"WEEK 25"
Happy Sunday folks! Vedica here with the weekly round-up today. We had a shorter week because of the Thanksgiving break here in the US, which has been a welcome respite from work for me. In addition to some start-up news, this past week we looked in more depth at WhiteHat Jr’s defamation suit against vocal critic Pradeep Poonia. And I had some thoughts to add on one of our reads of the week.
Weekly Recap:
Country Delight raises a $25M Series C led by Elevation Capital: Direct to Consumer Dairy Country Delight has raised $25M in a Series C round led by Elevation Capital (prev. SAIF Partners) with participation from existing investors Matrix Partners (led the B) & Orios Venture Partners (led the Seed). Country Delight works directly with farmers instead of delivering milk from large FMCG brands. As a result, the company has been able to control a larger part of the stack instead of just being responsible for warehousing and delivery.
Google is reportedly in talks to buy ShareChat: Google is allegedly in talks to buy ShareChat in a deal that would value the company at $1.03B. FWIW, in August ET also reported that ShareChat was in talks to raise $150-$200M in a new round which hasn't materialized yet. ShareChat has clearly benefitted greatly from the TikTok ban. While we can't really comment on retention numbers, the social media app has certainly seen an increase in downloads.
Cars24 raises $200M to become India's next unicorn: Online used car marketplace Cars24 has become India's newest unicorn as it announced its $200M Series E led by DST Global with participation from existing investors Exor Seeds, Moore Strategic Ventures and Unbound. The company operates on an asset-heavy model- buying cards on the behalf of dealers and then selling to consumers. They also recently launched a two-wheeler category that they plan to double down on.
Zerodha invests ₹10 Cr in ERPNext: Rainmatter, Zerodha's investment and incubation arm has invested ₹10 Cr in ERPNext - an open source enterprise resource planning system. The company's founder, Rushabh Mehta, founded the company to create a system to manage his family business and has turned it into an impressive ERP system.
WhiteHat Jr's founder files $2.6M defamation suit against critic
Ed-tech start-ups in India have probably been the biggest beneficiaries of the pandemic. Education is one thing Indian parents are willing to spend on, because it is a clear means to upward mobility, and because the Indian state's failure in education means parents often have to supplement their children's education. If anything, the pandemic has only widened the gap. With universities and schools closed, India's edtech sector has rushed in to fill the space, with millions of students going online and professionals seeking to upgrade existing skills or obtain new ones.
WhiteHat Jr is one of these massive ed-tech success stories. The Mumbai-based company helps kids aged 6 to 14 years build commercial-ready games, animations and apps online using the fundamentals of coding, all taught online. In August this year the company was acquired for $300M by Byju's the ed-tech behemoth, which is now valued at ~$12B. WhiteHat Jr had only been operational for 18 months at the time of the acquisition. Covid had given the business a big boost with the company reportedly growing 100% month-on-month in India and the US, with a revenue run rate of $150M.
WhiteHat Jr's success in such a short time frame is clearly impressive. But in the months following the acquisition, tech reporters and consumers have raised questions about some of the company's less savoury operating tactics. The company decided to go on an aggressive marketing spree with some eyebrow-raising TV and social media ads pushing coding classes for kids.
For example, the company’s ads use images of well-known tech CEOs like Bill Gates, Steve Jobs, Sundar Pichai etc., with the not-so-subtle messaging that coding is the way children can follow their footsteps. Messages aimed at parents on the company's website read: "Your kid will be on the next flight to Silicon Valley, USA". In October, the Advertising Standard Council of India (ASCI) asked the company to pull its advertisements because it made dubious and unsubstantiated claims.
Not only is the company's messaging false, its also distasteful in many cases. Still the fact is that the company has a ready audience of Type A parents who are willing to buy the dreams it is selling. That is unfortunate, but caveat emptor as they say.
More problematic is the company's willingness to combatively silence dissent. News outlets like The Ken, Morning Context and Forbes India, amongst others, have reported on how multiple people who have criticized the company’s campaigns and/or product have found their posts swiftly wiped off platforms like YouTube, Quora, Reddit, Twitter and LinkedIn on the grounds of ‘copyright infringement’.
It is this thin-skinned response to any criticism that has led to the company's founder, Karan Bajaj, filing a suit against one of the company's most vocal critics Pradeep Poonia. Poonia, an engineer, has publicly criticized the firm for its marketing tactics, the quality of its courses, and its aggressive takedowns of criticisms.
The details of the allegations are worth a read for background. In short, Bajaj is suing Poonia for copyright and trademark infrigement, defaming and spreading misleading information about the startup and its founder, and accessing the company’s private communications app. The lawsuit also accuses Poonia of publicly sharing phone numbers of WhiteHat Jr employees and making accusations such as likening the startup’s marketing tactics to “child sexual abuse.”
It's a messy case, and I'm not a lawyer so we will see how the Delhi High Court rules. I have seen Poonia's twitter account where he shared screenshots of WhiteHat Jr's internal slack channels, and felt uncomfortable that these were being shared without anonymizing the names of the company's employees. I think that might make not sit particularly well in the courts.
That said, WhiteHat Jr's behaviour has been pretty abominable. I think it's appalling that the company basically created a 12-year-old child named “Wolf Gupta” and claimed that the kid had landed a lucrative job at Google in its ads, going so far as to create a LinkedIn profile for him. There was no disclaimer that this child is a fictional character. It's only been in the defamation suit that the company has ironically admitted this, even though this was exactly Poonia's allegation all along.
Whatever the court's outcome, this whole affair has definitely taken a sheen off Indian ed-tech. A company's culture matters. We have seen that with the likes of Uber and WeWork. Growth is important, but growth at any cost isn't. In a country like India where there is an in-baked distrust of private companies in any case, investors, founders and employees would also do well to ask themselves if companies are actually helping change that perception or not. That is important for the ecosystem as a whole. The case of WhiteHat Jr isn't a good indicator.
What we've read this week
Do we really need Indian corporates in banking? by Raghuram Rajan and Viral Acharya
Embedded Education by Fake Pixels
Zappos CEO Tony Hseish's legacy by Alex Conrad
How venture capitalists are deforming capitalism by Charles Duhigg
I also wanted to specifically call attention to this piece by Andy Mukherjee, Why I'm losing hope in India, which seems to have touched a chord amongst many people online, including me. I was surprised by how much attention the piece received and how many people said it encapsulated their current feelings of despair. I say surprised because nothing Mukherjee tells us is new or unknown and yet it seemed like the article made people more willing to openly acknowledge their disappointment with India's current situation, even if they were sympathetic towards the BJP in 2014 and 2019.
I am not as despairing as Mukherjee. The Ruchir Sharma quote about India disappointing both optimists and pessimists alike is a good reminder not to let ones equanimity be swayed too much. But it's not hard to be disappointed and worried about the country. In a Twitter thread I argued that India currently reminds me too much of Turkey, where I lived through an economic boom, an authoritarian turn, and a precipitous decline in both the material and political standing of the country. That is not a good place to be at all. Some more stray thoughts on the piece below.
Despite the government's whataboutery when it comes to the state of the economy, everyone knows that India's economic growth has slowed down significantly over the past few years. Covid has made the situation even worse, but instead of a coherent plan to deal with the crisis, the government has decided to adopt a bizarre policy of Atmanirbhar Bharat. This isn't Make in India in new garb but something more problematic. In their policy paper India’s Inward (Re)Turn: Is it Warranted? Will it Work? Shoumitro Chatterjee and Arvind Subramanian (the former Chief Economic Advisor) write, "India is turning inward. Domestic demand is assuming primacy over export-orientation and trade restrictions are increasing, reversing a 3-decade trend." They argue against such a turn noting that India's domestic market is still quite small, and likely to remain small over the medium-term, and that exports have actually played a big role in the country's overall growth. The fact of the matter is that India did benefit from the globalization of the 1990s and 2000s. And even if the government protests that this isn't an inward turn, our Foreign Minister recently openly slammed globalization, and we are told to think of Atmanirbharta in the spirit if the independence struggle. Whose yoke exactly are we trying to throw off? The fact of the matter is that India needs capital, specifically foreign capital, and I don't see how this posturing makes the country a more attractive investment destination. I noted earlier that I am not as despairing as Mukherjee in part because writing about the start-up ecosystem gives you a larger appreciation of how many entrepreneurs are trying to change things for the better. But I've also maintained that Indian start-ups and the Indian economy can't indefinitely exist in two different bubbles — at some point things will have to collide. Unfortunately we are seeing some start-ups adopt the same inward-looking language. It doesn't bode well, and I hope it changes.
One final thought, I have often said that India doesn't have neat generational cohorts like the US, with its Boomers, Gen X and Millennials. The clearest generational watershed I always think of is liberalization. People who came of age and had the peak of their professional lives in the 1990s and 2000s really benefitted from India opening itself up to the world. That this cohort might be the one to have seen a small window of opportunity in an otherwise largely undistinguished economic story is depressing to contemplate. I would like to think it won't come to that, but I think for too long India has taken its economic growth and importance as assured when in actuality it has to be secured.