Dunzo-Tata talks hit a bump

By Daisy On Aug 19, 2021

Tata Digital’s potential investment in Dunzo is stuck as the hyperlocal startup doesn’t want to give majority control. This comes at a time when Tata-owned BigBasket is bullish on quick delivery of groceries as other ecommerce players are also in a race to supply essentials to consumers within 10-30 minutes.

Also in this letter

Firms line up to apply for payment aggregator licence
Postman is India’s most valued SaaS startup
Indian IT to play a big role in scaling up tech talent supply

Dunzo-Tata talks stuck

This is Digbijay. We at ETtech have been closely tracking all the moves being made by the Tata group for its much-anticipated foray into ecommerce. After reporting about the salt-to-steel conglomerate’s plan to acquire BigBasket and 1mg, we exclusively broke the news on its investment in Curefit, which has been rebranded as Cultfit. More importantly, we wrote about Cultfit’s founder Mukesh Bansal joining Tata Digital as its president. Today, we are bringing you more details on another deal that’s still a work in progress.

This involves more than two parties. Dunzo, the hyperlocal startup, Tata Group and e-grocer BigBasket.

Deal details? Sources told us Tata’s plan to invest in Dunzo is stuck over an important term.

Dunzo, which has doubled its annualised gross merchandise value or GMV to $200 million, does not want to give up majority control. It is open to the idea of Tatas becoming the single largest shareholder but doesn’t want to be owned by the Tatas.

Why? Dunzo is the only startup left with expertise at scale to execute deliveries in less than 30-minutes. Tata Group, our sources told us, is very bullish on the quick commerce space which is seeing revived interest from ecommerce and online grocery platforms such as Flipkart, Amazon India, Swiggy, and Grofers among others.

Strategic vs financial investment: Dunzo is engaged with financial investors to raise anywhere between $100 million and $120 million at a valuation in the range of $500-$600 million. Sources said Dunzo’s Biswas is inclined towards this but he hasn’t said no to the Tatas and is exploring the best possible deal he can get without giving up full control.

Both BigBasket and 1mg were also finalising separate deals from financial investors when the Tatas approached them. Clearly, the Tatas managed to convince both the companies and acquired them.

Also Read: Inside Tata Digital’s plan to integrate online businesses and launch a super app

Hang on, what’s BigBasket doing here then? BigBasket, the largest e-grocer in the country, wants to get express deliveries right this time. It has tried it before but it didn’t really work, just like many others in the online grocery segment.

We reported exclusively on BigBasket’s plan to go aggressive in express delivery last month.

Now, according to our sources, Dunzo is in talks with BigBasket to power its express deliveries. Both of them already have a partnership where Dunzo uses one of BigBasket’s dark stores for its Daily service. But they are still not considering if Dunzo can deliver BigBasket orders in 30 minutes.

What’s the plan: “The idea is to set up 1,500-2,000 sq ft dark stores which can be set up in different neighbourhoods. Both parties are keen to make it work and that’s where it is headed now,” a source told us. Dunzo is confident of rolling out 5-10 dark stores quickly in about 8-10 cities. “As per current discussions the eventual plan is to take it to 25 cities with about 400-500 such dark stores,” the source added.

Express delivery rush: Swiggy is ramping up 15-30 minutes delivery through Instamart, Grofers said it can deliver groceries in 10 minutes in 10 cities. Flipkart has a 90-minute delivery offering while Amazon Fresh has a two-hour window for essentials.

While all of this happens, Dunzo has launched Dunzo Daily across Bengaluru through access to a mix of stores in the city as well as the BigBasket dark stores. It was already doing more than 75% of its deliveries in 19 minutes and now with Dunzo Daily, it says it can deliver a select range of 2,000 products in less than 20 minutes. This is what BigBasket and Dunzo are talking about right now to see if they can help each other out while there is a race to deliver essentials to consumers in the shortest possible time.

I will let Ashwin take over…

A big crowd at RBI doors for payment aggregator licence

Hi, Ashwin here. Saloni and I report today on the widespread interest among firms – from conglomerates building super apps to European payment majors looking to foray into India – to operate as licensed payment aggregators (PAs) under the central bank’s upcoming regulatory regime stipulated under the PA guidelines.

We have mentioned some of the companies that are in the advanced stages of applying – Dutch fintech Adyen, Tata Group, Reliance, Paytm, PhonePe, CAMSPAY, Razorpay, Zomato, Cred…the list goes on. As per one of our sources, the number of applicants could run in triple digits come the deadline for submitting proposals on September 30.

A source at a compliance firm told us that they alone are handling half a dozen applications. Another source who is CEO of a company applying for a PA license said that the law firm they are working with is handling 14 other applications. As per an industry official, the RBI has already received 30-40 proposals.

Recently, Zomato disclosed to exchanges that it has set up a wholly owned subsidiary Zomato Pay for the very purpose of applying for a PA license. A PhonePe spokesperson confirmed that it will submit a proposal.

What’s behind this interest? The definition of ‘payment aggregators’ has been a regulatory blind spot in India’s digital payments ecosystem. How exactly do you define and regulate them? What is the scope? Are they under the purview of RBI?

As these firms work closely with regulated ‘sponsor banks’ in acquiring merchants and providing different payment options on their respective platforms, the regulations till date followed the supervision of banks in maintaining the nodal accounts for merchants. This is now set to change.

New rule defines PA as: Entities that facilitate e-commerce sites and merchants to accept various payment instruments from the customers for completion of their payment obligations without the need for merchants to create a separate payment integration system of their own.

Going forward, the RBI rules will stipulate that only those firms approved as a PA will be allowed to acquire merchants. Any company facilitating payments for its partners in any form will require an unconditional clearance from the central bank. Given that most consumer internet companies in India harbour fintech ambitions, it’s likely that most of these companies are now actively seeking authorisation from the RBI to operate a licensed payment aggregator.

What’s the eligibility?

Net worth of Rs 15 crore and above in first year of application, rising to Rs 25 crore by second year
Compliance with fit and proper criteria
Annual audits by CERT-empanelled firm
Adherence to all standards set by Payment Card Industry Data Security Standard
Scrutiny under FEMA for firms with FDI exposure

As per our sources, the RBI is expected to scrutinise applications on a first in, first out (FI-FO) basis. This means that each proposal will go through checks in the order of receiving. A source said that the number of applications has “inundated” the central bank and the vetting process is expected to take a few months. There is also a possibility that following the first set of checks, the process may be made ‘on-tap’.

Tweet of the day

Postman is India’s most valued SaaS startup

(From left) Postman cofounders Abhijit Kane, Abhinav Asthana and Ankit Sobti

SaaS startup Postman has raised $225 million at a post-money valuation of $5.6 billion, overtaking Browserstack as India’s most valued software-as-a-service enterprise.

Existing investor Insight Partners led the latest round as well, which saw participation of new backers Coatue Management, Mary Meeker’s Bond Capital and Battery Ventures.

Bond Capital is now a common investor in both Browserstack and Postman.
Their rival and Indian SaaS poster boy Freshworks is valued at $3.5 billion. It is currently drawing up plans to list in the US.

Postman plans to use the new capital to expand its team spread across sales, marketing, product, and engineering. The company was among the top five nominees in the ‘Startup of the Year’ category at The Economic Times Startup Awards 2020.

The SaaS gold rush: The new investment comes at a time when Indian SaaS startups are seeing increased investor interest.

On June 8, ET reported that Zenoti has raised $80 million in a funding round led by US-based private equity firm TPG, at a post-money valuation of $1.5 billion.
On June 17, BrowserStack raised $200 million in a funding round led by Mary Meeker’s Bond Capital, valuing the company at $4 billion.
On the same day, ET reported that SoftBank Vision Fund is set to invest $100 million in Mindtickle, turning the SaaS startup into a unicorn.

According to a Bain & Co. report last December, revenues of Indian SaaS companies are expected to touch $18-$20 billion by 2022, doubling their share in the global market to around 7-9%.

For more on the SaaS gold rush, click here.

Smallcase raises $40 million from Amazon, others

Smallcase Technologies, a fintech platform providing wealth management services, has raised $40 million in a Series C funding round at an undisclosed valuation.

Details: Faering Capital led the round, which saw participation of Azim Premji’s Premji Invest and Amazon.com Inc.

This is Amazon’s maiden investment in India’s wealth management sector, made through its $250-million, early-stage fund Amazon SMBhav Venture Fund. The company has previously invested in Acko General Insurance and Capital Float, and is reportedly in talks to back neobank Open as well.

Founded in 2015 by IIT Kharagpur graduates Vasanth Kamath, Anugrah Shrivastava and Rohan Gupta, Bengaluru-based Smallcase improves digital access to capital markets by offering weighted portfolios of stocks and exchange traded funds from in-house licensed professionals as well as access to independent investment managers, brokerages and wealth platforms.

In other deals news:

■ RaRa Delivery, an instant delivery startup based in Singapore, has raised $3.25 million in a funding round led by Sequoia Surge and Indonesia’s East Ventures.

■ Charcoal Eats, a quick-service restaurant brand, has raised Rs 1 crore in growth capital from revenue-based financier GetVantage to expand its menu and spend on marketing.

■ Games24x7 has made a strategic investment in CricHeroes, a performance analysis platform focused on grassroots cricket. Financial terms of the deal were not disclosed.

■ Data analytics startup Probus Smart Things has raised $500,000 in a bridge round led by Unicorn India Ventures. The company plans to use the funds to scale up its team and operations within India and abroad.

‘Indian IT to play a big role in scaling up tech talent supply’

NV (Tiger) Tyagarajan, president and CEO of Genpact

The talent supply crunch in the tech industry is expected to continue for a few more years, said NV (Tiger) Tyagarajan, president and CEO of Genpact.

He, however, said that Indian IT services providers and BPM firms will play a significant role in scaling up supply, especially in new areas such as Artificial Intelligence and Machine Learning.

Quote: “I think, clearly India is going to be one of the environments where scaling of supply is going to happen, and technology companies are going to help that scaling to happen…,” Tyagarajan told ET in an interview.

EV maker Ather warns against fake bookings in public notice

At a time when there is growing interest in electric scooters with the recent launch from Ola, electric two-wheeler maker Ather Energy has cautioned customers about miscreants trying to ride the wave and duping them.

In a notice published across newspapers, Ather warned readers about the existence of a fake website “deceptively similar” to that of the company. This website is accepting fake vehicle bookings, issuing false letters of intent and demanding money towards registration, security, etc, the notice said.

The Hero MotoCorp-backed firm has initiated legal action to take down the fake website. “We have filed a complaint reporting cyber fraud. There are a handful of customers who have made the payment (of Rs 2,999). The authorities are looking into it. We are trying to close the issue at the earliest,” said a spokesperson for the company.