"WEEK 27"

Dec 6 - 12

Happy Sunday folks! Vedica here with the weekly round-up today. I just got back from a week's worth of hiking in Utah, which was fantastic, and am basically ready to easer into the holidays already. There's been no let up in the news, so there's quite a bit of ground to cover this week.

Amazon and Reliance battle for dominance in retail

As some / most of you probably know Amazon and Reliance (via Future Retail as proxy) are battling it out in the Delhi High Court, as they seek to tighten their grip on the country's e-commerce sector. For those who aren't very familiar with the story, here's a bit of background.

Last year Amazon bought a 49% stake in Future Coupons, an entity owned by India’s second largest retail chain, Future Retail. Reports suggest that the deal gave Amazon the first right to refusal on purchase of more stakes in Future Retail, included a non-compete clause, and the right to buy into the listed flagship FRL after a few years (probably with the aim of going through on the deal if if the government was to change the existing rules on foreign ownership of multi-brand retailers).

Then in August this year Reliance Retail said it has reached an agreement with Future Group to acquire the latter’s retail and wholesaler business, as well as its logistics and warehousing business, for $3.4 billion. The acquisition will give Reliance Retail one-third of the bricks-and-mortar retail stores. The pandemic ravaged Future Retail, which ran into a severe cash crunch as the country went into lockdown. Reliance turned out to be a white knight.

The battle is particularly interesting since it was rumoured a few months ago that Amazon was considering an investment in Reliance retail, but that might have taken a backseat for now. After news of the acquisition Amazon decided to take the matter to the Singapore International Arbitration Tribunal arguing that the RIL-Future deal is a violation of the agreement it has with Future Retail, and won an injunction that temporarily restrained Future Group from going ahead with the asset sale. In response, Future Group said the matter “will have to be tested" under Indian laws, petitioning the Delhi High Court to bar Amazon from meddling in its asset sale.

In the meantime the Competition Commission of India gave the Reliance acquisition the go-ahead. Not fazed Amazon raised the injunction with the market regulator SEBI which is now asking the Bombay Stock Exchange to clarify why it cleared the share capital reorganization of Future Group despite unresolved complaints against the deal, including one by Amazon. [Quick note here that BSE CEO Aashishkumar Chauhan is a former Reliance man].

Quite honestly, what’s most interesting in this saga of both these companies trying to gain monopolistic power is how they are arguing their case. Amazon says that this spat is about India’s willingness to enforce business contracts and what this deal says about India’s ability to attract foreign investment. I have some sympathy for this view since the two parties had consented to settle their disputes through arbitration in accordance with the Singapore International Arbitration Centre’s rules.

Future Retail’s lawyers are leaning heavily into the the atmanirbhar zeitgeist arguing that Amazon is behaving “like the East India Company of the 21st century.” It’s a line of reasoning I have real distaste for, not only because as a historian I know this analogy to be wrong (the East India Company had an army to actually force the market open if you want to go down that route) but also because this appeal to nationalism is both dangerous and hypocritical.

Indian companies are too happy to play the nationalist card while also happily taking foreign investment (Reliance was ground zero for FDI this past year) and selling consumers foreign-made goods. To be clear, I think access to foreign capital and goods is a good thing, and businesses should pushing for more open markets with consistent regulation - and dispute resolution mechanisms - but that’s clearly a pipe dream these days.

Weekly Recap:

  1. Companies enabling WFH are raising capital: With WFH becoming the norm during the pandemic, two interesting start-up trends are emerging. First, Indian SaaS companies are raising capital and building for a global companies from day 1. Two, a host of US-based companies (think Hublio and Airmeet) are expanding to India as there is a very real market need for such products and a propensity to pay.

  2. Cuemath raises a $40M Series C: In more edtech news, Cuemath has raised $40M in a Series C round co-led by Lightstone Fund and Falcon Edge’s Alpha Wave Incubation. The funding comes a year after the company's $5.5M Series B and values the company >$170M. The company provides after-school math classes and has over 5K franchises in the country conducting 25M classes for 100k students. The company also grew its digital platform 4x during the pandemic.

  3. WhatsApp adds Shopping Carts: After the rollout of WhatsApp Pay, the company has now launched now shopping carts. Today's launch of carts just shows how thoughtfully Facebook is thinking about enabling commerce for small businesses in India. Consumer (C) messages Business (B) about purchasing something. B sends C their catalog (in-built in WA). C creates a cart (in-built) and sends it to B. B sends C a payment request through WhatsApp pay, and C pays it. The entire process can now be completed end-to-end on WhatsApp 🤯

  4. HDFC invests in Smallcase: India's largest private sector bank HDFC has invested in Smallcase's recent Series B round, which was led by the DSP Group. Existing investors Sequoia Capital India, Blume Ventures, and Beenext also participated in the round. Smallcase lets retail investors invest in a number of themed portfolios of stocks and exchange-traded funds (EFTs) by allowing users to place orders through their brokers.

  5. PubMatic goes public: PubMatic, an AdTech company, started trading on the NASDAQ today opening at $25.12 after being priced at $20 and ended the day at $29.45. The company was started way back in 2004 and has raised several rounds of funding (total raise of $63M), starting with a $7M Series A in 2008 led by Nexus Venture Partners. The company allows publishers and app developers to sell advertising space to advertisers across different media, including display or video ads on desktop, mobile app, mobile web, or connected TV. The company generated $127M in revenue in the year ending in Sep (up 33% YoY).

  6. Exotel raises 40 Cr from A91 Partners: Communications Platform as a Service Exotel has raised 40 Cr from A91 Partners in a mix of primary and secondary shares as the company is seeing a wave of accelerated growth in digital adoption due to the pandemic. The company has grown to 120 Cr in revenues (FY20) on just 2.5 Cr of total capital raised.

  7. Infra Market raises $20M in a Series B: Infra Market has raised $20M in a Series B round, with the round being led by Evolvence India Fund, Sistema Asia Fund and Foundamental, while existing investors Accel, Tiger Global and Nexus also participated. This brings the Mumbai-based company's total capital raised $50M. Infra Market is a B2B marketplace and helps small businesses (like manufacturers of paints and cements) improve the quality of their production and meet various compliances. The company essentially serves as a service layer for these small manufacturers, enabling them to grow their business.

  8. TPG looks to acquire minority stake in Pharmeasy's parent: API Holdings, the combined entity of Pharmeasy and Medlife, is raising some capital from TPG which would give the PE group 7% of the entity. Reportedly, both TPG and Naspers are also looking to invest $100M in Pharmeasy, valuing it at $1.2B, which could make the company India's newest unicorn. There has been a lot of M&A activity in the online pharmacy space: Reliance acquired a 60% stake in Netmeds for 620 Cr and Amazon is potentially investing $100M in Apollo Pharmacy.

What we've read this week