VCC Startups weekly wrap: Ola gets $400 mn; Flipkart, Amazon put funds in payment biz
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The much-talked-about $400 million investment by Tencent in Ola concluded this week. Thus, the Chinese tech major has picked up stake in another leading Indian consumer internet firm after Flipkart, Practo, Byju's and Hike, demonstrating its growing interest in India. This week, ecommerce rivals Flipkart and Amazon also infused fresh funds into their payment arms. A week after Flipkart, Ola and other homegrown internet firms formed a lobby group seeking protection against global rivals operating in India, one of their prominent peers Paytm dismissed such moves as business tactics. Startup funding plunged to the lowest in two years during the quarter ending 30 September, found a VCCircle analysis. In other developments, RBI issued norms for P2P lending, giving legitimacy and regulatory clarity to this emerging sector and Flipkart decided to buy back employee shares worth $100 million.

Ola raises $400 million from Tencent

Chinese tech giant Tencent led a $400 million funding round in Ola. The cab-hailing unicorn thus raised $800 million in a staggered manner starting November last year at a post money valuation of $4.1 billion from a host of investors including SoftBank, RNT-UC Fund, Falcon Edge and Tekne Capital besides Tencent. The new funding round will give Ola fresh ammunition to take on its main rival—US-based Uber Technologies Inc. Factoring in Uber's growing presence in the local market, investors have significantly marked down Ola's valuation from its peak of $6 billion. The latest capital infusion takes the total funds raised by Ola thus far to $1.93 billion. A significant portion of the fresh funding will go into Ola Electric Mobility Pvt. Ltd, fuelling its ambitious project of building an electric car fleet for taxi services.

Capital dumping is a non-issue, says Paytm's Vijay Shekhar Sharma

A week after leading Indian internet enterpreneurs including Sachin Bansal of Flipkart and Bhavish Aggarwal of Ola coming together to form a lobby group seeking protection from global rivals and accusing them of capital dumping, Paytm’s founder Vijay Shekhar Sharma dismissed such moves as business tactics.

Some of the companies arguing for government protection from foreign rivals are themselves funded by global investors, Sharma said at the India Economic Summit on Friday.

Startup funding hits the lowest in two years

The number of startups that received angel or seed funding in the three months through September plunged to the lowest level in at least two years as investors remained wary of backing untested entrepreneurs.

The slowdown in angel and seed investments also dragged down overall venture capital funding in India during the third quarter of calendar year 2017, indicating that most startups are still struggling to attract investors through a few larger companies have managed to mop up a big pile of money.

Overall, 90 angel and seed-stage funding deals took place between July and September, according to VCCEdge, the data research platform of VCCircle. This is down 53% from a year earlier and 17% from the preceding quarter.

RBI issues norms for P2P lending platforms

After over a year of discussions, the Reserve Bank of India has released directions for non-banking financial companies (NBFCs) engaged in peer-to-peer (P2P) lending. The norms, effective immediately, require all NBFC-P2Ps to apply for registration before they start or carry out the said business. India’s P2P lending market is predicted to be worth $4-5 billion by 2023. However, so far, P2P lending had been operating in a grey area beyond the reach of regulations. The rollout of these guidelines gives legitimacy to the business. The RBI has said every company seeking registration should have a net-owned fund of not less than Rs 2 crore.

This regulatory requirement will ensure that only serious players enter the business but can be prohibitive for many digital lending startups. According to the guidelines, any fund transfer between participants on a P2P lending platform shall be through an escrow account, which will be operated by a trustee. The mandatory appointment of a trustee, the lending cap of Rs 10 lakh and capping of exposure of a single lender to the same borrower at Rs 50,000 are seen as speed breakers for this emerging segment.

Flipkart pumps in $38.7 million in payment arm Phonepe

PhonePe Pvt. Ltd, the unified payments interface-based payments app from homegrown e-tailer Flipkart, received Rs 254.43 crore ($38.7 million) in a fresh round of funding from its Singapore-based group entity, Flipkart Payments Pvt. Ltd. PhonePe co-founder and CEO Sameer Nigam said the company will use the funds to expand its team and scale up marketing efforts. For Flipkart, PhonePe solves a crucial piece of puzzle in addressing the problem with an integrated payment solution. Industry experts, however, believe that wallets will continue to remain a significant part of Flipkart, Amazon and Paytm’s strategy to acquire and retain consumers.

“This gives Flipkart more ways of gathering consumer data and revenue generation in the process. It will also use the Phonepe platform for offering refunds, payment discounts and cashbacks, besides making online payments an attractive proposition for customers and reduce cash-on-delivery,” said Satish Meena, senior forecast analyst at Forrester Research.

Amazon injects fresh funds into India payment arm

In what is a clear indication of e-tailer Amazon’s growing focus on payments, it is set to infuse fresh funds into digital payments arm Amazon Pay (India) Pvt. Ltd, show filings with the Ministry of Corporate Affairs.

The company passed a resolution to this effect on 25 August. This was followed by an increase in the company’s authorised share capital from Rs 400 crore to Rs 2,000 crore through the creation of additional shares, the documents show.

Though VCCircle could not ascertain the size of the proposed investment, it is likely that it will be equal to the increase in the authorised share capital, that is, Rs 1,600 crore ($245 million). It is well known that Amazon does not rely on external funding to meet its financial requirements.

“We remain committed to our India business with a long-term perspective to make digital payments a habit for Indian customers and to invest in the necessary technology and infrastructure to grow the entire ecosystem,” an Amazon spokesperson said in an e-mailed response.

Flipkart earmarks $100 million for ESOPs buyback

Some of the existing and former employees of Flipkart are in for a bonanza as the board of India’s largest e-commerce venture Flipkart has approved a plan to repurchase employee stock options worth about $100 million in what could be the largest share buyback plan in the Indian startup sector, a financial daily reported.

The plan will benefit about 6,000 current and former employees and is the biggest opportunity so far for them to liquidate their holdings in Flipkart, The Economic Times reported, citing two persons familiar with the matter.

“The overall corpus reserved for the buyback of shares from employees is over $100 million,” one of the persons mentioned above was quoted as telling the business newspaper. Employees of Flipkart’s marketplace platform and its subsidiaries such as online fashion arm Myntra and payments app PhonePe are also included in the plan. The repurchase programme will be closed by December, the report said.

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