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China’s expected edtech clampdown may chill a key startup sector
News that China’s government may force domestic tutoring-focused companies to go nonprofit is taking a huge bite out of the value of several technology companies. Bloomberg notes that the value of companies like New Oriental Education & Technology Group and TAL Education are tumbling in light of the news, which would constitute merely the latest salvo against tech companies in the autocratic country.
New Oriental’s Hong Kong-listed shares fell 44.22% in after-hours trading after the nonprofit news broke, while NYSE-shares of TAL are off an even sharper 51.75% in pre-market trading. With Yahoo Finance listing a roughly $13.8 billion market cap for TAL ahead of its impending declines at the market open, billions of equity value are about to get deleted. The list goes on: China Online Education Group is off 39.97% in after-hours trading, for example.
The Exchange explores startups, markets and money.
Read it every morning on Extra Crunch or get The Exchange newsletter every Saturday.
A new decision by China’s government to exert more control over a sector of its domestic economy should not surprise. And we shouldn’t be shocked that online tutoring is in the country’s targets; today’s news is a follow-up to prior regulatory action in the sector from earlier in the year.
As China has become synonymous with edtech startups in recent years, the news impacts more than just public companies. The expected rules change may also hit a host of private, venture-backed companies.
For example, what will happen to Yuanfudao? The company was valued at $15.5 billion last year, offering what TechCrunch described as “live tutoring, an online Q&A arm and a math-problem-checking arm.” Will the company see its wings clipped?
Or how about Zuoyebang, which raised $1.6 billion in a single round last year? TechCrunch wrote that Zuoyebang offers “online courses, live lessons and homework help for kindergarten to 12th grade students.” Is it in trouble as well?
All this comes on the same day that shares in Zomato began to float, with the Indian online food delivery company seeing its shares close up nearly 65% in their first day’s trading. TechCrunch has viewed the Zomato IPO as a possible bellwether for the larger Indian startup market, and the results augur well for other growth-focused, loss-making unicorns in the country.
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India poised for record VC year as unicorns head for decisive IPOs
In case you’ve not been paying attention, we’ll say it again: The global venture capital industry is on fire. The second quarter of 2021 was the largest single three-month period on record for dollars invested.
The data coming in points to a worldwide boom. The United States’ startup market had a huge Q2, and investors don’t expect the pace to slow in the country. Europe is also having one hell of a year. Around the world, 2021 is shaping up to be a breakout year for venture investment into startups. And that’s after several years of growing, record-breaking results.
The Exchange explores startups, markets and money.
Read it every morning on Extra Crunch or get The Exchange newsletter every Saturday.
India is another good example of this trend. The country’s venture capital haul thus far in 2021 has nearly matched its 2020 total and is on pace for a record year. But as the third quarter gets underway, something perhaps even more important is going on: public-market liquidity.
The new trend is being spearheaded by Zomato, an Indian food delivery giant that could be valued at $8.6 billion in its public debut. Other major Indian unicorns are following it to the public markets, including fintech players like MobiKwik and Paytm, which is backed by Alibaba and its affiliate Ant Financial. The trio of companies could herald a rush of public offerings from Indian companies if their debuts prove lucrative and stable.
Today, The Exchange is taking a look at India’s recent venture capital results and digging more deeply into the country’s IPO pipeline, with help from VCs Kunal Bajaj of Blume Ventures and Manish Singhal of pi Ventures. We’ll also read the tea leaves when it comes to how Zomato’s IPO is performing thus far, and what we can learn from its early data. This will be fun!
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India’s Zomato valued at $5.4 billion in new $250 million investment
Zomato has raised $250 million, two months after closing a $660 million Series J financing round, as the Indian food delivery startup builds a war-chest ahead of its IPO later this year.
Kora (which contributed $115 million), Fidelity ($55 million), Tiger Global ($50 million), Bow Wave ($20 million) and Dragoneer ($10 million) pumped the new capital into the 12-year-old Gurgaon-headquartered startup, Info Edge, a publicly listed investor in Zomato, disclosed in a filing (PDF) to a local stock exchange. The new investment gives Zomato a post-money valuation of $5.4 billion, up from $3.9 billion in December last year, said Info Edge, which owns 18.4% stake in the Indian startup.
The new investment reinforces the strong confidence investors have in Zomato, which struggled to raise money for much of last year. Zomato, which acquired the Indian food delivery business of Uber early last year, competes with Prosus Ventures-backed Swiggy (valued at about $3.6 billion) in India. Together they work with over 440,000 delivery partners, a larger workforce than that employed by Indian Department of Posts.
A third player, Amazon, also entered the food delivery market in India last year, though its operations are still limited to parts of Bangalore.
At stake is India’s food delivery market, which analysts at Bernstein expect to balloon to be worth $12 billion by 2022, they wrote in a report to clients. With about 50% of the market share, Zomato is the current leader among the three, Bernstein analysts wrote.
“We find the food-tech industry in India to be well positioned to sustained growth with improving unit economics. Take-rates are one of the highest in India at 20-25% and consumer traction is increasing. Market is largely a duopoly between Zomato and Swiggy with 80%+ share,” wrote analysts at Bank of America in a recent report, reviewed by TechCrunch.
Zomato and Swiggy have improved their finances in recent years, which is especially impressive because making money with food delivery is very often more challenging in India. Unlike Western markets such as the U.S., where the value of each delivery item is about $33, in India, a similar item carries the price tag of $3 to $4, according to research firms.
Both the startups eliminated hundreds of jobs last year as the coronavirus pandemic hit their businesses. Zomato co-founder and chief executive Deepinder Goyal said in December that the food delivery market was “rapidly coming out of COVID-19 shadows.”
“December 2020 is expected to be the highest ever GMV month in our history. We are now clocking ~25% higher GMV than our previous peaks in February 2020. I am supremely excited about what lies ahead and the impact that we will create for our customers, delivery partners and restaurant partners,” he said.
In an email to employees in September last year, Goyal said Zomato was working on its IPO for “sometime in the first half” of 2021 and was raising money to build a war-chest for “future M&A, and fighting off any mischief or price wars from our competition in various areas of our business.”
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Indian food delivery giant Zomato secures $660 million
Zomato has raised $660 million in a financing round that it kicked off last year as the Indian food delivery startup prepares to go public next year.
The Indian startup said Tiger Global, Kora, Luxor, Fidelity (FMR), D1 Capital, Baillie Gifford, Mirae and Steadview participated in the round — a Series J — which gives Zomato a post-money valuation of $3.9 billion. Zomato had previously disclosed a fundraise of about $212 million as part of a Series J round from Ant Financial, Tiger Global, Baillie Gifford and Temasek.
Deepinder Goyal, the co-founder and chief executive of Zomato, said the 12-year-old startup is also in the process of closing a $140 million secondary transaction. “As part of this transaction, we have already provided liquidity worth $30m to our ex-employees,” he tweeted.
The startup originally anticipated to close a round of about $600 million by January this year, but several obstacles, including the current pandemic, delayed the fundraise effort. Additionally, Ant Financial, which had originally committed to invest $150 million in this round, only delivered a third of it, Zomato’s investor Info Edge disclosed earlier this year.
The Gurgaon-headquartered startup, which acquired the Indian food delivery business of Uber early this year, competes with Prosus Ventures-backed Swiggy in India. A third player, Amazon, has also emerged in the market, though it currently offers its food delivery service in only parts of Bangalore.
At stake is India’s food delivery market, which analysts at Bernstein expect to balloon to be worth $12 billion by 2022, they wrote in a report to clients — accessed by TechCrunch. With about 50% of the market share, Zomato is the current leader among the three, Bernstein analysts wrote.
Zomato eliminated hundreds of jobs this year to improve its finances and navigate the coronavirus pandemic, which significantly hurt the food delivery business in India in the early months. Goyal said the food delivery market is “rapidly coming out of COVID-19 shadows. December 2020 is expected to be the highest ever GMV month in our history. We are now clocking ~25% higher GMV than our previous peaks in February 2020.” He added, “I am supremely excited about what lies ahead and the impact that we will create for our customers, delivery partners, and restaurant partners.”
In September, Goyal told employees that Zomato was working for its IPO for “sometime in the first half of next year” and was raising money to build a war-chest for “future M&A, and fighting off any mischief or price wars from our competition in various areas of our business.”
Making money with food delivery has been especially challenging in India. Unlike Western markets such as the U.S., where the value of each delivery item is about $33, in India, a similar item carries the price tag of $4, according to estimates by Bangalore-based research firm RedSeer.
“The problem is that there are very few people in India who can afford to place an order from a food delivery firm each day,” said Anand Lunia, a venture capitalist at India Quotient, in an interview with TechCrunch earlier this year.
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YC-backed Cashfree raises $35.3 million for its payments platform
Cashfree, an Indian startup that offers a wide-range of payments services to businesses, has raised $35.3 million in a new financing round as the profitable firm looks to broaden its offering.
The Bangalore-based startup’s Series B was led by London-headquartered private equity firm Apis Partners (which invested through its Growth Fund II), with participation from existing investors Y Combinator and Smilegate Investments. The new round brings the startup’s to-date raise to $42 million.
Cashfree kickstarted its journey in 2015 as a solution for restaurants in Bangalore that needed an efficient way for their delivery personnel to collect cash from customers.
Akash Sinha and Reeju Datta, the founders of Cashfree, did not have any prior experience with payments. When their merchants asked if they could build a service to accept payments online, the founders quickly realized that Cashfree could serve a wider purpose.
In the early days, Cashfree also struggled to court investors, many of whom did not think a payments processing firm could grow big — and do so fast enough. But the startup’s fate changed after Y Combinator accepted its application, even though the founders had missed the deadline and couldn’t arrive to join the batch on time. Y Combinator later financed Cashfree’s seed round.
Fast-forward five years, Cashfree today offers more than a dozen products and services and helps over 55,000 businesses disburse salary to employees, accept payments online, set up recurring payments and settle marketplace commissions.
Some of its customers include financial services startup Cred, online grocer BigBasket, food delivery platform Zomato, insurers HDFC Ergo and Acko and travel ticketing service provider Ixigo. The startup works with several banks and also offers integrations with platforms such as Shopify, PayPal and Amazon Pay.
Based on its offerings, Cashfree today competes with scores of startups, but it has an edge — if not many. Cashfree has been profitable for the past three years, Sinha, who serves as the startup’s chief executive, told TechCrunch in an interview.
“Cashfree has maintained a leadership position in this space and is now going through a period of rapid growth fuelled by the development of unique and innovative products that serve the needs of its customers,” Udayan Goyal, co-founder and a managing partner at Apis, said in a statement.
The startup processed over $12 billion in payments volumes in the financial year that ended in March. Sinha said part of the fresh fund will be deployed in R&D so that Cashfree can scale its technology stack and build more services, including those that can digitize more offline payments for its clients.
Cashfree is also working on building cross-border payments solutions to explore opportunities in emerging markets, he said.
“We still see payments as an evolving industry with its own challenges and we would be investing in next-gen payments as well as banking tech to make payments processing easier and more reliable. With the solid foundation of in-house technologies, tech-driven processes and in-depth industry knowledge, we are confident of growing Cashfree to be the leader in the payments space in India and internationally,” he said.
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India’s Razorpay becomes unicorn after new $100 million funding round
Bangalore-headquartered Razorpay, one of a handful of Indian fintech startups that has demonstrated accelerated growth in recent years, has joined the coveted unicorn club after raising $100 million in a new financing round, the payments processing startup said on Monday.
The new financing round, a Series D, was co-led by Singapore’s sovereign wealth fund GIC and Sequoia India, the six-year-old Indian startup said. The new round valued the startup at “a little more than $1 billion,” co-founder and chief executive Harshil Mathur told TechCrunch in an interview.
Existing investors Ribbit Capital, Tiger Global, Y Combinator and Matrix Partners also participated in the round, which brings Razorpay’s total to-date raise to $206.5 million.
Razorpay accepts, processes and disburses money online for small businesses and enterprises. In recent years, the startup has expanded its offerings to provide loans to businesses and also launched a neo-banking platform to issue corporate credit cards, among other products.
Mathur and Shashank Kumar (pictured above), who met each other at IIT Roorkee, started Razorpay in 2014. They began to explore opportunities around a payments processing business after realizing just how difficult it was for small businesses such as young startups to accept money online less than a decade ago. There were very few payment processing firms in India then, and startups needed to produce a long list of documents.
The early team of about 11 people at Razorpay shared a single apartment as the co-founders rushed to meet with over 100 bankers to convince banks to work with them. The conversations were slow and remained in a deadlock for so long that the co-founders felt helpless explaining the same challenge to investors numerous times, they recalled in an interview last year.
To say things have changed for Razorpay would be an understatement. It’s become the largest payments provider for business in India, said Mathur. Razorpay, which competes with Prosus Ventures’ PayU, accepts a wide-range of payment options, including credit cards, debit cards, mobile wallets and UPI.
“Razorpay has established itself as a clear leader, with its strong focus on customer experience and product innovation,” said Choo Yong Cheen, chief investment officer for Private Equity at GIC, in a statement. “GIC has a long track record of partnering with leading fintech companies globally and is delighted to partner with Razorpay in its journey to transform payments and banking.”
India’s Razorpay launches corporate credit cards, current accounts support in major neo banking push
Some of Razorpay’s clients include budget lodging decacorn Oyo, fintech firm Cred, social giant Facebook, e-commerce Flipkart, top food delivery startups Zomato and Swiggy, online learning platform Byju’s, supply chain platform Zilingo, travel ticketing firms Yatra and Goibibo, and telecom giant Airtel .
The startup expects to process about $25 billion in transactions — up five times from last year — for nearly 10 million of its customers this year, said Mathur.
He attributed some of the growth to the coronavirus pandemic, which he said has accelerated the digital adoption among many businesses.
On the neo-banking and capital side, Mathur said, Razorpay expects RazorpayX and Razorpay Capital to account for about 35% of the startup’s revenue by the end of March next year.
Mathur said the startup’s payment processing service continues to be its fastest-growing business and does not need much capital to grow, so the startup will be deploying the fresh funds to expand its neo-banking offerings to include vendor payment, and expense and tax management and other features.
The startup, which aims to work with more than 50 million businesses by 2025, may also acquire a few firms as it explores opportunities around inorganic expansion in the neo-banking category, said Mathur.
“We will continue to make an impactful contribution to the growth of the industry, aid adoption in the under-served markets and drive new practices and a new thinking for the industry to follow. And this investment fits perfectly with our growth strategy,” he said.
While the coronavirus pandemic has slowed down deal-makings in India, about half a dozen startups in the country, including online learning platform Unacademy, and Pine Labs, have secured the unicorn status.
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India’s Zomato raises $100M from Tiger Global, says it is planning to file for IPO next year
Indian food delivery startup Zomato has raised $100 million from Tiger Global and is preparing for the next phase of its journey: an IPO.
Tiger Global financed the capital through its investment vehicle Internet Fund VI, according to a regulatory filing. Info Edge, a major investor in Zomato, confirmed the development Thursday evening, adding that the new round valued Zomato at $3.3 billion post-money.
In an email to employees earlier today, Zomato co-founder and chief executive Deepinder Goyal said the startup had about $250 million cash in the bank and several more “big name” investors would be joining the current round to increase its cash reserve to about $600 million “very soon.”
“Important note — we have no immediate plans on how to spend this money. We are treating this cash as a ‘war-chest’ for future M&A, and fighting off any mischief or price wars from our competition in various areas of our business,” he added in the letter, reviewed by TechCrunch.
Zomato, which acquired the Indian food delivery business of Uber early this year, competes with Prosus Ventures-backed Swiggy in India. A third player, Amazon, has also emerged in the market, though it is currently servicing food delivery in only select suburbs of Bangalore.
Goyal told employees that the 12-year-old startup is also working for its IPO for “sometime in the first half of next year.” (It’s unclear how Zomato plans to achieve this target, but it is likely looking at listing in the U.S. or some other market. Current Indian law requires a startup to be profitable for at least three years before they could publicly list in India — though there has been some proposal to relax this requirement.)
The new pledge from Zomato is the result of a major economic improvement in its business in recent quarters. Until mid-last year, Zomato was losing more than $50 million a month to win and sustain customers by offering heavy discounts.
The Gurgaon-headquartered firm, which like Swiggy eliminated hundreds of jobs in recent months as coronavirus ruined the appetite of Indians ordering food online, said in July that its losses for the month would be less than $1 million.
The startup also faced obstacles in raising new capital. It kickstarted its financing round a year ago, but had secured only $50 million as of a month ago. The startup had originally anticipated closing this round, at about $600 million, in January this year.
In an emailed response to TechCrunch queries in April, Goyal had attributed the delays to the spread of coronavirus and said he expected to close the round by mid-May. He wrote to employees today that Tiger Global, Temasek, Baillie Gifford and Ant Financial had already participated in the current round.
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Startups, VCs in India request ‘relief package’ from the government to fight coronavirus disruption
More than six dozen startup founders, venture capitalists and lobby groups in India have requested the government to grant them a “robust relief package” to help combat severe disruptions their businesses face due to the coronavirus outbreak.
In a joint letter to India’s Prime Minister Narendra Modi, startups requested the government to bankroll 50% of their workforce’s salaries for six months, provide interest-free loans from banks, waive rent for three months and offer tax benefits among other things.
“Unfortunately, our startup companies across the nation are inherently young, less resilient and most vulnerable. Many of them face likely devastation during this extraordinary economic downturn. At this dire moment, Indian startups need a robust relief package from the government, lest all our collective efforts of the past few years are in vain,” they wrote.
Among those who have signed the letter include Mohit Bhatnagar, a managing director at Sequoia Capital, which is in advanced stages to close a fresh $1.3 billion fund for India and Southeast Asia, Gaurav Agarwal of online medicine store 1mg, Debjani Ghosh of industry body Nasscom, Karthik Reddy of Blume Ventures, Anand Lunia of India Quotient, Deepinder Goyal of Zomato, and Sriharsha Majety of Swiggy.
Some prominent startup founders and VCs including Vijay Shekhar Sharma of Paytm, and Ritesh Agarwal of Oyo, have also held a meeting with Piyush Goyal, the commerce minister in India, for a similar relief.
“We seek your urgent intervention to help ensure India’s startup ecosystem survives this crisis to emerge as a pillar of growth, employment and innovation to help drive India’s recovery. We need the startup ecosystem to survive in order to help the economy bounce back. We have enclosed herewith our submission for your kind consideration and we look forward to your support in this regard,” the joint letter reads.
The request for bailout comes amid a national lockdown in India that has disrupted countless businesses. New Delhi ordered a 21-day lockdown last month in a bid to curtail the spread of Covid-19.
Earlier this month, ten prominent VC and PE funds in India cautioned startups to brace for the “worst” months ahead.
“Assumptions from bull market financings or even from a few weeks ago do not apply. Many investors will move away from thinking about ‘growth at all costs’ to ‘reasonable growth with a path to profitability.’ Adjust your business plan and messaging accordingly,” they said.
As India, where the economy growth has been slowing for several quarters, scrambles to provide for its 1.3 billion citizens, the letter has drawn some criticism from industry figures.
Disappointed to see many startup leaders & investors that I admire add their names to this shameful letter to the govt asking for bailouts – surely at this time the govt has more important things to worry about than pay “50% of salary bills & contract wage bills paid by startups”
— Sumanth Raghavendra (@sumanthr) April 10, 2020
“I can’t fathom how such a list gets made in a country of more than a billion people who are facing a crisis unlike any they’ve seen before. A significant majority of them daily wage earners who have no financial cushion or any idea where their next meal is going to come from. Let’s not even stray into health and the need for medical emergencies; just putting three square meals on the table a day is proving to be impossible for so many,” wrote Ashish K. Mishra in a column on The Morning Context.
“At this very moment, it is they who need the government’s support. Not fat cats with bloated, middling business models and venture capital funds whose begging bowls are now seemingly larger than their risk appetite,” he added.
Companies asking for a bailout is not limited to India. Oil giants have sought similar help from the U.S. President Donald Trump — and VCs and startups are beginning to explore their option. Brent Hoberman, chairman and co-founder of Founders Factory and Firstminute Capital, urged the UK government to provide some relief to startups last month. But the government has yet to do much about it, just ask Deliveroo, Graphcore and other big UK startups.
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Agritech startup DeHaat raises $12M to reach more farmers in India
DeHaat, an online platform that offers full-stack agricultural services to farmers, has raised $12 million as it looks to scale its network across India.
The Series A financial round for the eight-year-old Patna and Gurgaon-based startup was led by Sequoia Capital India. Dutch entrepreneurial development bank FMO, and existing investors Omnivore and AgFunder, also participated in the round. The startup, which began to seek funding from external investors last year, has raised $16 million to date and $3 million in venture debt.
DeHaat (which means village in Hindi) eases the burden on farmers by bringing together brands, institutional financers and buyers on one platform, explained Shashank Kumar, co-founder and chief executive of the startup, in an interview with TechCrunch.
The platform helps farmers secure thousands of agri-input products, including seeds and fertilizers, and receive tailored advisory on the crop they should sow in a season. “We have built a comprehensive database of crop tests to offer advice to farmers,” he said.
DeHaat, which employs 242 people, also helps them connect with 200 institutional partners to provide farmers with working capital, and when the season is over, helps them sell their yields to bulk buyers such as Reliance Fresh, food delivery startup Zomato and business-to-business e-commerce giant Udaan.
DeHaat today operates in 20 regional hubs in the eastern part of India — states such as Bihar, Uttar Pradesh, and Jharkhand — and serves more than 210,000 farmers, said Kumar.
Shashank Kumar, Amrendra Singh, Adarsh Srivastav and Shyam Sundar Singh co-founded DeHaat in 2012
The startup has developed a network of hundreds of micro-entrepreneurs in rural areas that distribute agri-input goods to farmers from their regional hubs and then bring back the output to the same hub.
“We have an app in local languages and a helpline desk that farmers, many of whom don’t own a smartphone, use to reach out to us and explain their pain points and needs,” he said.
DeHaat does not charge any fee for its advisory, but takes a cut whenever farmers use its platform to buy agri-inputs or sell their crop yields.
The startup will use the fresh capital to extend its network to 2,000 rural retail centres, on-board more micro-entrepreneurs for last-mile delivery and reach 1 million farmers by June of next year, said Kumar. DeHaat is also working on automating its supply chain and developing more sophisticated data analytics, he said.
At stake is India’s agriculture market that is worth $350 billion and serves nearly 100 million small and independent farmers, said Abhishek Mohan, VP at Sequoia Capital India, the VC fund that writes more checks than anyone else in the country.
“This industry is on the brink of a massive transformation thanks to ease of regulation, farmers getting organized and increasing penetration of smartphones. DeHaat is leveraging these trends to build the next-gen product in agricultural supply chain,” said Mohan in a statement.
“The tipping point that led to Sequoia India’s decision to partner with them was the field visit, where the farmers expressed how proud they were to be associated with a platform they felt truly worked in their favour. This impact and deep brand loyalty stems from the leadership team’s razor-sharp focus, deep empathy and fine execution,” he added.
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How Bykea is winning Pakistan’s ride-hailing and delivery market
Increasingly, the streets of Karachi and Lahore are being flooded with men riding bikes and wearing green T-shirts, a writer friend recently told me. In a sense, these men represent the emergence of Pakistan’s tech startups.
India now has more than 25,000 startups and raised a record $14.5 billion last year, according to government figures. But not all Asian countries are as large as India or have such a thriving startup ecosystem. Long overdue, things are beginning to change in bordering Pakistan.
Bykea, a three-year-old ride-hailing and delivery service, today has more than 500,000 bikes registered on its platform. It operates in some of Pakistan’s most populated cities, such as Karachi, Lahore and Islamabad, Muneeb Maayr, Bykea founder and CEO, told TechCrunch.
Maayr is one of the most recognized startup founders in Pakistan, and previously worked for Rocket Internet, helping the giant run fashion e-commerce platform Daraz in the country. While leading Daraz, he expanded the platform to cater to categories beyond fashion; Daraz was later sold to Alibaba.
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