The EconomistMarch 14th 2020 Business 572
1education (Byju’s). The first new unicorn of
2020, HighRadius, offers software-as-a-
service (saas), another tested business
model which provides companies with
things like accounting or customer sup-
port via the computing cloud.
This penchant for the familiar is under-
standable. And the platforms work in In-
dia—just about—without the need to fix its
rickety physical and digital infrastructure.
But their growth is limited in a country rich
in people but poor in disposable income.
And, like counterparts in the West, few of
them make any money (see chart 3). The
reasons—and justifications—are the same,
too: heavy investments are necessary to ac-
quire new customers and achieve scale.Bharat biltzscaling
The success of this strategy is hard to
gauge. Information on realised returns—
the cash vcs get from their investments as
opposed to unrealised capital gains from
swelling valuations—remains scant. What
little there is suggests a near absence of
cash returns. People who have reviewed
pitch books used to raise money say as
much. True, only a few funds have been
around the decade or so required for in-
vestments to ripen. But it may have some-
thing to do with weak operating perfor-
mance. Oyo Rooms, a seven-year-old firm
which sells tech-infused budget-hotel
franchises and has expanded furiously
across 800 cities in India and abroad, has
had to sack workers and faces questions
about its viability.Individual companies’ valuations—in-
cluding Oyo’s, long put at $7.5bn-10bn—are
thus increasingly viewed with suspicion.
Many are “marked to myth” rather than to
market, as local wags put it. That in turn
helps explain why clean exits, through a
public listing or a private sale, are rare. Wal-
mart’s Flipkart deal accounted for 80% of
the ten biggest exits in 2018, according to
Bain, a consultancy. Last year’s top ten
raked in just $4bn. Half were sales of sec-
ondary stakes by one vc firm to another.
Only one, of a 24-year-old e-merchant
called Indiamart, was a public offering.
Investor-unfriendly bureaucracy pre-
sents more hurdles to divestment. A term
sheet related to incorporating in India,
from the Indian branch of an American vc
firm, can run to 12 pages, remembers an ex-
ecutive at a hot startup; one from its Ameri-
can office related to incorporating in Amer-
ica took up a single page. Some of those
who invested in Flipkart are enmeshed in a
fight with the government to recover a
withholding tax imposed on their returns.
To list on India’s main exchanges firms
must demonstrate a few years of profits.
Laws impede those whose management is
based in India from floating overseas (the
approach of many successful Israeli start-
ups) without first going public at home.
Complex and mutable levies on shares
handed to investors and staff in effect give
the government first dibs on a firm’s cash.
Despite its pro-business rhetoric, the
nationalist government of Narendra Modi
has made life harder for startups in other
ways. Like all of India Inc they contend
with complex and constantly changing
rules. Some are draconian and indiscrimi-
nate. In December the government blocked
digital-payments providers from collect-
ing fees from merchants who use their ser-
vices, hurting the business model of
Paytm, India’s biggest unicorn. It also
launched a public payments system that
competes with private providers. Flipkart
has found itself facing restrictions on wa-
rehousing and discounting, slapped with a
complex transaction tax, and under inves-
tigation by the competition authorities for
long-standing sales arrangements.
The cost, complexity and chaos of In-
dia’s vc world is prompting many startups
to try to incorporate elsewhere while theyremain small. An analysis by Tracxn shows
that of 73 saas firms that have received at
least $20m each in funding, 50 have head-
quarters outside India. Many flee to Singa-
pore, where expatriate managers can catch
a six-hour flight to Delhi or Mumbai, which
plenty do on a weekly basis. America is lur-
ing them with its vast market, better pro-
tection of intellectual property, lower taxes
and a deep network of analysts, vc firms,
lawyers and bankers. If India is to unleash
its huge startup potential, it must first ask
itself why some of its entrepreneurs and
venture capitalists are so eager to leave. 7House of cards?^2Source: Bain & CompanyIndia, venture-capital investment, $bn*Estimate02468102012 13 14 15 16 17 18 19*Myth-busting^3Source: Tracxn *Financial year ending MarchIndia, selected unicorns, 2019*
Company Services Revenues, $m Net loss, $m
OYO Rooms Hotel booking 946.6
Pay t m Mobile payments 511.9 -603.1
BigBasket Online groceries 401.0
Ola Ride-hailing 398.1
BlackBuck Online freight booking 257.8-370.8-333.6-81.8-49.4C
hinese distillersof baijiu are proud
of their role in Mao’s Long March, when
the firewater produced by Kweichow Mou-
tai is fabled to have sterilised soldiers’
wounds and steeled their resolve. It is only
fitting, then, that they would mobilise for
what China has termed a “people’s war”
against covid-19. Moutai has donated 114m
yuan ($16m). Others have gone further, set-
ting up sidelines in medical disinfectant
made with 75% ethanol. Amid an acute
shortage of antivirus gear, the state is
handing out production licences.
Last month Li Keqiang, China’s prime
minister, urged firms to boost supplies of
protective kit for medical workers by ex-
panding or converting production lines.
Yibin Guomei Liquor, a baijiu distiller from
Sichuan province, had already swung into
action. By February 4th a sister company
that makes ethanol was sending sanitiser
to its baijiu workshops for bottling and
packaging. Two assembly lines now pro-
duce 250,000 bottles of disinfectant a day.
Yibin Guomei’s first 2m bottles were
sold (at a loss) to the local government,
which distributed one to each home in Yi-
bin. The next batch went to the fire brigade,
traffic police and other departments. The
next lot was distributed nationwide—at
full price. Liao Maolan, who helps run Yi-
bin Guomei, expects subsidies. The firm is
already drawing up plans for a permanent
disinfectant-packaging workshop.
It is not just booze businesses that are
retooling. An affiliate of gem, a battery re-
cycler, is producing sanitiser. byd, a maker
of electric cars, aims to churn out 50,000
bottles of disinfectant and 5m masks a
day—a quarter of China’s usual capacity.
Shaanxi Automobile Group, which builds
lorries, is producing goggles. So is XingchiSHANGHAI
All manner of Chinese companies rush
to produce wares to fight the epidemicCoronavirus and businessThe anti-covid
industrial complex