Longreads

Newsletters
Yesterday
News
Briefs

The
Morning
Context

In CaratLane’s
Sancheti,
underdog Chennai
wins big, again
Ashish K. Mishra
Mumbai

Harveen Ahluwalia
Mumbai
 August,

Unlocked newsletter

Supported by:

From a reality check on valuations to frauds and breakups, has so far been a tough year for India’s startup ecosystem.
While most of us have a tendency to overdo both the doomsday and exuberance scenarios, last week’s news of Titan buying
out Mithun Sancheti’s remaining stake in CaratLane for $ million is a much-needed outcome for the ecosystem.
Beyond the grit and patience story that’s gone into creating this outcome, I think a few other points merit attention.

1. I can’t seem to shake off how the CaratLane outcome is a big win for the Tamil Nadu entrepreneurship ecosystem.
CaratLane, Freshworks and Zoho are three incredible success stories of the Indian startup ecosystem. Each unique
in their own right, with their roots in Tamil Nadu, which to be fair doesn’t get as much love as Bengaluru. Think
about it like this. CaratLane is a great build and sell outcome, Freshworks went from a startup to IPO in years and
Zoho, which has a yearly revenue of $ billion, has never raised money. Each unique in their outcome and the value
they’ve created for their founders, employees and shareholders.

Hours after the CaratLane news broke, I spoke to one of the most prominent investment bankers from Chennai. He requested
not to be named because he understands how the subject can easily offend people. “You write, I am happy to talk,” he said,
on the phone. “I am a big believer in the ecosystem here,” he added. “I think there are two things that stand out. One is that
the founders or the business ecosystem here is of the put-your-head-down-and-execute nature. Now whatever you may call
it, conservative, risk-averse, these are all terms which people use, it has worked well and it has created value.”

“Second is that the overcapitalization frenzy which played out in other parts of the country, I think it did not reach the
companies here. That again is an outcome of the nature of founders here. The way I often explain it is that if one goes to a
businessman in Delhi who has Rs in his pocket, he will say he wants to put up a plant worth Rs . A businessman in
Chennai who has Rs in his pocket, if you ask him the same question, he will say he wants to put up a plant worth Rs . This
is just the nature of this place.”

Later into this conversation, the banker chided me saying the outcomes I was discussing are again those that are widely
discussed in the media. There are other success stories, quieter ones. Take the case of Zifo, a Chennai-based startup that
makes informatics software and sells it as a service to industries like pharmaceuticals, biotechnology and food & beverages
among others. Founded in , Zifo is now a global operation and raised $ million from TA Associates, a private equity
fund last year. To my embarrassment, I hadn’t heard of the Zifo outcome before. “These are not or million dollar
outcomes, we are talking millions and still these companies are under the radar.”

1. The second point that has stayed with me from the CaratLane outcome is how Sancheti stuck it out at the company
over the years, almost building the business for Titan. Titan acquired about % of CaratLane in , which is
effectively a strategic acquisition. Now usually in strategic acquisitions, founders either check out immediately after
the transaction or, when they stay on in the company for a contracted few years, bide their time.

The CaratLane story has played out very differently. Sancheti spent a good seven years building CaratLane for Titan, and only
now in has he decided to move on.

Over to Harveen.
Dunzo back in Reliance’s consideration matrix
In recent days, there have been multiple reports about Dunzo possibly raising fresh funds to weather the storm it has been
going through. The hyperlocal delivery company has almost run out of cash and, consequently, scaled down operations,
deferred salaries and laid off people. The company also has a long list of vendors who have not been paid—including its own
investor Google—and have been sending legal notices seeking their dues. Dunzo had also not transferred the tax deducted at
source from employee salaries to the income tax department on time, which had led to a delay in the generation of the Form
document of the employees. We had written about it here.

Now, a recent report in Inc claims that Dunzo is in advanced talks with existing investors to raise $ million in fresh
funds. It also says Reliance Retail, which holds a stake of more than % in Dunzo, will not be participating in this round.
The Economic Times, in a report, says that the talks have run into a roadblock as Reliance isn’t on board with the new,
reduced valuation of Dunzo, which is about % less than the last time. In January , Reliance Retail had invested $
million in Dunzo at a valuation of around $ million. A % haircut in the valuation and Reliance’s absence from the
round means a significant loss for the conglomerate. However, there is more than meets the eye in these reports.

The notable development is that Dunzo is back in Reliance’s consideration matrix. Till July, the conglomerate wasn’t even
bothered about the outcome or profitability at Dunzo. We had written about it in Dunzo is in no man’s land.

But, in recent days, Reliance seems to have warmed to the startup and is now mulling over the ongoing developments,
according to a person close to the matter. This is probably because Dunzo and most of its other investors have been looking
at Reliance to take a call on the company’s future or at least show the way.

Late last month, there was an in-person investor meeting to discuss the future course of action for Dunzo and figure out a
strategy to salvage the company. Dunzo has been trying to convince the existing investors to give it another chance.

In and post this meeting, different permutations and combinations have been discussed (this is also where the reported
fundraising round comes in). But it is quite clear that there are only two ways things can really pan out. One is that the
existing investors and Dunzo somehow convince Reliance to participate in a new round of funding. Mostly because it is not
likely that Reliance as the largest shareholder will agree to any kind of valuation cut in a round where it is absent. Reliance is
not a company that lets go of its investments easily and the existing investors too would be hesitant to cross the
conglomerate in any way. If somehow a fresh round happens, the terms and conditions of the arrangement can be expected
to be fairly strict with Reliance keeping a tight control over everything.

Two, and this is something we have been saying for a while, Reliance scoops up Dunzo entirely. A distress acquisition can
never be ruled out when Reliance is involved and, in this case, Dunzo is anyway at its lowest point at the moment.

The bottom line is that either way, Dunzo’s fate is in Reliance’s hands. The existing investors are unlikely to move until
Reliance has made a decision.

From what we are hearing, Reliance is ready to find a solution quickly.

T Surendar contributed to this newsletter.

***
This edition of Things Change is free to read, thanks to our sponsor Masai. About the sponsor:

Masai, India's one stop destination for the most skilled fresher tech talent, is thrilled to exclusively invite all subscribers of The
Morning Context to The Talent Circle.

What is The Talent Circle?

An exclusive, invite-only program

Access to the top % of Masai's talent pool of skilled fresher web developers
Tech-agnostic prompt engineers with a mastery in all tech stacksDedicated account managers
DAY RISK-FREE TRIAL. Don't like the candidate? We take them back, no questions asked
hiring cost | immediate joining | pan-India availability | offer drops | day hiring time

Join The Talent Circle: https://aarw.short.gy/TMCTC

We thank our partners for supporting our newsletters and stories. Sponsorship has no bearing on editorial, which is fiercely
independent.

Cover image from Getty Images.

Startups
Freshworks
Things Change
Reliance
Tata
Dunzo
Titan
Zoho
hyperlocal delivery
Chennai
Mithun Sancheti
CaratLane
Disclaimers: The Morning Context has raised money from a clutch of investors, entirely in their personal capacity.
It is quite likely that some of them may be directly or indirectly involved in a competing line of business similar to
the companies we write about. Our full list of investors is here

As a TMC subscriber you are part of the select group who has access to this story. Hope you are enjoying your subscription
of TMC.

More from “Things Change”

Internet
Country Delight’s growth vs profitability dilemma
amiksha Goel
August,
Business

NDTV’s losses are not coming in the way of its expansion plans
yush Tiwari
August,
Internet

Zomato Q results: a surprise delivery

 val Nanavati
+
August,

See all

Y E S T E R D AY
Everything that’s happened around the
world in the news. Clutter-free with a quick,
to-the-point perspective. We land in your
inbox every weekday at am IST

LEARN MORE

Follow us on

THE
MORNING
CONTEXT
Categories
INTERNET
BUSINESS
CHAOS
NEWSLETTERS
ALL STORIES
YESTERDAY
STARTER COLLECTION

Subscription
Individual plans
Corporate plans
Student plans
Gifting

Company
About
Leadership
Investors
Team
Editorial code

The Morning Context

Blog - On the record
TMC Subscriber App

Collaborate
Contact us
FAQ's

Privacy Policy
Terms and Conditions
© Slowform
Circular Road, # Pte
- ,Limited
, Singapore
support@themorningcontext.com

PDFmyURL.com - convert URLs, web pages or even full websites to PDF online. Easy API for developers!