Dec 17, 2016

Investment in startups - Facts and changing Scenario in future

Just a month back when I was reading business headlines from economic times.  It was having full coverage on how OYO is going to expand its market in various areas.
This is just a beginning in the contrast of new developments in India and South Asia market.

OYO is the brainchild of Ritesh Agarwal and one of his friend, and during 2014 he started implementing his thought and ship is built in the sea.  This idea was shared by one of the guy in Delhi who was then writing mini-blogs on new startups, so this was the same idea which I read in one of the blogs during 2012. The creator can be the executor, but sometime creator only create the concept and some other people work on its execution, so they are known in the ecosystem.   Many examples are there, and you can find many more startups who succeed to create a valuation of more than 16 Billion Dollar.  Flipkart is one of the best examples. 

Purpose of writing this blog is to predict the future of Startups in the coming days.  I am very much sure that Founders, Co-Founders are going to lose control, and they are going to leave their brainchild in the hands of Investors.  

Let's figure out the latest successful startups companies and how they will go in the hands of the investor in the coming days. 

Here are the talk of the town these days.

1. OYO
2. Paytm
3. Flipkart
4. Swiggy
5. Ola
6. Makemytrip
7. Bookmyshow
8. Grofers
9. Bigbasket
12. Policybazar
13. Justdial
And many more. 

Must have an analysis that common instinct is above all startups. Just make a brainstorming? 

Okay,  Lets us figure out the instinct and driven force which is giving acceleration to these startups is " Technology" driven platform. IT  makes them reach beyond the boundaries and scaling them to become a billionaire club member. 

Let's take a few  from the list where I will give some small pin and pain points which help you to understand what they will do in the near future and who is going to benefit. 

OYO Rooms: 

The concept is straightforward  but innovative as it was not tasted before in India in the hotel industry. USD 460 million valuation as on August, 2016, and Softbank has more tha 50% stake in this startup.  Yes, OYO  is brainchild of Ritesh Agarwal who started working on this concept since  2012.

Bringing standalone hotel properties under one brand name “ OYO” and promoting their existence to end consumer through B2C Application and various ATL/BTL marketing Activities.

What OYO is doing :

  1.      Standardisation in terms of the physical appearance of Rooms, Look and feel and ambience of the hotel reception. Simple processes.  
  2.      Digitise end to end interface.  Customer can find hotel rooms on OYO App and accordingly best deal can connect them to OYO rooms. 
  3.       .  Marketing OYO concept through various channels of marketing. 
  4.         Asset Light Model.  
  5.   .     Invested in infrastructure and manuals.

I am expecting that by the end of 2019  OYO will have more than 10 billion valuations and one of the fasted growing hotel chains without owning a single hotel. OYO is now UNICORN.  

OYO will be the biggest hotel chain, more than 10 billion valuations by 2019 and by then Founder will have a 5% or more stake in the company, and still, they will have handsome money in hand.  But do you think that money will make Founder happy after creating such a large valuable empire? No, after certain time money for an individual matter only matter, and passion and fashion become the brain ride. Social status and sentiments with the company make them more connected. Ritesh Agarwal is still young, so I will suggest him to do not rush to expand business amid greed by funding.  You are coming under the trap of funding.  By 2020 when OYO will have more than 10 billion USD valuation.  no doubt by then Founder will have 5% stake, but that will have worth more than expectations. But, then VC funds will have direct control and maybe time will tell whether you will be minority regards to stakeholding. 

I am not sticking to 5% will be his stake in the company, maybe he can find some financial institutes who can finance him, this way he can grow his stake up to 30% or more by infusing debts. But it depends on the strength of the brand that time. No one can predict the future, but things go accordingly. 

PAYTM:   PAYTM  one of the brainchild of Vijay Shekhar, an One97  communications brand. So far raised USD 1.7 billion funds from various VC funds and currently valued at USD 7 billion. Here we can see the valuation matrix how it went from scratch to sky just after demonetisation.  In only two year growth is more than three times.  A big investor like Alibaba is playing a major role where they are going to have a total controls in the next five year. Things are changing dramatically, but why.  You need to think that Paytm is working in India where more than 100 crores population reside. So we should not feel so astonished because this is just 30% of the population is using online mode of payments/ transactions so think when these numbers grow to 50% or more.  Don't you believe Paytm will have more than USD 20 Billion valuations if users grow at the end of year 2019. 

My predictions for Paytm :   Valuaton will be USD 16-20 billion by 2019-20.
Will have more than 70% stake by the Investors.  

I am quite confident that Vijay Shekhar will be quite lucky to have more than 20% stake even after reaching to a stagnant position or saturation.

Above two examples is enough to acknowledge my write up. 

Another big example is going to set by the Sachin Bansal and Binny Bansal,  I think the way company “ Flipkart” is losing financials on year on year basis and the way infusion of money is coming from investors, both will have below 10% stake in the company in coming two or three year. 

Any way,  at a sudden flood of investment coming from various VC, Angel and seed capitalists and their aim is to build a virtual valuation over some time so that they can sale their stake at higher valuation level and reached to unicorn club.  This is just a myth that Indian companies are going aggressive in terms of business.  Not actually it is going, but part of valuation fact is  where there is no business viability seen even beyond five years, an ideal benchmark for getting any business sustainable. 

I think technology is going to drive the next level of business scenarios.  India is full of opportunities where the retail sector is getting better shape day after day.   As per the unorganised data Retail will have more than USD 1 Trillion market by 2020  

Let's talk about startups which are active in Retail sectors, and I will say retail players who are driving organised trade in Kirana the Grocery market.  Let's have a look who are the big players as on date.

Retail players in B2C in India :  National Level players.  Lots of companies are there in India who are operating Kirana retail at regional level so about them I will write later. 

Physical formats: 
1. Reliance fresh
2. D-mart
3. Future Group  Big Bazar and Easyday
4. More 
5. On Door  ( MP based )
6. Vishal Mart

I bag pardon from retail companies whose name was escaped while writing the name in above list.  Here D- Mart is seen growing in a great way, seems they are targeting an IPO in coming years. As regards to Reliance Fresh, they are useful at making turnover, but still, profit is a little bit far away.   Here I am sure that Reliance will go for raise money from foreign investors for strengthing their Retail business,  here they will not use their own money. Either they will go for raise money from IPO or from Venture capital or PE firms.

Now,  will talk about  Future group of Kishore Biyani.   Here Future group has more than 7000 crore annual revenue from all formats. As per March 2016 Financials ( Rs. 6844.96 Crore) Kirana contributes approximately 40% of total income, rest comes from fashion and food stores.  After many years in the market still struggling to get sustainability. Mr Kishore Biyani is well known and great artiest of Retail, even who is facing issues so what is left for else.

No doubt, I have same feeling for Kishore Biyani, this group has ample debts in books which can not be paid until someone infuse money in a strategic tie-ups. I think, there are only two giants in space , one is Amazon and other is Reliance. I am sure Future group will have great acquisition by either one.

It seems that Indian entrepreneurs have some born mindset that they will be exit from the business once they will reach to a certain valuation, even plan is preset at the time of starting venture that what will be the exit plan. What does it mean, business should be on going process so, when founders are in such thought that they will take a exit at certain time or certain point it means that are not sure about the concept and business workability, scalability.  All are going just for changing the hats.

On the other hand eB2C players like Amazon is going to deepen their roots in the ecosystem. They are trying to establish a network of micro stores through will they can feed hyperlocal need, this will make them competitive. Omnichannel is the next future for eB2C.  

On the other hand,  Big overseas players like Walmart, Metro are investing heavily in creating infrastructure and passionately going to acquire an existing business platform where they can feel appropriate box for their upcoming ground-level strategies. Mind-blowing things are going to happen. Thailand based LOTS ( CP Wholesale ) is also planning to come India. 

Now the retail market is so vast which need separate stream for writing about it in a whole story or page, so I am feeling the same while writing down about developments in India retail , so things are little bit going in trenches for me to make an index of Indian Kirana Retail.

  • In this view I am going to categories Indian Retail Market as under :
  • ·         Hyper Market   ( Big Bazar, Dmart, Hypercity etc.)
  • ·         SuperStore       ( Easyday, Reliance Fresh, More)
  • ·         Hyper-Local      (Regional level players, earlier grofers were doing this)
  • ·         Last Mile Connectivity Connector  ( Retailers for few b2b retailers like Shopkirana & Storeking)
  • ·         B2B Retail formats ( Storeking, Shopkirana, Urbanladder, & Jambotail)
  • ·         Ecommerce web-based and App  based  ( Amazon, Snapdeal, Grofers )
  • ·         Direct Marketing   ( very few like Amway, Evon etc.)
  • ·         Simply Grocers  ( Pure Staples like local kirana)
  • ·         Retailers, Mom & Pop , Bricks & Motar , Conventional Stores.  ( 12 Million Stores )
  • ·         Discount Masters  ( Mostly in garments and mix products )
  • ·         Category Killers  ( Not in India)
  • ·         Kiosk.   ( Mostly in Electronics, Beverages) 

My more focus is on point no. 9   Indian Kirana Stores  ( Mom and Pop stores).  I will have more things to write on Indian Kirana.

Retail is detail, so there is endless ink to give a perfect write up.

Writer: Balwant Singh Rana

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