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Weekly Musings – Big start-up updates for the week ended May 26, 2023

29 May 2023 , 07:35 AM

The mandate is now clear. Currently, domestic investors are subjected to angel tax while global investors are exempt. Now, the government has clarified that this would no longer be a general exemption. Some of the countries, which are known tax havens like the Netherlands, Singapore, and Mauritius, will not be eligible for angel tax exemption any longer. This exemption will continue for angel investors from countries like the US, UK, and France. But there was a lot of other action in the start-up space during the week.

Start-up funding surges during the week

For the week ended 26th May, start-ups saw fund raising of $476 million across a total of 16 deals on the street. This is sharply higher than the $171 million raised by start-ups in the week before that. The big fund raiser of the week was the UK based Builder.ai which received a $250 million Series-D round of investment from the Qatar Investment Authority. In corporate M&A game, the fintech unicorn, YUBI, acquired 100% in digital analytics company, FinFort Infotech LLP.

In other interesting moves, Capri Loans acquired CarLelo, the online car market-place, for Rs150 crore. This will allow to cross sales and financing on the new car platform. CarLelo will use the fund infusion to expand its reach and dealership count. There is some action on digital IPOs. Bhavish Agarwal is planning an IPO for Ola Electric at a valuation of $10 billion towards the end of the year while game development company, Yudiz Solutions has got IPO approval to list on the NSE Emerge (SME) segment.

Sanjeev Bikhchandani of Info Edge (Naukri.com) is very positive on start-up investing at this juncture. Deals are flowing quite fast. Physics Wallah plans to invest Rs120 crore to boost tech skilling with inputs and coaching from veteran industry specialists. Dale Vaz, former CTO of Swiggy, is the latest to be bitten by the entrepreneur bug. He has raised up to $10 million for his wealth-tech start-up from Accel and Elevation Capital. XFlow raised $10.2 million to streamline its B2B cross border payments while even edtech start-up, Ulipsu, raised $3.2 million to diversify into the Middle East. In a relatively big-ticket deal, Hopscotch (the kid fashion brand) has just got $20 million from Amazon. It has been a busy week on start-up street with fund raising up 178% over the previous week. 

 

Start-up regulation gets more granular 

It is said that sound and smart regulation is the key to the organized growth of any market and start-ups are no different. In key regulatory developments in the week, the Delhi High Court has come down heavily on e-pharmacies that do not comply with the rules. HC wants all e-pharmacies to be regulated just like physical pharmacy store are. The big story this week was the revival of the idea of angel tax on global investors. For now, the government is soliciting comments on the valuation methodology to identify excess premium paid, something that would attract angel tax. One new clause is that Venture Funds incorporated at the GIFT city would be treated as foreign investors and exempted from angel tax.

There was some positive news for the ride hailing apps in New Delhi. The Delhi High Court has stayed the ban on ride hailing apps like Ola and Rapido and has asked the government not to take any coercive action until specific norms are formulated. That should come as a relief to these players.

Start-up strategies at play

There were some very interesting strategic moves by start-ups during the week. MedGenome, backed by Sequoia Capital has acquired Prognosis Labs. This will give MedGenome a strong diagnostics foothold in North India. Prognosis has a catalogue of over 700 diagnostic tests. Another big competition to Ola and Uber, meanwhile, is likely to come from InDrive, which his planning a simultaneous foray into Pune and Bengaluru. In a sense, the US based InDrive is a lot more democratic as it allows users and service providers to negotiate the fare between them. It basically looks at underserved markets and it will soon expand its presence beyond the current 10 cities.

When you talk of scale, you talk of Reliance. In a recent research note, Bernstein Research expects Reliance to dominate the ecommerce market and take share from Amazon and Flipkart. The Bernstein report believes that it is not just about deep pockets, which all the 3 major players have in plenty. What matters is the ability of Reliance to leverage its retail reach and digital ecosystem to dominate online retail in India. Meanwhile, data centres have emerged as the big sunrise segment where technology and realty meet. Blackstone is in talks with Amazon and Microsoft to build data centres in India. AWS has already outlined an investment of $12.7 billion in data centres. Blackstone wants to capitalize on this trend were data centres are likely to drive commercial realty demand.

In life and in business, imitation is considered the ultimate form of flattery. While Swiggy and Zomato still dominate the food delivery ecosystem, it is the quick commerce player, Zepto, that has created a unique mark with the launch of Zepto Cafes to deliver customized food in minutes Obviously Swiggy cannot be too far behind. It has piloted InstaCafe under its Instamart umbrella, with a series of dark stores to prepare and deliver snacks in minutes. Instant food is the next big thing and Swiggy obviously does not want to miss the bus.

India start-up story still robust and enticing

In the last two years, it looked like the start-up funding had either reduced or reduced to a trickle. Big PE funds were going slow on their India investments. Something is changing quietly. Here are 3 cases that hint at the India start-up story making a comeback.

  • Masayoshi Son’s Softbank is planning another big bang deepening of its India portfolio. It is on the lookout for about 5 start-ups where it can sink in about $100 million each. The focus would largely be on B2C (business to consumer) start-ups and media start-ups in India. This is a shift from the predominant SAAS focus last year, when it infused $500 million into these SAAS start-ups in India.

     

  • Meanwhile, another prominent private equity investor, Matrix Partners, is increasing the size of its India focussed fund to $525 million. While details of the strategy are not yet available, the funding for the same has already been raised by Matrix Partners as per the filings done with the SEC.

     

  • Another prominent India Investor, Tiger Global, is planning to invest up to $40 billion in buying a stake in IPL Rajasthan. The confluence of sports and technology is nothing new for Tiger Global. In 2020, Tiger Global had invested in Harsh Jain’s Dream Sports. Harsh is the son of Anand Jain, former top honcho at Reliance Industries.

Overall, it has been an interesting week for Indian start-ups with fund flows up sharply over the previous week. Big PE funds are again showing interest even as the start-up fund flow is getting smoother. The one thing that stands out is that the global PE big guns are once again looking at Indian start-ups without the baggage of the last two years.

Related Tags

  • Angel Tax
  • Start-ups
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