Ex-Employees Of Logistics Unicorn Rivigo Encash $10 Mn In ESOPs

A number of senior as well as middle management executives had vested their stock options in Rivigo

Rivigo founders Gazal Kalra and Deepak Garg didn’t buy back any shares

Esops make 7-10% of Rivigo's overall shareholding

Nearly 30 ex-employees of Gurugram-based logistics Unicorn Rivigo have encashed on their stock options in the company, reaping in an estimated amount of $10 Mn.

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“Over 30 employees have sold the shares, after exercising their options, in times of financial need and have benefited substantially from the life-changing wealth. Some of them have used the money to fund their children’s foreign training, while others have used it to build a house,” said Gazal Kalra, cofounder at Rivigo, in a media statement.

The shares were picked up by existing as well as new investors. However, the company’s founders, including its chief executive Deepak Garg, did not buy back the stock.

Rivigo ESOPs: The Key Pointers

• The secondary transactions, the last of which took place in July, were not at a discount to the valuation commanded by the company in its primary funding rounds.
• Rivigo has decided not to cap vesting of employee stock options. This has allowed a number of executives to sell all their stock at one go, a rarity in startups that usually allow employees to sell their stock in ventures only in stages, and that too at a discount.
• Esops form about 7-10% of its overall shareholding

Rivigo: The Growth In A Nutshell

Inc42 DataLabs, in its weekly financial analysis series What The Financials, has earlier revealed that Rivigo recorded a total income of $58.60 Mn (INR 401.82 Cr) in FY17, up by 370% from its FY16 income of $21.67 Mn (INR 148.61 Cr).

Further, the company reported total expenses of $67.48 Mn (INR 462.64 Cr) in FY17 and an operating income of $56.45 Mn (INR 387 Cr) in the same period.

Rivigo has also been speculated to have nearly 1,770 employees, on whom it spent $10.82 Mn (INR 74.21 Cr) in FY 17 — 16% of its total operating expenses.

In the uber-competitive logistics space, which is poised to touch $307 Bn by 2020, Rivigo competes with equally strong investor-backed startups like Blackbuck, Locus, Locanix, ElasticRun, 4tigo Network Logistics, among others.

Esops: The Trend Is Here To Stay

The Esop encashment at Rivigo comes soon after Temasek Holdings bought sharesworth $30 Mn from former and early employees of the cab-hailing company Olaas part of a secondary share sale.

Prior to this, Walmart-Flipkart acquisition had opened up former and current employees of Indian ecommerce company for massive Esop payouts.

Flipkart emailed employees to share that it will repurchase up to 30% of its former employees’ vested Esops at a share price ranging from $125 to $129.

Further, employees can liquidate their stock options in three instalments — half of the stock on the date of closing of the Walmart deal, 25% a year later, and the remaining stock options two years after the first liquidation.

Here are some other startups which have joined Esop bandwagon:

•  Unicorn food delivery company Swiggy approved its first employee stock repurchase programme. The share buyback or Esop, which had to be implemented in June, was estimated at over $4 Mn (INR 27 Cr).
• Founder and CEO of Paytm Vijay Shekhar Sharma had also pledged about 5% of his personal holding in Paytm Mall for the Esop pool. This move added about $50 Mn worth of stocks to the Esop corpus.
• Earlier this year, furniture player Urban Ladder offered Esops in order to attract senior-level talent, according to the MCA documents filed by the company.

Draft Indian Ecommerce Policy: Favouring Domestic Players At The Cost Of The Ecosystem

• Apart from data centres, the government wants to build an ecommerce platform in PPP, especially to promote MSMEs
• A Central Consumer Protection Authority will be created to oversee the implementation of the ecommerce policy, after its enactment
• With the country’s ecommerce industry being hugely reliant on foreign investments and players, favouring local players might imbalance the ecommerce ecosystem

One of the biggest blunders of the Nehruvian era was the initiation of the License Raj (in the name of protectionism), a term used to describe the system of licences, regulations, and accompanying red tape that were required to set up and run businesses in India between 1947 and 1990. This paralysed the Indian economy, limiting the scope of FDI for decades.

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Today, more than 70 years since Independence, it looks like we’re going back to the license era. PM Narendra Modi’s government seems to have a rising interest and ‘greed’ in accessing people’s personal data, as and when it needs (disguised in the garb of ‘security urgencies’), as is clear from the draft Personal Data Protection Bill (PDP Bill) and the draft ecommerce policy.

Personal data security is not the only issue at stake. The draft ecommerce policy makes several random proposals such as making the National Payments Corporation of India (NCPI)’s RuPay card (a domestic solution/alternate to Visa and Mastercard) mandatory for payments gateways. It also suggests the creation of a government-aided ecommerce platform to promote micro, small and medium enterprises (MSMEs).

However, creating another ecommerce platform won’t solve MSMEs’ problems — what they need is a level playing field and infrastructure, efficient supply chains, manufacturing support, and a fair GST regime to be able to remain in business or join ecommerce sites as vendors.

Similarly, making RuPay card the mandatory payment gateway is going to add to the troubles of ecommerce platforms as gateways are usually decided based on the target audience. Moreover, the move is restrictive and makes it seem as if RuPay is unable to compete with Visa and Mastercard in an open market.

These and many more “suggestions” in the draft ecommerce policy make it apparent that its technology-related policy initiatives notwithstanding, the Modi government is more inclined towards the License Raj than a forward-looking approach.

How? This is exactly what we will discuss in this article.

Indian Ecommerce: A Sinking Boat?

In spite of the country having about 400 Mn Internet users, the Indian ecommerce market is way too young to merit comparisons with the Chinese and US markets. Its annual turnover — $33 Bn — is still significantly lower than what Chinese ecommerce players sell on Singles Day ($45 Bn) alone.

However, it is difficult to reconcile the growth projections of the Economic Survey data with the Morgan Stanley report. While the Survey marks the growth rate at 19.1%, to arrive at Morgan Stanley’s target of $200 Bn by 2026, the growth rate needs to be higher than 30%.

Even with global retail giants such as Walmart and Amazon betting big on India, the ecommerce market here has been a sinking boat at large.

With sales being heavily dependent on deep discounts and free delivery models in a price-conscious market, most big ecommerce players — Amazon, Flipkart, and Snapdeal — have continuously reported huge losses. So much so that Snapdeal, which once was the second-largest ecommerce platforms in the country, is now on the verge of shutting down its operations. (However, this year, the company claimed to have become cash flow positive.)

Flipkart, which was recently acquired by Walmart, registered $1.25 Bn (INR 8,771 Cr) losses in FY17, a staggering 68% increase in its losses compared to FY16. Amazon India is in similar waters, with its FY 17 losses increasing to $692 Mn (INR 4,830.6 Cr) from $527 Mn (INR 3,679 Cr) in FY16, a 31% increase.

The silver lining for the industry is that despite facing heavy losses, Indian ecommerce has been thriving owing to the continuous inflow of funds from foreign players and investors. Clearly, they’ve spotted some treasure at the bottom of the sinking boat.

But, does the draft national ecommerce policy do enough to ensure justice to their investments? Does the Indian startup ecosystem have late-stage investors like in China to take on foreign investors? Do the MSMEs that the government wants to promote have the infrastructure and supply chain facilities to sell independently? The policy neglects a number of issues that are core to the Indian ecommerce ecosystem.

The Draft Ecommerce Policy: Too Late, Too Loaded

Minister of Commerce and Industry Suresh Prabhu addressing the Ecommerce think tank

The central government, led by PM Modi, had promised to introduce an ecommerce-friendly policy back in 2014 when it came to power. However, it’s only after four years that the government set up a task force under the guidance of a 70-member think tank headed by the minister for commerce and industry, Suresh Prabhu.

Besides Prabhu, the ecommerce think tank included officials from the ministries of finance, home affairs, corporate affairs, and electronics and information technology, among others. It also comprised representatives of the telecom, IT, and ecommerce industries, from companies such as Bharti Enterprises, Reliance Jio, TCS, Wipro, Ola, Snapdeal, Makemytrip, UrbanClap, Justdial, PepperFry, and Practo.

Among the notable suggestions that the task force made in its first copy of the ecommerce policy draft are:

• FDI: Up to 49% foreign direct investment (FDI) may be allowed in inventory based e-commerce companies with a condition that the e-tailer sells 100% Made-in-India products. This will allow ecommerce firms to offer their own brands as long as they are made in India. It is also suggested that foreign ecommerce websites be brought on a level playing field with their Indian counterparts.
• Marketplace restrictions: Ecommerce marketplaces will no longer be allowed to offer deep discounts through their in-house companies listed as sellers. In fact, the policy framework recommends to put a sunset clause on discounts to prevent platforms from directly or indirectly influencing the prices of goods and services. Bulk purchases of branded goods by related party sellers, which lead to price distortions in a marketplace, will be prohibited.
• Made in India push: The sale of domestically produced goods through online platforms would be promoted by allowing limited inventory-based B2C model, wherein 100% made in India products would be sold through platforms whose founder/ promoter would be a resident Indian, the platform company would be controlled by Indian management and foreign equity would not exceed 49%.
• Consumer protection: To provide a forum for consumers, the task force suggested a Central Consumer Protection Authority (CCPA). This, besides helping protect consumers’ interests, will act as the nodal agency for intra-government coordination. It will also provide a platform for e-commerce operators to register complaints of fraudulent activities.
• Redressal: The draft suggests a separate wing to be set up in the Enforcement Directorate. This wing will handle grievances related to guidelines for foreign investments in ecommerce.
• Payments: To detect frauds in cash-on-delivery transactions, the task force has suggested the creation of a counter-fraud, intelligence-based authentication mechanism. The draft also makes it mandatory for ecommerce platforms to add a payments facility via the homegrown RuPay cards.
• More power to founders: The draft policy seeks to give more control and power to the founders of ecommerce businesses, rather than investors. Article 2.19 of the policy framework avers that “the need to amend relevant provisions of the Companies Act so as to facilitate founders to have control over their e-commerce companies despite having a small shareholding, will be examined in the light of the experience of their utilisation by e-commerce companies.”

International Context: Where Is The Balancing Act?

India is not the first, nor the last to seek to protect domestic companies in its ecommerce policy. A number of countries such as China and Vietnam have taken policy initiatives to promote domestic players. China, being an early entrant, played it differently and succeeded in dictating her terms for foreign players. This is one of the biggest reasons that Amazon’s market share could hardly increase from 0.7% there.

International attention has been focused on India, what with giants such as Amazon and Walmart betting big in India. But the draft Indian ecommerce policy, in its bid to favour domestic players, fails to address other concerns such as one arising from the World Trade Organisation (WTO), which clearly is not in favour of data localisation and domestic preference.

WTO DG Azevêdo calls for greater inclusivity to maximize the benefits of economic progress (Image Courtesy: WTO)

A group of 71 WTO countries has launched intensive discussions on ecommerce and also met for the first time in Geneva with 13 other delegations. India has chosen to be an observer instead of a member of the group, as membership may hinder the government’s ability to promote and support the domestic industry.

However, India is actively engaged in bilateral and regional trade agreements such as the Regional Comprehensive Economic Partnership (RCEP) and ecommerce has been a key component of such agreements.

The Indian Council for Research On International Economic Relations (ICRIER), in its Working Paper No 354, Trade Rules in Ecommerce: WTO and India, had highlighted, “Regulations are needed for consumer protection and national security. It is, therefore, important to have “smart” regulations to protect domestic interest. The government should support domestic players through appropriate regulations. But such regulations should not counter WTO commitments. For example, while a subsidy contingent of export performance or on the use of domestic goods over imported goods can be prohibited under the WTO’s Agreement on Subsidies and Countervailing Measures, the government can give subsidies for additional employment creation or for technological upgradation in a smart way which can benefit the industry.”

In the times o’ Trump, it may not be that easy to fully concentrate inward without looking outward. The ICRIER report also raises concerns through the US non-paper proposal on prevention of localisation barriers. The Office of the United States Trade Representative (USTR, 2017) report on foreign trade barriers lists a number of Indian policies that may impose localisation restrictions. And, as we have seen lately, the trade war between the US and India in terms of increased tariffs, the bloodbath could extend to ecommerce as well.

Now, with the first copy of the draft Ecommerce policy out, Amazon and Walmart feel the proposed policy is “heavily tilted” against foreign firms and are likely to ask the US government to reach out to Indian policymakers in case the final policy is “not moderated”.

This is important, as Amazon and Walmart (through Flipkart), both US companies, hold over 70% of the Indian ecommerce market share.

SoftBank Posts 49% Uptick In Q1 Operating Profit From Flipkart Stake Sale

SoftBank Group Corp posted a 49% increase in its first quarter operating profit

SoftBank gains were led by the sale of its Flipkart shares to Walmart for about $4 Bn

As part of Flipkart stake sale, SoftBank said it expects deferred tax of $645K (¥71,746 Mn)

Japanese technology conglomerate SoftBank Group Corp posted a 49% increase in first-quarter operating profit. The profit of $2.2 Bn (¥244.9 Bn) for its $100 Bn SoftBank Vision Fund came from the gains of its stake sale in Flipkart to Walmart.

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For the quarter ended June 30, the Tokyo-headquartered company posted an operating profit of $6.42 Bn (¥715 Bn), compared to $4.30 Bn (¥479 Bn) in the same period in the previous year.

SoftBank said it expects the sale value of its Flipkart shares (representing 19.95% of Flipkart shares on a fully diluted basis) to be approximately $4 Bn. SoftBank also said it expects to pay a deferred tax of $645K (¥71,746 Mn) on this gain.

The Flipkart stake sale represents a milestone for the SoftBank Vision Fund because it is the first instance of  monetisation of an investment made under it.

“The Company estimates that the sale of Flipkart shares will occur within 24 months of the inception of the investment and has calculated the deferred tax at 43.68%, being the Indian short-term capital gains tax rate expected to apply to the sale of Flipkart shares,” it stated in its consolidated financial report for the first quarter ended June 30th.

SoftBank Increasing Its Bets In India

SoftBank is said to be mulling a $5 Bn Asia fund, with a major focus on India, half of which is expected to be invested in the country.

Last month, reports surfaced that Kabir Misra, managing partner at SoftBank Capital, was looking to launch his own startup fund with a corpus of $250 Mn and that the fund would also count SoftBank Group as an anchor limited partner.

In May, in the biggest M&A deal seen in Indian ecommerce segment, Walmart bought about 77% in Flipkart for $16 Bn, opening up a new front in the battle with Amazon to be the leader of what is the most lucrative ecommerce market in the world.

Soon after Flipkart deal, SoftBank’s more than $200 Mn investment in Gurugram-based online insurance startup PolicyBazaar led the startup to the Unicorn club.

As SoftBank exits Flipkart, it is also planning to invest in its portfolio company Paytm’s ecommerce unit i.e. Paytm Mall. Inc42 had reported earlier that an initial round of discussions to invest as much as $3 Bn in Paytm Mall.

SoftBank has already invested $8 Bn out of the $10 Bn in the Indian ecommerce and internet market in the last five years after setting a target to invest in India by 2024 and going by the rewards it has reaped, it will surely be looking to up its investment a notch after previously slowing down because of write-offs in some of its initial investments like Snapdeal and Housing.com.

Reports have already emerged as to how the Japanese conglomerate plans to invest between $60 Bn -100 Bn in a solar power project in India and how it will partner with Paytm to create a mobile payment service in Japan by year-end.

Expect SoftBank to go hard on the Indian markets in the times to come.

Google Finally Renames Google Tez To Google Pay

 Google has also partnered with four Indian banks in order to offer instant, pre-approved loans to customers
• It has added new features such as an increased number of places for payments to the Google Pay to ensure a seamless experience for users
• As a part of the rebranding, Google Pay will enable UPI-based payments on Play Store as well

At times when WhatsApp Pay is facing trouble in rolling out its full scale India operations, global search engine giant Google has announced that it has changed the name of its digital payments application Google Tez to Google Pay on August 28.

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Inc42 had earlier reported that Google is planning to rename Google Tez to Pay and may enable Unified Payments Interface (UPI)-based payments on Play Store as well.

Google Tez was launched in September 2017, and serves lives of more than 22 Mn people and businesses who use it every month. People from over 300,000 suburbs, towns, and villages use it to pay for their electrician, book bus rides, or split a dinner bill with friends.

To support the development, Google has also partnered with four Indian banks including HDFC Bank, ICICI Bank, Kotak Mahindra Bank, and Federal Bank in order to offer instant, pre-approved loans to customers through the Google Pay in seconds.

Customers will be able to use Google Pay to take out a customised loan amount from their banks, with minimal paperwork, and the money will be deposited securely and instantly by their banks into their banks account.

Along with other old features, Google has added certain new features to Google Pay which include the following-

More Places To Pay For Users

Google Pay will allow payments online on applications, websites, and branded retail stores. Moreover, more partners for transactions will be added along with the existing partners which include Goibibo, Freshmenu, and rebBus.

The company will also be doing deeper integrations with BookMyShow. Google Pay can be used in the later part of the year for payments at retail stores such as Big Bazaar, e-Zone, and FBB.

Powering Small Businesses To Help Them Grow

Google Pay will also be working on building a dedicated merchant experience to help small business grow by helping them in getting discovered through Google Search and Maps, and ensuring communication through messages and offers.

Currently, these features are being tested with merchants in Bengaluru and Delhi.

Indian Digital Payments Industry: The Ongoing Tussles

The players in the Indian payment industry have been rushed towards growth for a while with the incoming competition from all directions. However, things are changing at fact pace now, segregating the dominating players from the masses.

For instance, in July 2018, Unified Payments Interface (UPI) has reported a 4% fall in the number of transactions, from 246 Mn in June to 235.6 Mn in July as revealed by the National Payments Corporation of India (NPCI).

Among all other major players, PhonePe has claimed the top spot and claims to have a 40% share of the market.

At the same time, Paytm has raised an undisclosed amount of funding from Warrent Buffett, who has invested through Berkshire Hathaway. As a part of the deal, Todd Combs, the investment manager at Berkshire Hathaway, has joined Paytm’s board of directors.

According to a reuters report, Indian digital payments industry is expected to reach $700 Bn by 2022 in terms of value of transactions.

It is also being expected that more than 80% of the urban population in India will adopt digital payments as a part of their routine by 2022 and 70% of the retail chains will adopt the same.

Amazon Pay Acqui-hires Tapzo, Onboards Its Employees

Amazon and Tapzo have been in discussions about the deal for the past three months

The valuation of Tapzo for the deal is speculated to be a markdown of nearly 50%, similar to its last fundraise

Global ecommerce company Amazon has plans to further strengthen its portfolio and presence in India as the company has acqui-hired Tapzo, an “all-in-one” app that aggregates 35+ different apps in one place, across categories such as cabs, food, recharge, bill payment, news, cricket, horoscopes, and more.

According to Inc42 sources, the deal has been under discussion for the past three months. Tapzo’s valuation for the deal is speculated to be a similar markdown as its last fundraising.

Tapzo raised $1.9 Mn in December 2017 from existing investors RB Investments Pte Ltd and Ru-Net South Asia at a post-money valuation of $47.3 Mn (INR 308 Cr) — nearly 50% less than its valuation in the previous round — $85.54 Mn (INR 600 Cr).

Sources revealed that the Tapzo team was sitting with Amazon Pay team in their WTC office.