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So you think you can become a co-founder? 👩‍💻

Startups have found their ultimate retention hack

This is edition 325 of Beyond The First Order, a premium daily newsletter that demystifies the hidden models, incentives and consequences of the most significant events across India and Southeast Asia

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Good morning,

It is a relief to be given a fresh lease of life. For India’s small finance banks, that came in the form of a new relief from a rigid rule that the banking regulator did away with. For IPO-bound consumer payments company Mobikwik, it’s in the form of a Buy Now Pay Later company.
For startups, that can be in the form of co-founders. 

On the other hand, social media is giving Indonesian startups such as IPO-bound Bukalapak a not-so-legal boost.

Born again companies and their co-founders

The war for talent is raging at both ends of India’s overheated tech ecosystem. At the entry and middle levels, startups are vying with each other to poach the best engineering and product talent, no matter the cost (cash and equity). Techcrunch’s Manish Singh gave a ringside view of this mad scramble last week.

At the other end, at the C-suite level, companies are figuring out how to retain senior leaders who’ve been with them for years. Beyond a point, money doesn’t work. A fancier title loses its luster in a few years. Equity is dandy, but rivals offer it too.

What do companies offer senior leaders who have everything? Something that is rare, enviable, and hard for a rival to offer. 

A co-founder title.

Swiggy, one of India’s two foodtech unicorns, elevated Phani Kishan, its VP of Strategy, to “co-founder” yesterday.

Kishan joined Swiggy just a year after the company was founded by Sriharsha Majety, Nandan Reddy, and Rahul Jaimini in 2014. So he is an old-timer (in accelerated startup timeframes). 

But not a co-founder, at least in the traditional sense of the term.


verb: to join one or more others in founding (something, such as an organization or institution) : to found (something) jointly”

But Swiggy is merely a late entrant into the club of companies that have expanded their co-founder pools over years. Its arch-rival Zomato is a pastmaster. 

Giving out co-founder titles is the startup equivalent of name partner titles at law firms. Not everyone gets one. 

But it also runs the risk of muddling the meaning of the word. For instance, if someone joined a 13-year-old company in its 10th year, could that person have “co-founded” it? 

Of course not, if you go by the English definition. But if you go by the company’s (and its original founders’) perspective, anyone who has done a stellar job is growing the company has, in effect, contributed to “founding” it. Or at least, re-founding it.

The corporate version of being “born again.”

It doesn’t always work though. For instance, ride-hailing giant Ola elevated Pranay Jivrajka to “founding partner” in 2017, but Jivrajka still left the firm this year.

Conversely, it doesn’t always require a co-founder title to do a better job than perhaps even the co-founders. Case in point: Flipkart CEO Kalyan Krishnamurthy.

Flipkart said on Monday it has raised $3.6 billion at a post-money valuation of $37.6 billion in what is considered as the pre-IPO round for the Indian e-commerce conglomerate as it works to list in the public markets as soon as early next year.
The new round of funding — by far the largest for any Indian startup — was led by GIC, Canada Pension Plan Investment Board (CPP Investments), SoftBank Vision Fund 2 and Walmart, along with investments from sovereign funds DisruptAD, Qatar Investment Authority, Khazanah Nasional Berhad, Tencent, Willoughby Capital, Antara Capital, Franklin Templeton and Tiger Global.
The Monday investment marks the return of SoftBank as a shareholder of Flipkart. SoftBank had taken the exit from the startup when the Bangalore-based firm sold majority stakes to Walmart in 2018 at a valuation of $22 billion.
“At Flipkart, we are committed to transforming the consumer internet ecosystem in India and providing consumers access and value. This investment by leading global investors reflects the promise of digital commerce in India and their belief in Flipkart’s capabilities to maximise this potential for all stakeholders,” said Kalyan Krishnamurthy, Chief Executive Officer at Flipkart Group, in a statement.

Mobikwik bets its money on Buy Now Pay Later

The latest to throw its hat in the IPO ring is payments company Mobikwik, which filed its IPO prospectus yesterday, ahead of its larger competitor Paytm*. It laid out its plans to raise Rs 1,900 crore (US$254 million) via its IPO, through both a fresh issue of shares and an offer for sale. 

The consumer payments company has positioned itself as one of the largest Buy Now Pay Later (BNPL) companies in India with its product MobikWik Zip. According to the prospectus:

MobiKwik Zip is an interest-free product with a ₹ 500 to ₹ 30,000 credit limit available in the user’s MobiKwik Wallet with a one tap activation in 15-day cycles. At the end of the cycle, a user is required to pay the due amount within five days, failing which a late fees is charged. The user also pays a one-time activation fee.

As of March 31, 2021, it said it processed BNPL transactions worth nearly Rs 300 crore (US$40.2 million) and 22.25 million users had been pre-approved for MobiKwik Zip . 

Its revenue from operations fell 18% in the year ended March 2021 to Rs 288.5 crore. Of that, it made 20% via the BNPL segment. Its losses were up 11% to Rs 111 crore (US$14.8 million). It’s a segment that is yet to show what it can do for Mobikwik; it proved to be considerably expensive for the company. 

Our agreements with lending partners require us to provide a cash collateral, which ranges typically around 5% and 15% of the total credit disbursed by them through our platform.

It expects to use a part of the IPO proceeds to foot the collateral bill. On top of that, it also had to set aside provisioning for expected credit losses (ECL) on account of people defaulting on payments.

Increase in unemployment and heightened job insecurity, resulting in failure of our users to fulfil their payment obligations in relation to the BNPL credit availed by them. Provisions for ECL as a percentage of MobiKwik Zip GMV increased from 1.89% in Fiscal 2020 to 5.25% in Fiscal 2021.

It won’t be easy, though. The RBI still hasn’t approved BNPL as a use case over India’s real time payments system, the Unified Payments Interface. Here, credit can be disbursed to wallets, letting users spend the money through UPI. 

*Paytm founder Vijay Shekhar Sharma is an investor in The Ken

The buzz for Bukalapak’s IPO is raising all kinds of legal questions

Indonesia is going IPO mad after e-commerce company Bukalapak announced plans to raise US$1.1 billion in what would be a record IPO for the country.

The company has reportedly already secured its sales target based on a day of prospecting. You’d imagine that statement of intent coupled with national pride would be enough, but it looks like Indonesia’s infamous ‘buzzers’ are hyping the event up… and skirting the boundaries of what may be legal.

Buzzers—aka social media accounts paid to spread narratives—are frequently seen around political events in Indonesia, and companies use them to promote stuff on social media all the time. But evidence suggest they’re now also being used to spread hashtags like #BeliBuka, or buy Bukalapak.

Twitter user Ahmad Rifai dug into the tweets and found many came from newly-created accounts or used similar wording. Those are two hallmarks of buzzers, not to mention indicators of fake accounts—which also violates Twitter’s policies.

Tweets sent to new accounts with a handful of followers seems innocuous, but it’s exactly the type of activity that can help a hashtag trend, and that’s exactly what happened.

It’s not clear where the campaign originated from, but it would be against regulation for a company headed to public markets to advertise itself in this way. Brokerages and media houses do issue buy/avoid recommendations on stocks, but companies themselves aren’t allowed to promote themselves this way, at least without a disclaimer.

This is very much a new phenomenon in Indonesia but one to watch. Not only are a stampede of listings expected to follow Bukalapak’s IPO, but Indonesia’s audience of stock market buyers increasingly overlaps with social media, as The Ken wrote in February.

Small bank’s big gains

Among the top ten gainers on the Bombay Stock Exchange yesterday were holding companies of two small finance banks. Equitas Holdings and Ujjivan Financial Services, were both up about 20% in the intra-day trade on Monday. It was a moment these banks have been waiting for since at least 2018. 

Small Finance Banks (SFB) are special banks set up by the banking regulator in 2015 meant to take banking services to the nook and cranny of the country. Essentially, to cater to “small” customers. But they came with a heap of restrictions from regulator Reserve Bank of India (RBI) on how they can conduct business. 

Among them was the rule that SFB promoters need to own at least 40% of the bank. But most promoters didn’t have that kind of shareholding. So, they set up a holding company as the designated promoter, while the bank remained the operating company. They did this with the hope that RBI would eventually allow the merger of the two entities. But the regulator held back on granting this reprieve. 

This has been a thorn holding back the valuations of at least seven small finance banks. 

Currently, holding companies of Equitas & Ujjivan Bank are trading at 35%/43% discount to their fair value. For Equitas Holdings, the trading discount since listing has been the range of ~24%-54% while for Ujjivan Financial Services, the holding discount has been in the range of 33%-57%, Motilal Oswal said.

RBI’s inflexibility about this rule turned hopeful entrants away from even applying for a small finance bank licence, which we wrote about in May.

With banks like Equitas and Ujjivan listing both entities, shares of the promoter group holding company trade at a valuation discount to the operating entity. So, that impacts the original shareholder value at the holding company. “There is a need to reimagine this structure,” said Manoj Nambiar, managing director of Kolkata-based NBFC-MFI Arohan Financial Services.

So reimagine, RBI did. Or atleast began to. 

The RBI waved its regulatory wand on Saturday and granted the reverse merger to Equitas and Ujjivan so that the holding company could merge with the bank subsidiary. But, this is only one knot untangled. There’s still a few more to go to help these banks overcome their design flaws. 

Stay safe.

[email protected]

Update: The graphic in the piece ‘ Born again companies and their co-founders’ was replaced to correct that Akshay Ghulati was part of Shiprocket and not Shadowfax. We regret the error.

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