INSIDER: JULY 31st, 2021

July 31, 2021 · 6 min read

Dear Reader, for years I have found my solace in chaos. Don’t hate me for this, but I am not a very organised person and my organization is in my mess. However, far and between, after I watch an episode of Marie Condo or The Home Edit, the organization bug bites me. The first thing I go to clean up, is my phone (probably because it's easier than organising a whole wardrobe 😓).

But every time I clean up my phone’s home screens and organise them neatly in folders, after a few months (or weeks 😔), I find them all back to square one. I blame it on the apps. There are so many. One for ordering food, the other for hailing cabs, one for ordering groceries and another to pay for them. Someone help me.

Look who heard my cries - none other than the Tatas and the Ambanis! I hear they are all set to build India’s first superapp. This one app is supposed to have all utilities built in. But who will it be - the Tatas or the Ambanis or both or someone else? My colleague, Pranavharan is decoding this space for you this week in our Favcy Review section.

What else do we have? In our Short Take section this week, we give you a glimpse of how the space-tech domain is growing in India. And in our Angel Bytes section, we debate - is it or is it not okay to invest in cash burning startups? Read on to find out.

I’ll sign off with some good news for you all to cheer on. One of our portfolio startups, Good Good Piggy, led by the phenomenal Purva Aggarwal, has been selected in the first round for the upcoming Shark Tank series. We are surely excited about this one.

​Do share your feedback on this effort. You can mail us at insider@1stcheque.com

Cheers 🍻
Yamika

Unless you've been living under a rock - you would've known that two of the world's richest men, Richard Branson and Jeff Bezos, went to space recently!

This was historic as it paves the way for the common man to one day go to space.

Today we're talking about the technology that enables all this - spacetech and the landscape in India. Buckle up your belts for a fun ride!

The SuperApp Race - Tatas or the Ambanis?

by Pranavharan Mohanasundaram, Favcy 1stCheque

Imagine if you could book a flight, a hotel, a taxi from the airport to the hotel, order food during your stay, and also text your friends while you are away, all on one single app. ONE SINGLE APP! Imagine that. Wouldn’t it be so smooth? So seamless. There is no need to switch between apps. With just a swipe right or left, you will have everything you need. Say hi to superapps.

Superapps are essentially one-stop shops to a multitude of services from delivery to e-commerce to messaging. No country has embraced the superapp trend better than China.

What about India? Who will win the race and create India's Superapp? 

Acquire Expertise in Angel Investment and read our well-researched and in-depth topics about startups and investing

Should you invest in startups with a high cash burn rate?

Headlines of CRED losing Rs. 721 to make 1 rupee swarmed every news portal last year. Yet the startup is valued at a little over $2 billion and investors are ready to pour their money into the company at a moment’s notice. Amazon was a loss making start-up for 29 years. Yet, now it reaps rewards for its shareholders.

That brings us to today’s question - Is it wise to put money into cash burning growth stage companies?

What are growth stage companies?

Companies that are currently burning cash on user acquisition, with the expectation that they will become profitable once they have a significant enough customer base. However, these companies will only grow bigger if they solve problems that are substantial enough and have a strong  influence on a large number of people.

For example, Ola identified the problem of taxis not being found by people. So they created an app which acts as a middleman between taxi drivers and the commuter.

Similarly Zomato did the same for restaurants and customers. And look at where Zomato is now. Listed on the Indian stock exchange with valuation greater than Rs.1 lakh crores.

Is it worth the risk?

It's nothing new to burn cash for expansion. Investors have been dealing with this for quite some time now. They eventually make up for all of the cash burns when the startup finally breaks the profitability plateau.

It might take 5 to 7 years to achieve the total addressable market.” Only when a start-up is able to cater to most of its total addressable market, will it be able to efficiently utilise economies of scale. Economies of scale refers to the reduction in prices of a product due to its production on a large scale. Because of lower prices, it will be able to attract more customers and create an ever strong foothold for itself, maybe one day even turning itself into a monopoly. 

This is the belief with which investors pool in their money but in the end that is what it is- a belief. Sometimes this belief does not come true. 

The second most common reason why startups fail is because they run out of money (can you guess what’s the first?) And there is only so much money investors can put in. Most of the funding that angel investors put in is during pre-seed and seed stages. At this stage it might sometimes be hard to determine whether the startup is a disruptor or a dud. VC interest comes in usually during the later rounds and this is where the real money comes in. This round of funding is essential for these high cash burn startups. If there is a VC interest in one such startup which you have invested in, you just might have picked yourself a winner.

Do you want this piece of the pie? 

As an investor you have to make sure that the startup you are investing in uses the cash for the right reasons and is not using it unnecessarily. You can do this by comparing a few metrics such as marketing expenses, growth in the number of customers, customer acquisition costs, customer retention costs and so on. Most importantly, check if they understand unit economics.

In the end, as an investor, your goal is to maximise returns. So there is a certain level of prudence you need to have while investing in these startups. But at the same time, do not leave the next unicorn just because its financials might not be what you are looking for. In the end, it all depends on your risk profile and what is the kind of research you do beforehand. 

At Favcy, we do this for you! High cash burn or not, we offer you pre-vetted and risk-mitigated dealflow for you to invest in. Our focus here is on building revenue generating startups from day one. You get access to all the collaterals including thesis (why we invested in a startup), idea validation, investment note and much more to assist you in making informed investment decisions.

Here are the events of this week:

- Droom closes pre-IPO growth funding round one at $1.2 billion valuation

- Nium turns unicorn with $200 mn cheque, plans to up India team by 60%

- ixigo raises $53M from GIC, Infoedge, others in pre-IPO funding round

Stay tuned to receive the latest industry trends, investor insights, our exclusive angel bytes, and much more!

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