‘E-tailers should find an Indian model to win at scale’

Indian start-ups are warming up to venture debt as an alternate source of capital. Trifecta Capital, a significant player in this space, has raised ₹200 crore for its debut fund. It has made investments in 15-odd companies, including online furniture marketplace Urban Ladder.

According to Rahul Khanna, Managing Partner, Trifecta Capital, the firm is likely to close a ₹500-crore fund in “another two quarters” (fiscal end). Recently in Kolkata, Khanna spoke to BusinessLine on the start-up scenario, and the profitability in e-commerce. Edited excerpts:

How different are you from venture capital funds?

We are a venture debt fund, where interest income forms a significant portion. While venture capital funds are ‘high risk-high return’, venture debt funds are ‘moderate risk-moderate returns’. As the ecosystem has matured, start-ups have choices for equity financing. However, we provide debt to these companies — like a term loan. Unlike a NBFC (Non-Banking Financial Company), we do not borrow money. A contribution is made to a fund, which is then deployed.

How has the start-up scenario changed over the past 10 years?

There has been innovation in organising information. Once consumers started becoming comfortable with it, small payments started happening. Later, it moved to paying for products online. The next evolution will be paying for services — like subscriptions — online.

When do you see these start-ups turning profitable?

Some companies that have been built over the past 10 years are already profitable. A lot of companies that are burning money are in sectors such as e-commerce, where investments have to be front-ended.

So, what ails e-commerce despite the capital inflow?

To create physical infrastructure such as warehousing and transportation, (one) requires significant investments. Some of the money has gone into customer acquisition. A lot has also gone into the back-end; and that in a country like India is very significant.

E-commerce is about creating a life-time value, not a one-time transaction. And, the only way to create such a great user experience is to deliver consistently — on time, on quality. Companies are now learning to do it.

I would imagine that over the next next years you’ll see companies such as Flipkart find an execution model that’s sustainable.

Will user experience override deep discounting?

Absolutely. Let us take the example of Indigo (airlines). It is a great instance of how a great service experience trumps the discount experience.

In the first place, these companies are looking to earn people’s trust — which is very difficult in India. Once they earn the trust, they can look to cater to service and content needs. That’s how we should look at these companies, instead of just looking for a discounted product.

Will e-commerce generate volumes when discounting stops?

Most companies make money on their private labels (in-house brands). In India, it is very difficult to charge more. What e-commerce is now doing is making rails to be at your door.

Over time, these rails will carry goods and services. It is a long-term game (in India). Companies need to find an answer to what is the India playbook for winning at scale. In China, it was a protectionist model. There was a US model. But companies now need to figure out an India model.

So entrepreneurs need to go back to thinking in terms of frugal innovation; stretch every single rupee, as opposed to the belief that there is unlimited capital available.

COMMENT NOW