Logistics wars out in the open; Sequoia breaks silence on corporate governance

New-age logistics firms such as Delhivery and Expressbees are at war with smaller logistics aggregators, accusing them of poaching their clients while using the infrastructure they set up. Now, the biggies have simultaneously raised their shipping prices for the aggregators by 30-40%, making the feud public.

Also in this letter:
■ Will continue to respond strongly to willful misconduct, fraud: Sequoia Capital
■ Crypto exchanges turn to P2P transactions, direct deposits
■Top firms take D2C brands to stores as offline sales recover


Delivery wars: Rift between logistics firms and aggregators out in the open

Hi, it’s Digbijay in Bengaluru. Today, we are breaking a story that signals the growing feud between established new-age logistics firms and online logistics aggregators. There is a good chance this will play out for a while, given the conflict is now out in the open.

What’s the matter? Delhivery, Ecom Express and Xpressbees are the three largest third-party ecommerce-focused logistics players in the country. According to our sources, they are not happy at all with what logistics aggregators are doing in terms of pricing and reaching out to large clients of these well-established logistics players.

Tell me more: While large logistics players want aggregators to deal with smaller ecommerce players to consolidate orders and ship them to the companies, growing ambitions and growth plans have changed the dynamics.

Firstly, Delhivery, Xpressbees and Ecom Express are not at all happy that aggregators are giving aggressive pricing to the same clients to route their orders through aggregators and undercutting the companies that have spent money and effort to build delivery infrastructure.

There’s more: Apart from pricing, some of the companies mentioned above have taken serious objection to aggregators reaching out directly to their clients, asking them to move their business to aggregators.

Action and reaction: You can tell the logistics firms are upset. All three have simultaneously raised shipping prices for aggregators. Did they take this call in sync? Your guess is as good as ours.

Quote: A source told us, “Logistics companies built the infrastructure. They run the operations and aggregators are invited to work on this layer instead of attacking the infra powering them. This pricing is not sustainable for anyone. Some of the aggregators, after the price hike, are still maintaining old rates to continue growing shipment volumes.”

So, what’s next? Fireworks? Maybe. We’ll have to see about that, but what is certain is that logistics firms have decided to raise their prices knowing some of the aggregators are out to raise funds at higher valuations.

For example, Delhivery was last valued at $4 billion and was on its way to list on the bourses along with Ecom Express before market volatility halted those plans. Xpresbees raised $300 million at a valuation of $1.1 billion in February to become a unicorn.

By comparison Shiprocket, among the largest aggregators, was last valued at $900-950 million and is exploring a new fundraise at a higher valuation. Meanwhile, due diligence is underway at Pickrr for a new funding round.

We’ll keep you posted on how this tussle plays out.


Will continue to respond strongly to willful misconduct or fraud: Sequoia Capital

sequoia.

Sequoia Capital India has said it will continue to respond “strongly” to “wilful misconduct and fraud” at its portfolio companies.

Many high-profile startups in its portfolio have come under the scanner of late for alleged financial fraud and lack of corporate governance. These include fintech firm BharatPe, social commerce firm Trell, and Singapore-based business-to-business e-commerce company Zilingo.

Driving the news: In a blog post, Sequoia Capital India said it would continue to take “proactive steps” and drive further compliance across its portfolio companies by conducting governance training for founders and senior management, ensuring implementation of whistleblower policies, getting further independent board representation, and asking for more disclosures and rigorous adoption of internal audits and controls.


Quote: “It is easy to think of this issue (corporate governance) as ascribed to poor due diligence. But let’s remember that when investments are made at seed or early stage there is hardly a business to diligence. Even at a later stage investors can face negative surprises, post investment, if there is willful fraud and intent,” said Sequoia, adding “boards can only work with the information shared with them”.

Sequoia said that while the startup ecosystem had delivered some big outcomes through initial public offerings (IPO) and exits, these companies should not just be valuable but also enduring. “…and that can only happen if the values are right and the governance is strong. We think it’s time for us, as an ecosystem, to sign up for better governance. ‘What’ has been achieved is now clear – we think it’s time to improve on the ‘how’, the blog post said.

Firms under scrutiny: Recently, the income tax department carried out searches at Sequoia Capital-backed Zetwerk’s premises for suspected tax evasion.

Earlier this month, Singapore-based Zilingo suspended its Indian founder and chief executive Ankiti Bose after discrepancies were allegedly discovered in the company’s accounting. Soon after, Sequoia India managing director Shailendra Singh stepped down from the board of Zilingo.

On March 12, we were the first to report that EY India was conducting a forensic audit at social commerce startup Trell.

In January, BharatPe’s cofounder Ashneer Grover became embroiled in a major controversy after the leak of an expletive-laden audio clip. Two months later he and his wife Madhuri Jain, head of controls at BharatPe, were out of the firm.


Shunned by banks and payment firms, crypto exchanges turn to P2P transactions

cryptoexchange

Many crypto exchanges are facilitating peer-to-peer (P2P) deals while some are directly accepting deposits from coin buyers to bypass curbs imposed by banks and payment companies.

P2P: In a P2P transaction, the exchange, after receiving an order, shares the seller’s bank account details with the buyer. The buyer then directly transfers funds to the seller using any regular online payment option, while the seller moves the cryptocurrency from their wallet to the buyer’s.

Also Read: Crypto investors may switch to peer-to-peer transfer in case of ban

The exchange simply connects the buyer and seller; the money does not flow through it.

“This is not how an exchange should be functioning. It’s certainly less efficient. But apparently there is no violation of any regulation or law. It’s a simple money transfer from A to B over netbanking or IMPS or NEFT, and it’s happening outside the exchange,” an official at one of the exchanges told us.

Direct deposits: Alternatively, some exchanges receive funds directly in their current accounts from crypto buyers. Once the money is remitted, the amount is credited to the trader’s account with the exchange, which can then be used to purchase crypto.

Also Read: CoinSwitch Kuber temporarily disables rupee deposits amid regulatory flux

The current account is typically in the name of the company which provides the software solution to the crypto exchange. A leading exchange has such an account with one of the largest private sector banks.

Yes but: “If it is perceived that by directly accepting funds from buyers, an exchange is offering some kind of a wallet facility to the trader, there will be regulatory issues. It is one thing if an exchange accepts money to sell crypto, considering it a commodity, or acts as an intermediary engaged in collection of funds. But if it is receiving funds from thousands of traders and holding it till trades are executed, the question is will this be construed as a deposit or wallet facility. If so, it may require regulatory approval,” said a lawyer.

ETtech Infographic Insight

Serial underperformer

Top firms take D2C brands to stores as offline sales recover

Capture

Many top consumer goods makers, including Hindustan Unilever, Dabur and Emami, are taking their direct-to-consumer (D2C) brands, launched online in the past two years to brick-and-mortar stores, now that these brands have built reasonable heft and sales at supermarkets have recovered.

Also Read: Amid ecommerce spree, these FMCG brands have got a cart of their own

For fast-moving consumer goods companies, traditional retailers, including kirana stores, account for 85% of their overall business followed by modern trade at nearly 10%, while ecommerce contributes around 5-6% of sales.

With ecommerce doubling its contribution to total retail sales over the past two years, several mainstream companies either launched online-only brands or acquired stakes in existing D2C companies. This helped them compete with nearly 600 online-only brands, especially in the premium segment, and learn from their nimble rivals in the digital space.

Acquisitions: Several mainstream companies have acquired online-first brands in the past three years. Colgate Palmolive bought a stake in Bombay Shaving Company, Emami picked up a majority stake in The Man Company, Marico acquired a stake in Just Herbs and Beardo; and ITC recently acquired a stake in Mother Sparsh.

Tweet of the day


Dating apps flag concerns with Apple, Google app store payments

online dating app

Dating apps have flagged concerns with app marketplaces run by Google and Apple, alleging monopolistic practices on payments.

The MatchGroup, which runs some of the world’s largest dating apps, such as Tinder, Hinge and OkCupid, raised the issue in a recent filing with the US Securities and Exchange Commission (SEC), listing India as one of the jurisdictions that is looking at regulating/investigating these practices.

Also Read:Tech startups to seek govt help on Google Play commissions

“The manner in which Apple and Google operate these (payment processing) services is being reviewed by legislative and regulatory bodies globally. Jurisdictions, including the European Union, United Kingdom, Russia, Japan, and India are investigating, considering regulatory action or considering legislation to restrict or prohibit these practices,” Match Group said in its SEC filing.

It said it pays Apple and Google about 30% of the revenue it receives from these transactions. To be sure, as of January 1, Google has reduced the percentage applicable to subscriptions to 15%.

Also Read: Google can’t force app developers selling e-services to use Play billing system: Startups

Quite a few Indian dating companies also told us that they share similar concerns. Executives said even though the commission had been reduced and the policy would only be implemented later this year, it would significantly dent their revenues.


Antler launches programme for aspiring entrepreneurs in India

aspiring

Early-stage venture capital firm Antler’s India unit has launched a cohort-based programme for aspiring entrepreneurs.

Also Read: Indian VC firms betting big on Web 3.0 startups

Antler India Residency will bring together about 60-70 individuals from business and engineering backgrounds to participate in an eight-week programme.

The fund’s partner, Rajiv Srivatsa, told us that inability to meet one’s cofounder is one of the main reasons why many startups never launch.

Antler expects 8-10 companies to be born out of each cohort, which will have the chance to receive $270,000 for a 9% stake.

The funds will help new startups make at least five-six iterations of an early product-market fit, he said.

“Smart founders want at least a $3 million valuation and that’s very clear data that’s emerging,” said Srivatsa.

Antler India plans to run four such cohorts through 2023 and has allocated about $15 million for it.


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Global Picks We Are Reading

■ When you ‘Ask app not to track,’ some iPhone apps keep snooping anyway (The Washington Post)
■ A Twitter takeover would be a global headache for Elon Musk (Rest of World)
■ Jack Dorsey tweet NFT once sold for $2.9 million, now might fetch under $14,000 (WSJ)

Today’s ETtech Morning Dispatch was curated by Zaheer Merchant and Aishwarya Dabhade in Mumbai. Graphics and illustrations by Rahul Awasthi.

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