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The Nutgraf : All rise. All rise. All rise


Last week was a fascinating one. And not just because of Valentine’s Day. Several things happened, and The Nutgraf is here to help you connect the dots. If someone forwarded this email to you, remember, you can sign up here. 

Let’s dive in. 

You be the judge

Of late, something strange has been happening in India. Things really escalated last week, however.  

I won’t tell you what. Let’s see if you can figure it out. To help, let me talk about three major events—all of which happened over the last week. 

WhatsApp gets dragged to the Supreme Court

If you recall, a couple of weeks ago, much like a kid begging his parents to let him attend a party, WhatsApp finally got permission to roll-out its United Payments Interface (UPI)-based payments product in India. The approval came from the Reserve Bank of India (RBI) and the National Payments Council of India (NPCI), an autonomous umbrella organisation that monitors and operates retail payments in India. 

I don’t have to tell you why this is a big deal. Except I already did.

Then last week, something weird happened.

A think tank called the Centre for Accountability and Systemic Change (CASC) filed an interim petition with the Supreme Court of India.

Here are its primary demands: 

  • Stop WhatsApp’s pilot trial—which currently has one million users.
  • Direct the RBI to put on record the permission granted for WhatsApp’s trial.
  • Disclose all communication between WhatsApp, the National Payments Corporation of India (NPCI), and itself.

As The Economic Times reported

CASC said that according to RBI’s affidavit to Supreme Court in November, WhatsApp had not yet fully complied with the rules.

“It is submitted that 1 million Indians cannot be reduced to guinea pigs. Their sensitive personal data, including financial data, cannot be stored outside India in contravention to the RBI Circular,” the application stated. 

Look, there’s a long way to go. And there’s no point in reading too much into a petition. 

But then, on Thursday…

The NPCI got another challenger. Maybe more.

If you remember, we wrote about the NPCI and its challenges a couple of years ago

And at the epicentre of this action stands the National Payments Corporation of India (NPCI)—a creature like no other. Like a mythical god with multiple faces or avatars, it is simultaneously one thing, many things, and nothing.

NPCI owns and operates all retail payments, including the Unified Payments Interface (UPI), an instantaneous payment network that helps send money to people the way we send emails. UPI is a one-of-a-kind system, with no precedents. It is the rails on top of which tech companies are building their own branded payments apps.

Depending on the time and context, NPCI is a competitor. It is a platform. It is a regulator. It is an industry association. It is a profitable non-profit. It is a rule maker. It is a judge. It is a bystander.

Also, the NPCI is controlled by the RBI. 

And last week, the RBI decided, just like parents occasionally do, that they were ready to have another baby. 


They floated a draft framework to invite bids from anyone if they’d like to set up another Umbrella Entity for retail payments. 

Basically another NPCI. 

But in the same week WhatsApp finally got approval for WhatsApp Pay? Coincidence? Perhaps. Even historically, the relationship between WhatsApp and NPCI has been…complicated

Then the next day…

Amazon tries to block an inquiry

Imagine you are the CEO of Amazon. You are about to visit India. Extensive PR plan. Big week planned. 

One day after your arrival, India’s antitrust regulator Competition Commission of India (CCI) announces an inquiry against your company over allegations of offering deep discounts, preferred listings, promotion of private labels, and exclusive partnerships with phone brands. 

Later that day, you commit to investing $1 billion into India to help small and medium businesses make money on Amazon.

In response, India’s Commerce Minister scoffs and ridicules you.

All your carefully planned PR has gone to hell. 

So, last week, the Empire struck back. The Economic Times reported: 

Amazon on Monday filed a petition in the Karnataka High Court to “quash” the investigation ordered by India’s competition watchdog into alleged malpractices by the online marketplace.

The American company also sought an interim stay on the probe ordered by Competition Commission of India (CCI) last month while its petition is heard by the court. In its submission, Amazon claimed that CCI’s order would cause irreparable damage and loss to its goodwill.

Legal experts termed Amazon’s move challenging the premise of the CCI order as “an aggressive defence.”

Look I don’t have to tell you how bizarre this is. To sue the very entity that is currently investigating you is a bit… extreme. 

Anyway, the CCI responded. And in style. The counsel for the CCI, Harish Narasappa, said that Amazon’s arguments were like building a “fantastic castle”. In addition, the counsel for the Delhi Vyapar Mahasangh (DVM), another party in the case representing the interests of the sellers, said that the relationship between Amazon and its preferred sellers like Appario and Cloudtail were like the “tentacles of the octopus”. 

Fine arguments, except, late in the day, the Karnataka High Court ruled in favour of Amazon and Flipkart and passed an interim stay order.


The Supreme Court becomes a school principal

Things went kinda crazy at the Supreme Court yesterday. 

Remember Airtel and Vodafone Idea? Here’s what we wrote earlier:

The Supreme Court rejected pleas by Vodafone Idea, Bharti Airtel and Tata Teleservices to review the October 24 verdict that widened the definition of adjusted gross revenue (AGR), leaving the three telcos collectively facing more than Rs 1.02 lakh crore in additional licence fees, spectrum usage charges (SUC), penalties and interest.

Analysts and industry executives said Vodafone Idea and Bharti Airtel are likely to file curative petitions, besides applying to the court for more time to make the payments—a combined Rs 89,000 crore for the two.

Yesterday, when the Supreme Court found out that no payment had yet been made, it struck down on Airtel and Vodafone with great vengeance and furious anger.

Unhappy with the non-compliance, the Supreme Court said its “conscience has been shaken”, and has asked the directors of telecom companies to explain why contempt action should not be taken against them.

Justice Arun Mishra had this to say, including a suggestion that if nobody listened to the Supreme Court, why have the Supreme Court at all. 

“We don’t know who is creating this nonsense, is there no law left in country,” 

“If a desk officer has the audacity to stay Supreme Court order, then let’s wind up the Supreme Court.”

Later in the day at around 5 PM, the Department of Telecommunications ordered both Airtel and Vodafone Idea to make the complete payment by midnight. 

Shares of Vodafone Idea plunged by 25%

I think we are in duopoly territory.

Let’s rewind: 

  • A tiny think tank has gone to the Supreme Court to block a messaging platform that has as many users as India and Europe combined. 
  • One of the world’s mightiest companies has gone to a High Court in India to block the country’s antitrust body from investigating it. 
  • And in the middle of all this, the sole arbiter of one of the fastest-growing FinTech markets in the world is getting sidelined.
  • The highest court of the land overruled the government, the bureaucrats and the telecom companies and insisted that telcos pay up, pay up now…or else.

I think the real story is that the judiciary and regulators are getting dragged into areas they ideally shouldn’t be involved in. Either to solve old problems. Or to address new ones. By tiny organisations. By the world’s largest and most powerful companies. Sure, a lot has been written about judicial activism, but this is unprecedented. 

Nobody is happy, and increasingly, courts and other regulators are needed. 

Over to Rohin…

“Debt is coming”

Most startups need money. Lots of it. The more, the merrier. But most startups also lack profits; and some, even revenue models. 

Founders: “I want to swing for the fences. My product is so radical, and my market is so huge that it will take me 10 years to get there. 10 years of spending and losing a lot of money.”

Banks: “Call us when you discover profits?”

Venture capitalists: “That’s why we exist! Take our risk capital, FTW!”

Venture capital or equity financing is thus seen as the capital source de jure for innovation, growth, and ambition. Talented founders come together to start an ambitious startup, dilute equity to raise venture capital, plough it back in for growth, then dilute some more, raise some more, pump in some more, and so on. 

This cycle of raise, spend, raise, spend is the growth model de jure too.

Along the way, many startups fail. Some quietly and cheaply, some spectacularly and expensively. 

Venture capitalists, though, remain largely unfazed.

Alex Danco, former venture capitalist: “Here is a widely believed cause-and-effect relationship I bet you’ve never thought to invert before: because most startups fail, therefore equity is the best way to finance them. Have you ever considered: because equity is how we finance startups, therefore most startups fail? 

Meanwhile, back in the Indian startup ecosystem:

And as startups raise more debt, more debt funds are popping up, the biggest of which are Alteria Capital, Trifecta Capital, and InnoVen Capital. Alteria also raised $140 million last July.

Danco riffs off Carlota Perez’s book, ‘Technological Revolutions and Financial Capital’, to explain how the tech industry might be moving from a speculative and risky “installation period” to a relatively stable “deployment period” marked by abundance, maturity, and “peace dividends”. One where the new “factories” churn out users instead of cars.

“As this new model came together, the word “user” became the most important word in tech. People on the outside sometimes wonder why businesses with so few traditional assets seem to require so much financing. Well, they are accumulating assets: users are the new assets, and their use is what you’re out to monetize. Whatever your business model is, acquiring users is the new building factories. 

The overall bet may still be speculative, but the median VC dollar isn’t anymore. It’s buying customer acquisition and then financing service delivery. In plain sight, ever since the dot com crash, VCs have learned and applied the same lesson as GM and Ford years ago: the best way to make money isn’t making cars, it’s in financing them.””

And because the best startups know not just how to acquire users, but also how to monetise them, their future cash flows are starting to look more and more securitisable

When that happens, says Danco, later-stage VCs might find debt financing to be a formidable competitor. Which explains why many VCs counsel founders against relying too much on debt. Y Combinator’s Paul Graham called it a “delicious sandwich” that “occasionally explodes in your face.”

Is this what’s happening in India? Not yet. If anything, debt funds are still piggybacking on VC funds to identify who to lend to.

“Our target market are VC-backed companies which need some money for building products, marketing etc. So the fundamental thing we look for is who is the VC, how the founding team looks and what is the business plan. And then we assess the company’s ability to raise further capital,” said Ajay Hattangdi, the co-founder of Alteria Capital, to Inc 42

But beyond a certain scale, large startups will be able to raise debt on its own.

Last week cloud kitchen Goliath Rebel Foods raised $5M as pure debt. Last July, online groceries giant Big Basket raised $15M as pure debt.

“And when founders really get a taste of that credit? That sweet, sweet taste of dilution-free capital, flowing freely to and from a continuous growth vehicle, and learn the dark arts of securitization? And then when their competitors learn about it? It is game over for the old way.”

SoftBank, with its back to the wall

Once upon a time, everyone wanted to be SoftBank. Not these days though.

  • Online retailer Brandless, a company that wanted to sell everything for the oddly specific price of $3, laid off 90% of its staff and decided to shut down. Just two years ago, SoftBank had committed to invest $200 million in the company. Thankfully, SoftBank only disbursed $100 million out of that. 
  • Then came the news that Vision Fund 2, SoftBank’s planned $108 billion sequel to its original $108 billion hit, Vision Fund 1, was stuck on the ground. The WSJ reported the sequel would probably be less than half its intended size, with all of the money coming from SoftBank itself.
  • SoftBank’s quarterly profits plunged 99%, on account of Vision Fund losses.

I don’t know if Masayoshi Son is a stoic. I hope he is. Perhaps he is. This is the opening slide from SoftBank’s earnings deck.

The tide this week was a US federal judge rejecting an antitrust challenge to the takeover of its telecom subsidiary, Sprint, by T-Mobile. Sprint’s stock surged to a 7-month high.

Son should hope the tide lasts, because he’s now got an investor that relishes fickle tides—activist hedge fund Elliott Management. Elliott invested nearly $3 billion in SoftBank because it sees the company’s stock as undervalued. And one of the ways it wants to nudge that value up is by SoftBank spending as much as $20 billion on buying back its own shares.

Between fending off demands for $20 billion share buybacks; managing debt repayments to the Saudi’s for Vision Fund 1; a drastically scaled-down Vision Fund 2; and a constant stream of bad news about its portfolio companies, a better picture might be:

What we’re reading

Nine Lies About Work. Written by Marcus Buckingham (who also co-wrote one of my favourite management books, “Now Discover Your Strengths”) and Ashley Goodall, the book bills itself as a “freethinking leader’s guide to the real world.”

Nine clear chapters that aim to bust some of the most strongly held management and leadership philosophies of all time. Here, let me just show you the titles of the chapters:

That’s about it from this week. Have a great weekend.