April'17

Path to Profitability

Over the past few months I’ve started seeing a very interesting trend in startup pitch decks, the addition of a section titled - ‘Path to Profitability’. It seems that this is (finally) a question that VC’s are asking. Then, last month a series of companies shared their financial results (or plans) claiming that they were either:

• Seeking the path (Grofers)  (more)
• On the glorious path -  Zomato (more) ) + Instamojo (more)
• At the end of the path, airline size champagne in hand - InMobi (more)

It began with adtech unicorn, InMobi releasing a statement saying that as of Q4 2016 it had become profitable. According to sources they are on their way to $425 million revenue and $40 million profit in 2017. Around the same time Zomato published a ‘Short Form Annual Report’ highlighting $49 million in revenue, and a reduction in their burn- from $4.2 million to $250,000 in a year. While they haven’t provided timelines they do claim to be on the way to profitability. Instamojo announced year over year growth at 178% (transactions) with a 191% growth in gross margins. All this while only a 4% increase in burn with a -76% reduction in customer acquisition cost! Sampad Swain, the founder says they are very close to breaking even.

Getting to profitability has always been a priority for (most) companies. So this makes you wonder- why is the pursuit of profit (and talking about) suddenly so popular? One answer is founder discipline, like Instamojo or many of the SaaS companies in India. Or is it VC prudence? A desire to ‘return to fundamentals’ and ‘build for India’ after a series of 'this for that’ disappointments. I’d say yes to both of these theories. But there is another reason everyone is talking about achieving profitability - Exit, that too a very specific form of exit, the much coveted IPO.  

Founders & Venture investors have accepted that the public market is the inevitable path for an exit in India, and it’s time to get ready. InMobi last raised $100 million debt in September 2015, similarly Zomato raised $60 million in 2015. The tone of both of their public statements sound like they are prepping for roadshows. It’s also interesting to note that Zomato has brought on Deepak Gulati(former CEO of TATA Docomo) as President and COO. The writing on the wall seems pretty clear.

The exit reality seems to have had a ripple effect to early stage investing as well, leading seed investors to ask about the path on day one. There isn’t a single founder I’ve met raising a Series A or B who isn’t busy articulating their monetisation and profitability strategies. There is no doubt a structural shift in how investors and founders are approaching things. So does this mean we’ll see series of IPO’s next year? Perhaps. The real question on my mind is how soon, and will the unicorns be first in line?

Till then I’m taking bets on who IPO’s first - InMobi, Delhivery, Zomato, Flipkart?

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Deals

Co-Working “startup” Awfis raised $20 million from Sequoia India, making them the most well funded company in this space in India. The space is very busy, and money will help considering WeWorks’ anticipated launch in Bangalore later this year. bit.ly/2qlA4B9

Myra Medicine an online pharmacy marketplace raised and undisclosed Series A led by Matrix Partners and Times Internet (TIL). The real story here is TIL’s growing urban-consumer portfolio that includes Shuttl, Dineout and Ridlr. bit.ly/2oLZb37

Ninjakart an agri-marketing platform raised $5.5 million from Accel Partners, Qualcomm Ventures,M&S Partners, Japans Mistletoe(the other Son) & Nandnan Nilekani. The company claims to move 60 tonnes of produce from farms to retailers daily. bit.ly/2oY8jxy

NIRMAI a breast cancer screening startup raised an undisclosed seed round led by AI focused firm Pi Ventures, Axilor, Ankur Capital, 500 Startups & Binny Bansal. Their AI based solution is meant to replace existing invasive detection measures. I’d keep and eye on this company. bit.ly/2oUQD5g

Fintech startup Perfios has raised a $6.1 million Series A from Bessemer Partners, their first Fintech investment in India. I would expect more of such deals as Indian financial institutions continue digitizing. bit.ly/2pxuj5A

POPxo a content & media platform for women has raised $3.1million from IDG Ventures, Kalaari Capital and Gree Ventures. They have recently been experimenting with content lead commerce (the holy grail), enabling direct selling on their platform. bit.ly/2pjAkSK

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News

FactorDaily did an excellent feature on Freshdesk founder Girish Mathrubootham, detailing his personal and professional story. Girish and Freshdesk have been an inspiration to many Indian SaaS founders with global aspirations.  bit.ly/2pjSKDf

Dentsu has acquired a majority stake in SVG Media for an estimated $130 million. With a second exit under their belt Harish Bahl & Manish Vij are hitting heavy and not planning on stopping any time soon. bit.ly/2oV0Hva

KPMG and Google released a fascinating report investigating the impact of Indian vernacular languages on Tech. I personally believe the vernacular opportunity is massive, but will present a whole set of challenges (think- sentiment analysis in Kannada). Full report here - bit.ly/2pLI5m7

The Indian government has finally released a list of the 17 VC funds its invested in through its $1.5 Billion fund-of-funds. According to the status report, they’ve committed roughly $100 million so far. The report also lists investments made by these funds, including some that haven’t been publicly announced yet. Oops. bit.ly/2oYoTNG

Ashwini Ashokan and Anand Chandrasekhan co-founders of MadSteetDen gave FastCompany a run down of their Fashion AI platform - Vue, and how it’s changing the way we shop for fashion online. Hopefully in the future it can make sure Myntra stops suggesting Loafers. I know I’m from Delhi, but…. http://bit.ly/2qlRpu0

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You may find this interesting

Chris Sacca shocked the tech world by announcing his retirement from Venture Capital, at the top of his game. An early investor in Uber, Twitter & Slack and in a short period of time became an ace VC, and helped shape seed investing. bit.ly/2pkpFr9

If you are into SaaS (software-as-a-service, noob) I would recommend reading this great piece on the’Rise of non-VC compatible SaaS companies’. I’ve been having quite a few conversations recently about the emergence of companies like this in India. bit.ly/2pk8SUU

Airbnb released a new open source tool help bridge the gap between designers and engineers, it basically connects React.js and Sketch to help with scalability, version control, and data. It may have the potential to reduce timelines and ease collaboration. If you end up using it, let me know what you think! bit.ly/2pm2PiW

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This is a monthly newsletter summing up interesting deals, companies and news in the Indian tech ecosystem. One crisp email delivered to your inbox the first week of each month. You can subscribe here.

Are you interested in knowing more about the Indian Tech Ecosystem? I started a monthly newsletter, and dispatched the first edition yesterday! It’s meant to be a round up of of the most interesting activities and news I think you should know about.

One crisp email delivered to your inbox the first week of each month.

Here’s what to expect:

• A short analysis of an interesting trend, news or happening that I’ve observed
• 5-6 deals you should know about (not just the largest deals)
• 5-6 articles worth reading
• Links to my blog posts
• 3 miscellaneous pieces of information that I think you may appreciate  

Why should you subscribe?

• I filter through over 200+ distinct articles, news & deals every month and share only the ones I think are most important to know about. Cutting through the noise and saving you time.
• I’ve spent the last few years in the Indian tech ecosystem as a founder, designer and investor. My opinion is based on insight, experience and access. (more about me here)
• You’ll never receive SPAM or endorsements, just information and opinion

In case you aren’t already a subscriber, I’ve posted the content below. 

You can subscribe HERE

March'17

Logistics is hotter than ever 

Everyone may be talking about Flipkart and PayTM raising money last month, but the silent killers were logistics companies. Five logistics companies focusing on everything from cold chain to last mile to freight, collectively raised ~$200 million.

Full stack ecommerce logistics startup Delhivery raising the largest round, $100 million from Carlye Asia and existing investors Tiger Global. It’s been a pretty good month for an industry that reportedly delivers 1.4 million packages a day (try to wrap your head around that number).

Logistics companies that raised a capital in March: 

• Delhivery (Full Stack Ecom Logistics) - $100 million from Carlyle Asia, Tiger Global (more)
• Black Buck (Freight Marketplace) - $70 million from Sands Capital (more)
• Rivigo (Last Mile) - $10 million (investors in the current round are unknown) (more)
• Crystal Logistics (Cold Chain) - $10 million from Neev Fund (more)
• Blowhorn (Intra-City Trucks) - $3.75 million from IDG, Michael & Susan Dell Foundation and Draper Associates (more)

All the activity last month, though not surprising- is very interesting. While its definitely a testament to the continuous growth of ecommerce, it shows that there is still much to do to meet the demand. Especially as we see an increase in both consumption and sourcing from tier 2-3 cities and small towns. Many of the companies that raised claim to be using a majority of their proceeds to invest in assets, infrastructure and capacity. Even ecommerce companies that raised money in March are spending on supply chain and backend infrastructure. BigBasket raised $6.9 million in Venture debt from Trifecta for this purpose.

Furthermore it shows that investors are doubling down on three major trends in Indian logistics: 

• Specialisation: Verticalization of ecommerce is forcing logistics companies to specialise to meet unique requirements; this could mean intra city freight, white glove service or cold chains. 
• Omnichannel: As more SMB’s go online more and more logistics companies want to offer end to end solutions. This has been Delivery’s strategy for sometime now, I expect more people to move in this direction.
• Formalisation: Indian logistics is still very informal and opaque, with a lot of room for improvement. Whether it’s through supply side aggregation, route optimisation or price discovery. 

The tech enabled logistics market is expected to grow to $9.6 billion by 2020 according to  Avendus Capital.In the short term growth in FMCG and ecommerce consumption in non-tier 1 India and the rollout of GST will have a positive impact on company economics. 

My money is on Delihvery filing for an IPO next year.

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Deals

Agrostar a direct to farmer marketplace for buying and selling agricultural products and resources raised $10 million Series B from Accel. bit.ly/2nneOco

Belong a SaaS based recruitment startup has raised a $10 million Series B round led by Sequoia India. It seems HR-tech is still a very hot space in India. bit.ly/2njDKkx

The Draper family of funds has made it’s first investment since announcing their re-entry in India. Draper Associates participated in Blowhorn’s recent $3.75 million round(details above). 

Data Resolve a cyber security and intelligence startup has raised $1 million from IDFC-Parampara. Expect more security investments from the group in the future, in particular fintech-security.  bit.ly/2nneOco

Flipkart raised $1 billion from Microsoft, Ebay and Tencent, as part of a targeted $2 billion round. This will give the company a lease of life in its fight against Amazon, and they may just have enough left over to buy Snapdeal. bloom.bg/2njwfdb

PayTM has rasied $200 million from Alibaba for its marketplace. Both Aliababa and Ant Financial are existing investors in PayTM’s parent company One97. Alibaba is also an investor in competitor Snapdeal. Does anyone smell a merger? bit.ly/2oCaoi8

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News

Veteran VC Sasha Mirchandani (characteristic of his style) gives a very honest and transparent view of the current challenges in the Indian startup ecosystem in this Forbes interview-  bit.ly/2nPiLcS

PayTM has launched a bill payment app in Canada. This is leading to speculations that company plans to get into cross border remittance. Very strategic, considering that India is still the largest remittance recipient globally. 

Lyft has acquired Pune based startup FinitePaths, with the aim of strengthening and scaling it’s infrastructure. Earlier in the month Grab opened an R&D center in Bangalore. That means that Uber, Grab & Lyft all have some tech presence in the country. I wonder if Didi feels left out? 

Indian FMCG player Marico has acquired 45% in Zed Lifestyle, the company behind men’s grooming brand Beardo. While the size of the deal is unknown it’s still a very positive indication of traditional companies wanting to engage with startups. 

Myntra has launched it’s first offline store to launch under a whitelabel brand, joining an increasing list of ecom companies(including Zivame, Vyolla and Lenskart) going offline to propel growth. While the idea is sound, I’m not convinced by the location(Bangalore) or the decision to not launch under the Myntra brand.

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My Blog

The number of Hardware startups I see in India these days is very exciting. While there is a lot of potential in the long term, the challenges are immense. Inc42 asked me to share my thoughts on Hardware in India. I reposted the interview on my blog. bit.ly/2nmhCWy

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You may find this interesting

John Maeda released his Design in Tech report. Some excellent insights and data. It’s a US centric report, but as a Designer in Tech I appreciate what John is doing and thought it’s worth sharing.

A not so subtle shoutout to one of my portfolio companies - Hipcask, for getting featured in Forbes - How Startups Are Catering To India’s $35B Liquour Market, The 3rd Largest In The World

I’ve recently been loving the ET Money app, Mukesh and team have done a great job building a very intuitive product. I think they’re setting a very high bench mark for Fintech UX. Check it out

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This is a monthly newsletter summing up interesting deals, companies and news in the Indian tech ecosystem. One crisp email delivered to your inbox the first week of each month. You can subscribe here.

I’ve recently come across a lot of new hardware startups and thought it may make sense to repost an interview of mine from Inc42 on Hardware in India. Some advice, tips and opinion.

Inc42: What are some of the opportunities for the bubbling Indian hardware ecosystem?
Personally, I think companies need to understand how hardware plays a role in a country’s overall market. Making a consumer-centric product for India doesn’t work well in hardware. Instead, I think the real opportunity locally will be in enterprise, SMEs and agritech solutions that have a hardware component core to the service delivery. Many of these solutions will require some degree of hardware and software localisation. Nothing is just hardware anymore, the device is an enabler or a platform for the software. Brad Feld calls this ‘software wrapped in plastic’ and I think that’s the best way to define it. Look at the two major hardware enabled success stories in India – Grey Orange and Ezetap, both of them are integrated solutions.

Inc42: Are you excited by the sector’s potential in India?
I truly believe that Indian startups can lead in hardware enabled-solutions (people call this IoT but I hate that term), in particular in the spaces I mentioned earlier. In my opinion hardware ecosystems of the future will require three things to succeed: excellent software engineering, a knowledge of enterprise sales and customer support, and hardware design and manufacturing expertise and infrastructure. I think we are pretty good at the first two and if we can figure out the third component we’re golden. On a personal level, I’m a hardware geek, I studied Industrial Design at the Rhode Island School of Design and did some product design work before I started my first company. So as an investor I really want to support exciting hardware companies and get my hands dirty.

Inc42: What’s different in the various funding parameters at different funding stages for hardware startups in comparison to other startups?
There is very little funding for pre-prototype companies. You will have to rely on angel and grant money. At this time you need to concentrate on: early validation, getting that working prototype ready, having your financials in order – cost per unit, gross margins, and maybe some pre-orders. You are raising Seed money for inventory, fulfilment, early sales. Most venture investors in India aren’t ready to invest until you’ve had some pre-small batch production and sales. Don’t even think about additional SKU’s (stock keeping units) until you’ve gotten to Series A.

Inc42: How differently do investors perceive hardware startups?
Hardware is definitely at a disadvantage in India, I don’t want to sugar coat things. Investors perceive hardware to be more cost intensive – especially upfront pre-launch costs. R&D, prototyping, design for manufacturing, small batch and initial distribution channel development costs add up substantially. This means that in a one to one comparison with software product startups it’s a far riskier bet.

Inc42: What is the best financial planning advice you can give to hardware startups?
It’s imperative to understand and break down your pre-production costs. This means understanding the typical failure points in the product development process. Firstly, go get customer feedback and test your product out multiple times at the prototype stage. This isn’t software you can’t expect to get customer validation after you’ve spent money on a custom injection mold die. Second, invest in a good functioning prototype, don’t discount this at all – it helps in communication with manufacturers, customer feedback and getting investors excited. Third, spend time in optimising your BOM (Bill of Material), which means spending enough time assessing correct materials, manufacturing processes and suppliers. Lastly, if it’s the first product and you haven’t yet optimised distribution you need to limit your inventory risk – less is definitely more even if it means taking a hit on your gross margins early on.

Inc42: Hardware funding is at its current peak worldwide, is India a little late to jump on to the bandwagon?
Not at all. I don’t think it’s fair to compare Indian sectoral funding to global sectoral funding. Companies that are creating unique solutions will attract funding, we’ve seen it in India as well. I think made-in-India for India consumer solutions will always be at a disadvantage from a fundraising point of view.

Inc42: How important is it for hardware startups to ‘Make in India’?
I think in the long run it is definitely important. In the short term I really don’t think Indian startups should worry about this, instead, they should focus on optimising their Bill of Materials, supply chain and unit economics. If that means manufacturing the entire thing in China, that’s perfectly fine. We can’t wait for industry and the government to catch up. Governments are a lagging indicator of innovation. I’m still not convinced that we can compete with other countries in mass consumer manufacturing any time soon, but I think we have a chance at being very competitive at hi-tech manufacturing especially as ancillary industries develop around defence and electronics manufacturing centres.

Inc42: How feasible is it to collaborate with other startups/corporates to make and sell a better hardware product?
Globally, very much so. Foxconn operates a ‘Manufacturing Hotel’ in China where hardware startups can access prototyping and manufacturing facilities by the hour or the month depending on their need. PCH runs a very successful hardware accelerator in San Francisco called Highway 1. Their end goal is simple they want to work with these companies early on so they can take care of their manufacturing needs as they grow. We aren’t seeing enough of this in India. I seriously believe manufacturing corporates in India need to step up or they will get left behind and to be honest I won’t be shedding any tears for them.

Inc42: Prototyping seems to be a major challenge in India, what’s your say on the matter?
I think the challenge is threefold: knowledge, expertise, and infrastructure. There is a severe knowledge gap. Hardware entrepreneurs are enthusiastic and hungry but need more opportunities to learn the nuances of the prototyping and design process. Secondly, India needs more designers, embedded software engineers, model makers, and design for manufacturing experts. This is a systemic problem, in the short-term, we need to figure out ways to facilitate interaction between existing experts and startups. The last bit – infrastructure is slowly being solved thanks to hardware incubators and maker spaces.

Inc42: Is there a need for specialised hardware startup enablers – including hardware-specific funds, accelerators, peer groups, development marketplaces etc.?
Most definitely, hardware needs an ecosystem to flourish. If you look at any flourishing hardware ecosystem, there is an abundance of prototyping spaces, accelerators, incubators and communities. I think we are working towards all of this in India. We definitely need to figure out component sourcing and small batch manufacturing in India. Most manufacturers won’t entertain orders below 1000 pieces, which puts a massive strain on startups.

Inc42: Hardware startups usually require a more diverse core team (front-end, back-end, biz-dev, embedded systems, mechanical, electrical, industrial design, etc.), which cities in India have the potential to supply a good amalgamation of such talent?
I think cities with existing manufacturing ecosystems and proximity to the large startup cities will have a serious advantage. In my opinion Bengaluru, Coimbatore, and Pune will have a major advantage. Delhi/NCR has the talent but needs some of the other ecosystem components, that the cities I mentioned before already have.

This interview was originally published on Inc42. 

Link to the original article: https://inc42.com/startups/interviews/hardware-interview-soaib/

(tldr; 2 design workshops down and we’ve realized Indian founders can’t get enough! If you’re in Mumbai on the 2nd of April 2016, and are hungry for design sign up for our Mumbai Design Quicky.)

We held our first Design Quicky in Delhi in December and recently wrapped up the Bangalore edition three weeks ago. So far across 2 cities we’ve had almost 100 participants (founders, designers, and miscellaneous geeks), from 60+ startups (bootstrapped companies to well known Series A & B funded companies) and 8 speakers with diverse backgrounds, skill sets and expertise.

Asmita Misra giving the run down on how to Bootstrap Mobile UX

The Delhi & Bangalore Quicky’s were fun, intense and highly stimulating for us and the participants(read what a founder had to say about our Bangalore Quicky). 

A Design Quicky is broken up into 2 parts. The first half of the day is a series of functional workshops lead by practicing designers, experts from the ecosystem, and our team. The content of each talk is crafted specifically for startups. In this recent edition we covered Bootstrapping Design, Conducting Effective Design Sprints & Quick Design Research. During the second half of the day, the 500 team sits down with 8 companies for one-on-one design reviews, giving actionable product and design feedback. Actionable is the key word there.

Conducting these programs has been a great experience so far. It’s given us a chance to understand the current state of design in the Indian tech ecosystem. We hope to share this data as soon as we’re done with 3 cities.

To give you some context I’ve been working as a Designer in the startup ecosystem (first in the US then in India) since I started my first company back at RISD. A lot has changed in the last 5 years since I’ve been back in India.

What we’ve learnt & What we’ve seen

Whats Good:

1. Design is a priority for most founders: There was a time not too far back when we designers had to sell the importance of design. THOSE DAYS ARE GONE. Indian founders are hungry for design.
2. Indian founders are starting to understand design: We need to stop treating founders with kid gloves, the assumption that founders in India can’t execute good design is false.
3. Stop the Gyan: Everyone is bored of the same old ‘inspirational’ stories and theoretical sessions, they want meat and substance. Real topics, real tricks, real skills. The most highly rated talks at our events have been functional design topics and skills that they can act upon the very next day. Founders are tired of hearing the same old stories, lets move on.

Whats Not Good:

1. High demand / Low Supply: We do not have enough high quality — tech ready designers in this country to meet the needs of the ecosystem. The CII estimates that there are 4500 graphic designers in India but the industry needs 15,000(Source: CII India Design Report 2015). There is no record of the number of UX designers or the deficit. There is unfortunately no short term solution to the solve the people problem. The only thing we can do is continue supporting founding teams and building their capacity and capabilities in design.
2. Limited access to design support: The opportunities for founders to get mentorship and critical design feedback are very few and far between. Founders and teams want more opportunities where they can speak with experts to get relevant advice on their products. This is the case across the board, not just bootstrapped companies.
3. Skill Asymmetry: Startups are hiring designers or firms to help them with design, but the design skill levels are not increasing relative to the amount of money available to spend on design. As an ecosystem we designers need to evolve our skills. Most ‘UX designers’ on teams are still either UI designers or front end engineers.
4. Design is still a support function: Very few teams are thinking about how Design can be an independent function at their organization. For the most part designers are playing supporting roles in tech and marketing teams. Design needs to be both supportive and independent for real design leadership. The most successful companies globally (think Apple, Airbnb, Uber) are winning with design at their core. Indian users are now demanding well designed solutions, the status quo isn’t enough. And as we think about creating solutions for the next 500 million people joining the internet in India design leadership will become critical.

Trends (based off things I’ve seen over time and in particular the last 2 years):

1. Moving beyond UI/UX: Founders are realising that design has a lot more to offer them than just the usual ‘UI/UX’. Startups now care about things like branding, communication, user research in a big way.
2. Product design is back, service design is coming: At one point we had many traditional product designers in India, as the market moved many of them became UX designers. It’s no secret that more companies in India are looking at hardware and IoT solutions. This is now creating a demand for experienced product designers, and soon we’ll see a demand for service designers as well. The CII estimates the new product design market in India is potentially worth $12 billion(Source: CII India Design Report 2015).
3. Basics are still important: While the overall market has ‘evolved’ the basic techniques, processes and methods are and will remain to be important. We just need to communicate these in a language founders understand. Making design understandable and easy is core to our strategy.
4. Design is a line item: For many mature companies design is no longer clubbed under tech. But the flip side to this is there is a lot of money being blindly thrown at design. It’s creating many short term fixes at the cost of long term ROI.
5. Designers want MOAR: Designers are now a normal fixture at most startups, but many of them have just jumped into tech with little background or experience. Many startups don’t have senior designers. These designers want mentorship, feedback, and guidance from their more experienced peers. 30% of our attendees are designers at startups and we’ve seen how eager to learn more and get feedback.

What’s next

The 500 India extended family (photo credit: Asmita Misra)

We’ve wrapped up 2 Design Quicky’s and are now gearing up for our Mumbai Quicky on the 2nd of April. We’re going to be taking our Quicky’s to places like Hyderabad, Chennai, Jaipur, Kolkata and Chandigarh. These will continue along the same format and will be open to everyone.

We’re also going to be running Crit — a 2 day design review and hands on UX workshop later his year, and are also planning 1 week guided design sprints. Both of these events will be small, hands on and curated so we can ensure the maximum ROI for participants.

Our goal is for #500Design to become a larger platform for design & tech in India. Bringing together designers, founders, and experts in meaningful and impactful ways. The Quicky’s are just the beginning for us, you can expect a lot MOAR Design.