E-Com Investors Realize Folly Of Disregarding Rakesh Jhunjhunwala’s Advice In Wake Of Local Banya, Tiny Owl & Zomato Fiascos

 

Though old-school investors of the proven caliber of Rakesh Jhunjhunwala, Prem Watsa, Samir Arora and others offered sensible advice, new-age investors behaved like drunken sailors and poured billions of dollars into dubious e-com ventures run by college dropouts. Now, these ventures are proving to be bottomless pits and the investors are wailing over their losses

Even novice investors like you and me are tutored from an early age that we must invest our hard-earned money only in ventures with a proven business model and with trusted and experienced promoters. We are especially cautioned to ensure that the promoters are battle-hardened and have seen adverse business cycles at close quarters and lived to tell the tale.

However, the astonishing part is that so-called savvy investors have not only disregarded this advice but have turned the advice over its head. They take delight in fishing out obscure e-com ventures with dubious business models. These ventures are run by school and college dropouts who are still at a tender age. They are first time entrepreneurs with no experience in dealing with business adversities. Now, if such youngsters are flooded with crores of rupees and given a free hand to do what they want with no checks and balances, can one complain of burnt fingers?

The worst part is that the e-com investors are/ were in a state of denial. When Nikesh Arora of Softbank was asked how he could invest $100 Million (Rs. 630 crore) in Oyo Rooms, a venture founded by Ritesh Agarwal, a 21-year old college dropout, he (Arora) rationalized it by stating “I have met many entrepreneurs around the world. He (Ritesh) will match them dollar-to-dollar in his maturity and ability to talk about business, ability to absorb and ability to listen“.

Understandably, the old-school investors were alarmed at this dangerous state of affairs.

Samir Arora, the whiz-kid fund manager with Helios Capital, is well known for his blunt style of speaking. “E-Com investors are guaranteed to lose big money” he declared with his usual flourish.

“The valuations of e-com companies are in nose-bleed territory” Ramesh Damani said with exaggerated politeness.

Prem Watsa, who is revered as the “Warren Buffett of Canada” for his incredible stock picking ability, was also savage in his criticism. He made thebone-chilling prediction “We’re confident that most of this will end as other speculations have – very badly!”

However, it is Rakesh Jhunjhunwala, the Badshah of Dalal Street, who turned everyone’s focus on the madness happening in the e-com space. The Badshah sent the clear and present warning that investing in ventures with no proven business model, cash flows and at exorbitant valuations is a recipe for disaster.

These warnings are now coming true one after the other. The e-com investors have realized their folly and are trying to cut their losses by turning off the tap of funding. As a result, the e-com ventures are shutting/ slashing down their operations one by one.

localbanya.com, the online grocery store, appears to be the first victim. The venture has been sporting an “under renovation” banner for the past several weeks while rumours are flying thick and fast that the venture has no money to pay salaries and the employees are rebelling.

A similar fiasco was seen in Tiny Owl, the food aggregator app. It suffered acute embarrassment when its 24-year old co-founder was held “hostage” by irate employees for sacking them arbitrarily and not paying their dues.

Zomato, an e-com venture that makes restaurant recommendations, was in the news when Deepinder Goyal, its founder, made an impassioned plea to the sales team to shake off their lethargy and “bring in revenue” to pay salaries and meet costs. Deepinder Goyal appeared to have been inspired by the iconic “Always Be Closing” speech of Alec Baldwin in the movie ‘Glengarry Glen Rose’.

To add to the woes of the e-com investors, Kishor Biyani, revered as the “Father of Modern Retail”, has sounded the death knell for the e-com sector. “None of the existing online grocers will survive and will shut shop one after another. Their model doesn’t make economic sense at all” he said in a grim tone.

Next time, the new age investors would do well to listen to the sage advice of Rakesh Jhunjhunwala and the other old-school investors who have learnt the fine art of investments the hard way!