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2017 In Review: The King, The KingMaker And The ‘Scandal’

2017 In Review: The King, The KingMaker And The ‘Scandal’

The Year Witnessed Huge Correction As The Funding-To-Startup Ratio Goes Up

This article is part of Inc42’s Year-End Stories for 2017 where we’ll highlight the major developments, issues, controversies of 2017 and their impact on the Indian startup ecosystem. Find all the stories of this series here.

“You don’t learn to walk by following rules. You learn by doing, and by falling over.”

― Richard Branson

The year gone-by, if brought some correction measures in the Indian startup ecosystem, new platforms, new verticals, new investments and big exits ultimately appeared to have set the tone for 2018 — “It doesn’t matter where you came from. all that matters is where you are going.”

This year marked the increasing significance of startup ecosystem among the various state and central governments. Karnataka, Kerala, Rajasthan, Maharashtra, Andhra Pradesh, Telangana, Tamil Nadu and Punjab are some of the states which announced a number of pro-startup policies to lure startuppers and entrepreneurs.

Leading the policies from the front, the Indian government introduced GST enacting a historical tax reform bill. This year, the government released $15.6 Mn funding to SIDBI under fund of funds. Though the amount is significantly lower than $78.4 Mn released for 2015-2016. The government also informed that 75 startups have successfully raised a cumulative funding of $52 Mn.

The Karnataka government, out of 1700 applications it received, shortlisted 112 startups for the state-sponsored Elevate 100 incubation programme.

The newest state in the country, Telangana is hyperactive in nurturing the startup ecosystem. Besides the T-Hub activities, the state government created a draft policy on electric vehicles. Which only Karnataka has done so far. Telangana also announced the launch of an early-stage fund for entrepreneurs looking to establish their startup in the state.

Adding merely 1K startups this year compared to 6K in 2016, the Indian tech startups raised $11.3 Bn in funding, significantly higher than the last year’s $4.9 Bn.

Big investment. Big story. A major chunk of investments of around $5 Bn was pumped by Masayoshi Son’s Softbank/Vision Fund alone. Another interesting thing here is this that the top 5 startups took away the $7 Bn funding.

If Paytm Chief Vijay Shekhar Sharma, Softbank’s Masayoshi Son and StayZilla and Snapdeal are the King, Kingmaker and notable fallouts for the year respectively, Flipkart, in a major breakthrough established itself as a serious contender against Amazon India.

SoftBank: The KingMaker

Why to be a king when you can be a kingmaker! The king sits on throne, the kingmaker is the power behind the throne. – A Proverb

In 2017, with approx. $5 Bn investments in the Indian startups, SoftBank emerged as the biggest stakeholder as well as the ultimate kingmaker of Indian ecommerce ecosystem.

On May 18, Inc42 had reported that Paytm had raised $1.4 Bn funding from SoftBank Group. The investment was done in Paytm’s parent company One97 Communications. With this move, SoftBank joined Alibaba Group as a major shareholder and a seat on the Paytm board.

However, all was not going well for SoftBank. The company reported a whopping $1.4 Bn loss on two major investments in India, Snapdeal and Ola.

SoftBank then vouched for a merger of tumbling Snapdeal with Flipkart. However, in August, chopping off the snapdeal legs, SoftBank invested around $2.5 Bn in its biggest competitor Flipkart, after Snapdeal board decided to go solo, and refused Flipkart’s proposal of $900 Mn merger deal.

Counting big on its largest investments in India, precisely on Flipkart, and Paytm. “Flipkart, India’s number one e-retailer has 60% share in the domestic ecommerce market and is bigger than Amazon India. It is very difficult to see someone who is bigger than Amazon,” commented SoftBank Chief Masayoshi Son while speaking to reporters in Japan, recently.

Meanwhile, SoftBank has solidified its position in the Indian ecommerce and cab aggregator space, and the investor is reportedly in talks of investing $200 Mn-$250 Mn in a foodtech startup, Swiggy.

Unfazed by broken deals in 2017, SoftBank has set the tone for 2018 by winning Uber’s 15% stakes at its own terms.

Earlier this year, the Japanese investment firm had selected Indian-born Rajeev Misra, CEO, SoftBank Investment Advisors to be included in the next-formed Board of Members. Misra also heads $100 Bn tech-focussed Vision Fund that SoftBank launched in January 2017.

The King, The Rook And The Horse

“Even the laziest king flees wildly in the face of a double check.”

– Aron Nimzowitsch

Amid potential challenge from Amazon, Flipkart may not be the undisputed king of India’s ecommerce market; however, with over $4 Bn investments raised from Microsoft and SoftBank, Flipkart raised enough funding to take on Amazon beyond Indian turf. Earlier this year, Flipkart had acquired ebay India to enable its access to global market.

What Infosys did to Indian IT sector, Flipkart has successfully done to Indian startups. Ex-flipkartians have so founded over 207 startups. Inc42 did a detailed reporting on taking the Flipkart Mafia’s strength to a massive 250+ startups.

However, Flipkart, like Infosys could never get in peace with its CEOs. On January 9, Flipkart announced a change in its organisation structure with Binny Bansal stepping down from his position of company CEO. Kalyan Krishnamurthy, earlier heading the Category Design Organisation became the new CEO of Flipkart. With this, several other structural changes were also announced.

WIth huge cash in its kitty, Flipkart announced a host of initiatives expanding its boundaries and strengthening its own ecosystem against its rival Amazon. Some of the initiatives are:

The Horse: Paytm

“When you see a good move, look for a better one”

― Emanuel Lasker

In an AMA with Inc42, Paytm founder and CEO Vijay Shekhar while asked about who does he consider as his competitor, clarified that the time to compete with others is almost over; it’s time to strengthen ecosystem. Out of three existing ecosystems, Paytm powered by Alibaba and SoftBank is one large ecosystem in itself.

Like a Horse’s move in Chess which is two-and-half blocks anywhere regardless of any player that comes in between, Paytm, this year, launched and bolstered a plethora of initiatives which include steps towards global domination, movie/event tickets booking, hotel booking, launching Paytm Mall and most importantly launching Paytm Payments Bank.

Like the ‘Horse,’ Paytm didn’t really need to pay a serious attention to compete with other leading players in every space separately but the company’s motto was to plug in other facilities at Paytm platform to expand its reach as well as its offering to its customers.

Once regarded as a ‘demonetisation’ bubble, Paytm has recently joined the UPI-gang of Flipkart, Amazon, Uber, Ola and other players to cement its genext solutions. The company recently also announced to launch an accelerator to keep up its ecosystem requirements, as it has expanded its horizon from Hong Kong to Canada.

The Rook: Ola

Despite having written a significant part of its Ola investments off by SoftBank, Ola continued its innovative ride throughout the year. The largest cab-hailing platform in the country added a number of other hailing services such as cycles and auto.

As expressed by the lead investor Masayoshi Son, this year, Ola launched a series of go green initiatives.

  • In May, the cab aggregator rolled out over 200 electric vehicles (Mahindra e2o) and multi-modal charging platforms as part of its green pilot project.
  • In November, Ola partnered with petroleum giant Indian Oil to launch EV charging platforms at with their fuel stations in Nagpur.
  • Besides Mahindra, the company has also reportedly partnered with Tata Motors to roll out Nano EVs in Delhi/NCR.
  • The cab-aggregator then also went on to introduce yet another new mode of transportation for its users — Ola Pedal. As the name suggests, Ola Pedal is a bicycle sharing service and comes in handy for short journeys allowing users to complete the final leg of their journey within the large college and office campuses.

The Player: Amazon India

“The winner of the game is the player who makes the next-to-last mistake.”

– Savielly Tartakower

SoftBank having Pawns, to King to its side, has tried to command and dictate the Indian startup ecosystem many times this year. Sometimes succeeded (Uber investments to its credit), sometimes failed, as in the case of Snapdeal.

However, besides SoftBank, Indian Startup ecosystem marked numerous players who played solo and rocked their ecosystem.

Amid rising competition from SoftBank investments, Amazon prioritised its position in the Indian market, doubled its authorised capital to $4.74 Bn (INR 31,000 Cr), matching its earlier capital commitment of $5 Bn made in June last year.

Received wallet license from RBI in April, Amazon India launched UPI-enabled Amazon Pay to counter Flipkart’s PhonePe. Besides Amazon Now, a food grocery online marketplace, with Amazon Pay, Amazon has extended its reach to booking movie tickets and ordering food online.

In July, Amazon also got the government’s nod to invest $500 Mn in food retail business in India. The proposal stated that the company would open a wholly-owned subsidiary in India to carry out the business. Post-DIPP approval, Amazon would now stock locally produced food items and sell them online.

In October, the company announced the launch of its global products Amazon Echo and Alexa into Indian market too. The smart, wireless speaker, Echo is powered by its AI enabled virtual assistant Alexa. Alexa, is now being deployed by a number of Indian AI startups.

The ‘Uber’ Player

This year, Uber has been in media throughout the year for all controversial reasons. The first half rocked the company inside and outside owing to the increasing ‘Weinstein effect’ in the company.

Finally, in June 2017, Travis Kalanick, cofounder and CEO of Uber was forced to resign amid mounting allegations of workplace culture and sexual harassment rampant at Uber, which he was accused of having done little to stop. Due to prior sexual harassment allegations, Amit Singhal, SVP of Uber was also forced to leave the company this year within a month of his joining.

Back in India, the company was sued by a woman who was raped by an Uber cab driver in Delhi in 2014 for illegally accessing her medical records.

If the first half was the period of ‘Uber controversies’, the second half was the period of surrounding SoftBank and Uber’s negotiations. While the speculations kept circling round and round over the stakes, valuation and after effects, as the year ends so do the speculations.

SoftBank the Japanese conglomerate, has reached a deal to invest more than $7 Bn in Uber for a 15% stake in the ride-hailing startup. The overall transaction is expected to close in January, reported CNN.

This year, among the Uber India launches, were UberEats in Mumbai, Uber Business Solutions Central, UberPass, Uber Access, Uber Assist and its tech support centres in Hyderabad and Bengaluru.

The Fallen

“You may learn much more from a game you lose than from a game you win. You will have to lose hundreds of games before becoming a good player.” – José Raúl Capablanca

The startups whose names at the beginning of the year were taken with great pride are now reduced to fallen heroes by the year-end. Snapdeal and Stayzilla are the two that witnessed the rise, and now appears simply shrivelled up.

2017, marked a huge decline in the market demands resulting in the fall of many startups, leading with ecommerce startups, 42% of the startups could not survive the market pressure and funding dearth.

Online furniture startup Fabfurnish, hotel aggregator Stayzilla that once had access to 40,000 properties across 4500 cities, handicraft marketplace shopo are some of the startups that, despite having raised the initial fundings’ had to pull down the shutter this year.

Read more about the startups that fell into the startup death valley this year.

The Rising Sex Scandals

“With a bit more hindsight, I think Trump was bothered by me not necessarily because I’m a woman but because I’m a woman with power.” Megyn Kelly, Settle For More

Roger Ailes had long gone before 2017, as the mischievous Fox and Friends chief; however, the Ailes’ effect was very much alive with Megyn Kelly having revived the Trump, as an Ailes alter-ego. Megyn Kelly, in her book, ‘Settle For More’ had revealed the psychopathic mindset of the Trump’s campaign, as Trump’s attorney Michael Cohen had once retweeted, “We can gut her.”

Along with Megyn Kelly, around 10 Fox women had so far accused Ailes of sexual harassments. However, the Ailes and Trump scandals were soon bulldozed by the ‘award-winning’ producer Weinstein. In a report by The New York Times later seconded by USA Today, over 100 women accused Weinstein of sexual harassments for almost three decades.

The report cemented the foundation of worldwide outrage as #MeToo campaign with women participating from every field. And, TIME magazine selected #MeToo campaign as the person of the Year, a place which Trump tweeted was offered to him.

It is often said that India and the US draw inspirations from each other.

Soon, Indian startup ecosystem where the startups do not seem to be fully prepared to take on the counter-effects such scandals may create, got plagued by the Weinstein effect.

On March 14, over nine women accused TVF founder Arunabh Kumar of sexual harassments. To which Arunabh’s response was shockingly ill-thought, “I am a heterosexual, single man and when I find a woman sexy, I tell her she’s sexy – but this is only done in my personal capacity. I compliment women in my personal space and not at the workplace. Is that wrong? Is every man, whose compliment a woman doesn’t like, a molester.”

On March 16, Inc42 reported a third party police complaint filed requesting an FIR against the TVF boss, Arunabh Kumar for indulging into various “willful, criminal, vulgar and continuous acts of sexual harassment at workplace”. The complaint was filed by lawyer Rizwan Siddiquee.

Hours after reports surfaced that the Mumbai police was likely to close the probe into the Arunabh Kumar sexual harassment row  as no survivor came forward to lodge a complaint, the tables seemed to have turned on him.

However, an FIR was later filed against Kumar under sections 354 A (causing sexual harassment) and 509 (insult the modesty of a woman by indecent words, gesture or acts) of the Indian Penal Code at the MIDC police station in Mumbai’s Andheri East suburb. The complaint has been filed on the basis of one woman coming forward.

Post FIR, Dhawal Gusain replaced Arunabh as the CEO of the digital media company. It should be noted that the case is still under jurisdiction.

After TVF, a former employee of Delhi-based Internet media and news startup, ScoopWhoop reportedly accused cofounder Suparn Pandey of sexual harassment and sexual assault during her 2-year-tenure at the company. However, later in follow up exclusive report by Inc42, the news was found planted by some former employee.

In Other News The year marked the merger of one of the most talked Indian startups with PropTiger. As part of the transaction, PropTiger’s eventual investor REA Group Limited invested $50 Mn in the joint entity with an affiliate of SoftBank Group pumping in another $5 Mn.

MMT Acquisition: MakeMyTrip completed the merger of its Indian travel business with Naspers-owned Ibibo group, which was announced last October. Towards this, the Ibibo Group parent has contributed around $82.8 Mn cash to MakeMyTrip. A few months later, Ibibo CEO Ashish Kashyap quit the company.

Zomato On The Verge Of Profitability: On April 6, nine-year-old foodtech startup Zomato released a short form unaudited annual report for FY2017. The numbers came as a surprise since the restaurant discovery and food ordering platform was scaling back operations, trimming workforce, and facing valuation markdown until last year.

Despite the profitability, Zomato witnessed an increasing competition from other foodtech platforms Swiggy, Foodpanda and UberEats. On November 15, the company launched its international paid subscription programme Zomato Gold In India.

ISPIRT Cremated Sudham: Indian software products think tank iSPIRT revealed that ‘Sudham’ – the alleged programme sanctioned by the organisation to troll anti-Aadhaar activists has been dissolved. iSPIRT founder Sharad Sharma disclosed the development in an official statement.

Also, in the aftermath of this controversy, key iSPIRT members are said to be distancing themselves from the organisation.

Unfollowing the Masayoshi’s bulldozing way of making investments, Younger brother Taizo Son launched ‘Gastrotope’, an accelerator platform in association with tech accelerator, GSF India and Indo-Japan business consultancy firm, Infobridge. For Mistletoe, the initiative aimed to step up from its investment-only-model to help integrate the entire AgriFood startup ecosystem, enabling startups to face challenges at multiple layers.

What is the road ahead for 2018?

Of course, as stated by SoftBank’s Rajeev Misra, one can now expect a greater peace between Ola and Uber India. And, this might even turn into some collaboration between the two.

However, a bigger fight between Amazon India and Flipkart remains on the cards. 2018 will be the year when a host of initiatives from both the companies are to be rolled out. For instance, Amazon India has already announced its plans to launch Prime Music. The company has also planned to increase Amazon Pay’s acceptability beyond Amazon.

Hence more collaborations with foodtech and other merchants, dealers and service providers is awaiting. Flipkart, on the other hand, will relaunch some of its previous services with better planning. Flipkart First, grocery marketplace, foraying into the global markets are part of its 2018 grand plan.

Another interesting development is happening in the area of food delivery and grocery marketplace. While Foodpanda, acquired by Ola will be back in the game with a different strategy, Swiggy has already raised hefty funding as a war chest to take on Zomato. UberEats is also set to enter the other cities as well. The question that pops up is that will Zomato be able to keep up the lead?

Future Group Chief Kishore has already announced the launch Tathastu grocery marketplace with stores within 1-2 kilometres of reach of everyone in most of the cities in the country. 2018 will mark the implementation of the grand plan. Currently, Future group’s big bazaar has collaborated with Amazon, where Amazon Now acts as the online marketplace.

In 2018, again, all eyes will continue to be on Paytm, besides more ML and AI integration to the Paytm platform, what will be the next market segment, next territory for Paytm to foray into?

Meanwhile, the Fallen, Snapdeal, still doing business with increased revenue, can’t be written off. Fighting a number of lawsuits, the ecommerce company has further fueled its investments in home logistics firm Vulcan. Will 2018 mark the rise of the fallen? Well, the time will tell!

In the game of startups, as in chess, more-often it’s the forethought that wins. Forethought that includes most of the ifs and buts of the future markets. Only 2018 will reveal the preparedness and homework of all these startups!

However, no forethoughts at the NYE! It’s time to bid goodbye to 2017 and jazz up for 2018. Happy New Year!

Well, this was our last article of 2017 in Review series, you can Find all the stories of this series here.