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The charge of India’s unicorn brigade

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Six years ago, when venture capitalist Aileen Lee coined the term “unicorn”—to define the extreme rarity of startups valued north of $1 billion—there were just 39 in the US and only three Indian unicorns. Today, the US and China are home to over 200 each, while India has roughly 30!

Since mobile advertising company InMobi became the country’s first unicorn in 2011, there had been only the odd spotting. But in the past two years, Indian unicorns have smashed through the barn door—10 in 2018, while the class of 2019 has:

  • Eyewear retailer Lenskart
  • E-grocer BigBasket
  • Fantasy gaming platform Dream11
  • Cab aggregator Ola’s EV company Mission: Electric
  • Logistics startup Rivigo
  • Logistics startup Delhivery
  • Cloud data protection firm Druva
  • Enterprise contract management firm Icertis
  • Healthcare analytics company CitiusTech

Indian unicorns, such as now-household names Flipkart and Ola, benefited from the spread of internet-connected smartphones and cheap cloud computing. They built empires by bringing existing businesses like shopping, taxis, food delivery, hotels, etc., online. Of course, there was also a stream of investors ready, willing, and able to fund startup dreams.

It takes two to tango. So, too, the disruptors of the decade: Ola and Uber in ride-hailing, Flipkart and Amazon in e-commerce, Swiggy and Zomato in food tech, OYO and SoftBank in hotels… oh wait!

Amidst all this brouhaha now, it is easy to forget that things weren’t always like this. As we recapped earlier this year:

“Just ten years back, there were a handful of startups and a far smaller bunch of investors. A $100,000 funding round was considered respectable and VC decisions took months to move from interest to mandate.

So how and why did things change?

If one were to look back and connect the dots, it wouldn’t be farfetched to conclude that if there was one event that catalysed this revolution, it would be when Lee Fixel, then head of Tiger Global, invested $10 million into a then largely unknown online bookseller called Flipkart.”

That was in mid-2010. Tiger Global made nearly 50 early-stage bets in the early part of the decade and irrevocably changed the three Vs of venture investing in India.

  • Value: A $10 million round was unheard of at that time
  • Volume: One fund invested in 15 companies at most
  • Velocity: Tiger invested within hours, rather than months, of a meeting

Fixel invested massive sums in e-commerce startups like Ola, classified ads platform Quikr, e-tailers like Myntra and ShopClues. Ola and Quikr became unicorns in 2014, the same year Flipkart bought fashion e-commerce portal Myntra.

But potential Indian unicorns really blossomed after two seminal moments in 2016. The first was in September when Reliance Industries launched Jio and took dirt-cheap internet data into every nook and cranny of India. Then, in November, the Indian government replaced 86% of currency notes with a new set—a “demonetisation” that sparked the digital payments wave.

Suddenly, one could order and pay for clothes, food, taxis, hotels, insurance policies, and medicine using just their smartphones. All startups needed to keep seducing customers with discounts and cashbacks was a benevolent investor.

No backer was more so than SoftBank.

Role Of The E-Commerce Startups

The Masayoshi Son-led firm led mammoth funding rounds in a host of e-commerce startups in the latter half of the decade. In fact, SoftBank-led rounds have created six Indian unicorns in the past two years. Lenskart, Delhivery and Ola’s Mission: Electric were the beneficiaries in 2019.

In 2018, they were insurance aggregator PolicyBazaar; Paytm Mall, the e-commerce arm of payments company Paytm* (also a unicorn); and OYO, which claims to be the world’s third-largest hotel chain.

SoftBank has backed at least one major sector disruptor and, in the process, created not many unicorns. Why? As we summed up in 2017:

“But the magnitude of the ($100 billion Vision) Fund is a double-edged sword. On the one hand, SoftBank can enter pretty much any deal it chooses to but on the other, it can’t afford to miss having a stake in any of the hot sectors/startups that could emerge as the totemic companies of tomorrow, essentially ending up with an index fund of the most important startups in the world.”

And it has. Nearly all B2C (business-to-consumer) unicorns are backed by SoftBank. But it has been conspicuous by its near-absence in one rising space. B2B, or business-to-business.

 

After an Annus Mirabilis, what does 2020 hold for Indian SaaS?

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In 1954, Roger Bannister became the first human to run a mile in less than four minutes. This was an epochal moment because, hitherto, the common belief was that it was an impossible feat to achieve. In the immediate few months after, inspired by Bannister’s feat, a number of other athletes emulated him. So much so what was until recently considered impossible became not just possible but commonplace.

In SaaS (software as a service) terms, reaching the $100 million ARR (annual recurring revenue) is the equivalent of running a four-minute mile. Early in 2019, Freshworks* became the first VC-funded Indian SaaS company to breach this milestone. Druva followed suit soon after, and there are at least half a dozen Indian SaaS startups that are lined up to emulate Freshworks over the next year or so.

For Indian SaaS startups, 2019 was Annus Mirabilis–a “year of miracles”. A perfect storm of ingredients along all dimensions—markets, capital, strategy, macro-trends—provided a platform for Indian SaaS companies to thrive like never before.

A look back at 2019

While Freshworks represents the totemic lightning rod that inspires several other Indian SaaS companies to follow its path, there were several other tailwinds that powered Indian SaaS startups in 2019.

2019 saw a rising SaaS tide all over the globe. According to global research firm Gartner, the global SaaS market is currently worth just under $215 billion and is poised to grow exponentially over the next three years. By 2022, it’s expected to clock in north of $330 billion. The Gartner study identifies strong tailwinds that could indeed propel the global SaaS market to these new heights. More than a third of surveyed organisations see cloud investment as a top-three investing priority, and that by the end of the year, over 30% of technology providers’ new software investments will shift from cloud-first to cloud-only.

Another Gartner survey estimated that spending on SaaS in customer relationship management (CRM) alone would reach approximately $42 billion in 2019. This represents 75% of the total software spend in the segment, continuing the rapid decline of on-premises deployments.

If “software is eating the world”, it is clear that in 2019, “SaaS is eating software”.

Next, perhaps for the first time ever, 2019 saw an abundant supply of capital for SaaS startups in India across the entire spectrum from seed funding to $100 million cheques. The first generation of Indian SaaS successes—companies like FusionCharts, Kayako, Zoho and Wingify—were all bootstrapped companies. The lack of a large funding treasure chest to fall back on meant that these companies grew slowly, investing money towards growth only from internal accruals, and more often than not, capped out at around the $10 million ARR mark.

The emergence of VC-backed Indian SaaS success stories like Freshworks and Druva, however, represents a new chapter. These companies raised hundreds of millions of dollars to fuel their growth and grew far faster and much larger than their bootstrapped predecessors. This success in turn has fuelled a virtuous cycle where most capital has entered the system via new investors looking to find the next Freshworks.

Year Revolved Around Investors

2019 also saw the return of marquee investors like Tiger Global that have now adopted a sharp B2B/SaaS focus while picking new bets in India. This is in sharp contrast to their earlier bets like Flipkart, which were consumer tech plays. The year also saw the emergence of funds that were focused solely on Series B SaaS/B2B investments, reflecting the increasing maturity of the funding environment.

Sure, horizontal SaaS categories like CRM and collaboration have grown to gargantuan levels in the recent past (as evidenced in the size and scale of leaders like Salesforce.com, which currently boasts a market cap of nearly $150 billion).

But there has also been a sharp increase in the number of bets made in vertical SaaS categories—companies that focus on only one specific industry or domain—like Zenoti, which offers ERP solutions to spas and fitness centers and GoodMethods, which offers enterprise solutions to dental clinics. There are a number of other categories like this consisting of late adopters of technology that are now being brought up to speed by nimble startups like Veeva (a SaaS unicorn focusing only on the pharma industry) that replace either manual systems or ancient pre-internet software.

 

A palpable shift towards cloud kitchens in India and SEA

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Today, Rebel says it has has 260 cloud kitchens in 17 cities and processes 2 million orders a month. Freshmenu, meanwhile, has 37 kitchens in three cities and claims to process 20,000 orders per day.

The Ken reached out to Rebel Foods and was informed that the company couldn’t respond as the official spokespersons were not available. Sequoia, too, refused to participate in the story.

The fourth whistle

Rebel’s latest funding puts it on a collision course with Swiggy-Zomato. But not so long ago, these companies helped Rebel’s cloud kitchen model take off.

According to industry estimates, about 60% of Rebel Foods’ orders continue to come through online aggregators. To maintain some sort of autonomy, the company, beyond taking orders on its own web and app platforms, maintains it own delivery fleet. It also runs social media campaigns to grab eyeballs for its own platform.

Rebel’s switch to cloud kitchens came just as the online food delivery revolution was taking shape, and in doing so broke the company free from complete dependence on aggregators.

Swiggy started its operations in 2014 while Zomato was already operational in India since 2006 and Uber Eats didn’t start its operations in India until May of 2017.

But not everyone was as lucky.

Aggregators have largely established themselves in positions where they can control the flow of orders to a particular restaurant or a brand by controlling the listing that a customer sees on their platform. They also have reams of customer data to predict behavior, making it easy to meet demand. And cloud kitchens have to depend upon them for customer discovery.

The aggregators know and do not hesitate to take advantage of it. While both Swiggy and Zomato control the search and discovery of restaurants on their platform, Swiggy also charges a promotion fee from its partner restaurants above access fees.

Swiggy didn’t directly comment on promotion fees, but its spokesperson said, “[Swiggy’s] brands do not receive any preferential treatment as compared to the rest of the partners and are levied standard commissions for operating on the platform. These brands receive actionable insights which are made available to other partners as well and bear marketing costs for all promotions on the platform.”

“If the partner restaurant does not pay for promotion, they will not be listed in the first five restaurants,” claims Ashok Seela, who started a restaurant called Biryani Pot in 2014. Seela, who shut shop last year, claims his orders dropped drastically as he’d stopped paying Swiggy promotion fees. “The main reason being is the aggregators start promoting another restaurant in the same area by listing them higher in the search results or by running discounts, resulting in more customers ordering from that restaurant.”

Swiggy didn’t respond to questions about promotion fees.

Zomato, meanwhile, has been offering funds to restaurateurs to start cloud kitchen operations, says Seela, adding that he too was approached. He declined as he had left the food business to start a community commerce startup.

Are all restaurants benefitted?

The question, though, is this—does this benefit restaurateurs at all? Kochhar says the costs don’t add up. “If a cloud kitchen gets only 200 [orders] in a day, then you need to have more brands/cuisines in the same location to get more orders. I fail to understand what their cost advantage is. These days, most big restaurant brands share a portion of their sales as rental costs. McDonald’s pays 9%. Which can often go to 11-12%.”

Cloud kitchens are anything but a cheap business, especially if they’re looking to scale. “They are supposed to be cheaper than restaurant dining. But unless I start a brand called ‘Daljit Biryani’, I need to scale. And the minute I raise VC money, say $100M, I need to plan and model for a $1 billion exit,” says Kochhar.

And in the case of an aggregator like Zomato, he says it makes little sense. “If Zomato wants to take its commissions from 18% to 26%, what is the cost differential for a cloud kitchen? What you save in rental, you pay in commissions. And you still pay for branding. And you need 100s of locations. And it costs them the same to make it. I don’t see how they get any cost advantage at all.”

And that’s where Rebel’s somewhat-fifth grand pivot comes in. Going international.

 

How Does Rebel Foods Stack Up Against Competitors?

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“Zomato told kitchen brands ‘I’ll source for you, give you tech, and orders’. But it still didn’t work,” he says. Last year, food aggregator Zomato shut down its own cloud kitchen to invest in Bengaluru-based cloud kitchen company Loyal Hospitality. Swiggy, though, has two cloud kitchen brands.

In that light, perhaps Rebel is wary of overstaying its welcome in the cut-throat Indian food market and expanding overseas makes more sense. Enter, pivot five.

Rolling with the biryani

Back in 2004, Rebel was a venture selling rolls-and-wraps—fast food easily made with pre-prepared ingredients. It began as a small QSR in Pune started by Indian Institute of Management (Lucknow) graduates Barman and Kallol Banerjee.

Today, Rebel owns 11 sub-brands: Faasos (wraps and rolls), Behrouz Biryani, Navarasam (south Indian food), OvenStory (pizza), Firangi Bake (fusion food), Sweet Truth (desserts), Mandarin Oak (Chinese), The Good Bowl (bowl meals), Kettle and Kegs (tea), Lunch Box (home food) and Slay Everyday (coffee).

It was the quintessential Indian craving for biryani, though, that got Rebel more orders. While the company did not share the exact number of orders, Mehta of Lightbox Ventures confirms that biryani is one of the most sold items alongside rolls and pizzas. Swiggy says it gets 43 biryani orders every minute.

The fragrant and flavourful rice-based dish is an easy-to-consume option and a cross-country favourite. It has been the most ordered dish on both Swiggy and Zomato for the last three years.

On the production side, too, biryani is easily made in bulk and easy to pack. It is also popular in countries like Indonesia, whose cuisine is very similar to India’s. A plus for Rebel’s expansion plans.

But margins on biryani are not high, says the entrepreneur quoted above. “You need to use Basmati rice, good spices. These could cost between Rs 70-100 ($1-1.41) depending on ingredients and meat. You can sell for Rs 200-250 ($2.8-3.5). Pizza has the highest gross margins—75-80%—because of cheap cheeses and ingredients.”

Restaurants and kitchens aim for that sweet 70% gross margin, he says. This could mean 28-32% food cost.

But with everybody cashing in on the biryani boom, Rebel’s Behrouz Biryani knew it had to spin a narrative around its offering to make it sell, in tandem with its higher-margin businesses (read: OvenStory pizzas). An oft-romanticised food, biryanis often sell based on the origin of the recipe.

“Since biryanis are so common and easy to make, you need strong branding; a story,” the entrepreneur explains. Invoking Hyderabad’s famous Paradise restaurant biryani sold solely on its 1950s heritage, he says, “Behrouz created a story. If you want repeat customers, [you say] my biryani has a story. Arabian and foreign stories.”

It comes as little surprise then that one of Rebel’s biggest expenses is advertising and promotions. These costs totalled Rs 21.7 crore ($3 million) in the year ended March 2018, accounting for just under 10% of total expenses. It was topped only by employee benefit expenses.

What is Swiggy access?

And it is trying to push its three most popular food categories—biryani, pizza and rolls.

“Rebel Foods apparently spent Rs 20 crore ($2.8 million) on marketing Oven Story after their third (funding) round. Which is why today apart from Faasos, Oven Story and Behrouz Biryani, nobody knows their other brands,” says Kochchar.

Had Rebel not invested in brands like Behrouz and Ovenstory, it would have remained at the mercy of Swiggy-Zomato in a cloud kitchen market that was quickly getting populated.

In 2017, Swiggy started its own service called Swiggy Access, a cloud kitchen model similar to Kalanick’s CloudKitchens. (We wrote about it here.) Swiggy rents out kitchen space to restaurants that want to serve food in locations far from its properties. “Over the last 24 months, we have…brought over 450 quality restaurants to new cities and neighbourhoods through Swiggy Access,” said a Swiggy spokesperson.

Swiggy has also launched two private brands in the past two years—The Bowl Company and Homely—as part of its cloud kitchen project. Beyond aggregators, Rebel also faces competition from Food Vista India’s Freshmenu, Cure.fit’s Eat.fit as well as Box8; they’re all vying for a share of the same pie. According to a TechSci Research report, the foodtech market is expected to grow at a CAGR of 12% between 2016 and 2021.

 

Rebel Foods’ appetite for the overseas cloud kitchen pie

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Every entrepreneur who has ever gone through an entire startup life cycle, irrespective of whether that cycle ended with a bang or a whimper, aspires for a second act that is larger than the first.

Travis Kalanick, Uber’s mercurial founder and former chief executive, is looking for a new act that ostensibly will be bigger than the iconic ride-hailing app. And if one is to believe recent news reports, he has already found it.

Understanding the market

But what sort of market could be bigger than a solution for urban transportation mainstreaming the concept of a “gig economy”?

A market which covers “every person who eats”.

Say hello to CloudKitchens, a unit of City Storage Systems (CSS)—a real-estate company owned by Kalanick. The company, though, is in the on-demand food delivery market, but with a twist.

Of course, this is not Kalanick’s first rodeo in the food business. Uber has a large division called Uber Eats that focused on the delivery aspect, serving as a bridge between customers and restaurants. CloudKitchens, on the other hand, rents out fully-functional kitchen spaces with licenses and equipment to restaurants. Also known as dark kitchens, cloud kitchens are restaurants that have no dine-in option—they serve customers through online orders or takeaways. By doing away with the dine-in option, cloud kitchens obviate the need for the two major cost components that restaurants have to deal with—salaries for service staff and rent. (We’ve written about this phenomenon before.)

In the past 18 months, CSS has invested in real estate in countries like Singapore, London and South Korea. Last month, Kalanick stepped into India with an investment in cloud kitchen company Rebel Foods Pvt Ltd. While Rebel Foods has not disclosed the exact amount Kalanick put in, he was part of its $125 million Series D round that included New York-based tech-focused hedge fund Coatue Management. After this last round, Rebel Foods was valued at $525 million.

Rebel Foods, nee Faasos, started in 2004. After a long, not-so-noticeable existence, it raised $8 million in a Series A funding round led by US venture capital firm Sequoia Capital in 2011 and started scaling. Switching to a cloud kitchen-model was a no-brainer once Rebel realised 80% of its business was coming from in-house deliveries. Eight years later, it is at the top of the food chain, India’s biggest cloud kitchen by revenue, orders, number of kitchens and geographical presence.

Executing the plans

It’s taken Rebel four pivots to get here, with a fifth potentially in the offing.

As we wrote in early 2017, Rebel went from being a Quick Service Restaurant (QSR) to a dark kitchen to a marketplace, and finally, a multi-brand cloud kitchen. This final pivot, in 2016, was what co-founder and CEO Jaydeep Barman had predicted would make the company profitable by the end of 2018.

While that didn’t happen—the company posted a loss of Rs 74.4 crore ($10.5 million) that year—it was the second consecutive year that Rebel’s losses had narrowed. Its revenue was a shade under Rs 147 crore ($20.7 million) that year, having surged 78%. It was not only the biggest jump since the pivot but also outpaced the increase in expenses. The company should be profitable in “a few years”, says Prashant Mehta of Lightbox Ventures, who is on Rebel’s board. Lightbox invested in Rebel in 2014—back when it had only taken baby steps in the cloud kitchen space.

Short version. The fourth pivot worked.

Rebel has since raised two back-to-back rounds with marquee investors like investment banker Goldman Sachs and Indonesian multi-service platform Gojek as it looks to expand into Southeast Asia and the Middle East.

But why not grow in India?

In most businesses, unit costs fall with scale. With cloud kitchens, however, it leads to additional infrastructure and costs, says Daljit Kochhar, an investment banker who has deeply researched the market. “I don’t see how scale helps cloud kitchens in the Indian context. I’m not sure there’s a path to profitability with scale.” Another chink in the armour is delivery costs. An unavoidable hurdle, especially for cloud kitchens, on the path to profitability.

“In terms of unit economics, it still costs Rs 60-70 ($0.8-1) per delivery. Swiggy, Zomato and restaurants are not making money, even after customers are charged for delivery. It’s a zero-sum game,” says an entrepreneur who provides restaurant software requesting anonymity.

 

How PhonePe went from cameo to starring role in Flipkart’s show

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Amidst the eye-catching discounts on offer during Flipkart’s recently concluded Big Billion Days sale, a curious development went largely unnoticed. PhonePe, the payments company acquired in 2016 by Flipkart, no longer occupied pride of place on the checkout page. Instead, it was just another in a long line of payment options. PhonePe also wasn’t offering the massive cashbacks that it did on previous Big Billion Day sales.

Impact on Walmart

This was a marked change for both companies. Earlier, Walmart-owned Flipkart was PhonePe’s benefactor—both in terms of capital and as a source for users. PhonePe understood this well, taking on Flipkart’s challenges as if they were its own.

The demands of the Big Billion Days sale, for example, extended to PhonePe. “Usually, during the time of the [Big Billion Days] sale, people in PhonePe aren’t allowed to take leaves and work nights just like those in Flipkart. But this time around, Big Billion Days was insignificant for PhonePe,” said an executive associated with the Flipkart Group.

But while few outside the company noticed this new normal, it was the latest and clearest sign yet that three-year-old PhonePe had outgrown its parent, Flipkart. “Three years ago, Flipkart accounted for more than 50% of transactions on PhonePe, but now it is less than 0.5% of the 350 million transactions we do in a month,” said Karthik Raghupathy, PhonePe’s head of strategy and planning.

According to sources, Walmart and Chinese conglomerate Tencent, both investors at Flipkart, are expected to invest $1 billion into PhonePe. This will be at a $9-10 billion post-money valuation, said two sources aware of the matter. This would bring it close to Flipkart, valuation-wise. In 2017, a year before Walmart bought Flipkart Group for $16 billion in the world’s largest e-commerce deal, Flipkart’s valuation was $11.6 billion. It took the Bengaluru-born e-commerce company a decade to get there. PhonePe, which was founded only in 2015, is inching closer to decacorn status—startups valued at $10 billion and over.

And as PhonePe grows into a payments behemoth—with claims of 65 million monthly active users and an annualised $100 billion worth of transactions—reports say it will be hived off into a separate unit. This could mean Walmart and Tencent, along with PhonePe co-founders Sameer Nigam and Rahul Chari, will get to own a piece of PhonePe. So far, those in PhonePe either own Flipkart stock or stock options. A PhonePe spokesperson maintained that news of funding and PhonePe being hived off as a separate entity was speculation.

The rise in potential

PhonePe’s burgeoning potential has been a blessing for Walmart. The company drew the ire of investors with its Flipkart acquisition. But having received not one but two multi-billion-dollar companies through the deal, the upside looks better than it once did. For a large, value-conscious public limited company with a steely-focus on profits, though, this means little without profitability. And both PhonePe and Flipkart are loss-making entities.

With that in mind, PhonePe will have to get its revenue ducks in a row as it steps out from Flipkart’s shadow. It has already begun the process, looking to transition from a payments app to a financial services company. There are plans to launch a savings bank account product with Ratnakar Bank Ltd (RBL), said two sources aware of the matter. PhonePe termed this as speculation, while RBL refused to comment.

PhonePe has extended its ambition to new use cases—from travel bookings to bill payments to financial services like mutual funds and lending. In doing so, however, it will invariably cross paths with Flipkart’s own ambitions to go beyond e-commerce. When that happens, PhonePe and Flipkart will have to compete for capital from Walmart as both go about building out what could be competing businesses.

Both loss-making businesses still have a long road ahead of them and need billions in capital. And Walmart cannot possibly whet the capital appetite of both. Moreover, news reports also say that Flipkart CEO Kalyan Krishnamurthy could now become a Flipkart board member, making capital allocation trickier. PhonePe’s Nigam denies any capital-related pressures, pointing to Walmart’s $27.8 billion in free cash flows in fiscal 2019. This, though, is hardly its only challenge as it seeks to realise its potential.

Consequently, PhonePe has always been projected as an independent of Flipkart, with its own resources. Even so, it was Walmart’s entry that paved the way for PhonePe’s autonomy.

The stupid signalling value of a degree

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As Shah points out, for the 63 million formal and informal MSME units in the country, the kind of talent graduating from a university like TLSU is crucial. This new type of employee—technical and teachable—is required. A midpoint between a blue-collar worker and a white-collar degree holder, who can hold down a job, have basic computer literacy and integrate with the team. As an employer, Shah indicates that this is exactly the type of employee he’d want to hire.

The Actual Concept

Shah has been disappointed with pure engineering recruits in the past, many of whom join without any work experience. “We aren’t huge 500-member units. We need recruits who aren’t siloed in their jobs and can adapt to a variety of roles,” he adds. With TLSU graduates, MSMEs like G-Tek—which currently employ close to 100 million people— don’t have to spend on re-skilling.

But job-readiness is more art than a perfect science. And getting it right, says Sabharwal, could mean a wage premium for the TLSU graduate. Already, claim Mitra and Umatt, BCom graduates from TLSU are hired at Rs 25,000 ($351) per month, almost double the market rate for an entry-level BCom graduate.

With inputs from its industry partners, TLSU thinks it has all the ingredients to fashion the perfect job-ready candidate. But creating a brand new category of graduates confuses the rigid social hierarchies of degrees versus diplomas. Second, it begs the question: did TeamLease really need a university campus to do this?

Value Of The Degree

For detractors of the centralised university model, TLSU’s structure is antithetical to its mission of widespread, dignified and job-ready skilling. “A centralised university model has crashed and burned in the Indian context. Why would we try the same thing for skilling?” asks a Bengaluru-based entrepreneur, who runs a grassroots skilling company which runs training centres across the country. As the head of a rival to TeamLease, she preferred not to be quoted.

For decades, the path to improve higher education has been through building more infrastructure. As the entrepreneur explains, TLSU runs the risk of becoming yet another centralised facility, incapable of handling the diverse skilling requirements in the country.

Accessibility isn’t a challenge anymore. The inability to redefine access, however, says the entrepreneur quoted above, is a serious issue. “To reach a vast majority of youth who actually need to be skilled, India needs to adopt a multiple entry and exit system, which allows students to work and get certified simultaneously,” she adds.

The problem isn’t that simple. Had that been the case, the newly-introduced BVOCs or Bachelors of Vocational Education would’ve solved it. A BVOC allows students to exit after the first or second year with a diploma or advanced diploma, respectively. Much like TLSU’s degree programmes. In addition to a flexible study path, a BVOC also signals a larger shift towards a credit-based system, something widespread across European countries.

BVOC enrollments, though, have been abysmally low—around 3,900 students across India opted for it in 2018. TLSU’s degree programmes, however, account for 50% of their enrollments, while only 20-25 students are enrolled for a diploma. The rest are enrolled in a mix of advanced diplomas, online training or short-term, upskilling courses, according to information shared by the institute.

Calling it a vocational degree has punctured its importance, says Dinu Poonacha, head of strategy and consulting at the Centre for Skill Development and Entrepreneurship (CSDE) in Bengaluru. CSDE is the policy think tank arm of Nudge Foundation, a non-profit to upskill low-income graduates. “Vocation is for the poor, and education for the rich. That dichotomy has always existed,” says the Bengaluru-based entrepreneur mentioned above.

That’s why, as a consultant to the Delhi government for its upcoming skilling university, Poonacha disagrees that creating a university has no inherent value, even if a majority of the learning happens off-campus. A university tag, he argues, can actually quell some of the discomfort around pursuing a “vocation”. It can also unlock more resources and support for research on skill development, which India’s sorely lacks.

“You need to be a university to award degrees, and that’s what 97% of graduates aspire to,” adds Poonacha, quoting from a recent Observer Research Foundation study. Sabharwal calls it the “stupid signalling value of a degree”. Even though students may only need a vocational diploma to become job-ready and start earning, it’s the social swagger of a degree they aspire to.

 

Progress path of the hard-working TLSU

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But TLSU couldn’t be more different from the archaic ITI that incubates it. Its interiors have been refurbished to look more professional, while one of the floors is fitted with an industrial kitchen and an attached restaurant. The floor below that houses a well-equipped mechatronics lab. “Companies like Larsen & Toubro and Apollo Tyres have given us the latest equipment to train with,” says Dr Anupam Mitra, head of TLSU’s commerce department.

It isn’t just the physical bells and whistles that set it apart, though. TLSU’s new and improved vocational curriculum is in sharp contrast to ITI’s outdated ones. “All our courses go through a Board of Study, which features at least two to three industry participants and academics from other universities. They help us keep the curriculum relevant,” says Umatt. For instance, the mechatronics department recently included the study of sensors, an integral part of machinery used in automation.

Being situated inside the ITI campus also locates TLSU close to the industries whose ranks it seeks to bolster, via the adjacent Gujarat Industrial Development Corporation (GIDC).

A BCom by any other name

“TLSU is different from other universities in one critical way. We only pray to one god. The employer,” says Sabharwal. Creating employable candidates is the guiding principle.

Students can either be on-campus, onsite (training at a companyq), online or placed on-the-job. Further, they can choose between a diploma (1 year), an advanced diploma (2 years), a degree (3 years) or a short-term course, which may last anywhere between 3-9 months. These combinations, says Sabharwal, enable students to work towards degrees over 5 to 10 years. Even within the regular degree course, an entire semester (4 months) is dedicated to on-the-job training (OJT) with companies across different sectors.

“We work with employers to come up with a continuous evaluation system for the student. It ensures students actually learn job-related skills, instead of just being used to do repetitive work,” says Umatt. Students often end up getting offers while their OJTs are still on, she adds.

Sitting in his tiny, low-lit cabin, Mitra juggles a constant stream of phone calls while answering questions. “A bachelor’s degree in commerce (BCom) is the most popular course here,” he adds. A BCom isn’t typical of a vocational or skill-driven university, and Mitra insists that the way it’s taught at TLSU is indeed different from mainstream institutions. “We teach them practical skills… Like calculating taxes or filling up challans,” he explains.

Mitra’s enthusiasm about TLSU’s commerce courses is somewhat tempered by the sobering reality that not many people still take a vocational skilling university seriously. “On the outside, the curriculum looks exactly the same. But our pedagogy is completely different. Students and parents don’t realise that. It’s still just a BCom course to them,” he says.

The proximity of Vadodara’s legacy institution—Maharaja Sayajirao University (MSU)—and other private colleges, further compounds the problem. TLSU still attracts a student base that doesn’t score enough for legacy institutions like MSU or can’t afford high-end private alternatives.

Job ready

Despite lower-than-average fees ($352 per semester), TLSU offers scholarships to attract a wider student base. In the academic year 2019, TLSU offered a total of 480 seats, out of which 35 seats in every course were allocated to scholarship students. In 2018, TLSU reached out to over 200 high schools in Vadodara to raise awareness about their courses but, as Mitra indicates, the quality of placements will be their ultimate advertisement.

The GIDC complex next door gives TLSU plenty of placement opportunities to test this hypothesis. Even though the neighbouring ITI also supplies students to the same micro, small, and medium enterprises (MSMEs), some employers told The Ken they prefer the TLSU placements.

“The main difference in how equipped the new recruits are with the right soft skills,” says Asutosh Shah, the director of a Vadodara-based electronics enterprise called G-Tek. Shah was part of an initial advisory council at TLSU. He now employs three mechatronics graduates from TLSU, and one student is currently pursuing an apprenticeship at his firm.

 

Stuck in beta: TeamLease Skills University needs a work-study balance

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Manish Sabharwal is one of the foremost evangelists when it comes to skilling in India. The co-founder and chairman of TeamLease Services, India’s largest staffing company, Sabharwal is relentless in his mission to mainstream skilling, with his op-eds a near-constant across India’s leading dailies.

Knowledge: One Of The Most Valuable Asset

Unsurprisingly, conversations with Sabharwal, too, are peppered with one-liners related to skilling. One of his favourite tenets is ‘prepare, not repair’. It’s a key spoke in his ideological belief wheel, and it’s this belief that led him to fashion TeamLease Skills University (TLSU), India’s first such privately-owned institute.

Located in the heart of the industrial cluster in Vadodara, Gujarat, TLSU has had a singular mission since it opened its doors in 2013. Churn out job-ready candidates for the market. “We already have over 200,000 students. It’s India’s fastest-growing university,” says Sabharwal.

As a university, its existence is almost disruptive to the whole idea of higher education—a banal system that currently shuffles students from schools to colleges to a job market they’re largely unprepared for.

TLSU wants to fix that broken link. It’s keen to trim the fat around knowledge creation, focusing on a theory-light but practice-heavy curriculum and pedagogy. TLSU, according to Sabharwal, is a university of the future—an attempt to bridge the huge employability gap between education and employment.

According to the India Skills Report published by the Confederation of Indian Industry and placement company Wheebox, 63% of employers feel no job seekers meet the “required skills”. Worse, the leaked Periodic Labour Force Survey in 2018 showed that four in ten formally trained young Indians are unemployed. And while there are many universities spread across the country—993 as per the All India Survey on Higher Education 2018-19—they have a gross enrollment ratio of just 26%. Clearly, while degrees might be popular with Indian youth, university campuses are definitely not.

These abysmal figures spotlight the dire need for an institution like TLSU, where off-campus training forms a larger part of the curriculum than classes on campus.

“We only launch courses that we know have a demand in the industry. There’s no point in offering a degree without a job,” says Dr Avani Umatt, the provost at TLSU. According to information shared by TeamLease Services, TLSU currently has 400 students enrolled across a variety of courses. The university has a 100% placement rate till date.

As TeamLease co-founder, Sabharwal has enjoyed a ringside view of India’s skills market. As a founding council member of the National Skills Development Mission, he’s been plugged into crucial policy decisions aimed at unlocking skilling for the masses. Now, Sabharwal has turned educator, sensing both a business opportunity and the chance to shift the higher education paradigm.

But despite Sabharwal’s strong claims about TLSU’s growth and importance, TLSU is still largely in its beta phase after half a decade of existence. For one, it’s facing an existential threat from older, more established colleges in its vicinity and nascent skilling universities in states like Rajasthan and Haryana. Second, vocational diplomas don’t hold much allure in a degree-obsessed country like India.

For the sake of its own existence, TLSU needs to bridge the parallel worlds of work and study. On a war footing.

New, Improved, Frugal.

How TLSU came to be is a mini urban legend on campus. Almost every faculty member is familiar with it. Impressed by Sabharwal’s speech at the Vibrant Gujarat Summit in 2012, the state government, then under current Prime Minister Narendra Modi’s leadership, approved TeamLease’s proposal to set up a university. The company put forth similar proposals in other states but to no avail. A year later, TLSU opened its doors.

The TLSU campus is a humble, three-storey building situated in a corner of Vadodara’s ITI park. ITIs or Industrial Training Institutes, were the first and till recently, only conduit to a vocational education in India. According to experts that The Ken spoke with, ITIs are a mixed bag quality-wise, and often list outdated “trades” like stenography.

 

Myntra changes its style to fit Walmart’s designs

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Fashion e-tailer Myntra has been a coveted trophy for a while now.

Five years ago, it became a prize e-commerce giant Flipkart could show off to its rival Amazon. While Amazon was just starting to ramp up its India operations in 2014, Flipkart was acquiring Myntra, followed by the acquisition of Myntra’s rival Jabong two years later.

Flipkart Leads The Way

Before Amazon could finish saying fashion, Flipkart had consolidated its lead in the fast-growing segment. In a neck-and-neck race of 31.2% market share for Amazon and 31.9% market share for Flipkart, according to research firm Forrester’s data for last year, Myntra-Jabong took Flipkart’s share of the pie up to 38.4%. A bona fide jump.

In fact, Myntra-Jabong contributes nearly 20% of the group’s overall monthly revenues, a value that the world’s largest retailer Walmart did not miss after it bought Flipkart for $16 billion in August last year. Since then, much has changed.

At the time, Flipkart had three units apart from its core group operations, payments provider PhonePe, logistics arm Ekart and fashion e-tailer Myntra, which Jabong is a part of.

While Walmart has been openly enthused about the prospects for PhonePe—an unexpected $10 billion easter egg—it has been relatively quieter on Myntra. Significantly, at the time of the acquisition, Myntra was valued at $6 billion internally, dwarfing PhonePe’s $2 billion valuation.

And Walmart saw an opportunity. After all, it had faced its share of struggles in trying to sell fashion in its home base of North America. When Walmart CEO Doug McMillion visited India earlier this year, a media report said he was “mesmerised” by the way fashion was performing at Myntra and Flipkart.

That Flipkart is a crucial buy for Walmart is well known. In just over a year, the retailer has already left a definitive mark on Flipkart’s operations. For one, fast-growing PhonePe is becoming a veritable leader (The Ken wrote about PhonePe’s position here); Walmart has brought the focus to food retail—it has given Flipkart an equity capital of nearly Rs 2,000 crore just for food and has pushed for cost control at Flipkart’s grocery arm Supermart. (The Ken wrote about Flipkart’s hyperlocal plans here.)

But, in all of this, Myntra’s growth has been slowing. It has missed its internal gross merchandise value (GMV) targets two years in a row, two former executives at the fashion portal said, requesting anonymity. This has seen its GMV growth fall from 56% to 45% in the last two financial years, one of the executives added. Under Walmart, Myntra has seen a shift in goal from profitability to increasing revenue, three former employees at the company said. Myntra and Flipkart did not respond to a detailed questionnaire sent by The Ken.

But that’s far from the only change.

Myntra’s slowdown coincides with management changes at Flipkart and Myntra. In January this year, Myntra CEO Ananth Narayanan, who held the reins for four years, stepped down and was replaced by Amar Nagaram, who had been in-charge of Flipkart’s mobile segment. Over at Flipkart, group CEO Binny Bansal was replaced by Kalyan Krishnamurthy.

But, in perhaps one of the biggest changes to Myntra’s management after the deal, Nagaram now reports to Flipkart Fashion head Rishi Vasudev. He previously reported directly to Krishnamurthy, an industry source said, claiming that the move was one of the reasons Narayanan left the e-tailer. While Myntra has always operated independently from Flipkart, the move brings the two entities closer at the very top. It could signal a loss of autonomy for Myntra.

Shifting Fashion

Walmart, in a bid to utilise Myntra for revenue growth, has the fashion retailer gunning for this new aim at a time when fashion buys have moved past India’s top metros like Chennai, Mumbai and Delhi to smaller towns. This is aided by increasing purchasing capacity and internet penetration. For Myntra, which is marketed as a fashion-conscious alternative to mass-market apparel sold by Amazon and Flipkart, this shift means that it needs to figure out a way to appeal to this tier-2 and -3 segment of customers.

The urban metro market contributes over 20% of sales to the apparel market, which has been Myntra’s forte, but increasing demand from small cities has got attention from big brands, a research note by ratings agency CARE says.