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Scalability: A challenge or opportunity?


It used technology to ensure end-to-end control of the customer experience, while also creating a good supply of reliable service professionals. Since supply is a major issue in this segment, it became one of UrbanClap’s priority areas. The company understood that unless it created value for service professionals as well, it would never work out. This enablement happened in several ways—increased salaries compared to their offline pay, job surety, the flexibility to decide their timings, training and even small loans to purchase service equipment.

How are professionals earning?

The Gurugram-headquartered startup says that service professionals on the platform are now earning three times what they were making previously. This, however, maybe a bit of an exaggeration. An UrbanClap-affiliated service professional confided to The Ken that while there has been an overall increase in earnings, it’s nowhere near as large as the company claims.

“If I was earning Rs 15,000 ($213.48) earlier, now I am getting Rs 20,000 ($284.64). That’s it,” he says. On some days, he continues, there are five jobs, while on other days there are none. “On small ticket jobs—costing around Rs 150-200 ($2.13-2.85)—we end up making only Rs 40 ($0.57). The only good part is the flexibility UrbanClap offers,” he adds.

But he does admit that it was better in the early days of the platform before UrbanClap hiked its commission and back when it had fewer professionals. Back then, it was more money per job and more jobs to go around—the perfect recipe to draw in-service professionals.

UrbanClap also instituted mandatory training based on each individual’s skill level and job. Though the company declined to put a figure to it, training is one area where UrbanClap is investing heavily. It has training centers in every city it has entered, and Khaitan proudly claims that some of Lakme and Samsung’s most senior trainers now work for UrbanClap.

Blessing in disguise

With the supply side under control, UrbanClap turned its attention to ensuring demand on the platform. Not that demand didn’t exist. It did in abundance. But offline.

The online marketplace spent heavily on marketing in its initial years to attract customers. There were discounts, coupons, and even free services if customers were not satisfied. By 2016, just two years after it began operations, UrbanClap’s marketing expenditure was Rs 31.9 crore ($4.53million).

All this investment has paid off richly, making UrbanClap the largest home services platform in the country in terms of both revenues as well as nationwide presence.

Its nearest competitor, Housejoy, announced revenues of Rs 37.85 crore ($5.38 million) in FY18, markedly less than UrbanClap’s Rs 53.37 crore for the same period. Additionally, while Housejoy has had to scale down to just eight cities, UrbanClap is in 10 cities as well as in Dubai. In the coming year, it hopes to scale up to 15 cities across India.

The business no longer has to splurge on marketing the way it once did. In fact, marketing spends are lower than in 2016. Khaitan says that the company is already EBITDA positive on a unit level, but since it is still making investments in technology, marketing, and supply, the company is still loss-making overall.

How are the costs kept under control?

UrbanClap has also kept its team small, further keeping costs in control. While the business has grown roughly 30X in the past three years, the team size has just about doubled, going from 300 to 600. “We have been able to do more with less,” says Khaitan.

While these are all positives, the company does have its fair share of challenges ahead. One of the biggest issues for home services companies like UrbanClap is the low frequency of demand. This makes it difficult for companies to gauge the LTV (long-term value) of a customer.

It’s not every day or every month that one requires a carpenter or an electrician. Such a scenario raises questions about the unit economics of these companies. The cost of customer acquisition remains high, but it doesn’t guarantee repeat users.


The sluggish presence of Airbnb in India


Multinational technology companies in India aren’t fence-sitters. Amazon’s got a good hold on e-commerce and web services. WhatsApp on chat and now, financial technology. Tinder on dating. Google on local search, payments and a bundle of other services. Facebook on digital advertising and on fake news.

There’s one category, however, where outsiders have had little success in displacing indigenous incumbents. Travel.

Is anything stopping OYO?

From the looks of it, there’s nothing stopping Oyo. Not money. Not ambition. The homegrown company, MakeMyTrip isn’t a pushover either. After acquiring Ibibo in 2016, it is India’s largest online travel agency (OTA); and hotels & accommodation are increasingly becoming a significant part of its business.

Compared to them, international companies have had little success. Booking.com hasn’t really set the market on fire. Neither has Airbnb, the global homestays company with a $31 billion valuation, which has been in India for six years now.

Much of Airbnb’s existence in the country can be summed up in one word—promise.

Promise that, by now, Airbnb would have revolutionized the homestays business in the country, but hasn’t.

Being a part of the launch

Take its global product Experiences, for example. In 2017, Airbnb’s CEO and founder Brian Chesky flew to India to be part of the launch of Experiences in the country. He even participated in the company’s first curated experience—a fashion show titled “Journey of Couture” in association with Delhi-based designer duo Shantanu-Nikhil—where he walked the ramp.

The idea of Experiences is not just to help people with the stay but to make travel a transformative experience by allowing them to discover communities and their passions. As part of Journey of Couture, participants were given a peek into the designers’ studio, met artisans, and learned what goes on behind the scenes at a fashion show.

It was meant to be the start of something big in the country. After all, in an interview with Fortune magazine late last year, Chesky said that the Experiences business was growing 13 times faster than Airbnb’s homes business.

However, while the number of Experiences globally has swelled to around 20,000 in the last few years, it stands at just 100 in India. Sources in the travel industry say the initiative hasn’t really been able to build momentum in the country, pointing to glaring shortcomings like how Kolkata, for example, doesn’t have any listed experiences despite being famous for its rich history and culture.

While pricing is said to have played a part in Experiences’ slow growth in India, its limited success is emblematic of Airbnb’s journey in the country.

A company that has shaken up the hospitality sector globally, has only had middling success in India. For perspective on Airbnb’s fortunes in India as opposed to outside, the combined revenue of both of Airbnb’s India entities—Airbnb Payments India and Airbnb India—is under $8 million. Meanwhile, in China, the company expected its revenue for FY18 to touch $130 million.

For a company set for a multi-billion dollar initial public offering (IPO) in June or later this year, Airbnb’s Indian blindspot is puzzling. In fact, success in India could play a major role in the success of its public issue, as India’s online travel market is expected to be worth $48 billion by 2020. So what’s holding Airbnb back in the world’s second-most populous country?

Incredible India

Amanpreet Bajaj, the country head of Airbnb, seems far from disheartened by Airbnb’s inability to truly take off. In an emailed response to The Ken, Bajaj says that listings in India have grown by 115 % over the past year and the platform currently has 40,000 listings across the country.

While his positive take on growth in listings is fair, the fact remains that India still only accounts for just 1% of Airbnb’s 4 million overall listings across 191 countries.


I don’t trust their methodology and their research reports


Sources The Ken spoke with were more forthcoming. They, however, requested not to be named because the world of internet startups in India is small, and at some point, everybody must work with everybody; you never know. “I think the story simply is that Lee would use them to do his work for his board meetings at Flipkart,” says an early-stage venture capital investor, who is part of a $50+ million fund.

“So Lee would say, go do this. Find this out. So RedSeer would have access to Flipkart’s database and they would do the research, and Lee would use that to make his points in Flipkart board meetings.” A co-founder of a startup, valued at more than $100 million, said that it is an open secret that RedSeer got to where it is because of Tiger Global. “Wherever Lee would want to invest, he would put them there,” says the co-founder.

“That’s how RedSeer got access to the data sets and the database that it uses for its research. Tiger is one of their biggest clients. In fact, Shreya Gupta, the research & analysis manager at Tiger, is a former RedSeer employee.”

Standing for the company

Kumar says RedSeer’s work speaks for the company and not any of the market rumors or stories. In India, people attach too much importance to gossip like this.

He says that at the time RedSeer broke into doing research for internet companies, nobody in India was doing primary research. Worse, there was no secondary data because no company of any significant importance was listed on the stock exchange.

“Everybody was shooting in the dark,” says Kumar. “We came in and we said we will do primary research. Collect all the data that is needed and that became the foundation of RedSeer. Ashish, I can say this with confidence. Most times in the consumer internet business, eight out of ten times, when a client has asked for RedSeer, then they have decided to work with RedSeer. Very few cases where we would be competing with someone.”

It would be fair to say this is not because other consulting firms fear RedSeer. Nope. Price is one factor. RedSeer undercuts several blue-blooded, top dollar consulting firms on price. So if a McKinsey asks Rs 100 ($1.5) for a valuation report of a company, RedSeer would do it for much less; sources The Ken spoke with said RedSeer is at least 30% cheaper, if not more.

Factors affecting the process

The second factor is the data. The way consumer internet businesses are structured in India, there is very little of it. Since most of the businesses are private, anything flies in the name of data. A startup can claim that, in a given month, it sold 100,000 chow mien in a box in Haryana and nobody would bat an eyelid.

Feedback on RedSeer reports is a mixed bag. Quite a few like it. Some hate it. Many believe it is better to have something instead of nothing. For instance, e-commerce company Amazon India has had a problem. Every year, RedSeer puts out the market share report of the September-October sales. The popular term is Big Billion Sale, but the word billion is just Indian exaggeration.

RedSeer puts everything in this study though. The whole organization rallies behind it, and at the end of the sales event, the firm sends out the report to all its clients. And a snapshot of the company’s many “press friends”. Needless to say, RedSeer’s snapshot makes headlines across pink papers, as to who sold the most, what’s the growth been like, what are consumers buying, yada, yada.

Kumar says the effort is worth it because the media coverage is just insane. In the 2018 festival sale report, RedSeer said that Flipkart had an edge over Amazon. Not a big surprise then that Amazon came down strongly.



With a tank full of gas, CarDekho’s going full stack


This past December, all of us missed something important. A funding event. A small company that has been around for a while, and one that has built its entire existence around automobiles, raised $110 million. Several investors participated. Sequoia, Hill House Capital, Google Capital, and Axis Bank.

The money that came in was no meager sum. It represents a more than seven-fold increase from the company’s last significant fundraise—a comparatively tiny $15 million round in February 2016. With this latest round, the Jaipur-headquartered company has now raised $196.25 million, the second-highest amount in its industry.

What is the company?

If you haven’t already guessed, the company is CarDekho.

Its latest fundraising is no mean feat. It is the largest funding round in the online, everything to do with cars space since rival CarTrade’s massive $130 million Series E round in 2016.

Its importance all the more pronounced because unlike in e-commerce, food delivery or cab aggregation, investors haven’t been smitten by cars. Some predict cars will die, maybe not on the internet but in the real world; they may have you believe that the future of consumerism is a future minus cars.

But for now though, in 2019, in India, a bunch of investors has bet big on cars by putting $110 million in CarDekho’s hands. Our story is about what follows next.

Because it is not like CarDekho has found a new way to sell cars on the internet. No. That’s not it. It is also not like in the time that CarDekho has been around, it has taken the market by storm and towers over other players. No. CarDekho isn’t top dog in the businesses it does. Allow me to skew the line further. If you asked someone on the street where they go to look up cars—both new and old—on the internet, there’s a good chance they wouldn’t say CarDekho or CarTrade or Droom. They’d probably say Google.

Which leaves us with one important question. What’s the $110 million in CarDekho for?


It would be fair to say that CarDekho hasn’t been the most aggressive player in the auto marketplace business so far. Founded by brothers Amit and Anurag Jain, it began in the garage of their house. The name of the company—Girnar Software—stems from the name of the house, Girnar.

CarDekho began life as a car comparison portal, trying to digitize the vast amount of information in the auto ecosystem to help people buy cars. Once the platform gained some initial traction, its next phase of growth came through acquisitions. In 2014, the company acquired online auto marketplace Gaadi from the Ibibo Group, helping it build capability in the used car space. The following year, it bought Times Internet-owned Zigwheels to fit in automobile content.

CarDekho has made eight acquisitions so far, and company president Umang Kumar says that all of them have helped the company grow. Now, ten years on from its inception, CarDekho thinks it has everything it needs to succeed.

It is upping the ante on several fronts. Number one on its to-do list is establishing a significant presence in the lucrative consumer to dealer (C2D) segment, something that became clear when CarDekho acqui-hired Carbiqi, a small start-up in the same space, in November 2018. Carbiqi’s team is helping the company transition towards the C2D model.

Why the urgency to get into the C2D space? One word—money. The current C2D leader, Cars24, made Rs 670 crore ($94 million) in revenue in FY18. And while its losses did go up, its revenue marked a 60% year-on-year increase. Cars24 bought more than 100,000 cars across India since its inception in 2015. Since the auto transaction-led business in India is cash-flow dependent, Cars24’s operational revenues as listed in its financial documents reflect the total worth of sales made by the firm—Gross Merchandise Volume, a proxy for gross sales in the consumer internet world.

CarDekho wants a piece of this pie

CarDekho’s model is very similar to Cars24—a seller visits the website and gets an online inspection done. He gets a tentative quote. If she agrees with it, she goes to the store. After a physical inspection of the vehicle, the intermediary—CarDekho or Cars24—put it on an internal dealer portal for auction.

Highest bid wins, with CarDekho/Cars24 buying the car on behalf of the dealer. Monetization happens through a commission paid by dealers to intermediaries.


Price versus volume, who leads?


The fact of the matter is, despite something of an early mover advantage and a well-heeled backer, upGrad really hasn’t made much of a dent in the market. A big reason for this could be down to upGrad’s price point.

The company’s approach has been guided by Screwvala’s experiences in the media business. Coming from a media background, Screwvala understood the importance of high ARPUs (Average Revenue Per User).

Positioned at the top

As such, upGrad positioned itself in the higher price bracket, with courses ranging in cost from Rs 75,000-2.85 lakh ($1,000-4,000). At Rs 2 lakh ($2,800), upGrad’s ARPU is probably among the highest in the industry, next only to Eruditus, which offers executive education programs (online and offline) from Ivy League universities. High ARPUs, of course, mean that upGrad is largely forgoing the mass market.

Not that they haven’t flirted with lowering the entry barrier. The company briefly tested the market by offering a free module for a certificate course in entrepreneurship, when they started in November 2015. While almost 50,000 people signed up for that course—validation that demand existed—the company realized that free or even short-term courses priced at Rs 15,000-20,000 ($210-280) were not going to cut it.

“We were very clear that we wanted to keep the ARPU high. We wanted to be in sectors where people feel there is a specialization and you need to pay for it,” says Screwvala. He believes that 100,000 students paying an average of Rs 2 lakh is a much bigger story than 3 million people paying Rs 20,000-30,000 ($280-420) for a course. Also, he says, once a student gets into short-term courses, it is difficult to get them to pay for specialized courses at higher costs.

All fair points. But nailing the high ARPU game in India isn’t easy, and the proof is in upGrad’s low volumes. 10,000 students in four years do not make for a great story or valuation. The rule of thumb for internet businesses is that profitability and volume go hand in hand. This realization has dawned upon upGrad. From purely chasing value, it now wants to add volume, while still largely maintaining its ARPU. This won’t be easy, but when was a $400 million valuation ever easy?

Tipping the scales

Since upGrad’s early offerings weren’t able to drive volume, the company decided it needed to do more. So, in October 2018, it acquired fellow edtech startup Acadview for an undisclosed amount. Acadview upskills graduates with in-demand technologies through live online courses and industry projects, enabling better employment opportunities. There are digital marketing courses, for example, for students who are already pursuing an MBA program or about to finish one.

The acquisition of Acadview was aimed at helping upGrad cater to college learners rather than just working professionals. Importantly, some of these courses cost as little as Rs 25,000 ($350). This, upGrad hopes will bring scale.

Making life easy

Essentially, upGrad’s latest ambition is to become an integrated edtech company that gets into one’s life as soon as you finish your higher secondary education and then keeps on upskilling/reskilling you through your career.

The University Grants Commission, India’s college education regulator, also gave upGrad a shot in the arm last year, when it announced that universities would be allowed to offer degree programs online. Bringing undergraduate students into a market that previously only saw post-graduate and executive students is a huge opportunity for scale. Degree courses in the US, for example, make up 50% of the overall edtech market.

“The government is committed to increasing the gross enrolment ratio (GER) in higher education, which currently stands at an abysmally low 25%. The distance education model has not worked, so online education is this great hope which can mend GER, getting more people to college education, while at the same time upskilling those who are already in a job,” says upGrad’s Kumar.



The devil in the details


Let’s examine and evaluate each of the changes in turn.

First, the exemption limit has been increased from Rs 10 crore to Rs 25 crore.

According to an iSpirt post, if one looks at the data from a startup survey in January 2019, “nearly 96% of startups that had received notices regarding angel tax, had raised below the permissible limit of Rs 10 crore”. Therefore, raising the exemption limit will only benefit a sliver of startups, if at all.

Involving an institutional investor

In any event, funding amounts beyond Rs 10 crore typically involve an institutional investor, which means that the angel tax section is not applicable in any case. And expecting listed companies to invest in startups simply because the angel tax clause has been waived for them is akin to hoping that people will buy a house simply because it isn’t haunted—removing a deterrent from the equation is a far cry from catalyzing the desired action.

Secondly, the eligibility tenure of a startup has been extended from seven to ten years.

It is not clear who actually asked for this change as it benefits no one. If a startup hasn’t figured out its business model in the first seven years of its existence, it is unlikely to do so in the next three. So the possibility of raising funds from angel investors in year eight onwards is a remote possibility.

If this is intended to be an extension of tax benefits, that whole aspect is firmly in the grey area with absolutely no clarity on how companies can avail such tax holidays in the first place. Also, from a broader perspective, most startups, especially those who have succeeded at scale, will not begrudge paying tax on their income. So the lure of these sops is limited at best.

The next issue relates to the restrictions around the use of funds. Companies are restricted from making capital contributions to any entity, which means that a startup cannot have subsidiaries.

The results of the process

This will make things even tougher for startups operating in regulated spaces such as fintech and e-commerce, where having a group of companies is not just desirable but necessary to comply with regulatory requirements around aspects such as ownership percentages and registered domicile.

It is also unclear whether the clause prohibiting buying “shares and securities” applies to debt mutual funds, where most startups tend to keep their unutilized capital.

Beyond these specifics, the biggest problem with the notification is that it seems to do absolutely nothing for the 150+ startups who have already been served notices.

There is no clarity on whether the proceedings against these companies have been halted. If anything, the clause mentioning that there will be “no case by case evaluation of exemption” actually seems to indicate the exact opposite of what was demanded—that there is no special relief for these startups in the offing any time soon.

The notification also studiously avoids addressing the matter of other clauses, such as Section 68, that have been invoked to initiate action against startups.

It is these grey areas—where aspects are either not clear or comprehensive—that inevitably leads to more complications for the targeted startups. The specter of a single tax section might have been lifted, but these aspects that are open for interpretation are more than enough ammunition for a tax official chasing a revenue target to beat you up with.

But the biggest danger of this notification has to do with the way that the government now defines and recognizes startups.

Pandora’s box

Prior to these changes, for a company to be registered as a startup with DPIIT, it had to demonstrate that it leveraged technology in some innovative way and a panel evaluated this claim. Now, there is no requirement—any company can submit a declaration that it qualifies to be a startup and there is no evaluation process as such.

There are two problems with this.

The fact that there is no merit-based qualifying criteria or an evaluation process now means that pretty much any company can now register itself as a startup. Not only will this crowd out genuine startups who deserve to be promoted and encouraged by the government, but it will also lead to the exact opposite outcome of what the angel tax clause originally intended.

This loophole will allow shadowy players to set up shell companies that will allow them to do the exact surreptitious activities that the law was intended to curb in the first place. The fact that the companies no longer have to justify share premiums will open up a host of avenues for miscreants to squirrel away money to avoid tax and scrutiny.


Peeling the OYO onion, one hotel at a time


“After conquering India, OYO makes a mark in China” screamed the headlines.

“OYO debuts in Malaysia and Indonesia” followed soon after.

Next UAE.

Then the UK.

And now the USA. And Japan.

Importance of setting the limits

It appears that OYO’s ambition knows no limits. Flush with a billion-dollar treasure chest courtesy SoftBank, the Indian budget hotel platform seems to have set its sights on nothing less than global domination. In its own words, OYO wants to be the “number one hotel chain in the world”.

The numbers behind this quest are big.

Yep, trillion.

Billions are for plebians.

OYO is no plebeian. It is a veritable giant.

If you believe the company’s “report card”, OYO is the “largest hotel chain in India and the third-largest in China”. In fact, OYO is so big that it is “~12X the size of the second-largest player in the Indian hospitality market”.

Big numbers, alright.

But while big numbers work well in PR headlines, the fact of the matter is that you can’t build a business with big numbers. To get to a big number, you need to crack “small numbers”; fight it out on the ground to build a business.

Not top-down, but bottom-up

In the case of OYO, this is by winning over independent budget hotels one at a time and adding their rooms to its inventory.

The jury might still be out on whether OYO can make it’s business model work at an aggregate level. At a country level. The answer to that question will be revealed only after the funding dollars have played their part and the dust settles.

But this bottom-up approach that OYO must take to build its business gives us an immediately verifiable way to assess its business model. A narrow and clearly-focused prism that can shine a light on whether the company’s unit economics is working and whether a profitable business model is not just possible but inevitable.

So how does one go about doing this?

Well, OYO provides us with a starting point.

OYO’s self-scored “report card” contains one chart that is particularly interesting (reproduced below). This chart explains the unit economics of OYO’s business model from the perspective of a hotel owner—specifically touting that partnering with OYO delivers a 16X increase in earnings.

In a sense, this is a staggering claim—far more meaningful than big round numbers that make one’s eyes glaze over. A 16X increase in earnings for a hotel owner effectively makes OYO’s value proposition a no-questions-asked slam dunk. Every hotel owner in India should be queuing to sign up with them.

But is this claim true? Is it verifiable?

That is what Ken set out to ascertain.

We spoke to multiple hotel owners who have tied up with OYO. They had a lot to say. On the pulls and pressures of doing business with Oyo. Understandably, most owners were reluctant to share real numbers as that could be construed as confidential business data.

We finally found one entrepreneur who was ready to talk. Not just talk but open his books for The Ken to take a look at.

It is moot whether this one owner is representative of all the hotels that OYO has tied up with. For all we know, there could be many hotels and hotel owners out there who have had the opposite experience and are largely positive about partnering with OYO. But even then, the hotel owners who did speak to us represent a set of real-world instances that are not only useful anecdotally but offer a unique insight all on their own.

As such, we did not reach out to OYO, choosing instead to use the prism of these owners, their experiences, and the financials and communication with OYO to which we were privy to examining the nuances of the OYO business model at a micro-level.


Taking a cue from the venture capitalists


The venture debt industry is formulaic. There are three general rules for startups looking to enter the club:

Raise a Series A round or more

  1. Take debt only at the time of or just before or after a fundraising
  2. About 15%-30% of the VC round will be given in debt
  3. Meaning, if a company just raised $5 million in a Series A round, it can get a venture-debt cheque of about $1 million. These rules help venture debt funds take the risks banks don’t want to take.

Banks have kept their distance from startups because startups don’t measure up to banks’ first criteria of lending—being profitable for three years (something The Ken wrote about here). Moreover, bank loans have other large riders like collateral, which startups find onerous. So venture debt firms fill the gap.

They lend at higher interest rates than banks at about 14-15%. Nilesh Kothari, co-founder and managing partner of Trifecta Capital, says his firm looks at over 60 parameters to give a loan. Including unit economics, business model and market opportunity. But if there was a thumb rule to assessing risk in a company, it would be to ride on the coattails of a VC investment.

They do this to mitigate risk. If there is equity capital going in, then venture debt firms have the comfort of knowing that for the next two to three years, the startup will have enough to service its debts.

Banking on VC investment for venture debt funds makes sense because the fund is evaluating the short-term repayment capabilities of startups. “Good equity bets do not always make good debt bets. As an equity investor, you have a seven-year view of things. But we lend for three years. If things get rocky in between, we are adversely impacted,” says Murali.

But what this also means is that sometimes the “umbrella for a rainy day” can become burdensome. Because in effect, you carry around a heavy umbrella for a long period of time for a month or two of rain.

The trappings of debt

When nothing less than 100% year-on-year growth will do, metrics like cash flows and revenue are not a priority. This kind of growth lays a premium on “hustle”—startup speaks for doing whatever it takes to capture the market; keep getting users hooked to its product. Financial discipline takes a back seat. Which is why taking debt is not an easy decision to make.

“It is easy to keep investing and growing. Debt brings discipline. But from burning money to taking and repaying debt is a change in mindset and is a reflection of maturity among startups,” says Ankur Bansal, co-founder of venture debt firm BlackSoil. Just as venture debt firms are hesitant about risk, startups are wary when it comes to taking on debt.

Venture debt helps increase the pool of available capital for a startup, and it gives an additional month or two of breathing room. And for the venture debt firms, an investment from a VC is comfortable enough to ensure their monthly repayments come through. But the rub here is the timing of the debt payout—the money is disbursed at the beginning of fundraising.

Funds running out

“Since you use the debt after your equity funding runs out, you have been paying interest payments on the loan for the first 12 months for the extra two months of runway. The math doesn’t make sense,” says Ashok Hariharan, co-founder of IDfy, an online fraud detection platform that provides background verification services.

Debt, he adds, makes sense only when you are able to raise it when you’ve exhausted about half your funding. (IDfy is among the few startups that have been able to raise a debt round a year after its Series A to elongate its runway.)

The reality is that some companies, especially B2B (business-to-business) companies, are better suited than others to take on debt. “Companies that sell software as a service are subscription-based businesses and have predictable revenues, which makes repayments predictable. It is the B2C [business-to-consumer] model where revenue visibility is unclear, making it tough to forecast expenses,” says Bansal.

Fighting off the next best


The ugly truth about payments is its commoditized nature. One which makes payment companies utterly replaceable. To hang on to business from merchants, companies bleed themselves dry fighting the unwinnable price war. Unwinnable, because there is always someone with deeper pockets who can do a basis point (100 basis points = 1%) better.

What was the purpose?

So Pine Labs’ modus operandi was to become deeply seated within merchants, making it harder to unseat. Its ideal to get there was to do something extra. Selling software to process all types of payments, as a service, became that something extra.

The software meant merchants needed only one terminal to process payments from cards of any bank. So merchants didn’t need to have four different terminals from four different banks on their tills. (Each machine given by a bank could only accept cards from that bank). That saved the merchant’s monthly rent and expenses on maintaining different terminals. And for this software, all merchants needed to do was give Pine Labs a fixed fee of Rs 200-Rs 300 ($2.9-$4.3) per month per machine.

But such a solution was needed only by top-tier merchants like Shoppers Stop, Croma, BigBazaar. Keeping the relationship with such merchants is not easy, as they are always looking for the next best (read: cheapest) thing.

So Pine Labs slapped on value-added services. It started off with processing EMI payments on debit cards, a never-before, four years ago. It also helps retailers manage their loyalty programs to attract repeat users. With such value-added services, competitors say it earns an average revenue of Rs 800 ($11.6) per merchant per month.

“All of these types of services can lead to a doubling of the average revenue earned per user,” said a senior executive from a competitor. About 30% of Pine Labs’ revenue comes from value-added services and it wants to keep growing that line of business.

Trade with the merchants

With such value-added services, Pine Labs was able to set itself apart from other competitors like Ezetap, M-Swipe, and banks themselves, which went about selling PoS to merchants. Ezetap, too, is looking to offer more value-added services, and Innoviti, a much smaller rival, is targeting the same class of merchants as Pine Labs.

But with payments gathering steam, even though there are many growth avenues, Pine Labs needs to act fast. It has three choices: go forth and sign on the millions of smaller merchants. That is not only a cost-intensive business, it will also mean having to confront Reliance Jio’s PoS plans (we wrote about that here.) Then there is the route of going online. And finally, the how-to-make-more-money-from-your-existent-merchant-base move.

Of all the growth paths it has, doubling, tripling average revenue earned per merchant is the best choice in front of the processor. It is the path of least resistance and highest return on investment.

Effect of the telecom operators

“With Jio [and the likes of Paytm] entering the direct-to-merchant business, Pine Labs needs to monetize its existing footprint better. For that it needs more monetizable services and collecting richer data will help in more ways of monetization,” says Prasanna.

That is one of the reasons it bought Qwikcilver. Pine Labs claims it has 350,000 offline retailers from whom it processes about $20 billion annually. And Qwikcilver, with about 200 retailers, processes about $1.5 billion transactions annually, said Pratap. With such flows, Qwikcilver’s revenues were nearly half that of Pine Labs for the year ended March 2018, even though it processed less than 10% of what Pine Labs did.

It started off with processing EMI payments on debit cards, a never-before, four years ago. It also helps retailers manage their loyalty programs to attract repeat users. With such value-added services, competitors say it earns an average revenue of Rs 800 ($11.6) per merchant per month

And this is what makes Qwikcilver more than just a gift for Pine Labs. It has the makings of a silver bullet.


Testing it and analyzing the results


These interactive videos are strung together with multiple choice quizzes and true/false statement questions, which gauge the user’s conceptual understanding at every level. The algorithms running in the background create a unique and dynamic learning path for each user. This kind of variation in learning speed and style, claims Raveendran, is impossible to achieve without the right tech.

Structuring the learning journey

Byju’s pedagogical design—how they structure the learning journey—is derived from levels in Bloom’s Taxonomy, a popular guide used to design curricula across the globe. Its main purpose is to move students from memorization to application of concepts in real-life situations.

Each concept on the Byju’s platform has its own ‘learning journey’ and is supposed to move a user from Knowledge→ Application→ Evaluation. (Read our previous story on how edtech companies create adaptive learning modules.)

The Byju’s app has collected student data for over three years and has a vast library of “learning deficiencies” or common misconceptions that users face in learning the concept. Raveendran summons a page on a giant, wall-mounted, flat-screen TV with a comprehensive list of these learning gaps. There are so many that one has to squint to read even one.

Every video, says Raveendran, is built keeping these deficiencies (almost 60-70 for each concept) in mind. “Answers from even 10,000 users is enough to estimate 99% of the deficiencies that will crop up during self-study,” says Raveendran. With a total of 33 million registered users, the Byju’s team is likely drowning in such data.

While no one can fault their 1,100-strong content team on the thoroughness and creativity of the self-study modules, how the content is presented and delivered has, so far, never been publicly scrutinized. “Is simply running a complex algorithm on a set of questions better pedagogy? Is it different from computerized GMAT and GRE tests from 15 years ago?

Edtech apps may have a larger question bank or more gradation, but that’s because we have better computing power now. But that’s barely a new pedagogy,” says Meeta Sengupta, a Delhi-based educationist.

For edtech to really work, she adds, it needs to teach concepts in a fundamentally new way, which goes beyond just making interactive videos.

Does Byju’s make that cut?

Raveendran, by his own admission, was an expert at writing stressful exams. Like the Common Admission Test or CAT, which he topped twice, while his friends struggled. Raveendran became an informal CAT-guru overnight.

“I shouldn’t use the word ‘cheating’, but I basically figured out how to crack exam questions,” he says. This is, in all likelihood, why Raveendran’s coaching classes were filling out 1,200-seat auditoriums.

To his credit, Raveendran taught himself maths and science. He learned to speak English by listening to cricket commentary. That others too can be self-taught like him, is a belief baked into the Byju’s platform. And he’s introduced just enough shortcuts and tricks to hook an audience eager to crack the exam code.

“It’s not a flawed goal. Byju’s content and pedagogy will deliver the outcome that students and their parents want from a learning app,” says Lewitt Somarajan, founder of a Pune-based education startup Life-Lab. But he strongly suspects that the outcome is higher marks.

What is the preference?

But marks aren’t Byju’s preferred metric, at least not publicly. The stated objective is to make learning fun. And deeply conceptual.

This is where Somarajan, despite his general approval of the interactive app, exposes a central conflict between the pedagogy and the stated goal. “It’s a hacky way of teaching. The methodology taught in the videos can help you crack an exam question. However, I’m unsure whether this would amount to conceptual learning,” he says.

Sample this, from Somarajan’s review of the “Fractions” module on the app.

The equation is: 1/4 of 100 is 25.

Three different variables here = three different ways of asking the same question.