Also in this letter:
■ Rollup ecommerce: an idea whose time has come
■ Freshers are key for India’s mid-sized IT firms
■ Bitcoin protocol undergoes a major upgrade
Mensa Brands becomes a unicorn in six months
Ananth Narayanan, founder, Mensa Brands
Mensa Brands has entered the unicorn club after raising $135 million in a new funding round led by Alpha Wave Ventures (Falcon Edge Capital). Prosus Ventures (previously Naspers) joined the company as a new investor.
The company, which only began operations six months ago, is now valued at more than $1 billion, making it the latest—and fastest—Indian startup to achieve unicorn status.
Existing investors such as Accel Partners, Norwest Venture Partners and Tiger Global Management also participated in the round. In total, Mensa has raised $300 million in equity and debt funding.
Dozen deals done: The company has already acquired around a dozen brands and is working on closing another 20 deals, Narayanan said. Mensa will use the fresh funds to grow its portfolio, invest in hiring across functions, and continue building its tech platform.
Quote: “We are truly platform neutral and our brands are present across different platforms like Amazon, Flipkart, Meesho and others. We are excited to back more founders and brands and scale them further,” he said. “Our deep focus on technology and digital brand building, as well as our people, has allowed us to grow three times of our initial plan and we are primed to build global breakout brands from India.”
Yes, but: Despite the proliferation of D2C brands amid the pandemic, Narayanan said India doesn’t have enough brands and that it’s good that more people are working on building new brands here.
Last month, Mensa acquired brands such as Karagiri, Priyaasi, Dennis Lingo, Ishin, Hubberholme, Anubhutee, Helea and Villain. It picks up anywhere between 51% and 75% in these brands and aims to grow them along with their original founders. Mensa is largely focusing on categories like fashion, beauty and personal care, and home. Narayanan said the majority of the brands it has acquired so far are growing at 100% year-on-year since their integration with Mensa.
Right idea, right time: The rollup ecommerce space in India is seeing increased traction, with several startups such as SoftBank-backed GlobalBees, Goat Brand Labs and 10club raising funds in the past few months.
- One of the first Indian ecommerce rollup firms was 10Club, founded in 2020, which said on June 29 that it had raised $40 million in one of the largest seed funding rounds in India. Co-led by Fireside Ventures and an undisclosed international investor, the round also involved HeyDay, a competitor to Thrasio in the US.
- GlobalBees said it had raised $75 million in equity in a Series A financing round led by FirstCryin July.
- Goat Brand Labs, a Thrasio-style venture of former Flipkart executive Rishi Vasudev, raised $36 million from Tiger Global, Flipkart Ventures and others in July.
- In August, the apt-named Upscalio raised $42.5 million in Series A funding co-led by Presight Capital.
- And on August 31, Powerhouse91 said it had raised an undisclosed sum from several global investors, including US-based FJ Labs.
US-based Thrasio—which pioneered this business model in 2018—is also looking to enter India, we reported last month.
Rollup ecommerce: an idea whose time has come
Last June, Thrasio Inc became the fastest US company to achieve unicorn status—in six months—when it raised $260 million in a funding round led by Advent International. The largest acquirer of Amazon businesses and one of the top 25 sellers on Amazon, three-year-old Thrasio is credited with creating a whole new category of businesses—ecommerce rollup firms.
Earlier today, one such company inspired by Thrasio—Mensa Brands—became the fastest Indian startup to join the unicorn club. But what are ecommerce firms, how do they make money, and how have they evolved?
What are ecommerce rollup firms? These are companies that acquire several ecommerce brands with the goal of accelerating their growth and increasing their scale. These acquisitions are different from takeovers, in which larger firms merely buy out smaller ones. Rollup ecommerce firms, on the other hand, allow individual brands to retain their identity and, more importantly, control over their future, while offering expertise and infrastructure to help them grow.
Why is this only a thing now? Of course, these firms wouldn’t exist if there weren’t thousands of small but popular brands out there to acquire. While rollup firms aren’t a new concept, and even existed offline, the explosion in online shopping during the pandemic—especially on large platforms such as Amazon and Flipkart—led to a proliferation of small, direct-to-consumer brands.
These in turn have led to the creation of companies such as 10Club, Mensa Brands, Goat Brand Labs and GlobalBees, which acquire or “roll up” such brands. Of course, the huge liquidity and unprecedented funding for Indian startups this year has also helped.
So why not raise money from PE/VCs?
While there’s been no shortage of private equity and venture capital investments this year, such funding requires founders and other existing investors to dilute their stakes. Rollup firms on the other hand offer quick access to capital while allowing founders to retain control.
The Indian ecommerce rollup firms we mentioned above follow the model invented by Thrasio, in that they scout D2C brands that already have a presence on large marketplaces such as Amazon and Flipkart.
Another reason some brands prefer to be acquired by rollup companies than receive PE/VC money is that rollup firms adopt a tech-first approach, which makes them the perfect fit for brands born in the internet age.
Rollup ecommerce in India: While Mensa Brands has achieved unicorn status, India’s ecommerce rollup space is still nascent, much like the larger ecommerce market itself.
In India, ecommerce’s share of overall retail sales was just 4.3% in FY20, despite the huge Covid-driven push online. In countries such as the US and China, ecommerce contributes about a quarter of total retail sales. Given the proliferation of D2C brands in 2021, rollup firms could be just the ticket to take India’s ecommerce market to the next level.
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For India’s mid-sized IT firms, freshers are key to winning the talent war
India’s mid-sized IT firms are pulling out all the stops to attract talent to their fold amid record-high attrition that’s afflicting even their larger peers.
Seeking new blood: L&T Infotech and Persistent Systems as well as Mindtree and Coforge are working on their branding to attract freshers and win lateral hires from the likes of Tata Consultancy Services, Infosys and Wipro. In the three months ended Sept. 30, the wider software services industry clocked an attrition rate of 20% — significantly higher compared to even the previous quarter.
Hiring plan: L&T Infotech, for instance, intends to hire 5,500 engineering graduates during the current fiscal.
- “We are hiring another 1,000 people on a hire-train-deploy basis,” CEO Sanjay Jalona told us.
The company is also putting in place a plan to hire non-technical people and put them through a six-month training program in order to meet the demand for specific skills.
Similarly, Persistent Systems is tapping into “traditional” engineering talent.
- “There are people who are engineers by training who work in other industries. They are seeing their peers in technology getting higher salaries, and they are good at what they do…,” CEO Sandeep Kalra said.
Mindtree recently announced the Edge program, where it takes on BSc and BCA graduates and helps them earn a Masters degree in software engineering from BITS Pilani.
- “We are reskilling our employees and we also have to find other ways (to increase the talent supply),” Mindtree CEO Debashis Chatterjee said.
Compared to mid-sized peers, Coforge has had lower attrition rates in the past two quarters. The company, formerly known as NIIT Technologies, intends to hire at least six times the number of freshers it did two years ago.
- “It (Coforge) has taken its fresher hiring program global, across North America and Europe, in addition to expanding into smaller towns in India,” chief marketing officer Anuradha Sehgal said.
Talent crunch: A pandemic-induced surge in demand for digital transformation brought with it increased deal wins for India’s $45-billion IT services industry, as well as a talent crunch. Supply of software engineers trained in new technologies — AI/ML, Blockchain, Low Code No Code, etc. — fell woefully short of demand. That has forced IT firms to look for “traditional” engineers as well as non-engineering graduates to bridge the gap.
Companies are actively upskilling their existing workforce but that isn’t enough to cater to the burgeoning demand. Most mid-sized IT firms have been adding about 1,000 freshers each, every quarter, and expect the hiring pace to sustain over the near- to medium-term.
Bitcoin undergoes a major upgrade
Bitcoin went through a major upgrade that enables its blockchain to execute more complex transactions, potentially widening the virtual currency’s use cases and making it a little more competitive with Ethereum for processing smart contracts.
- A smart contract is a computer programme that can automatically execute, control or document events and actions according to the terms of a contract or an agreement.
The enhancement, called Taproot, is the most significant change to the bitcoin protocol since the SegWit (Segregated Witness) block capacity change in 2017. SegWit effectively increased the number of transactions that could fit into a block by pulling data on signatures from bitcoin transactions.
Also Read: How DeFi could one day liberate finance
What is Taproot?
The Taproot upgrade consists of three separate upgrade proposals. However, at its core, the upgrade introduces a new digital signature scheme called “Schnorr” that will help bitcoin transactions become more efficient and more private. Schnorr can also be leveraged to let bitcoin users execute more complex smart contracts.
When was it officially activated? Taproot was officially activated on Sunday on block 709,632. Blockchains settle transactions in batches or blocks. Each block can contain only a certain number of transactions. Discussions on this particular upgrade began as early as 2016, market participants said. The Taproot upgrade has been included in the bitcoin software since September.
What is its impact on bitcoin? The biggest impact will be on the bitcoin network’s ability to process more smart contracts, similar to what Ethereum does.
What are the other enhancements? Taproot increases privacy by obscuring what type of transaction is being executed. The Schnorr signatures can make more complex transactions on the bitcoin protocol, such as those from wallets that require multiple signatures, look like just any other transaction. This makes transactions more private and more secure.
Bitcoin transactions will also become more data-efficient, optimizing block capacity and leading to lower transaction fees, said Genesis’ Acheson.
Then, it fell: Bitcoin, the world’s biggest and best-known cryptocurrency, fell more than 4% today. It dropped as low as $60,350 during the day, 11% down from its all-time high of $69,000 on Nov. 10.
Ether, the second-biggest cryptocurrency by market value, was down 4.5% at $4,355.4.
Cryptocurrency analysts said there did not seem to be any news driving the declines, and the moves seemed driven by profit-taking after the sharp run-up.
Bitcoin’s value has more than doubled since June 2020, driven by mainstream adoption of cryptocurrencies and, more recently, the launch of futures-based bitcoin exchange-traded funds in the United States.
Click here to read our explainer on crypto ETFs
JPMorgan sues Tesla for $162 million over warrants, Musk tweets
JPMorgan Chase & Co has sued Tesla Inc for $162.2 million, accusing Elon Musk’s electric car company of “flagrantly” breaching a contract related to stock warrants after its share price soared.
Tell me more: According to the complaint filed in Manhattan federal court, Tesla in 2014 sold warrants to JPMorgan that would pay off if their “strike price” were below Tesla’s share price upon the warrants’ expiration in June and July 2021.
JPMorgan, which said it had the authority to adjust the strike price, said it substantially reduced the strike price after Musk’s August. 7, 2018 tweet that he might take Tesla private at $420 per share and had “funding secured,” and reversed some of the reduction when Musk abandoned the idea 17 days later.
Then came the rise of Tesla: But the electric car maker’s share price rose about 10-fold by the time the warrants expired, and JPMorgan said this required Tesla under its contract to deliver shares of its stock or cash. The bank said Tesla’s failure to do that amounted to a default.
“Though JPMorgan’s adjustments were appropriate and contractually required,” the complaint said, “Tesla has flagrantly ignored its clear contractual obligation to pay JPMorgan in full.”
According to the complaint, Tesla sold the warrants to reduce potential stock dilution from a separate convertible bond sale and to lower its federal income taxes.
JPMorgan said it had been contractually entitled to adjust the warrants’ terms following “significant corporate transactions involving Tesla.”
Musk sells more shares: In a separate development, Musk sold another $930 million in shares to meet tax withholding obligations related to the exercise of stock options, US securities filings showed.
Musk sold 934,091 shares after exercising options to buy 2.1 million stocks at $6.24 each on Monday. Tesla shares closed at $1,013.39. He is required to pay income taxes on the difference between the exercise price and fair market value of the shares.
Selling spree: This is the second time in a week that the billionaire has exercised his stock option. Last Monday, he sold another 934,000 shares for $1.1 billion after exercising options to acquire nearly 2.2 million shares.
Today’s ETtech Top 5 newsletter was curated by Arun Padmanabhan in New Delhi and Zaheer Merchant in Mumbai. Graphics and illustrations by Rahul Awasthi.
