya

Last fortnight, DMart reported 11,300 Cr of revenue, a 25% increase from last year, putting it on track for ~40,000Cr of annual revenue 

1992

Radhakishan Damani was born in Bikaner, Rajasthan, to a Marwari family in 1955. 

He grew up in a lower-middle-class family. His father was a stockbroker, and his mother was a homemaker. Despite their modest income, Damani’s parents emphasised education greatly and encouraged him to study hard.

He got admission to the University of Mumbai but soon dropped out of the course to start his career as a ball bearings trader. He had to shut shop after his father’s untimely death in the late 70s.

Damani got into the stock market with his brother During his initial days in the stock market, he struggled. He fought hard to stay alive in the market, and good days were hard to come by.

Nevertheless, he did not let this setback discourage him and continued to pursue his dream of becoming a successful trader.

In the late 1980s, Damani decided to branch out independently and started his brokerage firm. Initially, he faced many challenges when competing with established players in the market. 

But Damani was not one to give up easily. 

Known as Mr White & White, for his unique style of wearing all-white clothes. He got famous for the technique of short selling, which was not very common at that time. 

He first locked horns with the big bull Harshad Mehta in the late 80s. With his limitless unknown source of funding, Harshad had taken the stock market by storm, increasing prices of stocks. 

Their first big head-to-head encounter was with Apollo Tyres. Damani couldn’t digest such a high valuation for stock and started shorting while Mehta was long. 

In the end, Damani had to cut huge losses in his position, which was a significant setback.

During this period, the Bombay stock exchange was divided. Gujaratis on one side and Marwari traders on the other.

Mehta emerged as the most powerful trader on the exchange, and a group of traders locally known as the “triple-Rs,” consisting of Damani, a chartist named Raju, and the now famous Rakesh Jhunjunwala, began to compete.

This dominance of Harshad Mehta led to the formation of the famous bear cartel piloted by Manu Manek, the Cobra of Dalal Street. Working under him were the young Damani and the future bull Rakesh Jhunjunwala. 

As the name suggests, this group believed in the bearish trading strategy of short-selling stocks and making a profit from their fall.

After some initially lost battles, they outgunned their archrival. When Harshad Mehta got caught for his infamous fraud in 1992, Damani was close to the verge of bankruptcy. 

He only had money to hold his short positions for seven more days. If Mehta had held his position for a week more, Damani would have had to cut his position and declare bankruptcy. 

He made a fortune when the market crashed in the aftermath. With such a close call, changes were in order.

Risk hai Toh Ishq hai

Following the Harshad Mehta incident, Damani transitioned from short-selling to value investing under Chandrakant Sampat 

Sampat and was hailed as Warren Buffet or the original value investor of India. Theportfolio included several successful stocks such as VST Industries, Sundaram Finance, Indian Cement, Gilette India and Blue Dart. 

In 1995, he was reportedly the largest individual shareholder of HDFC bank when it went public, which he went on accumulating more of. 

When a prominent player in the market asked him why he was buying HDFC Bank stock when there were so many other PSU banks available at cheaper valuations, his reply was, ““You can’t stay on Peddar Road (one of Mumbai’s most expensive areas) at Dharavi’s (Mumbai’s biggest slum) rates, watch out for HDFC’s price in the future”

He primarily made most of his profit from long-term investments in the late 90s. He also took advantage of short-term opportunities by again short-selling stocks, which he was tipped off, were being manipulated by Ketan Parikh. 

During this time, he also profited from real estate investments made by purchasing commercial properties at low prices in Navi Mumbai and Thane for future business ventures.

His first stint in the retail industry started in 1997 when he started a cooperative departmental store ‘Apna Bazaar’ franchise in Nerul, with the former CEO of Reliance Retail. 

Apna Bazaar worked on socialist principles. The supply chain and customer experience were not in the hands of franchise owners as much. 

After 2 years of running Apna Bazaar, he closed the store, Damani felt unconvinced with the model and was instead left unsatisfied with delayed supplies and lack of control over the store. 

This experience left him itching to do something in the retail chain industry. His incomplete spell with Apna Bazaar motivated him to understand more about the psychology of Indian retail consumers. He felt a void in the industry, and flurried with this, he was to begin a new chapter in his life.

He was anxious to start a business beyond investing, to test his hypothesis around the Indian consumer. In late 1999 after extensive research and discussion, he began Avenue Supermarts Ltd to do something in retail. 

It took another three years to launch its first store.

Success Kya Hai? Failure ke Baad ka Chapter

In the early 2000s, Damani quit the stock market as his primary job at the peak of his career and forayed into the retail business.

This came as a shock to everyone, as Damani was already incredibly wealthy.

But the rise of Ketan Parikh and his tech investments of 2000 had cornered Damani. Damani, who deeply understood old businesses like cement and industrials, perhaps felt a bigger challenge lay elsewhere. 

While running the Apna Bazaar franchise, he understood the problems with the department store business. 

Damani saw a lack of organised retail options in the country and found this to be an opportunity to create a chain of stores offering low-priced, high-quality products to Indian consumers. 

He had heard of Mr Sam Walton’s famous Supermarket Walmart. 

He took a trip down to the US to understand Walmart’s deep discounting and cost optimisation strategy. The low-cost ethos of Walton’s Walmart became the hallmark of Damani’s D-Mart. He even named the company following the same genesis

“Walton-Mart” became “Damani-Mart”.

D-Mart clearly understood who their customers were and how they wanted to run their business. D-Mart’s target customers were middle-income households, it strongly banked on the sales technique of discounting. 

The strategy was simple

Offer heavy discounts on daily household items like flour, sugar, oil and rice. Sell more, sell cheaply. High volume sales and fast inventory movement meant the products would be fresh and give them a price power on their supplier with bulk orders. 

The customer who would come in to buy the cheap everyday item would take home a few high-margin items such as cheese and chocolate.

The company’s mission, as publicly claimed, was to provide the best possible value to its customers. Every rupee spent on shopping with them by the customer can give more value to the customer than anywhere else. Every rupee saved by the Indian middle class could go a long way for them.

They opened their first store in the suburban district of Powai in 2002, right near their target audience of the Indian middle-class

Damani had to come out of his comfort zone, the stock market, to be a part of this. He had made a name for himself in the trading world, people wanted to put money where he had his money. 

Leaving all that power and freedom to start something you didn’t know about was a brave decision.

A big investor that he was even then, Damani was never ashamed to be a part of this grocery venture. He excelled in purchasing and merchandising.

Perhaps his earlier days as a ball bearings trader were now coming to use.  

His beginnings at DMart were frugal. For several years since its inception, DMart’s corporate operations were run from a small space carved out from one of the early stores. He and his early leadership team worked together as one cohesive unit without hierarchy or barriers. 

By then, India was starting to open, in a huge way. 

Retail Itna Gehra Hai Desh Ki Pyaas Bujha Sakta Hai

​​In 2005, India was on the rise

Having tripled from a GDP of $270B in 1991 to $820Bn in 2005, a transformation was afoot. But with opportunity came competition. 

The cutthroat world of retail was not for the faint of heart. 

The retail space in India was dominated by small, family-owned stores known as Kirana stores. These stores had been a staple of the retail industry for centuries, and many people still preferred to shop at these local stores rather than at larger, more modern retailers.

That changed in 2006 when Walmart, one of the world’s largest retailers, announced that it would enter the Indian market through a joint venture with Bharti Enterprises, owner of the ‘Easy Day’ store. 

This marked the first time that Walmart had entered a market through a joint venture, and the move sent shockwaves through the retail industry in India. Walmart’s entry into the market was seen as a major threat to Kirana stores, and many small retailers were worried they would be unable to compete with the retail giant.

As Walmart prepared to enter the market, another explosive trend was going to take seed.

A small online bookstore made its first-ever delivery operating out of a small flat in Bengaluru. Flipkart was just getting started on its journey. A decade later, Flipkart and Walmart would collide differently. 

The growth of e-commerce was a force to be reckoned with, shaking up the traditional brick-and-mortar model and revolutionising how people shopped. Several e-commerce companies, such as Amazon India and Snapdeal, emerged within a few years. 

But there was a bigger trend of organization that was happening. 

At the time, there were over 14 million retail outlets in the country, with only 4 per cent of them larger than 500 sq. ft. The overall retail market was over $435Bn, with organised retail making only $21Bn or a paltry 5%.

By 2009, DMart had taken eight years to start its first ten stores. 

This wasn’t because of the absence of investment opportunities but more because of the belief in validating the business model from a perspective of both profitability and scalability.

As organised retail scaled, modern shopping centres and malls grew, many of which were inspired by retail formats in the West. These new retail spaces provided consumers with a wide range of options and made shopping more convenient.

The concept of a mall was shifting from being a retail shopping hub to an integrated commercial space, expanding rapidly into tier-2 cities of India, adding a total of 21 malls in 201.

The organised domestic retailers were also expanding their base. 

Pantaloons, a Future group venture, occupied 12 mn sq. ft. of retail space spread over 1000 stores, Spencer’s Retail occupied over 1.1 mn sq. ft. across 250 stores and Shoppers Stop occupied over 1.82 mn sq. ft. across 35 stores.

In the years that followed, the retail industry in India continued to evolve. International retailers such as Tesco and Carrefour announced plans to enter the market, and domestic players such as Reliance Retail and Future Group expanded significantly. 

The rise of organised retail, helped to drive the expansion of the retail industry in India.

By 2012, the retail industry in India had transformed, with a big boost that was going to drop.

Emotion Mein Competition Hamesha Galti Karta Hai

In 2012, 100% FDI in single-brand retail and 51% in multi-brand retail for the B2B segment was approved.

The landmark decision was a game-changer for the industry. The focus of retail players changed. The reason the focus of retail players was on growth and capturing market share.

For example, Future Retail was growing at a breakneck speed. Future Retail partnered with Amazon to expand e-commerce in India, thanks to the change in FDI investment policy.

However, DMart’s approach was completely different. Hyperfocus on unit economics remained the north star.

DMart was not plain lucky. It was smart in its approach.

Taking cues from other successful international operators, DMart managed working capital rather than opening more stores and growing the topline.

DMart’s approach seemed very similar to Walmart’s when they grew, with a meagre store count of 300 in 1982. Walmart expanded using the same principles of price disruption by being the lowest-cost retailer. Walmart focused on managing business more efficiently by managing working capital.

DMart first focused on optimising SKUs by having a maximum variety of products/categories but a limited number of brands. In short, they knew what you needed and what you would buy most frequently. This allowed DMart to churn the inventory faster than anyone in the industry.

Along with inventory management, DMart made sure to take care of vendors in the best possible way. DMart pays its vendors promptly within seven to eight days while competition took 35-40 days.

Paying vendors faster allowed first access to items where the inventory is low in the market because the vendor knows this pays the quickest.

With vendors, DMart focused on customer experience.

Paying vendors faster allowed cash discount benefits to be passed on to customers at lower prices. Stores were designed so that they were not complicated to navigate. Clear signs were provided, and aisles were designed to make navigation much easier.

Billing, the biggest capacity constraint in retail stores, was taken care of by having 15-20 counters, ensuring a quick, hassle-free experience.

By 2013, DMart’s revenues had grown from Rs. 260 cr. in 2007 to Rs. 3,334 cr. making them India’s third-largest branded retail chain. This was accomplished with just 65 stores, compared to the 1,000 stores of the Future Group and 1,450 stores of Reliance Retail.

DMart generated an incredible 70 Cr/store, 10x that of their competition.

By 2014, with 73 stores across Maharashtra, Gujarat, Hyderabad, and Bangalore, DMart had achieved a profit of Rs. 100 cr. 

While other retailers were finding ways to cut costs or slow down, DMart was on an expansion drive to open more supermarkets.

Its true middle-class focus was beginning to win. 

Free to Main Mere Baap ko Bhi IPO nahi Deta

India had more than 150 million households that fall in the middle-class definition, a group of 600M people.

However, the focus of big retailers was largely on the upper middle class and affluent class. No company was operating at scale to fill the gap that could cater to the middle class.

DMart was disrupting that market. It had achieved some scale in Maharashtra and Gujarat region by 2015, but now it needed to expand.

The higher throughput largely drove the efficiency of DMart’s operating model and the better profitability that its stores generated. 

This was thanks to the ‘Everyday Low Price’ value-for-money proposition that it provided to the shoppers at its stores.

It was no surprise that the per square-foot revenue of DMart is almost 2.5 times Future Retail and almost five times Hypercity. Profitability also painted the same picture. 

Efficiency was the mantra.

Customers loved the concept, and the same-store sales growth kept on increasing. Between 2015 and 2017, DMart had one of the highest same-store sales growth in the industry.

The growth in stores was in double digits. 

Of course, one can argue that the base was small. But the fact that in 15 years, DMart never faced a situation where it had to shut the store is a testament that the model was working.

In 2017, DMart clocked sales of Rs. 11,898 Cr. with a profit of Rs. 1,222 cr. It was about time for DMart to scale things. But it needed funds to do that.

Damani was going back to an old love a full 20 years later. It was about time for an IPO. 

Top management was very conservative in taking debt for expansion. DMart’s IPO was one of the most memorable in the market’s history.

The IPO was priced at Rs. 300 per share and oversubscribed by over 100 times. The listing didn’t disappoint investors either.

On the first day, the stock price doubled from Rs. 600, staggering 100% returns on the listing day.

DMart became the blue-eyed stock for investors. Many other stocks generally see price correction after listing day.

DMart never saw the IPO price ever again.

Duboge ya Udoge

Following the success of the IPO, DMart posted strong numbers in 2018

It was clear that DMart was here to stay in the hyper-competitive retail market. However, with DMart, players like Future Retail and Spencer’s were strong and had a market share with a higher number of stores.

For perspective, in 2018, DMart had over 150 stores with over Rs. 15,000 cr. Future Retail had more than 1,000 stores with over Rs. 18,000 cr. ($2.5 billion).

However, only DMart could post more than 5% net profit margin year-over-year. Future Retail had taken loads of debt, while DMart was conservative. 

DMart was doing something unique and different from other players that helped it to post a consistent net profit.

DMart focused on cost optimization with three key levers. 

It kept advertising costs to a minimum. DMart did not believe in spending large amounts of money on marketing or campaigns. Instead, it gained customers mostly by word-of-mouth, supported by the confidence of everyday low prices. 

It’s advertising as a % of revenue was thus literally 0.

DMart’s moat has been its core activity and easily outcompetes “compelling” offerings from competitors such as the Big Billion Day Sale and the Republic Day Sale, to name a few.

If money is spent on advertising rather than customer retention without providing enough distinct value, mind share is not captured, and the company loses money. 

The distinct value proposition for DMart was to give low processes every day, which would speak for itself. It worked. 

Even in the international markets, Costco and Aldi run on similar premises.

DMart followed a one-of-a-kind hiring policy. D-Mart did not believe in hiring highly educated employees and expensive MBAs to create an entitlement mentality. 

DMart prioritised employing hardworking individuals who wanted to prove themselves and who could adhere to processes. This strategy would reduce churn as higher attrition leads to higher costs for the company in the form of training.

It also ensured it stayed on top of profit margins. 

Profits have consistently remained in the 5-6% range versus loss-making counterparts over the last ten years. 

This is because all of DMart’s cost efficiencies, such as cash discounts from vendors, a greater emphasis on asset turnover, less labour cost, and a strategy to own stores, to name a few, are passed on to customers in the form of lower prices. 

These decreased prices attract many customers, and the growth continues in this manner. 

No competitor can continuously and profitably compete with DMart at such cheap pricing by just spending on advertising. This flywheel was a moat. 

DMart had spent the first ten years perfecting this scalable model and aimed to expand faster and more profitably because the foundation was solid.

Sustainable growth is what DMart thrived on, and the company generated over 100% return in the next three years after its IPO, making DMart blue-eyed stock for investors.

But a storm was coming

Profit Dikhta Hai, Har Koi Jhukta hai

The COVID-19 pandemic was a Black Swan event that pushed the retail industry to the brink.

Footfalls, the lifeblood of physical retail, collapsed. People moved online. It halted businesses, countries, and even continents in a couple of weeks.

DMart was no exception.

DMart was impacted by social distancing practices, which decreased retail footfall and changed consumer tastes and trends of moving towards online channels.

DMart had 50% of its stores closed during the peak of COVID. However, as a strong business franchise, DMart explored methods to innovate and survive and thrive, as they have done repeatedly.

The initiative DMart On Wheels (DOW) was undertaken, in which local store teams would put up a smaller store with a small range of essential products in a vast housing complex for 6-8 hours. 

Employees who worked throughout the lockdown were awarded a hardship allowance, and a new COVID-19 leave policy was announced.

In the past, the company’s efficient systems helped it survive difficult situations such as Demonetization. COVID was no exception.

At the peak of the e-commerce movement in the F&B segment, upon being asked, DMart did accept that e-commerce is not their core strength so venturing into e-commerce will be a slow process.

But DMart was aware of the fact that e-commerce can bring in benefits. With DMart Ready, DMart was building infra to move closer to the neighbourhood despite offline issues.

DMart started rolling out its new concept of DMart Ready in selected parts of Mumbai and Thane. Fast track to 2021, the results are encouraging post-COVID world.

DMart Ready operated in 500+ unique pin codes in 9 cities. However, this kind of venture was still loss-making for DMart.

DMart Ready was operating at a net loss of ~10% of the total revenue. The losses from this operation, however, are shrinking.

But while DMart adapted, its big competitor Future Retail fell like a house of cards due the pandemic. With 12,000 Cr of debt, it was first sellling to Reliance in late 2020, but the deal got blocked by Amazon. 

Future’s share price collapsed from 300 to 60 in 4 months, a steep fall. By 2021, the chain was being picked off like a carcass, with Reliance controlling the stores without paying anything.

Spencer’s didn’t have such a horrible fate, but it couldn’t live up to its IPO expectations. Listing at a 211 IPO price in 2019, it didn’t see its IPO price again like DMart. 

But unlike DMart, it had collapsed, not risen. As DMart entered 2022, it was the only large player of the last decade remaining.

Dharam Se Bada Dhandha

From being an upstart, DMart was now the pack’s leader, with a different set of challenges.

DMart now needs to solve two major problems. Geographical diversification and navigating real-estate ownership.

50% of its outlets were located in the two western states of Gujarat and Maharashtra as of FY21. However, its concentration was close to 60% a few years ago. DMart is well aware of this and is attempting to lessen its reliance on two states by growing into more states. 

Preserving past growth rates becomes more difficult as the scale grows, especially with the real estate following the laws of physics.

The problem is exacerbated for DMart because the corporation always wants to acquire the real-estate before opening a store. In the future, DMart will strive to open stores on long-term leases, which will help accelerate store expansion.

For growth, DMart has a few other unexplored opportunities. DMart may also learn from Costco and Aldi in the west. 

For example, the corporation might collaborate with BPCL, IOCL, and HPCL to build tiny stores at petrol pumps. Collaboration with major housing societies to establish smaller grocery stores is an option, as is using mobile truck stores. 

Such actions can undoubtedly enhance the number of touch points with customers, but they can also easily become a trap if not carried out correctly.

Subscriptions could also be an area to explore. 

For example, Costco offers subscriptions and now has over 60 million paid cardholders, generating over $3.5B in revenue. DMart can mimic the model and offer exclusive membership to certain stores.

Another growth opportunity lies in introducing and scaling private labels. Creating a profitable private-label brand is a difficult task.

Until now, D-Mart has treaded cautiously and slowly in this area, launching private labels for items with lower customer stickiness and higher price sensitivity, such as pulses, sugar, and other regular kitchen utensils. DMart ready can be particularly useful to test the demand for such products. DMart is already doing this, but not at scale.

With the changing dynamics of India’s economy and population, the scope for organised retail seems bright. DMart is doing well for now, with ample growth opportunities ahead.

The Indian retail market has been growing steadily and stands at $836Bn as of FY2022. As the Indian retail market scales, organised retail will follow. 

If DMart can scale certain initiatives, the blue-eyes stock of the last five years’ market will continue to dominate and provide returns for investors simultaneously.

DMart has transformed from an investor-led startup to a giant. But unlike many hypergrowth startups, it has scaled profitably. 

The DMart story will tell Indian retail how to win, profitably.

Writing: Bhoomika, Parth, Pranav, Tanish and Aviral Design: Abhinav and Blair

What a year, what a year. 

We all thought 2022 would be the respite from the pandemic, which finally appeared to be ending in the early months. Instead, we’ve had a rollercoaster of craziness. 

The collapse of tech, equity markets, and crypto has happened in the last 9 months. Since the war, inflation has run riot. Interest rates have reached highs. The crazy party of 2021 ended with an abrupt stop.

The year felt longer than 12 months when we published our last predictions.

With 2022 coming to a stop, we can score ourselves. Like a teacher grading her mark sheet, we will score ourselves

2022 will have 2x more IPOs compared to 2021: India had 138 IPOs in 2022 compared to 134 in 2021. We had directionally expected more companies going public in a hot equity market, which did happen. But tech took a massive beating, with 12+ IPOs of companies like Pine Labs and Flipkart shifted to the future. Despite this, we still saw 8 tech companies go public. But a low score to begin our predictions (5/10)

D2C Brands will consolidate with 20+ acquisitions: 3 rollup unicorns were created in late 2021. In 2022, Mensa acquired 20 companies, GlobalBees acquired 18 with a target for 40, GoodGlamm acquired 11 companies. Smaller ones like Club10, Goat Labs, acquired 5+ each. The total in the rollups was 50+, making our prediction prescient (10/10) 

The Creator ecosystem will see $100M+ of funding: FanCraze, creating cricket NFTs, raised $100M alone, ensuring we hit our goal. Our predictions on the usage of NFTs as creator monetization took off. YouTube’s Indian creators made 10,000Cr. Creator driven education saw PhysicsWallah raising $100M, Bhanzu raising $20M. Creator enabler Rigi raised $10M. We more than surpassed our prediction, which was quite a call as 2021 saw less than $50M (10/10)

2022 will have lesser unicorns than 2021 but more than 2020: In the first 3 months, India created 13 unicorns. We were extremely happy, but also stressed, because it would easily surpass 50 at that rate. But our prediction played out incredibly well. The year ended with 23 unicorns, with 0 being created in the last 3 months. The accuracy of our prediction deserves an extra point (11/10)

Deep tech startups will raise more than $1Bn in 2022: Web3/blockchain alone raised $650M in India. India got 2 AI unicorns in the form of Fractal raising $360M and Amagi raising $105M, with total AI funding easily north of $500M. Space-tech’s Skyroot raised $50M, with all 3 space tech companies raising rockets to the skies. Deeptech easily crossed $1Bn, a great year despite the onset of a funding winter (10/10)

Fintech will correct in 2022 from 2021 highs: $8Bn of funding in 2021 made fintech India’s most funded sector, including one of the world’s highest. In 2022, there was a deep fall back, with the sector raising $5Bn, a ~40% decline. Just like in every boom-bust cycle, like we had predicted, there was consolidation. 36 acquisitions happened, the highest ever, as the sector consolidated (10/10) 

We scored an incredible 9.5/10 for a year of complete madness, making us madly predict the following year. 

#1 India SaaS will be among the top 2 funded sectors, with the lowest mortality rates

2022 has seen the funding pedal hit a brake from the crazy acceleration in 2021. 

$25B has been raised in 2022 (till Nov) vs. a record $41B raised in 2021. Moreover, the pace of unicorn creation which had rushed to 44 unicorns in 2021 has dramatically slowed.

Jan-Mar’22 saw 13 unicorns which dipped to 4 in the Jul-Sep’22 quarter. Surprisingly the liquidity crunch and investors turning increasingly cautious meant that there were no new unicorns in Oct and Nov this year.

Amid this, one silver lining sector is holding the ship steady in the turbulent VC landscape- SaaS. Even in Nov 22, three SaaS startups- Icertis, Amagi, and Contentstack collectively raised $340m (of the $3.5b invested by PE/VC’s in the month). The year also saw Zoho hit a remarkable $1B revenue milestone! 

SaaS has historically been the most capital-efficient sector with the highest capital efficiency among the unicorns (Valuation/ Capital Raised). Much like Pharma and IT Services, which are resilient sectors in public markets during a downturn or uncertainty, SaaS provides a similar shelter to VCs in the private markets.

Much of it also concerns the nature of business models where recurring revenues, high tenure contracts & stickiness lend predictability in revenues. 2023 will also see a higher focus by companies to cut costs and improve efficiency, providing strong tailwinds to startups solving these areas.

In 2023, we expect VC funding in SaaS to have a neck-and-neck race with Fintech, the OG of VC funding. It should be among the top 2 VC-funded sectors in the year. 

Is India SaaS Ready to Soar?

We are bullish on several themes, including DevOps, Vertical SaaS, Cybersecurity, SaaS spend management, cross-border AI/ML plays, and SMB SaaS in India. We will be actively tracking startups in the area.

Further, in the tough year of 2023, when capital preservation, profitability, cutting burn to extend the runway will be the clarion calls to survive, we expect SaaS to have the lowest mortality rates across sectors, measured as the # of dead startups in the year. 

This will be due to two main reasons. Startups in the space find it relatively easier to break even and self-sustain in the year. There will be a higher scope for consolidation in the space aided by market leaders/late-stage startups who are comfortably funded and actively looking for reasonably priced inorganic expansion opportunities.

#2 Five or more unicorns will be repriced

2021 was the year of crazy liquidity. 

COVID led to a global economic downturn with no clarity on when the virus might be wiped out. The Fed opened its purse strings to keep credit flowing to reduce the economic damage inflicted during the 2020-21 era.

It purchased US Govt. and mortgage-backed securities and lent to the highly impacted segments. As Jerome Powell, Chair of the Fed Reserve remarked in Apr 2020, the US would deploy these lending powers to an unprecedented extent. While COVID did recede globally (ex-China) by mid-2022, few had foreseen indigestion and the adverse effects the ample liquidity would cause.

The ease in monetary policy, quantitative easing, and repo operations gave higher funds for banks and institutions (public and private to lend). This led to VC funding shattering all records in 2021. Globally $643b was deployed with 92% growth YoY. The crazy velocity percolated to India with the birth of 44 unicorns and 4x growth in VC funding to $38.5b.

Unicorns were celebrated and a few raised funds multiple times through 2021. In the deployment frenzy, sustainable growth took a backseat and growth at all costs and expensive acquisitions to gain market share became prominent. 

A lot of bad behaviour built in 2021 unravelled dramatically in 2022.

As the Fed started shrinking its balance sheet and tightened liquidity, investors caught a cold virus hard to treat in 2022. The tech meltdown led to VC’s IRR nose-diving and the valuation of their private companies crashed. Many unicorns raised at crazy multiples, intoxicated by the effects, were visible throughout 2022. 

Some raised convertible rounds/ debt to keep their valuation intact.

2023 is expected to reset valuations for at least 5 (10%) of the 65+ unicorns born in 2021 and 2022. While few extended their runway by raising a debt round or doing aggressive cost cuts in 2022, that will become increasingly tough as they look to raise a fresh equity round in 2023. 

The 2021 grads will be priced more rationally and face much more pain as their valuations stay flat or need to accept a down round. 

While this will be painful for the founders and their investors, the short-term pain will help cut the flab and move to a much more sustainable and stronger startup ecosystem in 2023 where ‘resilient’ and ‘profitable’ unicorns take centre stage.

#3 Funding will be higher than 2019 but lower than 2022, with less than five tech IPOs

We expect the total funding poured into the Indian ecosystem to surpass pre-pandemic levels, steady with our long India bet. 

But we also expect it to be slower than 2022, which itself was slower than 2021. 

Many capital shops have raised new funds and would look for great opportunities to invest across the geography. However, the overall funding levels will remain under that of 2022 as the markets spend the first two quarters of 2023 in uncertainty about an impending recession.

The recent sting of crashed-and-burned bets will be soothed by ever-evolving product strategy and innovation, as we expect investors to adopt a wait-and-watch strategy. 

Many large hedge funds have all but exited the Indian market in the near term. With their portfolios hammered globally, we do not think they will have the bandwidth to invest in India.

They accounted for a significant portion of the large-scale funding done in 2021 and early 2022. 

Riding the funding tide in 2021, several startups eyed the equity markets to raise funds as their businesses mature. 

Many unicorns and late-stage startups made their public debuts or solidified plans to go public.

Since the beginning of 2021, 11 Indian startups – Paytm, Nykaa, CarTrade, MapmyIndia, EaseMyTrip, Delhivery, Fino Payments Bank, IndiaMART, Nazara Technologies, Policybazaar, and Zomato – went public with a combined valuation at IPO of over $70 billion.

Capital superabundance made it possible for many others to prioritise growth over profitability and dream of going public like some marquee names had been able to.

Many younger companies took cues from prevalent conditions and evaluated this as a good time to try and test new models, lower hurdle rates and grow at any cost.

While most onlookers were left bickering over the importance of growth over profitability and vice versa, 2022 would bring a snowstorm to cloud their vision.

As many as 23 startups were aiming to turn in their Red Herring Prospectus drafts in 2022, but just a few made it public.

Those who had to hold their horses were Droom, OYO, boAt, Snapdeal, and PharmEasy. Market conditions have remained unfriendly, and more panic traversed the street as Nykaa and Paytm’s prices plummeted further after the post-IPO lock-in periods ended. 

More than $18 billion was wiped out across five renowned listings.

Our perspective is that in the next year, we will see fewer than 5 Indian tech IPOs. Firms will focus on getting lean and surviving the turmoil before dipping their feet in the public market. Teams will be more resilient as a result of this bear market, whether publicly or privately held.

#4. Climate tech will emerge as a strong theme with $100M+ VC funding

In 2017, a heart-wrenching video of a starving polar bear sent shockwaves dubbing it to be the ‘face of climate change’.

Fast forward five years, the situation has only worsened with the air quality deteriorating, ice caps melting and fresh water running out.

2022 saw muted funding overall in India, although certain pockets of optimism showed promise in 2022 and investors will be actively tracking it in 2023.

Can India Convert 20 Years of Building to Be a Climate Superpower?

Climate tech was one such sector with the EV space being the torch bearer. The geopolitical negotiations and economic urgency to work towards climate-related agenda with a coordinated focus will put climate tech in the spotlight in 2023.

India, with its huge base of engineering and tech talent will be the R&D centre for innovations around key themes in climate tech such as EV, carbon credits, circular economy, pollution reduction. The Govt. push and commitment to become net zero in emissions by 2070 will further accelerate the push.

Few companies in solar, EV have been building their solutions for the last 4-7 years. As they hit PMF and look to commercialise their solutions, investors will be eager to back such plays in 2023. Moreover, they have started ticking the technology validation and market sizing and acceptance risks which was a key contention point for investors in climate tech.

In EV, the confluence of technology maturing, Govt. policies that reduce the cost of ownership and provide subsidies for charging infrastructure, consumer acceptance and the ecosystem coming together will provide a definite spark to funding in 2023.  

In clean energy, major corporates have put down the gauntlet to become India’s and the world’s largest renewable energy producer. Adani is building 3 gigafactories as part of its $70b spend on clean energy by 2030. Reliance is planning to spend Rs. 75,000 cr over the next three years with 80% of it to be spent on building 4 gigafactories.

Massive investments by these conglomerates will push downstream innovation in solar modules, wind turbines, hydrogen electrolysers, and battery chemistry and encourage clean bio-energy and sustainability funding.

Some interesting areas we will be keenly tracking at AJVC will be the carbon credits market, water conservation, pollution reduction and bio-fuel startups. Overall, we are bullish on Climate Tech being the force of good in India and lighting up the world. 

We expect $100m+ in VC funding in Climate Tech in 2023. 

#5 Fintech will mature, remaining the highest VC-funded sector in 2023

Fintech has been the undoubted VC favourite over the years. 

With how the market looked in 2022, it is a good time to rewind to see how we got here.

Will India Stack Enable a Global Fintech Superpower?

The stratospheric valuations seen across the sector were largely due to the vastness of the market opportunity; the untapped potential with millennials and the salaried Tier 2 population itself was sizable. E-commerce was booming, and fintech formed the base layer of this stack. Fintech companies were driving innovation in products and business models, expanding accessibility and reach across the industry.

The quantitative easing and subsequent tightening measures adopted by the Federal Reserve in the pandemic era have had far-reaching effects on all economies. The economy runs like a machine, which significantly overheats with each rate hike announced to curb inflation. Sky-high American CPI prints were an indicator of what was to come to the rest of the world.

Rising inflation in the country meant that people had less to spend and consume, weakening commerce further. In turn, the fintech services’ demand collapsed severely.

With the funding taps shut and consumer demands at a post-pandemic-era low, fintech firms everywhere began facing severe downturns, and India was no exception to the norm.

However, the fittest survived the toll, and the payments vertical continues to be a strong suit. Two words – policy and innovation.

2022 has seen the RBI recognise the importance of digital lenders in the economy and implement measures to regulate their growth. The guidelines for Digital Lending and Data Protection bills credit the theme by formally recognising digital lending and setting up the much-required legal structure to protect consumers.

UPI has been the foremost force in changing India’s payments landscape, and things have only looked stronger after the announcement of the account aggregator system, Sahmati.

Sahmati aims to bring fragmented, siloed user data into a wide-ranging view in real-time and function as a framework for seamless, safe and swift data sharing between financial information providers (FIPs) and financial information users (FIUs).

Despite these efforts, India is still struggling to bridge the credit gap for its “thin-file” citizens across tier-2/tier-3 cities and rural areas alike, which brings us to our next prediction.

Despite the positive fundamentals, the Indian landscape is showing despite global macroeconomic issues and the massive demand for microloans from said “thin-line” citizens and MSMEs, we expect microfinance shops to find their flight this year. Public banks working with digital lenders will become more mainstream as a co-lending model.

Resilient businesses will weather the storm, and even with signs of consolidation, we expect fintech to remain the top sector drawing VC funding in 2023

#6: Two or more D2C roll-ups will consolidate in the sector’s moment of reckoning

3 unicorns scaled in the roll-up space, with another 3 having raised a large amount of capital.

All of these rollups were copying the success of Thrasio in the US. Thrasio itself replaced its CEO and laid off people.

India’s D2C rollups will face their test with fire, as money dries up. 

The big challenge of consumer brand roll-ups in India is finding good targets for acquisition. Many companies have raised significant amounts of money to acquire consumer brands but have struggled to find brands that meet their criteria for acquisition. This may be due to the intense competition in the Indian market and the lack of differentiation among many of the available brands.

Can India Consume D2C Brands?

In India, there is also the “big gets bigger” effect

The top brands in a particular industry tend to dominate the market and capture a large share of the available demand. This makes it difficult for smaller, acquired brands to compete and gain market share, leading to the failure of the acquisition. 

In many cases, it is only the top 4 or 5 brands in a particular industry that matter, and acquiring non-top brands can be very challenging.

These roll-ups rely on the scale benefits to drive growth and profitability. 

However, in India, it can be not easy to achieve scale benefits due to the diverse and fragmented nature of the market. As a result, the acquired brands may struggle to realize the expected synergies and may not perform as well as expected.

In comparison, companies such as Nestle, Unilever, and P&G tend to only stay in the brand and consumer lines where they are the top 3 players. The three are the OG “roll-up” plays that have built and acquired brands. This allows them to leverage their market position and achieve scale benefits more effectively.

The furious financing in the category will drive the industry to consolidation.

During the abundance of capital in 2021, many consumer roll-ups were funded, even though the market may not have been able to support them. This led to oversaturation and intense competition, likely leading to the failure of many of these acquisitions.

We expect it to be a challenging year for the rollups, as they will have to prove out their viability. With the original company that spawned these struggling, it is hard to make a case for smooth sailing in a smaller market like India.

We expect at least two will consolidate or shut down as they run out of steam in 2023.

Writing: Bhoomika, Keshav and Aviral Design: Omkar and Saumya

Last fortnight, Tracxn went public for $100M, the first Indian SaaS company to do so this year on the Indian markets

The Path Less Travelled

Abhishek Goyal and Neha Singh were both studying computer science at the IITs in the 2000s

Abhishek Goyal started his career as a Software Engineer at Amazon and became a CTO in just five years. 

Drawn into the startup space, he joined a venture capital firm in 2008 to invest in startups. This was when India’s Internet penetration was at its nascent stage. Cognisant of what the tech wave could unravel, Abhishek would meet two Amazon colleagues selling books.

He would champion an investment into Sachin and Binny’s company, that his firm would eventually do

Unbeknownst to their future paths crossing, Neha Singh went on to get a dual degree in computer science from IIT Bombay and an MBA from Stanford. After starting at a top-tier consulting firm, Neha eventually ended up at another venture capital firm. 

She would become one of the earliest people involved in the Indian investment space in the 2010s when few even knew what a startup was

Taking very different paths into venture capital would result in both of them finding a similar problem.

They say compelling startup ideas tend to have three things in common. They’re something the founders themselves want, that they can build and that few others realise are worth doing.

Neha and Abhishek would be another instance of bringing this idea to fruition. 

At the time, the Indian startup space was much quieter, yet to be acquainted with the terms “startups”, “VC”, and “unicorn”. 

VCs spent countless hours manually analysing industries by scouring the internet, personal networks or other platforms. They would be plagued by constant anxiety of missing out on an exciting startup, colloquially called FOMO or fear of missing out.

Both Neha and Abhishek acutely felt this

Forced to spend efforts on discovering companies, they didn’t get the time they deserved to dedicate to the startup they found. Diligencing existing data they could dig deep into, analysing markets and upcoming opportunities was what would get left behind.

An idea of a startup trying to make sense of startups for investors was brewing.

Sitting On A Goldmine

This was not a problem only bothering Indian investors

Developed startup markets like Silicon Valley had no data analysis platform that solved for private markets. 

In 2010, the only financial data platforms available were targeting the public sector. 

While the public sector had close to 50,000 companies globally, the functioning private sector was in a few million. With no solution in sight and scale to be captured, private sector data analysis was a space waiting to be disrupted.

Being true technologists, Abhishek and Neha each had their own self-made data analysis platform at their own VC firms

Crossing paths in 2012, they decided to build their rudimentary platforms into a full-fledged startup that bridges the foundational information gap. 

WTF is Venture Capital?

Tracxn was born.

Identifying the US as the right market with customers, corporates and VCs, they decided to go with it as their primary market. 

They realised that building a company that could stand the course of time was not enough just to make excellent tech. 

They had to balance the tech with actionable and insightful data. 

Deciding to focus on sector-focused analysis and build data operations, they started hiring and setting up shop in India, which was fast becoming the world’s back office. 

With a well-thought-out product with no alternative in the market, Tracxn went in full swing. 

Reaching out to connections in 2013, they sold their product at full price to VCs in India and US. 

Charging for a new product was the perfect opportunity for them to test out the validity of their solution. 

Opening to complete customer satisfaction and willingness to pay, Tracxn had caught onto a growing trend.

The startup ecosystem was beginning to take off, but it wouldn’t be easy to build.

Engineering The Right Shovel

Launching a completely new vertical SaaS product for an entire industry was no simple task. 

Not compromising on pricing helped them focus on building a comprehensive solution capable of solving multiple use cases.

Starting by identifying interesting startups in 2014/15’s hot themes like cybersecurity, e-commerce and SaaS, Tracxn established itself as a value proposition that VCs, private equity investors and corporates loved.

With early success in full swing, it was time for Tracxn to push the pedal.

In 2015, they raised $3.5 M first round. With new markets to capture and new use cases to unlock, Tracxn increased its team from 30 to 150. 

In just one year, their monitored startup database also increased from 10M to 20M. 

By 2016, Tracxn was not just solving for investors. They launched their funding platform Tracxn Syndicate. 

Building on top of the company’s curated database of Indian startups, Tracxn Syndicate handpicked 1-2 startups and presented them to the network of angels and investors. 

With intelligent analysis and interested investors onboarded, Tracxn Syndicate claimed to close the fundraising process in just three days. This was a massive saving for both startups and investors.

Use cases like these indicated the start of an explosion in the entrepreneurial ecosystem. Tracxn was giving visibility into the private markets that hadn’t existed before.

But the pioneer of data and insight into public markets had existed for decades

Buyers Aware

In investing, information is everything

Investors require high-quality data to make business decisions because these are significant financial investments. 

Bloomberg rightly identified the problem in the late 1970s, when public markets were only getting started. When the Bloomberg Terminal was launched in 1981, the total value of all listed firms worldwide was a few trillion dollars. 

The Bloomberg Terminal increased transparency in the financial world. It linked market participants to a data, analytics, and information-delivery service – and transformed an industry. 

As the saying goes, history repeats itself. This time though, private markets investors were in for a pleasant surprise.

According to estimates, there were over 150 million private enterprises globally in 2016. 

Private enterprises were exhibiting consistent signals of expansion. With globalisation and favourable business environments worldwide, private companies were projected to strive for even more growth. 

The growing private market was becoming increasingly relevant, with AUM in the private market standing at over $5T in 2016 and predicted to reach $10T in 2025. 

It would not be tiny compared to the public sector, which had a total market value of around $80T. 

While the AUM was high, the take rate for a SaaS player like Tracxn would be determined by the number of investment professionals. 

Assuming that an investor manages $5-10M of AUM, the total universe of private market investors is ~500K. Tracxn’s pricing of ~$5K/year pegged the overall market at ~$3Bn. 

It was betting on this growing 2-3x over the next decade.

Platforms like Bloomberg catering to public markets have generated billions of dollars in revenue by supplying data to investors. Bloomberg, especially, was a high-cash-generating machine. 

It was now time for private markets.

As the private market expanded in size, so does the infrastructure or the complete ecosystem of that market, and eventually, decisions must be made based on data. 

Tracxn focused on the same.

Tracxn specialises in providing private corporate data to customers for deal sourcing, identifying M&A prospects, deal vetting, analysis, and tracking emerging patterns across industries and marketplaces. 

Tracxn’s traction continued, and it raised another round. Unlike other startups yet to discover a business model, Tracxn was making money.

By 2017, it was clear that the investments in data and technology would pay off. 

Unlike companies like Flipkart, which Abhishek had found, Tracxn was not going to be a fast-scaling, explosive growth, high-burn machine. 

It would be the patiently executing machine.

Lean Mean Mining Machine

By 2018, the patient SaaS business model that Tracxn employed was truly built in India for the world.

Tracxn required significant investment in both product and human capital to start. However, once a reasonable scale was achieved, efficiency kicked in. Profitability was attained much more quickly. 

This is an example of a traditional operating leverage business model. Furthermore, the decision to operate from India helped achieve the scale faster and was motivated by two primary reasons. 

The first reason was the average remuneration in countries like India is almost ten times lower than that in the USA and around six times lower than in the  UK. This has been one of the key advantages for Tracxn, which operates primarily out of India and serves globally.

The second reason was the market size; the global public market’s global valuation was about $90T. India’s public market valuation was about $3T, which was just 3% of the total market value

In private markets, India’s share was higher, around 5%, but not significant for a company like Tracxn to dedicate all resources to one geography.

Tracxn made a deliberate decision to serve worldwide clients from India. These would largely be based in the US.

The cost also painted a similar picture. As scale kicked in, a SaaS player like Tracxn could service many more customers with a marginal increase in employment costs.

Apart from the cost advantage, Tracxn also relied on a tiered pricing approach. 

Its “small team” offering allowed even smaller shops to consider tapping into their database without worrying about finding too deep a hole in their pockets. 

Tracxn’s customer base rose by 400% in 2019. 

It had clients including BMW, LG, Qihoo, VMWare, Target, Vodafone, and Bosch, global venture capital, and private equity firms.

Tracxn was now in a position where adding one customer did not come at an additional cost. By then, Tracxn was also discovering the right way to acquire its customers.

Upping The Ante

Tracxn discovered that the conventional carpet-bombing approach to client acquisition might not work

In SaaS, sales were vital. But this was sold to investors who didn’t have time on bandwidth, ironically the reason Tracxn existed. They needed to figure out another model to get to these customers.

Tracxn began to rely on content marketing to reach out to prospective and existing consumers mainly through online channels such as emails, social media, and search engine optimisation. 

Its vast database would help generate valuable content to close customers. 

Over some time, content marketing included making sample data on companies, providing content for articles and sharing industry newsletters and sector and geography-focused reports. 

The icing was that the internally generated and published content helped improve the SEO ranking.

But that was not it

Tracxn utilised its research capability well and demonstrated that by publishing and providing data to leading media outlets in India and globally to use their data and quotes as sources in their articles and news reports.

This activity aided Tracxn in gaining a customer’s trust.

In the process, Tracxn processed over 1.3 million, with a growth of over 100% in two years between 2019 and 2021. 

The data points also increased by more than 400% during the same period. The stage was set for Tracxn to go big, and the founders were now envisioning the IPO. 

But going public in a competitive market was not going to be easy.

The Pacemaker

Ever since Tracxn started to build a data platform, they knew that they were up against the global and not local competition. 

Data transcends borders, and offering a globally competitive proposition was always challenging. 

With this in mind, Abhishek and Neha focused on getting the product right and raising reasonably. 

They used the initial investment to build the platform and a team focused on tech, product, analysis and data operations. 

This helped Tracxn build an extensive database of private companies across geographies, sectors and stages of business. 

By June 2022, they profiled more than 1.8M entities and categorised them globally across geographies, industries, sectors, and networks.

All this data service also comes with platform tools like deal flow management, dashboards, APIs, plug-ins, trackers and statistical models. 

But with all these products came competition. Tracxn opened itself to challengers from multiple sources with vast services across industries. 

Competition could range from publicly available information on company websites, online databases and government records to formal private company data providers such as Crunchbase, CBInsights, Pitchbook and PrviCo. 

While Crunchbase, CBInsights and PrviCo databases contained between 0.5 – 0.8 million private companies, Pitchbook included 3.4 million.

In addition to more diverse service offerings, larger competitors could benefit from relationships with customers based on other products, building services together or selling at very low margins. 

Moreover, larger global companies could enjoy access to higher marketing and sales budgets to access new clients. 

The competitive landscape could change fast with changing industry trends, technology and customer needs. 

Switching costs for customers could be low given similar use cases, the easy use of platforms and integrated APIs and databases. 

While competitive factors would be expanding the client base could involve the breadth of platform offerings,  cost and ease of use, customer retention can come from the quality and accuracy of data, data privacy and security and actual return on investment for customers. 

Despite the competition, Tracxn would keep chugging along. Public dreams to make private data accessible were getting closer.

As the second half of 2022 began, Tracxn was ready

And Now The Rainmaker

Tracxn shares were listed on the National Stock Exchange (NSE) on October 20, 2022, at Rs. 84.5, a 5.63% premium over its price. 

This was an Offer for sale, with existing shareholders diluting their stake through the primary market issue. 

The company commands a rupee valuation of about Rs. 802 crore post IPO, at about 12 times trailing 12-month sales.

For SaaS companies, this is not a high multiple. In the craziness of 2021, this could be as high as 20-30x.

The Tracxn IPO comes amidst an overall lull in the current year and against other prominent startup listings (Paytm, Zomato, Nykaa), resulting in a decline in shareholder wealth over the past year. 

The listing was deemed steady, with the potential to spur more startups to materialise their IPO plans in the coming months. 

For Abhishek Goyal and Neha Sigh, the seeds of listing on the exchanges were sown sometime in December 2021 when they turned cash flow positive. Their ambitions were further fortified by achieving a positive bottom line in June last year. 

Indian investors treat profitable businesses well, so the expanding EBITDA and positive cash flows made life easier during the investor roadshows and helped garner investor credibility. 

Against the backdrop of fast-burn, fast-growth startups, Tracxn was profitable and 

The retailer investor pitch was primarily the expansion of private valuations. Compared to worldwide public market valuations that are close to $90 trillion, private markets stood at $9 trillion in 2022.

The growth of private markets will eventually expand the underlying ecosystem and infrastructure. Given that investors rely on high-quality data to make significant financial decisions, reliable data platforms become an essential component of the infrastructure. 

With the IPO euphoria, successful investor exit and heightened scrutiny, nothing much changes for Abhishek and Neha with their daily lives and work. They continue to do what they do, only with more discipline and stability. 

Decision-making, however, takes on a more long-term horizon. Instead of beefing up valuations to sell, they focus on building an iconic data company for the next 30 years.   

Tracxn’s solid customer base and global presence include Fortune 500 companies. 

They boast a diverse base of 1139 customer accounts across 58 countries currently. This is a growth of  30.4% CAGR since 2020. 

Private market investors and investment banks make up more than half of the customer accounts, with the rest coming from corporations, government agencies, academic institutions and incubators. 

Tracxn’s customer base also has the dual advantage of geographical spread – across the Americas, Europe and Asia – and high customer retention of close to 74%. 

This must instil investor confidence in the company’s ability to attract and retain customers through a valuable and scalable data platform. 

While revenue has seen a linear growth trajectory over the last three years, 70% of revenue comes from Europe and the US. This could expose the company to macro headwinds, currency fluctuations, and stiff competition in these markets. 

However, with India constituting 10% of global unicorns and expanding, it will be a major part of future expansion. Tracxn will continue to add Indian private market investors to its base.

For Tracxn, the post-IPO plan could focus on inorganic acquisition to facilitate quick adoption of technology across markets and improve its footprint across more industries. 

Armed with an enterprise-grade product, the founders also plan on ramping up the sales function and aim to capture market share. 

In addition to battling the competition, this could improve the topline at a rate faster than the costs.  

For Private Markets, From The Public Side

Tracxn’s big bet is that the demand for private data will blow up.

Private market investors rely heavily on company research before pouring in millions of dollars of investment. The availability and authenticity of their data are vital to making sound investment decisions. 

Assets under management (AUM) in the private markets increased from $3.4 trillion to $10.2 trillion in the last 7 years. The number of investment banks and private equity firms grew by about 10 per cent during the same period. 

This translates into a huge increase in the data volume and its potential users. Tracxn is well poised to benefit from this trend. 

The users of private market data could include investment banks, private equity (PE) and venture capital firms, among other smaller players in the investor community. Data points on the number of funding rounds, commercial value, human resource quality and technological adoption are important factors in evaluating companies. 

Moreover, PE firms continue to monitor their target sectors for financial growth and changing market dynamics yearly. Sound private company data helps to gather intelligence efficiently and expedite decision-making. 

Reports and insights shared by Tracxn replace the primitive methods of in-house research teams who track individual companies and populate excel sheets with data points.  

Not only is this method time-consuming and inefficient, but it also lacks depth and insight. Investment firms have moved on from data collation to data analytics. 

With advanced technology to capture and process data, information providers like Tracxn spend more time synthesising the data. They provide in-depth, visual and readily available insights on a platter (platform).

Faster and more efficient decision-making leads to a better return on investment, increases the bar for companies and thus incentivises more investment and more players in the market. 

With time, readily available company insights become indispensable to the private markets, fueling continued growth.

Like oil, data in its raw, unrefined form is practically useless. 

However, data that is ‘refined’ through analysis and visualisation can form a combustible mixture to power some rocket ships. 

Tracxn could use the private market hook as a wedge to get into data for larger companies. You can already see it populating data on all kinds of companies. 

It is not crazy to think that Tracxn could use this as a Trojan horse to get into public market data. The market is significant. Data is a moat. With the private market journey of companies tracked, 

Tracxn had caught them young. Like a customer growing with you, Tracxn’s data points would grow with its startups. 

Tracxn might be becoming a supplier of potent fuel in the market. 

Writing: Bhoomika, Parth, Rajiv, Sahil and Aviral Design: Omkar and Blair

Last fortnight, recently minted unicorn UpGrad announced its 5th acquisition of 2022 with Exampur, which came quickly after they acquired Harappa Education and Wolves India in the previous month.

A Statement Of Purpose

In 2015, India was witnessing a change in the startup environment. 

TVF’s famous web series Pitchers trailer showcased how a feeling of “Hiranandani mei Silicon Valley khadi ho Rahi hai” inspired many future entrepreneurs to take a plunge and start something of their own.

Mayank Kumar, an IIT Delhi grad, had also been thinking about it for some time. While working at a consulting firm, he gained exposure to the health and education sector. Mayank gathered some exciting insights to become the foundation for his next venture.

He could see that there were problems in the way higher education was provided. 

Education through the Brick & Mortar route reached less than 20-25% of the targeted audience, and the required skill set for a successful career was changing quickly.

This sparked a discussion between Mayank and two of his colleagues and IIT Delhi alums Ravijot Chugh & Phalgun Kompalli. The three of them started thinking about how resources for upskilling could be made available at scale.

Around the same time, serial entrepreneur Ronnie Screwala, well known for building UTV and many category-defining businesses, sold the controlling stake in UTV to Disney.

After 2012, with this inflow of funds and his zeal to build and back new businesses, Ronnie started actively investing in startups through an investment arm. 

He was not only intent on backing budding founders but also actively participated in the problem-solving processes that can hugely impact sectors like health and education.

Soon, Mayank and Ronnie were introduced by a mutual connection who noticed that they were looking to solve the same problems and would make a great team to build a technology-enabled solution.

After giving it a great amount of thought, Mayank and his colleagues, Ravijot and Phalgun, joined Ronnie to start an Edtech venture.

On 23rd March 2015, upGrad was born.

Out Of Syllabus

The upGrad team decided they would focus singularly on the higher education space.

They would not look at K-12 or the competitive exam prep space. They focussed on the Indian market and keenly studied the disconnect between traditional college curriculum and industry requirements.

upGrad’s founders noticed that the future of work demands industry professionals to upskill continuously, not just for their organisation’s benefit but also for their personal growth. 

Earlier, learning would halt as soon as professionals entered the workspace. upGrad brought along novel approaches toward imparting and receiving education by offering people a chance to upskill while working. 

For example, digital marketing was not even a course offered as part of the curriculum for MBA in 2005, but by 2020, a marketing degree would be incomplete without it. It has become such a specialised skill that to become job ready, one can pursue a course dedicated to digital marketing and find a job.

upGrad was solving this problem by offering digital marketing or data science courses. These were more relevant skills for learners and businesses with a massive demand for these skills. The supply-demand imbalance for these new-age skills ensured that folks who invested time and effort in upskilling could attract higher salaries.

Online courses also helped working professionals who aspired to upskill themselves. This upskilling would happen while continuing their full-time jobs.

Online education was still a very new concept in 2015, and people advised upGrad founders to offer the courses for free to increase adoption.

At the same time, universities were no longer geographically limited by the brick-and-mortar format. Still, they did feel that on-campus students, even part-timers such as night school attendees, were more committed to the learning process than those who opted in for Massive Open Online Courses (MOOCs).

Whether they were “diluting their brand” crossed their minds.

upGrad’s founders believed online education could be better than campus education as tools and accessibility made it a better format. They felt it should be charged at a premium if they have to make a tangible change in someone’s career.

They took a contrarian bet, which resonated well with universities as this ensured a hundred per cent commitment from the students once they signed up for a course.

Tie-ups with IITs and global universities like Deakin business school helped upGrad create courses focused on specific areas, designed for a similar duration as campus courses but customised for online attendees.

By 2016, upGrad was ready to take off. 

Focus On Your Subjects

Unlike other typical startups, Ronnie would be the largest founder-investor in the company.

They, therefore, didn’t have to go through the process of raising money. Instead, they had the business challenge straight ahead.

The founders had to find learners who would be ready to trust them with their time and money for an online course with no physical classroom. This one was yet to find acceptance in broader society.

Doing this was especially hard as the courses cost a significant amount.

For learners, the value that upGrad was offering was simple – access to a top university, the flexibility of the online courses, and an opportunity to get a significant salary hike.

For the first 100 learners, upGrad founders themselves hustled to interact with applicants, gauge their commitment and understand what made them hesitant about the process.

Much like any other university application, they asked applicants to submit a statement of purpose (SOP) and had a stringent shortlisting process to gauge interest and intent.

Once shortlisted, they understood that some of the resistance in their target customers came from upGrad and its courses being new. It was not easy to trust them without getting exposure to the content directly.

Applicants wanted to experience the offering before pledging their hard-earned money.

upGrad decided to offer its content free for two weeks. Once applicants felt comfortable about the value it provided, they could go ahead and sign up for the course.

Despite this, prospective students wondered whether online courses could offer them any natural edge over the offline method, an X-factor of sorts.

upGrad could sense that to become a successful professional, one needed to be equipped not only with the knowledge of a concept but also its application.

And this was something which a subject matter expert would best teach. Learning digital marketing was great, but understanding its application during Big Billion Days from the VP of marketing at Flipkart could make it more holistic.

These industry experts could not keep travelling across cities to share their expertise all that often (or at all) given their full-time job, but upGrad could bring these experts to share their knowledge OTT.

Teaming university professors with industry experts online was the secret sauce for upGrad.

By 2018, through a series of offline events, upGrad soon built a committed pool of learners and given their stringent acceptance process, universities could find the right type of students they were looking for.

As the company scaled brick by brick, it went from 100 to 10,000 by year 3. A small base, but 100x growth from their original start. 

upGrad was staring at a large higher education pie. 

A High Scoring Chapter

In 2018, India had over 1M registered schools and 18K higher education institutions. 

Yet 58% of children didn’t finish primary school while a whopping 90% didn’t finish secondary school. Only 10% of that number made it to college.

Financial and personal constraints were quoted as the primary reasons behind these numbers. 

Is EdTech India’s Next Global Export?

Online education companies were offering a superior, easily accessible yet cost-effective method. 

India’s e-learning market in 2016 was $247M with approximately 1.6M users. They pegged the market to grow eight times to ~$2B by 2021, with users increasing to 10M. Higher education was forecasted to be a fifth of the share. 

The rising internet/smartphone penetration on the subcontinent, the high demand for accessible and on-demand learning among both students and job-seekers/working professionals, and the push from the government itself (‘Digital India’ and ‘Skill India’) rated highly among the factors behind this tremendous growth. 

India was expected to blow past China in the number of smartphone users, which was primed to double from 400M to 800M in the same period. 

By 2019, the global economy’s slowdown and the onset of automation also threatened around 70% of the jobs, especially in the IT and manufacturing sectors. 

This made a case for most working professionals to ‘upskill’ and get to the up-and-coming technologies of machine learning and artificial intelligence. 

Where else but online education? 

Yet another factor was looming, one that would have the most significant impact on the e-learning market, one which no one saw coming. 

In 2020, the onset of the pandemic and the following national lockdown would transform online education. 

Online classrooms, the rise of zoom and video conferencing and many layoffs across industries were common themes during the pandemic. 

Ed-tech companies would witness a 50% growth in their user base within the first six months of the pandemic while also attracting $1B worth of investments in the same period. 

upGrad would explode, just like the others. It would raise a giant $130M round as its first round of capital from outside.

But how was it making any money?

A Solid Report Card

The pandemic was a huge boost to upGrad. 

upGrad saw an 86% increase in its operating revenue. From INR 160Cr in 2020, to INR 300Cr in 2021, a 2x jump.

Its revenue was built like a classic online university for higher education, a “university of universities”

upGrad works as the intermediary between various educational institutes and learning providers on one side of the platform and the learners on the other. They offer courses across arts, law, management and, of course, technology and data science.  

All the courses and offerings are accessible through a mobile application and website. 

The institutes set the eligibility criteria for their courses, and individuals meeting them can register. Once registered, candidates must pay the course fees upfront or through instalments, providing a cost-effective and affordable approach.

upGrad charges the universities a commission based on the fee they receive. 

This commission forms the most significant chunk of its revenue, accounting for just over 50% of its operating revenues, at INR 152Cr in 2021. upGrad pays a % of this to the universities and institutes to develop and promote educational programmes on its platform. 

Its courses, which directly collect an enrollment fee from the candidates, make up around 49% of the operating revenue – INR 148Cr in 2021, growing from INR 72Cr in 2020. 

At the same time, expenditures similarly saw a considerable increase, growing 113% from INR 241Cr in 2020 to INR 515Cr in 2021. 

We need to understand if the model makes sense by taking a view on unit economics. 

Digging deeper, we see that UpGrad doubled its user base in FY2021, growing from 1M to 2M. 

If we even assume that 50% of this was through marketing efforts – given an estimate of INR 205Cr for advertising and promotional efforts (the other 50% through referral and organic), UpGrad’s CAC would stand at ~ INR 2050. 

With revenue of INR 300Cr and content development expenses of INR 84Cr, UpGrad’s gross margin stands at ~70%. At a customer base of 2M, the AOV (annually) is INR 1500, and the margin is INR 1050. 

Breaking even on a customer would take UpGrad 2 years. With most of their campaigns primarily focused on lifetime learning, they seem to have things going their way.  

But it wasn’t like upGrad was alone, as the company faced well-funded challenges from all sides. 

Race For Valedictorian

UpGrad’s target segment remains people in the age group 18-50, 

These are employed or graduated. The segment is looking at upskilling themselves to make a career transition or to remain competent in their fields. 

Not every college has a campus placement, which is one of the problems upGrad is trying to solve by providing placement assistance along with their courses.

If one doesn’t want to invest a few months in learning a course and just needs help with career counselling, they can opt for mentorship. It includes guidance via video calls for resume writing, interview preparation, resume review, job search strategy and LinkedIn profile designing

One can say that Byju’s, Unacademy, Simplilearn, Eruditus, and Vedantu are Upgrad’s competitors since they’re all players in the edtech space. 

But by the target audience, Simplilearn and Eruditus can be labelled core competitors for upGrad.

Simplilearn is niche specific and focuses on skills needed in the digital economy. It has data science, AI & ML, project management, cyber security, cloud computing, DevOps, and digital marketing courses. 

Eruditus focuses on executive education programs for mid-career professionals. The program consists of online sessions, case studies, actual classroom interactions and application-based exercises. The program curriculum is not generic and is designed to consider working professionals’ industry demands and requirements. 

upGrad, on the other hand, offers courses in various areas from marketing to HR management, law, supply chain management, software and tech, data science, management and analytics.

Simplilearn is niche skilled, Eruditus is for mid-career professionals, and upGrad is mass focused, neatly targeting different segments. 

Each of these three players has partnered with universities across the globe to provide these courses. 

upGrad stands out from its competitors in its marketing investment, making its courses more popular among the masses. That makes sense because of its target group. 

Among upGrad’s USPs is the practice of ‘student mentorship’, wherein each learner is guided through the program with the help of a mentor. This mentor helps the mentees with program-specific topics and provides support, guidance, and motivation. Learners are provided with personalised job recommendations based on their area of interest and experience. 

All these factors combined lead to a course completion rate of 80%, the highest in online education worldwide. 

upGrad started as a B2C company and eventually forayed into the B2B arena with upGrad for Business. By 2021, it was able to provide training to over a million employees of the companies that signed up on this platform. 

With a $185M funding round in August 2021, upGrad achieved unicorn status, reaching a valuation of $1.2 billion.

All this money needed to be deployed; buying new companies and starting new partnerships seemed like a natural progression. 

New Friends

UpGrad had begun to go all in to address the needs of the higher education sector much earlier. 

Their first step was the acquisition of Pyoopil in 2016, a mobile SaaS platform that targeted corporates aiming to conduct online training programmes on demand. Pyoopil’s offering in the form of B2B would complement UpGrad’s B2C model. 

Next was Acadview, which targeted fresh graduates aiming to upskill through online courses and industry projects for real-world experience. By 2018, Acadview had partnered with 80 private universities across North India and was growing swiftly. 

UpGrad did institutional tie-ups, as it partnered with Jamia Hamdard University and O.P. Jindal Global University to offer online undergraduate and postgraduate courses. 

UpGrad realised the need for better marketing to scale up its base, tying up with Star India to run its advertisements through Hotstar during the Indian Premier League in 2020. 

They felt it essential to connect with their target audience pan India as they aimed to broadcast the importance of outcome-oriented learning and growth through its ‘Sirf Naam ki nahin, Kaam ki degree’ campaign. 

What better way than IPL, averaging 31M impressions and reaching even the country’s remotest corners?

upGrad acquired Impartus in May 2021, a video-enabled learning solutions provider and rebranded it to ‘upGrad Campus’. 2021 also saw the addition of TalentEdge and KnowledgeHut to its portfolio. 

The tech industry was growing leaps and bounds, expected to cross $350Bn by 2026, increasing the demand for skilled talent. 

Things were getting busier as 2022 kicked off

Letters Of Recommendation

upGrad began to build out their ‘Study Abroad’ programme

Replicating their strategy of partnering with universities, they initially partnered with Clark’s University and then Golden Gate University in the United States.

They also acquired  Global Study Partners (GSP), an Australian two-sided marketplace for recruiting international students to capture a student base outside India

They also promoted scholarships with $100M for students to go abroad to pursue their bachelor’s, master’s and doctorate programs. 

To become the major player in this segment, they continued to build over 18 international partnerships across the US, the UK, Australia, Canada, and Germany. 

These partnerships would not only unlock UpGrad’s accessibility into foreign markets but would enable its international portfolio for learners across diverse geographies. 

The subsidiaries upGrad Campus, upGrad Jeet and upGrad KnowledgeHut were consolidated to create one parent company in India as the edtech sector faced a decline in its growth rate. upGrad Jeet was the rebranded version for The Gate Academy, which was the test preparation business.

upGrad announced that it has crossed the milestone of USD 14 Million a month and achieved an Annual Revenue Run rate (ARR) of USD 165 Million. It aimed to reach USD 2 billion in revenue by 2026.

2022 was even bigger as Upgrade added 5 companies to beef up its offerings in the sector. Work Better Training, INSOFE, Harappa Education and Exampur were all added to the portfolio. 

Harappa had an active base of 100 mid to large-sized organisations, which aimed to address the need for a more capable workforce and lifelong learning. Exampur delivered content through YouTube, focusing on prep courses and exams for government jobs. It had a subscriber base of ~12M, with a massive chunk of these viewers from Tier 3 and Tier 4 cities. WOLVES India, a recruitment platform targeting tech startups in the country, was added to UpGrad Rekrut. 

Their strategy for achieving the same is to focus on international expansion, acquisitions, integrated offerings across segments, newer products within each piece and through tie-ups with more universities as also ownership of universities around the world. 

upGrad was now dreaming bigger dreams. 

Graduation Ceremony

As the global markets began to slow, upGrad planned to go public by 2023.

By listing upGrad on the stock markets, the founders plan to dilute their stake to 51%. upGrad is looking to scale up to 10 million users by FY23, quite a significant number, targeted to ensure that the company doesn’t get listed as a small-cap or mid-cap stock. 

Most of the company’s stake is with the co-founders so they can stick to their conviction and strategy instead of getting distracted by what other investors will ask them to do.

upGrad wants to emphasise becoming a lifelong learning partner for everyone. Identifying upskilling to be the need of the hour in our ever-changing world, upGrad is slowly finding its place as a one-stop shop for all things upskilling. 

Amitabh Bachchan was looped in as upGrad’s brand ambassador in February 2022.

upGrad raised new funds of $210 million in August 2022 from marquee investors and family offices, taking its valuation to $2.25 billion. When EdTech was getting hammered, upGrad was able to raise and double its valuation.

The founders also invested $12.5 million in this round to retain majority stake. This money will be used to fund acquisitions the company has been involved in over the last few months. 

From being “yet another” EdTech, it was now in a very strong position.

upGrad is looking at geographical expansion and opportunities in US and Southeast Asia, as it believes that in the future 30-40% revenue will start coming from the international markets. It has even appointed Myleeta AgaWilliams as International CEO, to spearhead growth across the APAC, EMEA and US regions. 

This addition in leadership comes as the company is at a high point in its journey of international expansion and wants someone who has seen these markets evolve to make sound business decisions. 

As major edtech players nurse wounds or face the heat, upGrad’s higher education ambitions have put it in good shape. Sitting on a run-rate revenue of 1,000 Cr, it has a large enough base to catapult to the big leagues. 

To put the scale into perspective, oft meme-d Lovely Professional University has revenue of ~1,500 Cr. upGrad got there in half the time with an almost entirely online model. As a university of universities, upGrad’s success will be driven by the quality of curriculum it picks. 

With money in its bank and wind in its sails, upGrad looks set to upgrade Indian higher education.

Writing: Abhinay, Bhoomika, Raghav, Ritika and Aviral Design: Chandan and Subidit

Last fortnight, Mamaearth announced that it was gearing up for a $3Bn IPO, hot on the heels of the company becoming a unicorn

Delivering a New Born Company

Age-old, enduring businesses are often born out of solutions to problems that founders took upon themselves to solve. Remember Tally?

Varun and Ghazal Alagh went through a similar experience before they decided to plunge into their entrepreneurship journey.

It all started when Ghazal and Varun were expecting their first child, Agastya. During Ghazal’s pregnancy, morning sickness became a routine. Ghazal was desperately searching for relief, but there didn’t exist any safer alternative to pills.

When Agastya was born, the young parents wanted only the best products to groom their newborn child. It could be an utterly confusing affair for most new parents. 

The challenge? Finding safe and non-toxic products for their baby. 

Can India Consume D2C Brands?

The Alaghs turned to Google to research all the ingredients that made up products that Agastya would use – right from feeding bottles, and shampoos to even the paediatrician!

They were disappointed when they discovered that most baby products, be it soaps or lotions, contained toxins which have proven to be harmful to the little ones. 

The problem further worsened when Agastya’s eczema – a condition where the skin is allergic to a whole lot of substances and turns red and itchy when exposed to them – got aggravated by using the toxin-laden baby-care products available in India at that time. 

In 2015, the Indian baby-care market was nascent. 

Generic products were mainstream, but they were not toxin-free. The products contained parabens, phthalates, sulfates and bleach which can build toxicity in a baby’s body. When applied to sensitive areas of the skin, these chemicals can also cause rashes, irritation and skin allergy. 

As a consequence, those products couldn’t be used on infants. 

The solution? 

Use toxin-free and natural products to ease Agastya’s skin condition. Varun and Alagh turned to their friends and relatives travelling to the US to bring back toxin-free skincare brands for their son.

It was an inconvenient arrangement. But this process led them to realise that most babies in their social circle faced a similar problem.

The struggle to find baby care products that were completely safe & certified toxin-free was real. 

A Rocking Start

There was a big gap in the demand and supply for toxin-free mum and baby care products. 

The Alaghs wanted to address that gap themselves, by building a trusted mum-baby-friendly brand.

A brand which develops products from world-class research that are 100% toxin-free and met Made Safe’s stringent international standards.

The couple invested INR 90 lakhs of their own savings in starting the business. MamaEarth was born, in June 2016.

While baby-safe products had to be imported from US, Ghazal found out in her research that the safe ingredients and their supply vendors were readily available in India. The challenge was to find manufacturing partners who were ready to work with a specified set of ingredients. 

The founders faced numerous rejections from manufacturing vendors across the country. 

Varun, with his prior experience managing FMCG brands for Unilever and Coca Cola, knew that all it took was one yes from his list of potential vendors.

The search ended in December of 2016 when they launched six products geared towards catering to pregnant mothers, new mothers and their babies. 

One of the products, a first-of-its-kind 100% natural mosquito repellant spray, immediately gained traction and stood out as their first hero product from their launch basket.

The founders knew that the Mamaearth brand story had to be purpose-driven, something that the consumers can take away and talk about. The focus had to be shifted to why should the consumers buy from Mamaearth. 

The answer had to be clear, and crisp.

Mamaearth positioned itself as Asia’s only Made Safe-certified (a non-toxic seal for products in personal care) brand, created by parents, for parents. 

Bringing in the emotional connect with its target group was the only way to succeed in the consumer market, which was competing with hundreds of already established brands. 

These emotional reasons meant that consumers aligned with Mamaearth’s brand philosophy of recycling plastic (that it uses in its product packaging) and planting trees.

Mamaearth seemed to have cracked the problem to target group identification, and alignment. It needed to crack the product and its sales channels.

That is when Ghazal (the Chief Mama of Mamaearth) decided to go back to basics – listen to the feedback from the moms for whom she was building. She’d talk to hundreds of moms every week to understand how Mamaearth’s products helped them. 

That feedback would get incorporated into product innovations, after which they’d be approved for mass production. 

The consumer-first approach, and a word of mouth publicity by “influencer” moms, allowed Mamaearth to reach INR 25-30 lakhs in turnover within six months of launch. 

It had hit its product-market fit, and the pre-Series A fundraise of $1M was a testament to that milestone.

Mamaearth was onto something big.

Rattling the Consumer Market

Mamaearth was building on years of effort trying to make D2C happen, which started a decade ago. 

In 2009, two unknown engineers quit their jobs to build a website to sell books to Indian customers. They called it Flipkart. For the average Indian, having a smartphone was ultra-luxury. India Post was still the preferred means of sending parcels. 

The concept of D2C seemed Distant To Customers.

By 2011, Bonobos, a US D2C startup saw its website crash due to unforeseen traffic on its website. Strong undercurrents were palpable even in India. 

Mukesh was digging up the ground, not in search of oil, but to lay fibre optics cables. Jiofication was still half a dozen years away. Indians were warming up to the concept of buying from a website, instead of a brick-and-mortar shop.

By 2013, there were 100M Indians using the internet. Data was cheap, the internet had penetrated Tier II cities, and smartphones were not unaffordable. Online players such as Lenskart, Zivame, Bluestone started picking steam. Nykaa was just getting started.

The ecosystem was evolving rapidly. Customer analytics were becoming smarter. User behaviour could be mapped accurately to re-target products that had a maximum likelihood of purchase. 

By 2015, the knowledge a local shopkeeper gained over decades about its customers in his neighbourhood, artificial intelligence allowed brands to know that in minutes, at scale across the nation.

New consumer brands starting “Direct to Consumer” or D2C then were taking baby steps. Mamearth was no different. 

All the sales that happened so far were via the marketplace presence on e-commerce websites such as Amazon and Flipkart. Scaling up exponentially was a challenge if the brand relied only upon third-party marketplaces.

The need to migrate to its own D2C website was apparent. Going D2C allowed more control to have personalised communications with customers who visited the website and show them the content they’d like to see. 

If the customer came to buy a hair mask but also checked out a shampoo and a serum, Chief Mama would know exactly about what to talk to them the next time they came to the website.

But it needed more than just that to fight the giants who literally owned all of the distribution.

Fighting Scary Big Consumer Monsters

By 2017, India’s growth rate was one of the world’s highest, with an inflation-adjusted growth rate of more than 8% year-over-year. 

Growth in the gross domestic product (GDP) is important because private consumption plays a critical role in the GDP’s growth, and the middle-class fuels private consumption.

Private consumption in India was almost 60% of the GDP, and this growth had accounted for 70% of Indian growth since 2000. 

On top of it, India had 60 mn households categorized as upper middle class and high-income class, close to 20% of the population. No wonder India’s middle class was called the “bird of gold.”

It was not easy to start a business, however, given how tough this market was. It was necessary for the products to have a demand and a compelling case to attract users.

Pegged at USD 3 billion, the child care market in India was growing at a healthy rate of 15%. The beauty care market was a crowded space as well.

These markets were dominated by giants like Johnson and Johnson, Dabur, Himalaya, and Hindustan Unilever. Nestle, for example, held 96% of the infant food market – which was sized at Rs. 1,500 crore – through its brand Lactogen. Food, accessories, and diapers dominated more than 70% of the child care market.

The newer players couldn’t take on the giants’ physical distribution play. 

Mamaearth’s decision to leverage the presence of the likes of Amazon, Flipkart and FirstCry’s last-mile logistics for distribution was due to this. At the same time, they decided to focus on just one category, which was the child care segment.

The reason for listing on these platforms like Amazon was to target tech-savvy customers. The messaging had to be appealing too. 

Mamaearth positioned the brand as built by parents for parents. The products were safe and non-toxic, and the idea resonated with the urban parents.

The stage was set for Mamaearth for the next phase of growth.

Catching A Viral Fever

By early 2017, they were catering to 10,000 customers. 

However, they were still struggling to create their distribution. Mamaearth had to rely on online websites to generate sales, and starting a physical distribution from zero was impossible.

Mamaearth found its answer in social media. More than 200 million people were using various social media platforms in India by 2017. 

Content was getting created and consumed at a fast pace via social media. On top of that, social media content had a virality element; hence, the distribution could be achieved through social media.

Mamaearth decided to focus on social media content creators. The idea was simple – incentivize the creators so that they plug Mamaearth’s products in their content and thus expose the captive audience to the upcoming brand. 

This was a Eureka moment for Mamaearth and the birth of a new form of marketing. This single play changed Mamaearth’s fortune. And soon after, the entire startup ecosystem.

Advertising via influencers had its own set of advantages. First, the strategy’s performance was measurable along with being cost-effective compared to other traditional forms of advertising. Second, focused targeting was possible based on the audience catered by the content creator. The content creator lead distribution doesn’t put manpower-specific pressure on the organization.

This was a win-win scenario for Mamaearth on all fronts.

Mamaearth quickly moved ahead and roped in celebrity mothers like Shilpa Shetty, and Amrita Singh as anchors to strengthen their messaging. Mamaearth also collaborated with 500 mother bloggers to spread the word about their products. 

Within a year, Mamaearth was serving more than 100,000 customers, with more than 50% of the customers landing on their platform via creator-generated content. 

This further propelled the growth to ~1Cr a month of revenue run rate by 2018, from just 3 lakhs per month in 2017.

This was a big win for Mamaearth, and they decided to raise Series A to propel their growth further.

Post-Series A, the push was to break into omnichannel, through partnerships with large-format retail stores such as Shoppers Stop, Central and standalone retail stores. 

Mamaearth no longer had to fight for attention while on the shelves with hundreds of other brands. It had built out its brand presence by going native D2C in its formative years. The brand had its distinctive recall because it already understood what its consumers wanted by talking directly to them rather than “leverage website analytics for customer behaviour”

It had solved for discoverability. Customers would walk into an offline store and ask for Mamaearth’s brand.

But was this growth, like many startups, going to be fueled by heavy losses?

Building Diaper Thick Margins

Despite it having a smaller market size than the beauty segment, the Alaghs made a conscious decision to enter the childcare segment. 

The answer lay in the margins.

Understandably, parents are generally very protective of their kids and the products they use for their kids. It was clear that consumers want quality, which is unlikely to be price-sensitive.

However, companies have two choices in offering products. First, through its platform and generate leads through marketing and influencer-led channels. Second, through marketplaces where the companies like Mamaearth need to provide the market palace commissions.

The margin is among the best in the child-care segment compared to any other personal care segment. As a result, Mamaearth’s gross margins were close to 65% by 2019, one of the highest in the industry.

Owing to this, Mamaearth just took three years to reach a revenue of Rs. 100 crores compared to Revlon, which took 20 years to achieve the same landmark.

However, the child-care segment had its limitations. Parents were very conscious about products they use for kids’ during the initial years. Beyond a certain age, the demand disappears, or parents become cost-conscious again.

The above scenario suggests that churn is more significant in the child-care segment than in other segments. The customer will move to a different platform if relevant products are not offered.

This churn was “natural” as the baby graduated to not being one. Mamaearth would need to take its playbook to another market. 

Mamaearth found its new product segment in the form of beauty care. The foundation to grow beyond Rs. 100 crore mark was laid.

Bouncing COVID Boosters

By early 2020, Mamearth had its eyes firmly set on beauty and personal care. 

The category had been witnessing rapid growth. Most markets in beauty follow the trajectory of wardrobe, face and home. With apparel exploding, the next stage for the growth of the beauty market was facial. 

A young, millennial population across Asia was fuelling this growth.

South-East Asia in general and India, in particular, were seeing high growth rates when it came to D2C as a category. The overall market itself was growing at 6% a year, with direct growing even faster.

Then COVID happened, temporarily killing and then exploding the market.

With the first few months of 2020 in lockdown, most consumer brands thought they were dead in the water. But once the lockdowns were lifted, direct-to-consumer brands went from good to have to must-have.

Mamaearth became the leader when it came to baby and mother care products in India in the D2C space. It aggressively expanded to meet demand, ramping up supply.

The number of consumers in the age bracket of 20-30 years is increasing and these are the direct consumers for Mamaearth. Young mothers in today’s day and age are more inspired by Social Media than the traditional ways of maternity.

With a focus on health and better lifestyles, Mamearth’s positioning worked spectacularly. The company had gone from revenue of ~20Cr to 100Cr in FY20. 

The COVID booster would end up being even bigger. 

Proudly Profitable Parenting

As Mamaearth grew in 2021, it also achieved what most startups only dreamt of.

Mamaearth collected operating revenue of Rs 461 crore in FY21, a massive jump from the INR 109.8 crore during FY20. The firm made 98% revenue from its domestic sales (India) while its global sales, which formed the remaining, grew 9.5X during FY21.

The dream, though, was not on the top line but the bottom line.

Mamaearth recorded a post-tax profit of INR 24.6 Cr in FY21 as compared to a loss of INR 5.92 Cr during FY20.

This came from a healthy gross margin and marketing costs having been lowered over years through more effective marketing.

With an increase in demand, the cost of raw materials consumed by Mamaearth also surged 3.5X to Rs 133.1 crore in FY21 from Rs 38.3 crore in FY20. Transportation and secondary packaging costs also grew in line with the overall scale, surging 4.2X to Rs 62.7 crore in FY21 from Rs 15.02 crore incurred in the preceding fiscal. 

This implied overall gross margins of 58%, with 30% being cost of goods and 12% cost of transportation. 

Its marketing costs stood as the largest cost center, accounting for 44% of the annual costs in FY21. These expenses surged nearly 4X to Rs 192.23 crore in FY21 from Rs 49.2 core during FY20.

Assuming an AOV of ~INR 900 for Mamaearth, these numbers meant that it served 500K customers in the year. CAC, or customer acquisition costs were ~INR 384 for the year. 

On every order, Mamaearth would leave ~14% to cover team costs. As the company scaled, this would become easier to do. Economies of scale work so well to make companies profitable eventually. 

As Mamaearth ended 2021, its growth resulted in another round being raised. This time, it would also reach rarified air. 

The company would cross the $1Bn valuation mark, becoming a unicorn and just crossing the mark. The $50M round would be fuel for further growth.

2022 would be a dream start for the 6-year-old brand that was now becoming iconic

Peek a Boo Into The Future

Mamaearth’s flywheel which had been carefully crafted from day one was the reason for its growth.

Call it luck or first movers advantage, the company pioneered many new techniques that it used to the hilt. It had a strong focus starting from baby care and then moving to beauty care. It almost created the concept of influencer marketing in India. The product innovations kept them in sync with customers.

There is no doubt that this happened due to excellent execution. 

Mamaearth’s strong financials reflect this high quality of execution. The company plans to file an IPO in 2023 at a valuation of $3B, 3x their unicorn round. 

While the 10-12x forward revenue seems high in this market, there is a lot going on for the company. 

It is high growth and yet is the market leader. It has pushed back larger FMCG brands in reaching 100Cr of revenue in record time. The innovation flywheel and brand trust have given it a huge moat. 

All these put together have made it a brand that fledgling D2C startups aspire to be. 

India’s consumer market is yet to reach the scale of China, let alone the US. There is a large consumer story that is yet to play out. Mamaearth’s nimble, customer-friendly approach is in stark contrast to more lumbering large brands that have taken time to innovate.

The company’s aim to reach 1,000 Cr of revenue would put it in proximity to Dabur, which is at 2,000 Cr. While there is still a long way to go, Mamaearth has done in less than a decade what Dabur took many decades to do.

The company still has a lot of expansion to do in India, without even having touched adjacent geographies. The path to growth is there, with a long way to go.

The future looks bright for Mamaearth, which could become the Mother of new-age Indian beauty brands.

Writing: Bhoomika, Parth, Raj, Samarth and Aviral Design Omkar, Saumya

In what was the biggest stock market listing in India, LIC IPO-d last fortnight at 6 lakh crore or almost $90Bn, rocketing to India’s #5. 

Prudential Tendencies

The story of insurance dates back to the history of mankind itself.

One of the first documented versions of insurance was noted in the Code of Hammurabi, around 1750 BC. The document stated that a merchant receiving a loan could pay the lender an extra amount of money. This would be in exchange for a guarantee that the loan would be cancelled if the shipment was stolen or damaged due to a catastrophe. 

This begs the question, why have humans historically been enthralled by the concept of insurance?

The answer lies in the ‘Prospect theory’, coined by behavioural scientists Amos Tversky and Daniel Kahneman. The theory states that losses cause a greater emotional impact on an individual than does an equivalent amount of gain.

Humans are loss averse by nature. Insurance helps protect the downside by transferring risk to the masses.

It was the year 1818 when insurance finally ended up capturing Indians’ imagination. The British set up the Oriental Life Insurance Company in Calcutta to provide insurance to the European diaspora in India. 

Like most of our colonizers’ contributions to our nation, the “gift” came with a catch – Indians were exempt from the policies. 

After some uproar by eminent people like Babu Muttylal Seal, the foreign insurance companies agreed to cover Indians as well.

However, Indian lives were still being treated as if they were worthless, and with the heavy premiums started being levied, it was extremely difficult for Indians to purchase Insurance.

All this changed in 1870 when the first Indian owned life insurance company, ‘Bombay Mutual Life Assurance Society’ was set up. They provided insurance to Indians at nominal rates.

The Swadeshi movement of 1905-1907 gave rise to a plethora of Indian Insurance companies. These companies successfully carried the message of social security under a veil of patriotism to various strata of Indian society.

With the mass birthing of insurance companies, it was only a matter of time before the legislation would be brought in.

In 1912, the Life Insurance Companies Act was passed. The act made it necessary that the premium rate tables and periodical valuations of companies should be certified by an actuary.

The nature of the act made it such that Indian Insurance companies would be put at a disadvantage over the foreign ones.

The act was later amended in 1934 to make it more inclusive. This would mark the beginning of a golden era for Indian insurance companies.

Auditing The Status Quo

The bull run had begun for Indian insurance companies.

By 1938, India had 178 Insurance companies with the value of total Insurance premiums amounting close to 300Cr.

To keep the growing Industry in check, the ‘Insurance act’ was passed in 1938, giving the state strict control over both Life Insurance and Non-Life Insurance entities in India.

As India gained Independence in 1947, the voices of nationalizing the industry started to echo across the country.

These voices would be answered almost 9 years later when the Government of India issued an Ordinance to nationalize and consolidate 154 Indian insurers, 16 non-Indian insurers, and 75 provident societies. 

This would be gigantic as an outcome.

Nationalization would be executed as a two-fold strategy; First, the management of these companies would be taken over by means of an Ordinance. Second, the ownership would be transferred as well by the means of a comprehensive bill.

On June 19, 1956, the Life Insurance Corporation Act was passed, leading to the birth of the Life Insurance Corporation (LIC) on September 1 of the same year. The Indian government would infuse an initial capital of INR 5 Cr to start operations.

There were several reasons why India decided to take on the mammoth task of nationalizing and consolidating such a large Industry. 

Post-independence India was not in a condition to provide social security schemes like the US, the UK, and other developed nations for the 36 Cr of its population that fell below the poverty line.

To add to this, India was grappling with high mortality rates, and had close to no women in the workforce, implying that a sole breadwinner who was responsible for multiple dependents was a single point of failure in the path of a family’s economic progress.

Basic financial security was the need of the hour and making life insurance accessible to the masses was identified as the probable best solution to this.

While the private players catered well to the urban markets, the rural pockets that needed them the most were being left out.

LIC was created to solve this.

Unlike other business enterprises, LIC was built not just with the intent to build a nationalized for-profit insurance company but with a fiduciary responsibility to fulfil basic necessities of the Indian people; Roti, Kapda Aur Makaan. (food, clothes and shelter)

The stage was set for LIC to embark on a multi-decade stronghold over the Indian insurance industry.

A National Nominee

LIC was the result of the consolidation of 245 existing insurance companies. 

There was now almost 400 Cr worth of Assets under Management(AUM), 50 lakh worth of policies in force and Insurance covers worth almost 1000 Cr.

The units together comprised 27,000 employees. 

In true ‘acqui-hire’ fashion, these employees were all hired and given the exact same positions, benefits and responsibilities as before; making LIC one of the largest employers of its time.

Defining organizational and functional structure at such a large scale, was an extremely complex problem to solve. 

However, LIC would solve it beautifully. LIC started with 5 zonal offices, 33 divisional offices, and 212 branch offices.  

They realized that since life insurance contracts are long term and during the lifetime of holding insurance, customers would require a variety of services, they decentralized their services to place a branch office at every district headquarter.

The decentralization of services was a stroke of genius, as each branch became its own self-sufficient accounting unit with all the service-related functions integrated.

With the organizational structure set, another major problem that LIC was faced with was defining the ‘need’ itself for insurance, in the minds of prospective Indian customers.

Taking life insurance involves ultra long term thinking, as the benefits of the policy are never seen during the policyholder’s lifetime. To make matters even more complicated, life insurance was a sensitive topic for Indians. Talking about it meant discussing one’s personal finances and family matters.

LIC solved this with a robust ground salesforce strategy, the most effective way to go about reaching the masses in the pre-digital era.

These LIC soldiers would travel to the most remote corners of the country in buses, cars, trains, and bullock carts and propagate LIC’s vision to Indian consumers, coming up with innovative solutions to unique problems that would be thrown at them.

If setting up an office was difficult, they’d use Indian post offices; if medical check-up wasn’t an option, they’d tweak policies to bypass it; if people weren’t convinced with security cover, they’d club it with fixed return policies.

The decentralized org structure, relentless salesforce combined with nominal rates for policies enabled LIC to grow its business from ~200Cr in 1957 to 1000 Cr by 1970, 5x in a new country.

With LIC commanding an AUM of ~400 Cr, the government mandated that it invest a percentage of it into public sector projects. 

LIC recurrently contributed 3-5% of the budgets of the 5-year plans which were responsible for the creation of numerous steel and electricity plants, IITs and IIMs, and promoting rapid industrialisation across various sectors like housing, water, power, transport etc.

In 1965, when the Kashmir conflict escalated into a full-scale war between India and Pakistan, the Indian stock market plummeted. LIC pumped close to Rs 5 Cr into the stock market to provide some stability and keep up the morale of the stock market.

By the 1970s, LIC was growing beyond its footprint of being an insurance company to a full-blown ‘Nation Builder’.

A Competitor Free Grace Period

In the 1980s, India’s economy began to slow down because of multiple factors. 

With multiple wars in the 1970s, unemployment soared and GDP growth took a massive hit. Less than 1% of India’s households had a total income of Rs. 100,000. Buying insurance was the last priority in their financial journey.

Radio commercials and print media ads were the only potent medium available for LIC to broaden its reach in the 1980s. It was yet to fine-tune the agent-led business sales channel through which the business could expand multi-folds.

The premium growth figures were reflective of this. Between 1970 and 1980, the CAGR of premium was just under 7% as compared to a GDP growth rate of 3%. 

Indeed, LIC’s growth was better than India’s GDP growth rate, but for a monopoly player in an underpenetrated sector, the premium growth figure fell short of expectations. 

LIC figured out two significant problems in the business of insurance. 

First, it needed to solve for efficient distribution, and second, families needed convincing that insurance was a necessity for the earning member. The leadership decided to strengthen their fleet of field agents to solve these problems rather than just focusing on promotions.

LIC trained and nurtured its agents in every way feasible. The importance of field agents was communicated within the organization by highlighting the role they played in bringing in the very revenue that would pay out all employee’s salaries.

LIC also clarified how the agency can be a lucrative career path as a profession via success stories, which ensured people wanted to be a part of this phenomenon. For example, many non-graduates, who were now working as agents, made a good amount of money and were able to purchase cars during the 1990s.

Simultaneously, LIC worked on broadcasting its message to the masses in a way that would stick. The iconic tagline “Zindagi Ke Saath Bhi, Zindagi Ke Baad Bhi,” was a masterstroke conceived to communicate their core ideology via emotional messaging.

The stage was set for faster growth. Between 1980 and the 2000s, the premium growth rate was 22%. The company was serving 350 million policies with a total AUM of over Rs. 800,000 Cr (US$100 billion) by the turn of the 21st century.

What LIC had cleverly done to grow so fast was to sell an insurance product as an investment product. People were told that the LIC policy would “mature” at the end of life, resulting in a financial benefit. 

For people who were unclear about the benefits of an insurance product, the investment nature was an incredible hook.

But as India turned a Millenium and was beginning to explode, LIC would be seeing a new storm.

A Comprehensive Cover

After 2000, the Union government and IRDAI decided to end LIC’s monopoly by opening the Insurance sector for private players. 

LIC was not caught off guard. In fact, it was well aware that this was going to come.

LIC focused on three things to counter the threat posed by new entrants – expanding its product portfolio, increasing the user base, and providing better services to customers.

Offering a more comprehensive bouquet of policies had been LIC’s most apparent strategy. 

Being in the business for a while left them better positioned to introduce products at a fast pace. Each year in the early 2000s, LIC launched anywhere between 7 to 15 new products.

Most of these products aimed to provide life cover from ‘cradle-to-grave,’ touching the entire spectrum—women, children, unorganized labour, the rural poor, and the rural landless, right up to high net worth individuals (HNIs).

Next, the focus was on expanding the user base. LIC already had a vast distribution network of agents. They had to leverage that.

LIC added about 5 lakh agents between 2000 and 2006; during the same period, one of the other established private players, Max New York Life Insurance Co. Ltd, managed to build up a team of about 28,000 agents.

Awe-inspiring scale mattered for LIC.

LIC expanded its social and geographical coverage because it now had agents in areas where no private player did. Understanding this, LIC began to look at the unorganized sector and the poor as a potential market. 

Wasting no time, LIC introduced products aimed at unorganized labour (Jeevan Madhur) and the landless poor (Aadmi Jeevan Bima Yojna). The insurer started using creative channels like micro-finance institutions to sell products in these new segments.

With the faster growth, LIC continued to decentralize decision-making in order to speed up the process. 

By 2005, LIC had 2,048 branches across India, a nice binary number.

They segregated the entire organization into a four-tiered structure – corporate office, zonal office, branches, and agencies. This structure allowed officers to make operational decisions at the branch or zonal levels, which increased overall efficiency.

LIC also invested heavily in computerizing its back-end operations, allowing the support teams to understand the customers and offer them better service. One such service was to notify agents about the premium due date or premium missed date. The claim settlement process also became seamless, vastly improving customer experience.

By 2007, LIC’s market share stood at 72% of all new policies sold during the financial year. LIC had settled 99.8%of death claims, and the private sector companies had settled 96.8% of such claims. This strengthened the trust in LIC and its products.

As the market opened up and expanded, LIC didn’t just survive, it thrived with the competition. 

Survival Benefits

The world was hit by a massive financial crisis in 2008 that shook most financial institutions.

Companies worldwide were working to strengthen their financial position and implementing more robust risk management processes.

LIC was not an exception. 

After ten years of competition from private players, LIC still had over 75% market share in terms of policies. In terms of the new premium business, it still had more than 70% share.

LIC’s total premium as a percentage of GDP stood at 5.1% in 2010, compared to a figure of 1.8% in 2012.

However, the insurance penetration in India was still one of the lowest globally. India stood at around 2.5% vs. the global average of  3.5% and the developed markets’ average of 10%. India still had a lot of work to do.

Insurance penetration and density are two metrics, among others, often used to assess the level of development of the insurance sector in a country. 

While insurance penetration is measured as the percentage of insurance premium to GDP, insurance density is calculated as the ratio of premium to population (per capita premium).

But LIC had some regulatory challenges to take care of first. In 2013, RBI had put more stringent norms for systemically important banks, which affected LIC.

Going by LIC’s reported investment and loan portfolio, the insurer had a more significant loan book than some of India’s banks, given Life Insurance firms were required to channel at least 85% of their life funds and 75% of their unit-linked funds into approved investments.

LIC had an investment in more than 25 banks in India, in line with its nation-builder responsibility. 

By the end of 2015, LIC had invested more than Rs. 10 Lakh Cr in the markets. LIC’s infrastructure and social sector investment totalled Rs. 150,000 Cr. 

LIC’s AUM was about Rs. 170 Lakh Cr. More than 1 million agents were working for LIC, and the company employed close to 100,000 people.

In 2016, with a profit of around Rs 40,000 Cr, LIC was the most profitable entity in the country, second only to the Reserve Bank of India. The net income of Reliance Industries, the most profitable private sector company, was not even 60% of that of LIC.

With that kind of number, it was evident that LIC was “too big to fail”. 

During the later part of the decade, the importance of LIC was duly noted by the insurance regulator IRDAI and was announced as D-SII (Domestic – Systemically Important Insurer).

LIC had become integral to the growth and stability of the Indian economy. The insurance industry, almost birthed entirely by LIC was beginning to take shape too. 

Who Claims The Market?

The life insurance industry recorded a premium income of Rs 6.29 lakh Cr during 2020-21. 

This was against Rs 5.73 lakh Cr in the previous financial year, registering a growth of 9.74%. Renewal premiums accounted for 55.67% of the total premium received by the life insurers during the year while new premiums accounted for the remainder. 

The growth in renewal premium was 11.6% up from 7% in 2019-20. New business premium registered a growth of 7.50% in comparison to a growth of 20.59% during the previous year.

India has maintained its 10th rank in the world in the life insurance segment. India’s share in the global life insurance market was 2.9% in 2020, according to the latest annual report of IRDAI.

Insurance penetration in India increased from 3.8% in 2019-20 to 4.2% in 2020-21, registering a growth of 11.7%. In comparison insurance penetration in developed countries like Japan, the U.K. and the U.S. stands at 9%.

India’s insurance density remained the same during 2019-20 and 2020-21 at the level of $78. The level of insurance density has increased consistently from $11.5 in 2001-02 to $64.4 in 2010-11.

During 2020-21, the life insurance industry reported a profit after tax of Rs 8,661 Cr as against Rs 7,728 Cr in 2019-20. Out of the 24 life insurers in operation, 18 companies reported profits in the last financial year.

As of the end of the year, LIC had a 64.1% market share in the life insurance segment with the remainder being accounted for by the private sector insurers. 

What was worrying for LIC is that this is on a downward trend, while the industry kept growing overall.

Outside life insurance, general insurance which included all other insurances kept growing. The industry underwrote a total direct premium of Rs 1.99 lakh Cr in 2020-21 as against Rs 1.89 lakh Cr in the previous year, registering a growth rate of 5.2%.

The Motor business continued to be the largest general insurance segment with a share of 34.1% from 36.5% in 2019-20. The premium collection in the health segment continued to surge ahead at ₹63,753 Cr in 2020-21 from ₹56,865 Cr in 2019-20, registering a growth of 12.1%. The market share of the health segment has increased to 32.1% from 30.1% the previous year. The premium collection in the fire segment increased by 27.9% and in Marine segments decreased by 1.3% in 2020-21.

Public sector insurers accounted for 38.8% market share in the general insurance segment. ICICI Lombard continued to be the largest private-sector general insurance company, holding the same market share of 7.1% in the current year as well as the previous year. Bajaj Allianz, the second-largest private sector general insurance company, which underwrote a total premium of ₹12,570 Cr, reported a decrease in market share from 6.8% in 2019-20 to 6.3% during the year under review. 

Out of 27 private insurers (including stand-alone health insurers) operating in India, 20 insurers reported an increase in premium underwritten in the year 2020-21 as compared to the previous year.

McMarkets

In the non-life insurance business, India is ranked 14th in the world and the country’s share in the global non-life insurance market was 0.77% in 2020.

A nascent market had now begun to take shape. LIC despite it smaller share continued to be the OG.

An Earned Premium

No matter which way one looks at it, LIC is the 100-pound gorilla in the insurance world. 

Even if one were to combine the life and general insurance premiums which would total up to 8.27 lakh Cr for 2021. LIC accounted for close to 49% of premiums collected during the year. 

In fact, LIC is the 10th largest insurance company in the world based on total assets.

LIC is the largest asset manager in India as of December 31, 2021, with an AUM of ₹40.1 lakh Cr. On a standalone basis, it has 3.2 times the combined AUM of private sector life insurers in the country, and also approximately 15.6 times more than the AUM of the second-largest player in the Indian life insurance industry in terms of AUM. 

Not just that, LIC’s AUM is more than the entire Indian mutual fund industry’s AUM and 17% of India’s estimated GDP for Fiscal 2022.

Over 13.3 Lakh agents form LIC’s major strength and which is 55% of the total insurance agent pool in the country. These agents source over 96% of LIC’s new business premium. 

Almost 60% of the agents have been with LIC for more than 5 years. LIC’s agents are also the most productive selling 15 policies a year on average with SBIs being the next best with 4 policies a year.

On May 17th, India’s biggest-ever IPO was completed with the listing of LIC’s shares. The shares, which had been priced at the upper end of Rs. 902-949 price band, listed at a discount of over 8% at INR 872.

The IPO was subscribed 2.95 times. Policyholders subscribed for 6.12 times the allotted shares while the employee’s segment was subscribed 4.40 times, the qualified institutional buyers quota was subscribed 2.83 times, the non-institutional investors was subscribed 2.91 times and the retail segment was subscribed 1.99 times. 

The company offered a discount of Rs 60 per share for its policyholders and Rs 45 apiece for retail investors and LIC employees. The Individual investors participated enthusiastically in the IPO. 

73 lakh applications were received, a record, and possibly it is the largest in the world ever while 50 lakh demat accounts were opened since then.

The valuation multiple of LIC is a mixed bag. As a multiple of embedded value, it was at ~1.1x, less than half of SBI/ICICI Life Insurance in India. From a price to earning, or P/E ratio, it traded at 200x, which is double that of competitors. From a global comparables perspective, all its multiples were on the higher end. 

The government offloaded 22.13 Cr shares selling a 3.5% stake in the company, generating Rs. 20,557 Cr in return. This was a third of the government’s intended target due to market volatility which also pushed back plans for the IPO which was due to list earlier.

But the road for the 70-year monolith is yet to be played out.

The Road Ahead

As large and as successful as LIC may have been, investors will be more interested in what lies ahead. 

This is where one could start finding some gaps. Growth in new business premiums is lacklustre and they continue to cede market share to private life insurers.

Undoubtedly COVID would have had an impact on the ability of LIC’s agents to spend time in the field selling policies. But even if one did account for this anomaly, growth isn’t like it used to be.

Another issue that has now begun to be highlighted is LIC’s complaints, where it received almost 50 for every 10,000 policies processed. This was an industry high.

The fact that LIC offers products that double up both as investment and protection products their margins aren’t particularly lucrative from a margin perspective but are easier to sell. 

As investment opportunities for users continue to grow and financial literacy increases it will be interesting to see if LIC’s dual policies continue to attract as much interest from policy buyers.

While there is no doubt that LIC trumps competition on distribution today, it will need to do more to stay ahead of the curve. 

Digital sales, while still small, increasing rapidly as insurtech companies continue investing in and scaling this channel. Digital channels are now contributing $1.4B of industry premiums. The share of digital is up to 1.7% of individual life premiums in FY20 (from 0.6% in FY18) and ~4% of nonlife. 

Will Digit Simplify Insurance to Pull in India?

The rise has been led by evolving customer preferences, insurers investing in direct digital channels, the rise of web aggregator platforms, online brokers and digitally native insurers. Its contribution is >6% for the policies issued by private players and already has 12- 15% penetration in the term life and auto segments. 

While LIC’s products continue to be unavailable on web aggregator platforms, HDFC Life (N) now has 11% of business sourced digitally and 99% of new application lodging is now digital with 87% renewal premiums collected electronically. ICICI Life (U-pf) has 5% of business through digital channels and collects 79% of renewals electronically.

Product innovation is another area LIC will need to think about. Bite-sized/sachet segment, insurance products continue to gain traction. An example that best illustrates the contrast is how private life insurers are bundling small-ticket protection products with mobile recharges.

Every time the government has chosen to invite private-sector competition in a lucrative domain, the incumbents in the public sector falter soon after.

Air India and Indian Airlines made record profits each year until the government opened the civil aviation market to private players. BSNL thrived as a monopoly until the introduction of Airtel.

But despite the liberalization of the insurance sector post-2000, LIC’s performance has been nothing short of resilient. It is true that they’ve lost market share and growth isn’t like it used to be, but the company is still putting up a fight.

Even with private-sector insurers working on awareness and expanding the market, LIC has remained a tacit beneficiary. The company is still synonymous with insurance in India. 

This is what makes LIC a rare breed of company. For years, the company has toiled to establish insurance. 

Brand LIC was recognized as the third strongest and 10th most valuable global insurance brand in 2021, which is probably its most significant moat. 

We believe India is on the cusp of an unheralded decade. We had a brilliant run from 2000 to 2010, but we are now much bigger. Growth from here will result in much larger increases in output. 

As India moves up Maslow’s hierarchy of needs, safety and security become more important. It will only benefit the overall insurance industry, especially trusted brands like LIC. Its becoming public is a good thing as it brings more scrutiny. This would also likely result in better management.

The flywheel that LIC has built with its distribution and size is going to hold it in good stead. Despite all the challenges, market tailwinds, trust, and its incredible flywheel puts in a good position.

LIC is a giant that has been building an epic story, and going public will be another milestone in insuring its future success.

Writing by Bhoomika, Chetan, Parth, Varun and Aviral Design: Chandra, Omkar, Pragnya

Last fortnight, DarwinBox raised $72M and became a unicorn, continuing the momentum of unicorns in 2021 and becoming the first pure-play Indian HR tech company to do so.

League Of Extraordinary Gentlemen

Jayant Paleti’s and Rohit Chennamaneni’s friendship was meant to happen. 

Their academic careers followed a similar trajectory, with a high likelihood of crossing paths.

Both of them went on to become engineers and then both obtained an MBA from IIM Lucknow, albeit in different years. Jayant, as Rohit’s senior, had earned his respect from an early age for his wealth of multi-disciplinary knowledge.

Post their MBAs, Rohit went on to become a consultant while Jayant went on to work as a banker. Jayant met with Chaitanya Peddi at his job, who was working as a consultant focused on the Human Capital Management (HCM) practice after completing his MBA from XLRI.

Given Jayant’s and Rohit’s similar academic experiences and inclinations meant that from a young age they found themselves debating and brainstorming about products and how they could be used to solve problems at scale. 

They were always inspired to build a great product company out of India. 

Chaitanya shared a similar vision and his complementary skill set meant he completed the jigsaw when they decided to startup.

Given that all three of them were in client-facing roles, they were able to witness first-hand that enterprises were not satisfied with their HCM solutions and they lamented their lack of choice. They also recognized that people were the key to being able to maximize the potential of any organization.

As they studied the Human Capital Tech product landscape in India they found products focused on one or two key specifics of the HR’s job. What was lacking was a comprehensive, integrated product that could provide a one-stop solution to all the technical aspects of the HR department.

The three musketeers could smell the opportunity.

Engineering The Fittest

In August 2015, Darwinbox was born. 

The focus was to develop a system to maximize the value of a company’s most critical resource – its people. Their goal was to build an integrated HR platform across the employee lifecycle including recruiting, onboarding, engagement, performance evaluation, employee development, and payroll. 

While the motivation for business was HCM, it wasn’t the case for the company’s name. The motivation for the name of the organisation stemmed from the Charles Darwin quote that is today hung outside each of Darwinbox’s offices

‘It is not the strongest of the species that survives. Nor is the most intelligent. It is the one most adaptable to change.”

It is precisely this maxim that was laid to bear in the first couple of years at Darwinbox.

With their plans in place, they successfully raised seed funding in 2016.

Now backed with capital, the company started going about onboarding customers. But targeting enterprises was easier said than done. The team lacked credibility and enterprises refrained from partnering with the new kids on the block out of fear. 

While the larger enterprises liked the product and vision of Darwinbox, they were sceptical of swapping existing solutions for upstart solutions due to the perception of risk that is proposed. 

‘What if you guys shut down next year?’ was an oft-heard question. For the first two years, no traditional enterprise took a bet on Darwinbox. The rejection haunted the trio.

DarwinBox’s young team, however, was not the only one challenging the status quo. 

They would find the support they needed from a cohort of visionaries that were building the future of the Indian economy.

A Brave New World

2016 was the time when e-commerce upstarts were finding their time under the sun. 

These firms were experiencing increasing traction, expanding teams and raising large sums of money. True to their form they picked passion, product and nimbleness over experience and a track record. 

Besides none of the larger HCM incumbents like Oracle and SAP were targeting these companies. Darwinbox saw a shoo-in and started working with these technology upstarts.

For the first two years, 80 percent of the revenues came from internet startups. If it wasn’t for these upstarts, the Darwinian kid would probably never have evolved. 

What made Darwinbox better than its competitors was that it engaged and empowered employees while automating and simplifying all HR processes. Their complete premise was built on building a workflow that was intuitive – one that integrated across all facets of HR, ensuring higher usage and lesser learning time.

Their solution not only catered to operational/tactical workflows in the HR domain, but also helped companies engage their employees across multiple channels by understanding the cultural context of their customers’ employees. 

These are best evident from the organizational social network called ‘Vibe’ that allowed employees to engage with each other and comment anonymously. Another such feature was ‘Pulse’ – which operated like a mood board allowing employees to review their performance and rate how their day was going.

The HCM (human capital management) systems business is demanding, and it has been hard for vendors to keep up. The hierarchical design of employee systems was beginning to get in the way of frequent reorganizations, mergers, and agile operating models. 

The older platforms were not designed as employee-first applications, so custom journeys, configurable portals, and chatbots are all added on. Traditional HCM systems were designed to be configured by consultants, not HR people, so they were very hard to customize.

Most importantly HR technology budgets in India were limited, so vendors like Workday, Oracle, and SAP were less popular despite being present in the Indian market. 

Many companies had tended to build their own software as engineering talent was relatively inexpensive. This created the opportunity for India-specific cloud-based HRM platform providers like Darwinbox.

The contrast with traditional players couldn’t be starker.

We Are A Different Species

HR is culturally influenced. 

The ways in which different people understand hierarchy, engagement and performance vary across the world. This is where the Darwinbox product excelled.

Their product itself was was flexible, configurable, and able to manage any hierarchy, organization model, and workflow. Darwinbox led the charge in taking human capital management beyond the HR department to all employees with a highly user-friendly and configurable user experience

Against this backdrop Darwinbox successfully raised $4 million in a Series A in 2017.

Owing to its SaaS model, Darwinbox did not demand any large upfront costs/license fees or the need to invest in a costly IT infrastructure. They charged a subscription fee per employee/per month and functioned via a pay-as-you-go pricing model, offering flexible pricing based on the number of modules opted for, and the company size (number of employees).

While consumer tech was more about solving a problem for the masses, software tech was about solving customized problems differently amongst the masses. 

The conundrum arose from the need to create a Market for One, but for customers with increasingly different and customized needs. Darwinbox knew the landscape and worked towards a product that would prove to be modular and configurable from scratch.

Leveraging its product and pricing superiority Darwinbox on-boarded approximately 40 clients including names like Paytm, Delhivery, Swiggy and Godrej’s CDPL (Creamline Dairy Products) with over 100,000 employees using its platform by 2018.

The market rewarded the early catch and Darwinbox raised $15M in Series B in 2019. 

Mutant Firms In A New Economy

India was undergoing a new shift from a goods-centric economy to a talent-centric economy. 

The importance of modern products that placed a high focus on talent along with business goals became paramount. 

The incumbents tried to navigate this scenario by consolidating with the challengers – Oracle’s acquisition of Taleo and Kenaxa’s acquisition by IBM illustrated the urgency to the modern stack. 

The core issue these mergers were unable to address was the inherent design of the legacy platforms that were trying to solve for multiple touchpoints, which continued to take a painstaking amount of time.

Darwinbox was agile from the get-go, identifying and solving numerous pain points in the value chain.

They worked with the customers and innovated rapidly. With a complete focus on customer needs, developer DNA and an accelerated speed of execution, Darwinbox focussed on building a full-suite solution that would solve the majority of the mission-critical needs of the customers.

Darwinbox meticulously executed on covering the entire HRTech landscape step by step, playing on natural ways to increase retention and touch global-level enterprise ACVs.

Not Your Average Descendant

Founders who have succeeded in building notable software businesses have known from day one that their gross margin is a core metric that needs to be kept healthy. 

Darwinbox’s decision to target the mid-large segment of the demand chain was tailored to accelerate this core metric.

If we take a step back to remember how SaaS companies evolved, we’d see that the early SaaS companies were born out of the sheer need for automation and reducing manual overheads.

Is India SaaS Ready to Soar?

SaaS companies eventually began targeting increasingly complex industry settings by trying to solve the deepest and most critical pain points to bring efficiency. 

ChargeBee in billing, Freshworks in CRM, Zenoti in Salons or Innovaccer in healthcare – all of these companies had one common denominator. 

That was a great understanding of how to build the perfect product out of their offerings while maintaining customizability, best suited to their customer needs.

If companies just focused on the latter, they would soon skid towards the path of just becoming a services company. Their goal would become to build extremely customized solutions for each customer, without having the capacity or channel to re-sell these solutions to new customers. 

This was not only a deep gross margin hit but a classic path of turning away from SaaS.

Darwinbox’s founders were wary of this parallel path and meticulously chose the target customer segment. 

They would have the flexibility to customize for the needs of their customers, charge the right price for it and more importantly, carve a bigger market for the customized solution templates being created. This makes a solid SaaS gross margin and a health exemplified story.

But there were enough competitors, waiting to snap DarwinBox’s ascendant streak.

Survival Of The Fittest

The HRM sector is a highly crowded space. 

There are 200+ companies specializing across individual solutions such as performance management, payroll, and attendance. Darwinbox, on the other hand was a “Hire to retire HR tech product” used by an intern to the CEO of a company. 

Darwinbox’s strategy to focus and go deep in the Asian market helped it differentiate itself in this crowded space. 

Once the shift to cloud technology intensified over the pandemic period, a future-ready product met the right market, and the company gained 180+ large enterprise customers, clocking a 200-300% revenue growth. 

In the earlier days, when no one was willing to back DarwinBox, internet startups were its first customers. Soon, it rode on the strength of a large client base to finally attract the big boys.

This is a classic path of disruption, which involves going after the lower end of the market and then rapidly climbing up. Razorpay, OYO, even Walmart, employed this strategy to success. 

By 2021, the company boasted of over 500+ Indian enterprise clientele, including established corporates such as Nivea, Kotak, Adani Wilmar, Dr Reddy’s, Emcure, Tata Cliq, Bharti AXA, Mahindra Logistics, as well as startups including 30+ unicorns such as Myntra, Paytm, InMobi, Delhivery, Swiggy, and Bigbasket. 

Legacy players such as Oracle, SAP and Workday were all desktop-first products; each of them made a splash in mature tech markets (US, EU). 

However, in developing economies like India and South East Asia, ~40% of customers were projected to make use of HRM applications on their mobile devices, the proportion was even higher for field-employee intensive industries such as manufacturing, pharma and retail. Each of these fell under DarwinBox’s list of strong suits.

Gartner’s Magic Quadrant report acknowledged Darwinbox as one of the few HRM vendors that offered “a lighter-weight, 10MB mobile app for use in regions with low bandwidth, highlighting its market awareness and technical execution.” 

DarwinBox’s strength lay in being entrepreneurial and customer-focused. 

This might explain why a third of their customers today are those who previously used more established platforms by Oracle and SAP and Workday.

Endangering The Competition

Darwinbox’s strategy to go way beyond providing a simple HRMS suite proved to be successful. 

Innovation was underpinning the idea to build for making customers stick and keep adopting the flywheel. The holistic approach also lets customers use the same platform to buy easy add-ons, ranging from workforce management to talent acquisition to remote working suites. 

The key to accelerating growth however was multi-dimensional, with growth in solutions being one of the levers. 

Another important lever that Darwinbox explored was growth in its platform innovations itself. 

Constantly innovating to make the existing solutions reach ahead in the industry curve is Darwin’s motto. Darwinbox had been introducing multiple enhancements like mobile and WhatsApp functionality for the HRMS suite, facial recognition capability for the workforce management suite, and voice bots for the platform across the solution suite. 

Led by the high growth at the time when remote work became prominent with a majority of the enterprises adopting a hybrid model, the company had many firsts in the 2020-21 period. 

Darwinbox raised a $72Mn round in Jan 2022. The company had grown 200% since the last fundraise 12 months ago, becoming the first unicorn from Hyderabad. 

The company aims to use the fresh funds to drive its global expansion, accelerate platform innovation and ramp up its product, engineering, and customer success teams as it seeks to boost its presence in South Asia, Southeast Asia, as well as the Middle East and North Africa. 

The investors acknowledged that the strength of the team and product played important role in the investment decision. 

Darwinbox’s naming as the youngest and only Asian company to feature on Gartner’s Magic Quadrant for Cloud HCM Suites 2021 was a testament to how far the team had come.

Evolving For A Better Future

DarwinBox’s India business, which contributes 75% to its revenue, is already profitable. 

It is expected to achieve profitability at the company level by 2025 backed by higher pricing power, economies of scale, and entry into developed geographies where customers have a higher willingness to pay for a great product. 

The company has 12 global offices with over 700 employees and is expecting to expand the headcount and its global presence rapidly, starting first in the MENA region. 

In Jan 2022, Darwinbox opened its new MENA regional office based in Dubai, and planning another GCC office in Saudi Arabia shortly. 

Continuing on its vision of building from Asia for the world while prioritising local compliance and context, Darwinbox is spending on its product development for the MENA region as it will be launching its Arabic mobile app later this year. 

It is aiming for a 400 per cent growth by the end of 2022. The company already supports leading global brands like Nivea, Starbucks, Sephora, Zara, and AXA, along with Lulu Group, Aramex, and Mobily Infotech in the region. 

With a revenue of $3M in 2021, expecting to rise to $12M by 2022, the company has raised at 100x forward revenue. As public market SaaS multiples correct to ~20x, it will eventually need to grow at least 3-4x to justify this revenue.

Geographic expansion will provide this glide path. 

Darwinbox aims to diversify its revenue from geographies. Going forward, it believes that India and Southeast Asia will contribute 35% each to its total revenues, with 20% coming from the Middle East and 10% coming from the US.  

Darwinbox has certainly developed a strong product culture. The product team is using its learnings from India and how companies manage large socio-cultural nuances to engage and retain employees, to grow exponentially outside India and build for the world. 

As the company grows further, it will need to ensure that it doesn’t become the monolith like the legacy players, and with innovation in its DNA and constant adaptation as its motto, this is unlikely to happen.

The visionary founders truly have fundamentally transformed the HRTech space with a highly resonant product.  

DarwinBox could transform Human Capital from India to the world.

Writers: Bhoomika, Ramandeep, Saniya, Varun and Aviral Design: Mehak, Omkar and Terry