Indian Economy: News and Discussion

Okabe Rintarou

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So we are actually far ahead of chinese in building subways for our cities. I.e we are providing far better infra in similar development stage ( compared to same economic stage in China).

I have been saying this all along. We are doing much better than what china was doing infrawise while it's economy was our size. This means we are ready for even faster growth from here on.
GDP is now similar to that of China in 2007. There are more on the subway than China in 2007, when there were 10 cities in China 721 km Subway

It should be very meaningful to compare with various data with 2007's China.
I think this just goes to show that we don't have the same kind of wind in our sails that China had. If it was that large an economy in 2007 despite poorer infrastructure than us, then that means that it is harder for us to today follow the export oriented model of growth that China was following in 2007. We will have to rely on other avenues of growth. Might be a good thing, might be a bad thing. Not sure.
 

Haldilal

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Ya'll Nibbiars The Tata Motors On March 5, the shareholders of the company voted to consider and approve the transfer of the passenger vehicles business unit to TML Business Analytics Services Ltd as a going concern on a slump sale basis for a lump sum consideration.

In a regulatory filing, Tata Motors said total 2,15,41,38,392 votes were polled out of which 2,15,32,39,294 were in favour of the resolution, translating into 99.958 per cent of the total votes, while 8,99,098 votes (0.042 per cent) were against. The company management had stated that it expects the process of hiving off its domestic passenger vehicles (PV) business to be completed around May-June this year, although it has not yet taken a call on a potential partner for the business.
 

IndianHawk

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I think this just goes to show that we don't have the same kind of wind in our sails that China had. If it was that large an economy in 2007 despite poorer infrastructure than us, then that means that it is harder for us to today follow the export oriented model of growth that China was following in 2007. We will have to rely on other avenues of growth. Might be a good thing, might be a bad thing. Not sure.
Au contraire we have much more wind in our sails than china. The we are investing way more in our infrastructure than china did at same stage which means upcoming growth cycle should favor us even more than it did china.

Look at massive chinese economic expansion since 2009 -2018. Coupled with rise of yuan .

Now infrastructure development cycle must move us forward in same way. Infra would improve manufacturing which inturn will strengthen rupee to inflate the economy further.
 

Okabe Rintarou

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Au contraire we have much more wind in our sails than china. The we are investing way more in our infrastructure than china did at same stage which means upcoming growth cycle should favor us even more than it did china.

Look at massive chinese economic expansion since 2009 -2018. Coupled with rise of yuan .

Now infrastructure development cycle must move us forward in same way. Infra would improve manufacturing which inturn will strengthen rupee to inflate the economy further.
Hopefully this happens. This decade is make or break for our future. If Modi loses 2024, I expect $7.5 Trillion GDP by 2030. If he wins, its likely to be between $8.5 Trillion and $10 Trillion. Lets just hope this actually happens.
 

FalconSlayers

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Hopefully this happens. This decade is make or break for our future. If Modi loses 2024, I expect $7.5 Trillion GDP by 2030. If he wins, its likely to be between $8.5 Trillion and $10 Trillion. Lets just hope this actually happens.
No chance of Modi losing 2024, these Left liberals by doing drama on streets only increase BJP’s vote share.
 

Haldilal

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Ya'll Nibbiars While OYO is one of the biggest companies in the world, its business practices are potentially untenable and could spell eventual loss in value for the company, per the report.

It is alleged that OYO advertises hotel rooms that are unavailable, in some cases at hotels it used to work with, in order to look better to investors. Those “available” rooms number in the thousands. OYO has offered free rooms to police and regulators to keep the company out of trouble, the Times reported. It is said that the company has also charged extra fees to hotels and then refused to pay the full amount owed.

OYO’s business model is to bring smaller mom-and-pop hotels under its own brand umbrella, lead customers to its own website and then charge a fee.

Some hotels have filed charges against the company in court.
“It’s a bubble that will burst,” said Saurabh Mukhopadhyay, a former OYO operations manager in northern India.

OYO is backed by one of the best-known investing groups in the world, Japan’s SoftBank.

Masayoshi Son, SoftBank’s chief executive, said OYO is the jewel of SoftBank’s $100 billion Vision Fund. That same organization had to write off billions on another startup investment called WeWork.

“(OYO) is the only company that went global at this scale from India,” said Satish Meena, a senior forecaster for the research firm Forrester. “But as of now, there are serious doubts about the business model.”
 

IndianHawk

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Hopefully this happens. This decade is make or break for our future. If Modi loses 2024, I expect $7.5 Trillion GDP by 2030. If he wins, its likely to be between $8.5 Trillion and $10 Trillion. Lets just hope this actually happens.
There is some old post of mine where I had projected gdp of 10-12 trillion ( nominal GDP ) by 2030 atleast.
This was before corona which destroyed a years growth.

Tell you what I still stand by that . India would still be over 10 trillion gdp by 2030 . Rupee appreciation on the back of manufacturing and reduced oil dependency ( thanks to ev) will inflate the economy.

If rupee was valued as much as it was in 2008 ( at 40 rupees per dollar ) our economy size would be 5.4 trillion already today.

Rupee depreciation has reduced our nominal GDP size.

So even if rupee reverts back to 50 or even as much as 60 India would still be very comfortably cross 10 trillion mark by 2030.

I personally believe it will be even bigger.
 

Haldilal

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Ya'll Nibbiars there is also a site dedicated against the OYO.
I want oyo and Ola to bust.

When ever I book Ola. Are you going to pay in Cash?. Where are you going?. I stopped going by Ola only in case of long distance journey in Mumbai or else other means.

And OYO to kabhi bhi nahi book kiya.
 

Edinburgh

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Au contraire we have much more wind in our sails than china. The we are investing way more in our infrastructure than china did at same stage which means upcoming growth cycle should favor us even more than it did china.

Look at massive chinese economic expansion since 2009 -2018. Coupled with rise of yuan .

Now infrastructure development cycle must move us forward in same way. Infra would improve manufacturing which inturn will strengthen rupee to inflate the economy further.
It's amazing. It's not the same as China in 2007. don't know if it's good or bad.

In 2007, China generated twice as much electricity as India does now,exports of 1.25 trillion $ goods,The average life expectancy is 72 years, the literacy rate is 91%, and the literacy rate of young people aged 15-24 is 99.6%. Manufacturing is 65% of the United States. But by 2010 it had overtaken American manufacturing,GDP has reached 6 trillion dollars..

It's not clear how it went from 3 trillion to 6 trillion in three or four years.
 

IndianHawk

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It's amazing. It's not the same as China in 2007. don't know if it's good or bad.

In 2007, China generated twice as much electricity as India does now,exports of 1.25 trillion $ goods,The average life expectancy is 72 years, the literacy rate is 91%, and the literacy rate of young people aged 15-24 is 99.6%. Manufacturing is 65% of the United States. But by 2010 it had overtaken American manufacturing,GDP has reached 6 trillion dollars..

It's not clear how it went from 3 trillion to 6 trillion in three or four years.
Yuan appreciation for the most part. Along with new methodology for gdp calculation. It's growth was anyway manufacturing and export led while ours have been service led and consumption oriented as of now.

This consumption oriented nature of growth drives our imports higher and rupee down. But that is changing fast as we are massively improving both infrastructure and manufacturing.

As I said if rupee appreciate back to 40 something we too will become 6 trillion economy from 3 trillion currently in just 2-3 years.
 

Rassil Krishnan

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How corporates have put small farmers out of business in USA


Some truth to the farm protests...
I think only a kick in the back side to displace farming related people to other sectors is needed in india.i don't want my country to be a land of majority farmers but an industrial country.so i don't see it as a bad result,only that other job types must emerge to sponge up the displaced human resources.our enemies would like a romaniticed india with bullokarts and paddy workers,I don't.
 

IndianHawk

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It's amazing. It's not the same as China in 2007. don't know if it's good or bad.

In 2007, China generated twice as much electricity as India does now,exports of 1.25 trillion $ goods,The average life expectancy is 72 years, the literacy rate is 91%, and the literacy rate of young people aged 15-24 is 99.6%. Manufacturing is 65% of the United States. But by 2010 it had overtaken American manufacturing,GDP has reached 6 trillion dollars..

It's not clear how it went from 3 trillion to 6 trillion in three or four years.
More on comparison with china of 2007.
( After all reform initiation gap of both countries is also 13 years . 1978 for china 1991 for india).
That's why India of 2020 is at same economic level as that of china of 2007-8.

Yes manufacturing and hence electricity they have better data but our data is far better on services and consumption. That's because of different growth models. No big deal. Our life expectancy is 69 so not that behind and literary is spreading faster to meet chinese level.

Our manufacturing is already 6th largets in the world while we run surplus on services with world. And now we are set for massive expansion in manufacturing . ( Already happening in electronics sector with smartphone and TV's. We already produce 10 times more cement and more steel than USA. So it is inevitable that we will too take over usa in manufacturing at some point in future.
 

Haldilal

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Ya'll Nibbiars When borders were open and hotels filled with guests, SoftBank-backed Oyo was hurtling towards its stated aim of becoming the largest hotel chain in the world. But now its prospects look very different. It has retreated from the US and Europe and cut its 30,000-strong global workforce by two-thirds. Launched in 2013, Oyo has yet to turn a profit while SoftBank has slashed its valuation of Oyo from $10bn in 2019 to $3bn and in recent weeks ended their Latin American joint venture after just six months. “Growth will be moderate in comparison to what it was earlier,” Ritesh Agarwal, Oyo founder and chief executive, told the Financial Times, as the company focuses attention on hotels in India and south-east Asia and short-term rentals in Europe. Investment in China, the UK and the US, markets previously at the heart of Oyo’s international ambitions, would be “very limited”, he added, conceding the group was unlikely to be “market leading” in those regions. Its number of rooms has fallen 16 per cent, Oyo said. Backed by billions in investment from SoftBank and venture capital firms including Sequoia Capital and Lightspeed Venture Partners, Oyo had attempted to replicate its success signing up budget Indian hotels to adopt its branding and booking technology to expand rapidly around the world. It ballooned into one of China’s largest hotel chains by rooms after launching in 2017, before entering the UK in 2018 and the US the following year. It expanded into Europe with the $415m acquisition of vacation rental business @Leisure from Axel Springer.

At its peak Oyo claimed to have 1.2m rooms in 80 countries, targeting independent operators struggling to compete with larger chains. But the speed of the expansion was fraying the company even before the crisis. It was bleeding money in core markets, with a policy of minimum guaranteed monthly payments to hotels often forcing it to fund lossmaking businesses. Oyo, which has now shifted to a revenue-sharing model, has not released results for its financial year ended March 2020. The previous year its net losses multiplied sixfold to $335m. Last year Oyo racked up monthly losses of up to $15m as the pandemic closed hotels and curbed travel but the situation has “improved”, Agarwal said. In India, its largest market and where occupancy rates are about half that of pre-Covid levels, Oyo has pulled out of hundreds of cities while consolidating an array of side-businesses from trendier hotels to co-living. It said these ancillary brands were “recording healthy signs of recovery”. In the UK, its first market outside Asia, Oyo has slashed its number of employees from 550 to fewer than 100. In China, the number of rooms on its platform has fallen from 500,000 to fewer than 100,000.
 

IndianHawk

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Yuan appreciation for the most part. Along with new methodology for gdp calculation. It's growth was anyway manufacturing and export led while ours have been service led and consumption oriented as of now.

This consumption oriented nature of growth drives our imports higher and rupee down. But that is changing fast as we are massively improving both infrastructure and manufacturing.

As I said if rupee appreciate back to 40 something we too will become 6 trillion economy from 3 trillion currently in just 2-3 years.
More on this in 2005 1 dollar equal to 8 yuan
In 2008 1 dollar equal to 6.8 yuan.
That's almost 30% appreciation in yuan.

Similar appreciation in rupee will make it 50 against dollar compared to 73 today.
At 50 rupees a dollar our GDP size would be 4.5 trillion something already.
 

IndianHawk

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Ya'll Nibbiars When borders were open and hotels filled with guests, SoftBank-backed Oyo was hurtling towards its stated aim of becoming the largest hotel chain in the world. But now its prospects look very different. It has retreated from the US and Europe and cut its 30,000-strong global workforce by two-thirds. Launched in 2013, Oyo has yet to turn a profit while SoftBank has slashed its valuation of Oyo from $10bn in 2019 to $3bn and in recent weeks ended their Latin American joint venture after just six months. “Growth will be moderate in comparison to what it was earlier,” Ritesh Agarwal, Oyo founder and chief executive, told the Financial Times, as the company focuses attention on hotels in India and south-east Asia and short-term rentals in Europe. Investment in China, the UK and the US, markets previously at the heart of Oyo’s international ambitions, would be “very limited”, he added, conceding the group was unlikely to be “market leading” in those regions. Its number of rooms has fallen 16 per cent, Oyo said. Backed by billions in investment from SoftBank and venture capital firms including Sequoia Capital and Lightspeed Venture Partners, Oyo had attempted to replicate its success signing up budget Indian hotels to adopt its branding and booking technology to expand rapidly around the world. It ballooned into one of China’s largest hotel chains by rooms after launching in 2017, before entering the UK in 2018 and the US the following year. It expanded into Europe with the $415m acquisition of vacation rental business @Leisure from Axel Springer.

At its peak Oyo claimed to have 1.2m rooms in 80 countries, targeting independent operators struggling to compete with larger chains. But the speed of the expansion was fraying the company even before the crisis. It was bleeding money in core markets, with a policy of minimum guaranteed monthly payments to hotels often forcing it to fund lossmaking businesses. Oyo, which has now shifted to a revenue-sharing model, has not released results for its financial year ended March 2020. The previous year its net losses multiplied sixfold to $335m. Last year Oyo racked up monthly losses of up to $15m as the pandemic closed hotels and curbed travel but the situation has “improved”, Agarwal said. In India, its largest market and where occupancy rates are about half that of pre-Covid levels, Oyo has pulled out of hundreds of cities while consolidating an array of side-businesses from trendier hotels to co-living. It said these ancillary brands were “recording healthy signs of recovery”. In the UK, its first market outside Asia, Oyo has slashed its number of employees from 550 to fewer than 100. In China, the number of rooms on its platform has fallen from 500,000 to fewer than 100,000.
Same story as every one of the unicorns off late !
Trying to grow too fast too soon by throwing money after money and then when losses pile up surprised pickachu face.
 

Haldilal

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Same story as every one of the unicorns off late !
Trying to grow too fast too soon by throwing money after money and then when losses pile up surprised pickachu face.
Ya'll Nibbiars OYO had one Billion Dollars last year. But it think they have almost out of cash now. Then we would see a large scale down of the business. And the Oyo competitions. Treebo and FabHotels. And it looks like they will survive and grow. But Oyo and Ola may not.

The Recent Ola Investment's is it's last Gamble.
 

Haldilal

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Ya'll Nibbiars

The Oyo Rooms the startup equivalent of a Ponzi Scheme.

Oyo Rooms — that post evoked a number of reactions with dozens of hotel owners, former Oyo employees and partners writing in to share their own experiences with Oyo. While these reactions makes for illuminating reading and it is tempting to use the information to corroborate my earlier points, it would not be fair on my part to use any of this in a public post as these folks shared their reactions in private and I have no independent means to verify the rather-shocking claims made in some of those private messages (Quite frankly, I am actually hoping that at least some of these claims are not true — the wanton egregiousness is beyond appalling).

But notably there was one public reaction — from Ritesh, the CEO of Oyo Rooms, himself.

Sadly, Ritesh didn’t answer any of the questions raised in my previous post — providing data would have definitively answered the doubts and questions posed. Instead the response resorts to righteous indignation with Ritesh writing “when someone questions our intent and integrity, it infuriates us”. I found this reaction a bit surprising simply because it is not like this is the first instance of someone asking tough questions of Ritesh. There is already a long list of former partners, vendors, employees and even mainstream media journalists who have accused Ritesh and co of far worse.

Be that as it may, since Ritesh has accused the post of containing “half-baked theories and insufficient data”, I feel beholden to respond to his claims.

“We have always seen ourselves as a hotel chain” — Ritesh
I guess this harks back to my point about Oyo being a hotel aggregator and service provider rather than a hotel chain in any sense of the term. Now that Ritesh has reiterated this claim, I guess the simplest way to resolve it is by letting Ritesh answer himself.

How does one do this?

Simple. By seeing the filings that Ritesh and co have made to RoC and contrast that to his public pronouncements.

So do these filings say that Oyo Rooms is a hotel chain?

See for yourself in Oyo’s latest filing below.

0_XUuTLVggmLlXZEKy.png


The principal (and only) business activity of the company is providing booking services related to tourism — specifically functioning as a travel agent.

Still not convinced?

Then take a look at its latest financial statement where the only items listed as operations is “sales of services”, nothing related to hotels in any form or manner.

0_PKKy7XSyxIJw_0BH.png


If you need even more evidence, take a look at the list of companies that Oyo considers as competition — do you spot any hotel chains here?

0_TaPRDcKPN0Mk6Pc3.png


So why exactly is Ritesh so adamant on trying to now portray Oyo as a hotel chain when it is nothing of the sort and misrepresenting this to all and sundry including the Prime Minister of the country?

“A business that’s growing month on month with positive take rates and a clear path to profitability”.

If Oyo is indeed doing as well as Ritesh is claiming, then the simplest way to settle the questions posed would have been to simply provide the numbers. In fact, my original grouse was that instead of providing meaningful metrics such as revenue and profit, Oyo was tom-toming fuzzy metrics like “booked nights” and “used nights” — metrics which, as I had alluded to earlier, are of the sort that can not only be gamed but stage-managed by the company itself to show any type of growth it wants to.

Now that Ritesh has touched upon this topic without actually providing any actual numbers, let us ourselves attempt a small exercise to show how the metrics they report are largely meaningless and underwhelming.

So, as per SoftBank’s quarterly report, Oyo saw a 15X YoY jump from Q1, 2015 to Q1, 2016 in “daily booked room nights”.

Now if this metric was meaningful, the growth would correlate to a meaningful metric like revenue. Let’s take a look at Oyo’s FY 2015 financial results.

0_72zfjt9Oqs3VNNJp.png


For the full year, Oyo reported a sales turnover of Rs. 1.21 crores. Let’s assume that as much as a third of this was for the last quarter (Q1, 2015 in SoftBank’s terminology — the starting point of the growth report) — this sales turnover of Rs. 40 lakhs (1.2 crores divided by 3) is not Oyo’s revenue, it is more like their GMV as a big chunk of this needs to paid back to the hotels. Assuming that Oyo has a generous take rate (commission) of 25%, this means that in Q1 2015, Oyo made Rs. 10 lakhs in revenue.

How much is 15X of Rs. 10 lakhs — a paltry sum of Rs. 1.5 cr.

Which translates to just a revenue Rs. 50 lakhs per month.

Now you can judge if a company with a monthly revenue of Rs. 50 lakhs for a company with 2,200 employees and hundreds of millions of funding is meaningful or not.

And if the growth in absolute terms is anything to write home about.

“With more than 5,700 OYOs on our network now, we have lost fewer than 2% hotels ever”

Now having a hotel chain of 5,700 hotels would indeed be a laudable achievement. But it is altogether another thing to list 5,700 hotels on a platform and claim that as a significant achievement.

Contrast this figure to comparable figures of other aggregators such as MakeMyTrip and Goibibo, who each has well over 20,000 hotels, and the hollowness of Oyo’s claim is established.

It might have been creditable if the hotels listed on Oyo were exclusive to their platform but a cursory search shows that these hotels are hardly proprietary to Oyo — they are listed on all the OTAs.

Also, keep in mind that there is absolutely zero incentive for a hotel to “leave” the Oyo network — the hotel probably got paid by Oyo for using their brand and in addition any “upgradation” expenses were at least partially underwritten by Oyo. And if Oyo is an additional free customer acquisition channel, not to mention an additional source of income (through minimum guarantees or even just ex post facto), why would the hotel want to say no to an option that costs them nothing?

Ritesh also claims that Oyo is revolutionary and has a game-changing app. Bombast apart, it is difficult to see how different this is to what say MakeMyTrip is providing with Value+ or Goibibo’s mobile app.

Now that we have hopefully addressed Ritesh’s points, let us go back to the original narrative and examine why Oyo is possibly the startup equivalent of a Ponzi scheme.

The answer, unfortunately, seem to lie in the old chestnut that tops the list of usual suspects.

INTERPRETER OF MALADIES — Oyo’s chimerical value proposition
Oyo’s raison d’être is to add standardization and predictability to budget hotels in India.

Is lack of standardization and unpredictability a problem with budget hotels?

Sure but is it a VC-fundable business?

Like what some of Oyo’s competitors are doing, the right way to solve these problems is by taking operational control or responsibility for these budget hotels and fix these gaps oneself.

The problem with this approach is that it is an arduous and painstaking journey — it involves convincing the hotel owner to give up his entire inventory to the agency and handing over control in total. Once the agency is in control, it needs to staff the hotel with professional employees and build the business and the brand in a measured and regimented manner.

So building a business this way takes time and you have to perforce grow linearly.

Neither of which are attributes that VCs particularly fancy.

So how does Oyo address these bottlenecks? Instead of taking responsibility of the entire hotel, they commit to only a partial inventory. Secondly, they adopt a light-touch method where the day-to-day operational control of the hotel/rooms is still with the hotel owners and Oyo itself doesn’t play any role in this beyond the initial empanelment and occasional checks.

While this model ostensibly gives Oyo a template to grow quickly, in action it translates to a “worst of both worlds” scenario.

Hotel owners see Oyo as a free ride — giving them free money for inventory that may not even get utilized and for whom, they in return need to do pretty much nothing — which means it is essentially costless for the hotel owners.

Also the hotel owners know that Oyo’s imperative is growth, so they are incented to play along with double counting, circular accounting and other unhealthy stratagems that are again costless to the owners themselves. Not only is there zero loyalty from the hotel owners towards Oyo, Oyo themselves have little network effects in play on the supply side that helps them to build any kind of moat to speak of.

On the other hand, customers are often dismayed to see that they either end up with rooms whose facilities are nothing close to what Oyo has promised (as the burden of maintaining those facilities is upon the hotel owners who may just chose to turn a blind eye to quality issues) or end up in situations where the rooms booked through Oyo are not even available to them once they turn up at the hotel (as the partial inventory model makes it extremely easy to end up with double bookings for the same room).

Which means that Oyo is not able to deliver either of the benefits it touts — standardization and predictability.

What’s more, Oyo ends up functioning as just a glorified hotel aggregator, which puts it in direct competition with formidable OTA competitors like MakeMyTrip and Goibibo with precious little to show as a competitive advantage.

So not only is Oyo’s value proposition largely chimerical, it is also rapidly shrinking even as its footprint ostensibly grows when it adds new hotels to its network.

Beyond this broad narrative, let’s explore specific instances where a ponzi seems to manifest itself.

SWAMI RITESH AND FRIENDS
Let’s take a short detour and read this evocative story of how a VC found a startup to back — touchingly, the VC avers that the startup is “like a first baby to me. It is special”.

The VC not only found the deal, he socialized it within his firm and championed it until it got funded.

Now, what if I told you that the VC subsequently joined that very startup as an employee in the cushiest position imaginable — Head of Strategy?

Surely, no professional VC or self-respecting founder would ever do anything like this — not because it guarantees the presence of some unholy quid pro quo but simply because it would violate every basic tenet of governance. In all my years as a founder, I have never heard of a single deal anywhere in the world where a VC who sourced a deal and socialized it within his firm eventually joined it as an employee in a startup role for which he has no unique skills or prior experience.

But that is exactly what happened in the case of Oyo — http://economictimes.indiatimes.com...orporate-development/articleshow/49488045.cms — while it is moot if this amounts to cronyism, there is no doubt that it sends out a very poor signal as far as corporate governance goes and fails the simplest of “smell tests”. I wonder how the world’s marquee investors, Sequoia Capital and SoftBank, would allow, much less condone, such a thing.

Would someone be wrong to consider this as a “governance/hiring ponzi”?

REQUIEM FOR A DREAM
So how much funding has Oyo raised in total?

Crunchbase says $225m with the last round of $100m coming in as recently as April 2016. But notably, only one Indian newspaper seemed to cover this last round. Which seems a bit bizarre, right? After all, we live in a land where every bit of funding news is given hagiographic media coverage. So why did only one newspaper cover such a significant fund-raise?

According to some journalist friends, this round of $100m never happened. Oyo’s PR department sent out an obscurely-worded statement unofficially that any experienced journalist could see through — but looks like some unfortunate intern at Hindustan Times fell for the trap and published this planted canard as news.

Why would Oyo do such a thing?

For one thing, it scares off other VCs exploring investing in any of Oyo’s competitors. For another, it feeds into the pattern of pumping up hype around their own company in its incessant march towards becoming a “Unicorn”.

Would someone be wrong to consider this as a “PR ponzi”?

AND THEN THERE WERE NONE
Another manifestation of overfunding is what can be considered as the Highlander Imperative — every startup in the game tries to grow itself and simultaneously starve the competition until the number of players left standing is just one.

This creates a bizarre competitive situation where the players are basically numb to economics and are incented to resort to irrational tactics.

One such example is Oyo’s now-on/now-off acquisition of its erstwhile competitor, Zo Rooms.

Irrespective of what happens to Oyo itself, its acquisition of Zo will go down in startup history as the epitome of the theater of the absurd.

We have a situation here where SoftBank, Oyo’s largest investor, makes a public declaration in its own earnings report that Oyo has indeed acquired Zo.

But news then emerges that the acquisition hasn’t really happened and is still work-in-progress.

Which would have somewhat understandable if not for the fact that Zo no longer exists — its founders have moved on, the hotels in its network have been transferred to Oyo’s roster (ironic that it only takes only click of a button to move the entire IP of a company from its own database to another and then be left with nothing).

Never in the history of startup acquisitions have we witnessed a parallel to this where a startup has been acquired and yet not been acquired at the same time. The startup equivalent of Schrödinger’s cat?

Zo’s own foibles is a case study in itself but the takeaway here is that it requires a special level of incompetence to end up in a situation like this.

Would someone be wrong to consider this as an “acquisition ponzi”?

THE UNBEARABLE LIGHTNESS OF BEING….Nikesh Arora
A little while back, the Times of India named Nikesh Arora of SoftBank “Investor of the year” for 2015. “Arora emerged as a clear winner in a year when the Japanese internet and telecoms giant doubled down on the Indian market with fresh investments in Oyo and Grofers,” the newspaper said (incidentally, Oyo was named as “startup of the year” in the same report).

Glossing over the fact that celebrating someone as investor of the year for making an investment rather than making an exit seems rather misplaced, another subtle point seems to have been completely missed.

Nikesh Arora is not a VC. He has never been a VC.

But he is enormously powerful — as the President of SoftBank, he controls vast funds that can make or break fortunes.

One of the startups who received a benediction from Nikesh Arora was Oyo (interesting enough, Housing was another).

SoftBank made a $60m investment as part of Oyo’s $100m Series C. This investment gave SoftBank 15% of the company — this essentially means that Oyo’s valuation post this round was as much as $660m (ignoring the higher-order adjustments) — nearly equal to the valuation of MakeMyTrip.

At that point of time, Oyo’s revenues were probably less than $100k.

You might be tempted to think this was irrational but you would be mistaken.

From Nikesh’s perspective, this made ample sense. Pick who you believe to be an early winner in what you perceive to be a large and growing market and back them with enough funds to take them through a lifetime. After all, didn’t this model work when SoftBank invested in Alibaba?

Also, unlike other “normal” VCs, Nikesh had no pressure to provide a time-bound return in the form of an exit — SoftBank can play the long game for as long as it wants to.

Unfortunately, Oyo is not Alibaba and India is not China.

While Nikesh might have been justified in making large early bets that fits their investing thesis, I am not sure if he thought through the scenarios on how this funding would impact the landscape as a whole.

As Housing has already shown and as Oyo is fairly likely to show soon, neither the startup nor the ecosystem can prematurely digest such large sums of money. Except for the rarest of cases, throwing large sums of money at a market in India doesn’t accelerate the market development or growth — it only leads to perverse incentives, irrational imperatives and generally bad behaviour.

It leads to a scenario where the tail wags the dog to create mythical unicorns, where the sides for multiples between investments and returns is reversed.

It incents companies to stage-manage metrics, embark on price wars and adopt a scorched-earth approach that poisons the market and kill competitors who are more capable and deserving.

It also means that companies like Oyo are running a fast race on the gerbil wheel — burning upwards of $5m a month on discounts and incentives to show growth that gets them the next round of funding. So on and so forth…the funding ponzi.

The portents for Oyo are ominous and time will tell if they can survive this indigestion and emerge unscatched from the moral hazard of playing with other people’s money.

While you are free to make up your own minds as to whether Oyo is a ponzi or merely a startup exhibiting exceptionally bad behaviour, I would like to leave you with one piece of advice…something that cases like Oyo has taught me. Rather than follow the advice of taking in as much funding as you can get when you get it, you should instead temper your funding expectations to be commensurate with the stage at which your business is in and the rate at which you want it to grow.

While it is tempting to take in all the funding you can get, it is a Faustian bargain…a deal with the devil. In such a scenario, falling into the trap of operating like a ponzi scheme is hardly a surprise.
 
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