One quick thing: Foxconn begins iPhone 15 production in India

In today’s newsletter:

• ESOP bonanza: Cashouts hit $1.5 bn over 3 years 
• What Zepto's pitch deck revealed about quick commerce
• Green shoots again for tech IPOs in India

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Hiring freezes, layoffs, valuation cuts, and a funding winter might make it seem like everything is gloomy in the startup ecosystem. But it isn't.

Cashouts of employee stock options (ESOPs) have created $1.5 billion in wealth for startup employees in the last 3 years, according to data from cap table management platform Qapita.

In 2021, ESOP liquidity events worth $420 million occurred and $292 million in 2022.  

• So far in 2023, around $750 million has been cashed out

Most of the cashouts have been from blue-blooded unicorns like Flipkart, Paytm, and Swiggy. However, smaller startups that have not yet reached scale in operations or funding have also contributed to the trend.

For instance, fintech startup Grip Invest conducted an ESOP buyback last year just after raising a Series A round of $3 million and 18 months into operations.

• Industry insiders say that such early-stage buybacks are unlikely to happen in the near future, at least until the funding winter subsides

However, ESOPs are expected to become a larger part of overall compensation as startups tighten their belts to reduce cash burn amid the funding winter.

Experts say that the recent boom in ESOP cashouts has occurred despite the unfavourable tax regime for such compensation in India.

• India taxes ESOPs twice: once when employees convert the options to shares, and again when they sell the shares

• In contrast, advanced jurisdictions like Singapore do not tax ESOPs in the interim. They only tax ESOPs when the shares are sold

Go deeper

While July was all about Dunzo and the happenings there, this month we shed light on another player, often touted as the poster boy of quick commerce.

We reviewed Zepto's pitch deck to investors, where it stated that it had significantly improved its financial health and continued to grow, leaving legacy players behind.

Let’s take a look at the numbers:

• Monthly cash burn down to Rs 55 crore in April, from Rs 90 crore in September 2022

• Monthly sales at Rs 370-380 crore in April, a jump from Rs 200 crore in September last year

• Daily orders: 2.71 lakh as of March 2023

• EBITDA margins: between -15% and -16% in April, an improvement from -26% in January

Zepto has also moved away from the very foundation upon which it built its business.

• Zepto now delivers in 13 minutes, a departure from 10-minute deliveries
  
  
• Blinkit takes 14-15 minutes, while Swiggy Instamart is the slowest at 20-22 minutes

Industry insiders say that this change in delivery time has helped Zepto become more financially prudent.

Industry watchers said that Zepto was relying too much on its existing dark stores with limited geographical expansion. This could pose a risk.

“Since Zepto has been depending too much on select pincodes, tomorrow another player can slash prices in those areas and take away market share – that poses a big business risk for Zepto,” an internet sector analyst said.

Go deeper

India has emerged as the third-largest startup and unicorn ecosystem in the world in the past decade. This means that the country has attracted billions of dollars in investment from venture capitalists and other institutional investors.

However, these investors are not just looking to make a quick profit. They also want to see their investments exit at a profit. 

• This means that India needs to develop a robust market for listed tech stocks

Can India achieve this objective?

According to various industry insiders, including founders, bankers, and investors in both private and public markets, the consensus answer to this question is a resounding "Yes!"

The recent bull run in new-age tech stocks has instilled confidence in startup investors, who now feel more secure about getting exits through public listings.

• These companies have made conscious efforts to improve their numbers in the recent past, and public shareholders are duly rewarding them

• This has also prompted late-stage startups that are gearing up for IPOs to work on improving their numbers faster

Startups are also improving their compliance and governance-related practices, which public shareholders regard highly.

Does this mean that India will see a flurry of tech IPOs? Well, maybe not immediately. There are also a few challenges on the valuation front. 

However, investors are very certain about tech companies making their stock market debuts eventually. 

Find out more

• OpenAI believes AI can help social media firms moderate content more efficiently by speeding up the process.
  
  
• Amazon is rolling out a new generative AI feature that summarizes product reviews for customers.

In the land of jugaad, where innovation is often born out of necessity, autorickshaw drivers have found a clever way to make digital payments more convenient for their passengers.

In Bengaluru, one driver has saved his QR code as his smartwatch's screensaver so that passengers can simply scan it to pay for their ride without having to fumble for cash.

Another driver in Mumbai has taken a similar approach, but with a twist. He has made his phone's wallpaper a QR code for the UPI payment app. 

These ideas are simple yet brilliant. They are also a great example of how Indian ingenuity can find solutions to everyday problems. Find out more

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