A day in the life of the people who make a startup

By Rohan Paranjpey, Principal, Blume Ventures

The Blume team went on an interesting expedition while we were in Bangalore. Though we travel almost on a weekly basis to our portfolio company offices in Bangalore, Mumbai and NCR, this was the first instance when all of us took some time out to take on the role of an employee of some of our startups.

The investment space gives you a lot of exposure to data points, analogies and shared experiences. But nothing gives you a better perspective than experiencing what it’s like on the ground, not just as a founder but as the employee the founder relies on to make the wheels turn (literally sometimes).

Here is what we did and how we fared:

First Task – Dunzo, an on-demand concierge service

Six of us from the Blume team took a shot at completing daily tasks for Dunzo users. Karthik and I accompanied two experienced Dunzo runners, while four others – Arpit and Dhanasree on one scooter, Avantika and Ashish on another, took matters into their own hands.

Report Card

Karthik – 3 tasks initiated, 1 cancelled

  • Task 1 : Deliver laundry
  • Task 2: Deliver masala dosa with extra chutney
  • Task 3: Deliver 3 kgs of chicken from Nature’s Basket

Rohan – 2 tasks completed. 

  •  Task 1: pick up dry cleaning. Completed with no hiccups, but the customer looked pretty shocked to see 2           people deliver his clothes
  • Task 2: pick up Starbucks coffee. Interestingly here, Starbucks staff made the runner wait while they cleared the orders of everyone else there – don’t blame Dunzo if your Starbucks coffee is a bit late!

Ashish + Avantika – Mission Aborted (bike ran out of fuel, phone ran out of battery)

Arpit + Dhanasree – 2 tasks completed  

  • Task 1: Pick up envelope in Indiranagar, deliver to UB city. Completed with no hiccups
  • Task 2: Pick up a huge set of photo frames from Richmond Town, deliver to Nagarpethe. That’s the last we saw of Arpit and Dhanasree that day!

Next stop –  iService – Expert Gadget Repair

We spent the afternoon with Ankit and team at the iService office, and then some time at their service center close-by.

Did you know that more than 50% requests for phone/tablet repair are screen related? In fact, 15% of iPhone users use an iPhone with a broken screen. This statistic might have been lifted off our team – 1 out of the 6 of us who own an iPhone has a broken screen!

Ankit walked us through how a phone screen is fixed, using the best parts from China and the best machines available, and also showed us how easy it is for repair shops to just use fake parts and take advantage of unsuspecting customers. There’s definitely a space for a trustworthy brand for unauthorized repair of personal gadgets, and we’re glad iService is miles ahead of its competition here.  

P.S. Some of us (most of us) took advantage of this opportunity and walked out with new screens, batteries and microphones.

MonkeyBox – Not Quite Nostalgia

Last stop, we spent time with Sanjay and Sandeep of MonkeyBox at their kitchen where they prepare healthy, nutritious food for a whole bunch of school-going children in Bangalore.

They’re getting the best chefs from 5-star hotels and the best nutritionists who, in a daily tug-of-war, push out the best tasting healthy food even adults can’t get enough of. And they do it with a strong focus on getting the freshest ingredients daily.

What’s great about MonkeyBox is the complete transparency in the process. They frequently call parents over to their kitchen so parents can see for themselves the care that goes into ensuring that the whole process is hygienic

Pictures are worth a thousand words here –

Where was MonkeyBox when we were in school??

All in all, an epic 3 days to say the least!

 

Tech-enabled rental brokerage company Fastfox.com raises 30 crore

In April, Home rental startup FastFox.com  raised 30 crore rupees in a Series A funding round from Lightspeed India Partners, Blume Ventures and CyberAgent Ventures. Sajid Fazalbhoy of Blume Ventures and Pallav Pandey, Founder & CEO of FastFox.com talk about how the latest investment round benefits the company.

  1. What is your thesis behind this investment?

Sajid Fazalbhoy: FastFox.com is working in a massive multi-billion dollar opportunity. Home rentals is a big share of the annual expenses of an Indian Household. In spite of that there is no major brand in the market which provides people rental homes with a reliable experience. FastFox.com is the right solution with the right mix of technology and process rigor to offer efficient home rental solution at scale. We strongly believe that with FastFox there is a credible opportunity to build a major pan-India Home Rental solutions brand.

  1. How does this round benefit FastFox.com?

SF: The company has attracted funds from some very tactical investors. We have CyberAgent Ventures that has invested in a real estate Chinese unicorn. We have a leading data science investor from the Valley also. These investors along with LSVP provide very key insights into comparing markets. The company will use this money to build a better tech layer that will provide homeowners more relevant data for their needs. The company has for now captured the Gurgaon market and will expand their reach to other cities too. The funds will used to ensure FastFox’s brand recall as the go to site for a consumer s rental needs

  1. How does Fastfox.com plan to utilise the funds?

Pallav Pandey – We plan to invest the funds to improve our technology solution, service delivery models and expand the team across engineering, sales and operations.

  1. What are your expansion plans?

PP – We will continue to focus on rental business which is a huge opportunity. We will spend on improving our systems, and plan to expand to Noida and Pune in the next six months, and then eventually, expand to Bangalore and Mumbai

  1. How does Fastfox help overcome the challenges in the rental space?

PP – The real estate business is fragmented and dominated by small local players which makes the experience of house hunting time-consuming and painful.

FastFox.com is focused on making the home renting experience quick, convenient and transparent. Customers can check authentic property related information including photographs from the convenience of their home/office. Shortlist the one they like and do assisted home visits with FastFox.com. We also help them negotiate best terms with the home owners and do the complete paperwork.

 

  1. How does Fastfox.com model work?

PP – FastFox.com leverages its network of brokers to procure updated information on rental homes in near real time. FastFox.com is able to source 1000s of houses through this network. This makes FastFox.com the largest destination for ready rental homes in the city. Customers coming on FastFox.com can not only check and discover best rental options but also schedule home visits and finalize homes.

  1. Could you share some key metrics?

We have more than 2,500 property listings in the city posted on our website. Customers typically shortlist 6-7 properties for themselves. The median time that a customer takes to select a property from the time they reach fastfox.com is less than 6 days.

 

Data, loyalty and marketing platform, m.Paani raises $1.35 mln

Some of you may have heard that one of our portfolio companies m.Paani recently raised $1.35 mln in a round led by IDG Ventures India, Saha Fund and Blume.  So, we chatted  with Sajid Fazalbhoy, Principal at Blume and Investment Lead for m.Paani as well as Akanksha Hazari, the startup’s CEO & Founder, to understand how this investment benefits the company and how the platform is revolutionizing the loyalty space in India

unnamed

What is your thesis behind this investment?

Sajid Fazalbhoy: m.Paani is solving multiple pain points for different players in the retail value chain. The moment a product moves from a shelf, the brand has no visibility in terms of who is consuming it. Consumers are valuable to any brand and it’s very important to know who its consumer are, where they live and what their preferences are, and m.Paani definitely helps solve that pain point. In a very competitive market today, a retailer has to deal with the onset of online selling, multiple retailers in an area, which makes it difficult for them to stand out and get additional footfall. What m.Paani provides is a loyalty solution that serves as a hook for consumers to actually come and transact at a particular retailer outlet. So, footfall has increased in those stores because consumers who are m.Paani loyalty members realise that they will get a tangible reward for actually transacting and building affinity towards a certain outlet and a certain brand. At every part of the value chain, there is some benefit to each stakeholder whether it is the brand, consumer, or the retailer. m.Paani is giving hundreds of millions of consumers the chance to win rewards, perks and benefits for being loyal to a certain brand.

How does this round benefit m.Paani?

SF: We invested in the company in April 2016 and post that we put a certain amount of money. The investment round serves as a validation for the concept that we bet on, because the new investors understand that this could really scale and become a large opportunity. With the capital coming in, the company can now go to more cities, have more brand tie-ups and attract a large number of consumers.

With the new investment what are your expansion plans?

Akanksha Hazari: There are two areas in which we will be investing: first, product development with a strong focus on data science, and second, obviously growing our portfolio of brand clientele, and our retailer and consumer bases, while scaling operations to match. In terms of growth, I think it will primarily be in the major metros and tier-II cities. A lot of it is client-driven as to where they want to launch a loyalty program to gain data insights about their consumer and retail networks, and do loyalty and marketing. Today our core retailer and consumer bases are in Mumbai and Greater Mumbai.  We have started to see early growth via direct marketing of our retailer loyalty product in the expected key markets of Pune, Delhi NCR, Gujarat, Bangalore and Ahmedabad.

What verticals are you looking at?

AH:  We are only scratching the surface with FMCG companies right now. We will deepen our FMCG proposition with large marquee clients, new brands and smaller regional brands, in addition to expanding into pharmaceuticals, telecom and digital payments players.

Tell us about the data platform that you are building

AH: What m.Paani wants to solve from the outset has been the problem of mass market consumer data and the foundation of the company is that we use loyalty to get data to then do intelligent loyalty, intelligent marketing and even doing product innovations in the future. Our loyalty platform, that bridges brands to consumers directly or via retailers, is actually the critical pipe for collecting data about mass market consumers and this includes everything from demographic, transactional, geospatial, and psychographic. Eventually what we want to tell is a story of individual mass market Indians with data.

unnamed (3)

What benefits can the consumer or end user derive from m.Paani?

AH: We aim to revolutionise mass market consumer behaviour with the first loyalty program that enables every Indian to earn points and avail of offers at their local neighbourhood shops, and directly from brands, and redeem them for exciting, life-changing rewards. Using our mobile-based platform we give consumers direct access to local shops, brands, products, and offers with a touch of a button and the opportunity to maximise value from their spend.  I believe that the future of Indian retail lies in empowering brands and local businesses with the data and technology to build a direct, customized relationship with a new generation of mass-market Indian consumers who are online, and seek value and service.

How many users do you have on the platform?

AH: Currently, we have over 100,000 users and around 1,000 merchants primarily in Mumbai and Greater Mumbai.  We expect exponential growth in both of these bases in the coming 12 months.

Where can consumers earn and redeem points?

AH:  Our brand loyalty clients have included Apollo Pharmacy, Vodafone India, and Marico. We will soon be launching with a digital payments client.  Customers can redeem the m.Paani points they earn when shopping with in-network brands and retailers for direct discounts, in addition to gifts from a catalogue that consists of more than 1000 items, including talk-time & data packs and more exciting, even life changing rewards, such as water filters, the first reward the company offered and the inspiration for its name.

unnamed

What are the redemption rates and what are people redeeming for?

AH: Our redemption rate has been between a steady 60-70%, in line with best-in-class global loyalty programs. As a benchmark, Payback’s redemption rate in India is about 11% today. What we see in redemption behavior is that around 40% redemption tends to be for discounts, recharge etc and usually these will be our consumers’ first redemption. It’s a low-value redemption used to test the program and build trust with our company. After getting the first gift consumers will save for four to six months on average to redeem a much bigger reward, which can be anything from solar lamps to electronic home appliances.

What are your views on retail tech landscape?

AH: Broadly my view on the retail tech landscape is that retailers today are being bombarded with a lot of different products and as a consequence the retailer experience is extremely fragmented. We have some players doing inventory, others doing digital payments, and the list goes on.  I believe what differentiates us is: first, we are trying to bring these pieces together in one place to make the retailer experience much more seamless. Second, we are an extremely user-centric company where the retailer has always been a key user. We build for our retailer, designing for his level of comfort with technology, local language requirements, handset limitations and more.  And third, we are focused on the aspect of the retailer’s business he cares most about, his customers. Small retailers believe business success and growth lies with customer satisfaction and growth, and via loyalty we are helping the retailer to retain and acquire customers in an increasingly competitive environment, building a relationship with a quickly evolving mass-market consumer. Our retailers have seen more than 20% growth, in less than six months of using our loyalty SaaS product.

 

What we saw in China and what India can learn from it?

Team Blume in front of Alibaba HQ in Hangzhou
Team Blume in front of Alibaba HQ in Hangzhou

The entire Blume team (with exception of our CFO, Ashish, who stayed back for urgent work) visited China in middle of March 2017. This was the first ever visit to mainland China for most of us, scheduled around an anchor of a Chindia business conference in Beijing on March 15th. We were further taken to Shanghai, Hangzhou and Shenzhen. Here’s what we learned about our neighbor and its internet industry:

Infrastructure

To my mind the infrastructure (roads, ports, airport, railways, mobile networks etc) are all designed to impress in China. The effect of top-down leadership style is clearly visible in what they are able to achieve in the relatively short span of 25-30 years. Based on the infrastructure and dogged pursuit of large-scale plans, the cities have now started rivaling the best of the West. At least the wealthy can create a lifestyle that is available in cosmopolitan towns like New York or London.

Work Ethic

Chinese people are immensely hard-working – like people on a mission, every one of the 1.3 Billion of them! This was one thing that impressed me more than the infrastructure. An average Chinese keeps to herself and shows no reluctance towards working hard. The youngsters are carefree like anywhere else in the world. The foreign/English educated elite also has a strong sense of nationalism and pride in their work. As compared to an average Indian workplace, even blue-collar workers didn’t seem likely to indulge in gossip. So perfect was the picture that it felt like they have all been instructed to present this face to us 🙂

Shanghai skyline – Built to Impress!

Scale and Profitability

Given that the size of economy is 5x that of India and per capita income is 4x, the scale of all products and services is at least an order of magnitude bigger in China. The numbers that Alibaba and Tencent do today will probably take Indian internet companies at least 7-8 years to achieve. Even smaller companies like Share It, Apus and JollyChic have shown how to achieve scale while keeping very strong unit economics. This dogged pursuit of profitability even in consumer businesses is something that Indian startups can surely emulate.

Our experience with Scale and returns in Chinese VC industry also adds to the experience. Chinese VCs suggest that the Chinese entrepreneur is very ambitious and thinks of scale from very beginning. Hence their experience of Indian entrepreneurs is that there’s too much talk and too little ‘delivery’. From the Chinese benchmark, Indian companies do fall way shorter. But they all agree that India is a large market and hence a large number of Chinese are watching to play in Indian market. They are waiting for the valuations to correct so that investment can bear profit. At least the strategies are particularly suckers for profitability of Indian venture-funded companies.

Focus on systems

The biggest Chinese internet companies today (Alibaba and Tencent) were both started in 1999-2000. The venture capital ecosystem was very weak in China back then. Hence they have all built profitably from very beginning. As a result there’s a strong focus on product innovation and building systems such that manual intervention is required only minimally. Much different from the culture in Indian startups to ‘thrown people at the problem’, Chinese companies are more scale and profitability focused. Hence they bring in automation wherever possible.

The invisible Hand

Some conversations we picked on the sidelines told us that there’s a Party influence practically everywhere in China, if only mostly hidden for an onlooker. Over last three decades, this system has brought great rewards to the people of China as it has lifted hundreds of millions out of poverty. As compared to the democratic-liberal-open system we have in India, it seems like average public is happier falling in line because this system has brought them unprecedented prosperity. We were told that there’s much less corruption, at least in the bottom rungs of the Chinese government. But it is clear that for anyone to do a big business in China, aligning to the government is a must-do. A corollary to this is that if the Party wants, the system will tweak itself to work in favor of Chinese companies and contracts will become unenforceable.

Snapshot of the Chindia TMT Conference in Beijing

Authenticity of Numbers

One clear observation has been that Chinese have been throwing bigger numbers to everyone. Among the app makers, the new obsession is about ‘Billion’ (downloads, MAUs etc) and also ‘hundreds of millions’ on revenue front. Given that there’s a fragmented app ecosystem which cannot be audited, these numbers have look quite suspect. What one can’t dispute is the performance of their companies on public markets and that the VC industry is at least 5 times bigger than India. The rate of deal-making in China is today 5-10 times that of India and the number of unicorns recently crossed 35 (5X of India!). Hence it is not all hot air!

Chinks in the armor

There are chinks in the armor that remained mostly invisible – at least in cities there’s a clear preference for the people who have money, while there’s no space or voice of the poor in the cities. Fast and reliable transport systems allow the cities to expand beyond a catchment radius of 100 km and hence the poor continue to remain on fringes. Several industries, like Pharma, in China are still under-developed to cater to their own massive demands. To add to it the fact that China is soon becoming ‘aged economy’, the needs appears very acute. Chinese have also struggled with English despite massive government programs promoting it in pre-Olympic era, hence they continue to lag behind India in industries like IT and ITES.

ChIndia Chronicles : Infrastructure learnings from China

This second blog in the ChIndia Chronicles series (first one is here) explores various infrastructure lessons from China that India can imbibe in our current processes and future plans. I’ve tried to segment infrastructure as 1) Public; 2) Policy; 3) Education; 4) Entrepreneurship and 5) Financial Services for convenience and clarity.

Public Infrastructure: One of the most striking factors about China is the speed at which development of physical assets like roads, highways, warehouses happens in China. It is just tremendous. Yes, one may attribute it to the singular approach of the Chinese government. But, it doesn’t discount the pace of development or the immense benefits caused to businesses and people’s lifestyle in all cities, towns and villages alike, thus helping bridge the urban-rural divide. In India, the development of physical infrastructure is much needed to bridge the 6% urban-rural economic growth divide as the rural economy contributes 50% of the consumption and makes up 70% of the workforce.

Apart from the pace of execution, the vision behind these projects like – OBOR (One Belt One Road), is very high in terms of sheer scale and impact – a vision to connect China to Europe (via Central Asia), the Persian Gulf, the Mediterranean (through West Asia), and the Indian Ocean (via South Asia).

OBOR was conceived in 2013 as a modern equivalent of the Silk Road. In 2014, China established the $40 billion Silk Road Fund to finance these initiatives and signed bilateral cooperation agreements related to the project with Hungary, Mongolia, Russia, Tajikistan, and Turkey. In 2015, the State Council authorised an OBOR action plan in 2015 with two main components : 1) The Silk Road Economic Belt and 2) The 21st Century Maritime Silk Road (as shown in Fig 1).

Fig 1 : A visual representation of the proposed OBOR routes

Policy Infrastructure : ‘Policy and development go hand in hand’. And one of the best examples of this line is the Hangzhou Cross Border E-commerce Zone – a platform built to boost the growing local manufacturing and cross-border e-com businesses.

Hangzhou e-commerce pilot zone (which we visited during our China trip) development plan published in Jan 2016 states that the city will establish a system of information sharing, financial services, intelligent logistics, e-commerce credit, statistical monitoring, and risk control, in order to promote cross-border e-commerce by the end of 2017. Below (Fig 2) is a snippet of the progress they made over the last 4 years.

Fig 2 – Progress made in Hangzhou cross border e-commerce pilot zone

According to the plan, the city will have over 5,000 cross-border e-commerce companies, more than 10 cross-border e-commerce industrial parks and more than 20 cross-border e-commerce incubation platforms in 2017. About $30 billion of exports and $10 billion of imports is expected to be realised through this platform. The platform adopts innovative policy measures for customs clearances, tax refunds, finance and logistics, to meet the need of global e-commerce development.

Education Infrastructure: China has more than 95% literacy rate (~100% in the age group of 15-24) while India is just about touching 75%. Similar to China, India’s greatest asset is its human capital and needless to say, significant push is needed to enrich the country’s human capital with the required skill set.

One of the interesting initiatives for skill building in China was through the involvement of corporates and industry, like how Alibaba came up with the GET program (Fig 3) – an initiative to impart supply chain and e-commerce expertise to students and SMEs.

Fig 3 – Overview of GET Plan by Alibaba

Currently this program is being run in 455 universities and 1000 training centres across China (Fig 4), up-skilling their youth and capitalising on their existing strategic industrial advantage. This leads me to envision a scenario where IT giants of India like Infosys, come up with similar training programs for IT workforce in Indian colleges. The National Skills Development Corporation seems to be working towards the mission of creating skilled human capital in India.

Fig 4 – Scale of GET Plan

Entrepreneurship Infrastructure: As discussed in my previous blog in this series, the entrepreneurial spirit is similar in both China and India. However, the supporting infrastructure that is needed for emerging businesses to bloom and succeed are missing at times in India.

During one of our visits, we were taken to 3W Startup Cafe – one of many such coffee houses in Zhongguancun, famous to have been visited by the Chinese Premier Li Keqiang. This coffee house (one of many such) is a startup hub with a dedicated co-working space (generally called a coffice), an early stage investment fund, a recruiting agency for the startups and a PR agency (Fig 5). This takes a very wholistic approach to startup incubation and acceleration. In India, we have startup incubators like T-Hub, who are doing a tremendous job by taking such a wholistic approach with great infrastructure and support. However, so as to reach a lot more startups in smaller cities, it can be a great starting point to turn common places like coffee houses into startup hubs with a wholistic offering and vision in mind.

Fig 5 – Wholistic support for entrepreneurs at 3W Startup Cafe

Financial Services Infrastructure: Our financial services infrastructure seems to be lagging China’s by 7-10 years but we seem to be catching up fast here. For example UnionPay was launched in 2002, while RuPay was launched in 2012. The exponential growth of UnionPay has been fuelled by forced monopoly of UnionPay in China. It is the only network that is allowed to process Yuan-denominated card transactions in China. All Visa/Mastercard based card payments have to pay commission to UnionPay for Yuan-denominated transactions in China. Being a capitalist democracy, RuPay monopoly is unlikely in India. However, despite being a cost-efficient payments platform RuPay has seen lesser adoption compared to its Chinese peer. This may be due to various reasons like 1) Lesser penetration of digital/card payments in India; 2) Lesser reliability (high failure rates) of RuPay platform vs Visa & Mastercard; 3) Longer processing times by the network; 4) Lack of good connectivity.

In summary, there’s definitely a lot that we can learn and imbibe from China and its time for us to start looking towards at the East as well. In entirety, we seem to be moving along the same trend line in Financial Services, Skill Development and Entrepreneurship. But, the physical infrastructure development and policy reform leave much to be desired in terms of pace of execution and vision.

Note – These are my observations and learnings from conversations and talks as part of the China – India Dialog 2017 delegation. The points mentioned above have been supported with requisite data sources wherever possible.

ChIndia Chronicles : India Vs China – a qualitative study

Fresh from a 2-week long trip to China, after having interacted closely with various stakeholders in the Chinese startup ecosystem – Investors, Startups, BAT (-B) and Govt. officials, here’s the first post to capture the rich learnings.

This post aims to explore the similarities and differences between the two countries on different levels from an entrepreneur/investor point of view.

How similar is India to China?

  1. Customer behaviour – Our first takeaway from the trip is that Indian customers are similar to Chinese customers rather than US customers. This may stem from the fact that the personal expenditure per capita in India is $1,012 closer to China’s ($3,005) vs US ($37,206). The behavioural similarities are –

a) Both Chinese & Indian customers are equally sensitive to small changes in their wealth. Few supporting instances for this deduction are – the rapid popularity of the ‘Red Packets’ game on WeChat I witnessed first hand (Fig 1) and the success of the ‘Spin & Win’ exercises by Times Internet (Fig 2)

Fig 1 (right) – Excellent engagement on the WeChat group owing to a gaming feature called ‘Red Packets’ which enables people to gift other people money in a randomised (or targeted) fashion causing minor spikes in your wallet balance

Fig 2 ( Times Internet Presentation at China – India Dialog 2017, Beijing) – Satyan Gajwani, MD of Times Internet, presented a case study where they found 130% increase in M2 retention when new users were offered ‘Spin & Win’ opportunities

b) Very much like in India, majority of the Chinese consumers are not particularly loyal to a brand when there is no major differentiation in offering. From our discussions, we gather that they scout for the best prices across Taobao, JD.com, etc before ordering.

c) Also, unlike what’s widely being sensationalised, most day to day transactions are not via WeChat and cash is still highly preferred. I would argue that even though the penetration of electronic payment platforms like WePay is higher compared to India (owing to the large feet on street salesforce for these platforms), the acceptance or usage by common customers is not drastically higher than India.

d) Millenials are the Chief Procurement Officers (a term coined by Kunal Shah of Freecharge) of the Chinese households much like in India. We had an opportunity to engage with students of Peking University and gathered that the student behaviour is similar to Indians with regards to incentives, adoption of new concepts and products.

e) Another similarity is that the majority of the customer base cares more about the functionality elements of the product vs the design.

2. Market Potential – Owing to the similarity in population and rate of digital penetration, the market potential for both these countries is immense and in case of India, greatly untapped. The B2C market for e-commerce, consumer goods is huge in both the economies, but B2B market potential for SaaS is higher in India compared to China, based on our conversations.

Fig 3 – India Market Potential vs. China & US (ChIndia Dialog 2017)

3. Entrepreneurship Spirit – We could see the same spirit and zeal in founders of both nationalities. There is a strong desire to build great businesses and differentiated products. There is also a common focus to build solutions for the local market’s specific problems instead of merely following the footsteps of western innovation.

How different are we?

India & China are not only one of the largest and fastest growing economies of the world, but also one of the most ancient civilisations with strong culture and heritage. However, there are some striking cultural, structural and political differences between the two countries as elaborated below.

1.   Cultural differences:

  • The Chinese society and the Chinese startup ecosystem place a strong emphasis on communal well-being vs individual well-being owing to the communist ideology, which is different here in India. A fine example of this push towards communal well-being is the GET program (Fig 4) by Alibaba, through which 455 universities and 1000 training centres train youth in E-commerce and supply chain processes.

Fig 4 – GET plan by Alibaba Grp. to train youth in E-commerce and supply chain

  • Another difference that we found is the Chinese startups’ attitude towards competition – they refrain from talking about their competition and take an indifferent approach to their developments.
  • Unlike in India, most of the upcoming startups struggle to make it big as they are in the shadows of the BAT (who have captured different verticals & penetrated deep into the market) and hence, startups like Apus, Shareit are looking at India, Indonesia etc as their target markets.
  • The teams in Chinese startups have comparatively higher operational efficiency owing to a strong culture of discipline. The Chinese have a better work-life balance compared to their Indian counterparts.
  • Another major difference in the work and startup culture between India and China is the percentage of women in workforce and key product roles. In China, women are more than 45% of the work force while in India its 27%, according to World Bank Data. Kunal Shah, in his address to the China India conference, mentioned that a majority of Chinese startups prefer women as product managers. We were also pretty happily surprised to find a good gender diversity ratio in Chinese startups during our visits (Fig 5).

Fig 5 – Healthy gender diversity in a Chinese startup office

2. Structural differences

  • Customer segmentation of India & China is different. India’s Urban Mass is the driving factor for growth as it outweighs India’s Urban Middle while China’s Urban Middle far outweighs its Urban Mass, according a Goldman Sachs report (Fig 6).

Fig 6 – Difference shown in customer segmentation between India & China

  • Information is much more widely available for all in India compared China, owing to the controlled media. This structural difference promotes better foreign investor confidence into Indian startups vs Chinese startups.
  • Infrastructure – both physical (roads, logistics channels etc) and digital infrastructure (UnionPay, Internet connectivity etc) is far more developed in China vs India. This in turn results in differences in business growth rates and scale of operations.
  • Ease of doing business is comparatively easier in China apparently as the time taken to set up is less with most of the documentation being online. However, the legal and compliance procedures are trickier in China.

3. Political differences

  • Rapid infrastructure development and policy reform is possible in China, unlike India, owing to the centralised, one-party political system in place.
  • The political system in China strives towards a homogenous and orderly citizen behaviour – so much so that all govt officials don’t follow any religion.
  • Lastly, the media in China is regulated unlike in India – a double edged sword as its inhibitive for free public opinion but constructive towards unification with lesser distraction from development goals.

Note – These are my observations and learnings from conversations and talks as part of the China – India Dialog 2017 delegation. The points mentioned above have been supported with requisite data sources wherever possible.

CERTIFICATE FOR LOWER DEDUCTION OF TAX

Take the following example:

Startup A offers service worth ₹50,000 to a larger business.

April 1, 2016 is the date on which service was availed and payment was due.
B will have to pay ₹50,000 to A. They won’t transfer the full value. Instead they will do the below:

B will transfer ₹45,000 to A
B will deposit the remaining ₹5,000 to the income tax department on behalf of A
This amount is called TDS (Tax Deducted Source) and remains to the credit of A and will be adjusted against A’s total income tax payable at the end of the year.

By March 31, 2017…
A has served 1,000 such customers and each customer has deposited ₹5,000 each to the government (Income tax department) on behalf of A. This results in total tax deposited to IT department is ₹50,00,000. Given A is a startup and possibly due to high expense base, they may not have any income and therefore no tax obligation. Or it could mean that it has tax obligation but it is less than ₹50 lakhs that is deposited. Now A will wait for filing return of income and pursue for a refund from the department.

This means that while A was not obliged to pay tax and got their refund, valuable ₹50 lakhs remained locked in and couldn’t be used.

The tax laws contain a provision where, every company estimating a loss in the subsequent year and will be locking in needless capital with government, can apply to the IT department and request for a certificate that authorises Startup A and similar cos to tell its customers not to deduct tax at 10%. The IT department may issue certification to deduct tax at as low as 1% or even 0%. It will depend on case to case.

Then what’s the catch and why can’t every company use it:

Please note that IT department wants to know following:

0. Your last year income showing such amount of profit that justifies a lower tax deduction certificate or even a Zero tax deduction certificate. There could be a profit in this year and you may still envisage a loss in the next year. That’s fine. Just that your CA should be able to justify the reasons.
0. Next year’s estimate. They will retain a copy in their records and use it to scrutinise when you’re filing your application next year possibly.
0. They need a list of all customers who you expect to transact with during the next year. Now this is where it becomes tricky. If you are a company where there are a humongous number of customers or there are a few but company can’t really predict who these will be, then you can’t be applying for this certificate.
0. So the lower deduction certificate only works best for B2B companies or B2SMB biz provided these are recurring customers.
0. You can also do part lower deduction. That means – if you have some customers who are recurring you can apply for those who are available and IT dept will allow a zero tax rate and for others they can stick to 10%.
0. Each time you raise an invoice you have to share the copy of the certificate and the annexure where the name of the customer is listed.

When giving the projections, while you need to ensure that it gives enough conviction to the IT officer that you deserve a lower deduction due to low profits or losses, do ensure that the projections are realistic.

It takes a few weeks of process to get this done.

If you have further questions feel free to reach out to me or varun@constellationblu.com.