Rashmi Bachani has filed an online signed petition to the CEO of redBus and CEO of goibibo, asking them to ensure the bus services aggregated by them are safe for travel by anyone. The online petition has garnered over 13900 supporters.
This Is What Happened:
“I was molested by a bus driver. Apparently a girl sleeping alone on a single berth equals easy prey, and the driver felt I was up for “grabs”.
Rashmi said that redBus cannot wash their hands off by saying “it is the responsibility of the bus operator” and leave it at that. They have to be responsible for any occurrence.
Below mentioned are some action points demanded to be implemented in the petitioned:
1) Background Verification of Drivers & all staff should be mandatory for listing on redBus.
2) List of Drivers, Staff with photo & employee id on the redBus website.
3) Employee ID, Name, Photo (of the driver, helper) clearly indicated on the bus tickets, and available on the redBus App.
4) Phone Numbers in the Bus – clearly visible to all passengers – stating “In the case of emergency / complaints, call this number”. [link to petition]
redBus Response
CEO of redBus, Prakash Sangam, took note to her comments and cared to reply to the petition.
Some of his comments on the petitions:
1) Whenever any seat is booked by a female passenger, the adjoining seat gets automatically reserved only for female travellers.
2) ‘Track my Bus’ feature pioneered by redBus, where the real-time location of buses are tracked via GPS installed on buses.
3) A very recent feature that we have added is ‘Rest Stops Information’. On buses that have GPSs, we are accurately able to gather information on all the rest stops made by buses where we show the location (on the map) and the duration of the stop of the bus.
“We would like to highlight that redBus is a bus ticketing marketplace platform connecting bus operators with travellers. Despite this context, redBus in its capacity as a socially responsible corporate citizen, has always endeavoured to ensure the safety and security of the commuters.”
Question For redBus:
At the outset of it, with technology developing to an extent where people are getting services and help through twitter- a system which Indian Railways is using, why can’t technology oriented companies do the same?
Bus operators are running services and aggregators are helping people get their service, so, who is responsible for the safety of passengers?
Least, shouldn’t redBus ban/blacklist these drivers/buses?
Indian online travel services group ibibo has launched redBus in Singapore and Malaysia, making available over 1 lakh inter-city bus seats to travellers in that country daily.
The move also marks the launch of “redBus global platform” that supports multiple currencies, languages, time-zones and is integrated with international payment services.
Since ibibo acquired redBus in 2013, the platform has grown by 80% y-o-y, has increased its market share to 75% in India and now registers 40% of its transactions on mobile.
redBus will aggregate 5,700 bus routes in Singapore and Malaysia across a many operators with bookings being made with either Singapore Dollars or Malaysian Ringgits.
Travellers will be able to book bus seats through www.redbus.sg in Malaysia and Singapore and will also be able to utilize the redBus iOS and Android apps.
ibibo says the bus market in several countries is similar to India, ie. it’s largely unorganized and has a fragmented bus operator base. The company will use its learnings in India to now disrupt the intra-city bus market in Malaysia and Singapore.
redBus, the company which got acquired for Rs 800 cr by South African media conglomerate Naspers is seeing senior level exits as many employees feel left out of the ESOP story, according to sources. At least a dozen senior employees of redBus have quit the company and a few more are on their way out.
A large part of this exodus may be – from what we’re hearing – because of the fact that employees aren’t pleased with the way Employee Stock Options were dealt, as most of the tangible gains from the acquisition have gone to the founding team (+ few very selected ex-employees, not more than 3 in number). That is, the core group and not employees, who must have obviously been sold the dream as well.
redBus founder & CEO Phanindra Sama has not yet responded to an e-mail sent by us on Monday.
In usual cases, when an offer is on the table, companies resort to accelerated vesting where options are quickly converted to shares and employees make money at the time of acquisition. The other option is that the acquirer recognizes the existing ESOP scheme and gives the employees what is called “employer securities,” in the form of preferred or common stock in the acquiring company. In this case, it appears that the latter option was chosen.
Of course, any M&A brings its own integration challenges as well as those of sustaining the team, but the redBus story is a bit different. Some of the employees who have quit the company are a bit disgruntled because they feel that the founding team let them down, especially since this is juxtaposed with the extensive PR and the excellent image the company and founders have amongst the media and in the ecosystem.
Do you blame the acquiring company?
Maybe not. While everybody is trying to maximize their gains, employees totally rely on founders for the judgement. Acquiring company’s intention is not to be good to employees during the deal phase.
What does that mean for startups?
The entire ecosystem is built on trust. We are sure that redBus will certainly manage to fix the current exodus issue, maybe the lesson here is that founders need to lay down the ESOP rules clearly (and stick to it).
Of course, startups (and even established companies) will find it difficult to sell ESOP value to potential candidates after this (not that it was easy earlier). In fact, some of the companies are now going extra mile to convince their teams that ESOP does have value and if the company gets acquired, this is how the payout will be made.
The Truth About ESOPs (In Indian Startup Context)
In Indian startup ecosystem, ESOP$ hardly have any (perceived) value. While the ecosystem has seen some exits in the last one year, very few employees (especially non-core team members) have monetized ESOPs, i.e. we have very less number of case studies to prove that ESOPs are actually a big deal (read : The Dark Side of ESOPs).
For sure, core team members should definitely monetize ESOPs, but if it’s only about that, then how can you sell the dream to those who aren’t part of the core team? In fact, read from my personal experience (Do not care about ESOPs? Read this 70X Success Story), where I wasn’t even part of the core team and monetized ESOPs. Apart from creating confidence in the ecosystem, it also helps in building a ‘Pay it Forward’ culture.
And while it’s important to celebrate success (exits/M&A etc), it’s also important to look at the overall value being created. For startups, the time to lay down these rules clearly and transparently is NOW.
PS: We have reached out to redBus to get some clear numbers around this, but haven’t heard back. We will update the piece when we get an update.
[Jayadevan and Sameer contributed to this article.]
At the heart of India’s new wave of startups, lies a uniting factor: their Alma Mater. As keen observers of India’s startup ecosystem, it is impossible for us to miss that the Birla Institute of Technology and Science in Pilani, Rajasthan, has been churning out entrepreneurs, quite a lot more than others.
Some of the newest startups from BITS Pilani include GharPay, Zivame & Exotel. Founders of redBus, the bus ticketing business which sold to Naspers for $138 mn, trace their roots to the deemed university now headed by top industrialist Kumar Mangalam Birla.
BITS Pilani Startups
Although many Indian colleges pay lip service to entrepreneurship (cells), very few actually do something about it. Campuses that have strong entrepreneurial culture can be of a big boost to the economy. Take for example, the Massachusetts Institute of Technology (MIT). The total revenues of all active companies founded by MIT graduates will cross $2 trillion- that’s more than India’s gross domestic product (GDP)!
Over the past 5 years there has been a rise in both the number as well as the maturity of the startups coming out of the Rajasthan based college. One of the entrepreneurship programs in the university is looking at over 100 startups in its pipeline! This pretty much unheard of in other institutions.
Inspite of not being an “Indian Institute of Technology”, BITS Pilani has been able to build and sustain a brand of its own. The culture and mentorship shared by the alumni and the new batch of students is one that seems to have a strong connect with alumnis and has sustained through a very long time.
What’s the secret? Well, a great mix of freedom and the right attitude to entrepreneurship.
“Unlike IITs, BITS is not always about education, but also about all round development and better exposure. The people also come with strong analytical background, to add to this development, there is strong peer pressure and competition.” [Shivakumar Ganesan, BITSian & Co-Founder of Exotel]
redBus, one of the most recent Internet success stories in India was founded by BITS graduates Phanindra Sama, Sudhakar Pasupunuri and Charan Padmaraju. Preetish Nijhawan the co-founder of Nasdaq listed Akamai technology, Sabir Bhatia of Hotmail and Manoj Saxena of Webify are all from BITS. Gullu Mirchandani of Onida, Gagan Chaddha of Value First and Rajesh Hukku who sold iFlex to Oracle for $900 mn are also BITS.
“I think it has something to do with flexible systems at BITS Pilani that leads to a lot of people experimenting with their true passions and interests,” says Aditya Rao who studied at the 84 year old institution.
Giving Back to School
An advantage BITS has over other universities is that there have been quite a few rockstar entrepreneurs from the college who are keen to give it back to their Alma Mater. Most of these entrepreneurs are young and have kept a strong connect with the institution. Another important factor is that the groundwork for entrepreneurship is inculcated from the first year of college itself.
“To sum up The IIT brand as it stands today is much greater than any engineering college but if you want to develop management,leadership qualities in yourself, BITS is the best place in INDIA.” [Quora User]
What other colleges should learn from BITS
1. Make entrepreneurship a part of the process.
To help startups and entrepreneurs, the institute has been running a series of programs. One such program is the New Venture Creation (NVC) course. In this course,held across all the three campuses, BITSian students sign-up as teams and build a Minimum Viable Product (MVP). The lecturers in this course include investors, entrepreneurs and professors. Startups such as Framebench and Tunepatrol have come out of this program.
2. Support student entrepreneurship activities.
The universities annual startup event Conquest, organized by the Centre for Entrepreneurial Leadership, has evolved from a b-plan competition to accelerating registered and operational companies. Some notable winners of this platform include Gharpay, Vita Beans, iViz security.
3. Have a strong alumni culture & network.
Successful entrepreneurs from BITs also regularly visit the campus and talk to the students. This gives them access to mentors, ideas and funding. BITS2startup, a startup focused platform which has over 2000 members.
Something only BITS has…In-House Angels
The Spark Angel program helps startups from BITS to connect with angels and other investors. The program was initiated after seeing the need for a formal platform for BITSian startups, with traction, to connect and get invested by BITSian entrepreneurs, investors and senior corporates. The program ensures that there is continuous interaction between the angel group and the startups during the entire process. The group is not restricted to BITSians (select non-BITSian are also allowed into the network).
The BITS Spark group has over 60 angels on board looks at funding, between $50,000 to $250,000. Some notables such as Raju Reddy of Sierra Atlantic and Sundi Natarajan of the Indian Angel Network are part of the program. The program works closely with some seed investors such as Blume, IAN, The Hatch, Aegis Incubator, BITS TBI etc.
They have a strong base of BITSian volunteers who help run the process, come with experience in VC, operations and product development at startups and management consulting. It has also introduced a mentorship component to the Spark application process to help the startups prepare their initial pitches as well as refine their story.
To be selected by the group, the startup needs to have a BITS as well as an Indian connection. In the beginning only India registered companies were allowed, but over the last few rounds, they have been actively considering companies which might be registered anywhere in the world, but do have India as one of their core markets. The startups with some kind of traction to be selected and should be pretty much out of their idea stage.
Upcoming companies by BITS graduates such as Exotel and Tabtor have been funded by the program and three more are being evaluated.
The BITS group has recently launched their website www.bitsspark.org, which will help them get across easily to a larger audience. Rao says that when he faced issues raising funds, veterans at Bits Spark angel group like Sundi Natarajan and Raju Reddy were of great help. Reddy is an investor at Gharpay and many other startups.
“He wrote a $100,000 cheque for us after a 30 minute meeting,” says Abhishek Nayak, the co-founder of Gharpay . Nayak’s first customer was redBus, whose founder Phanidra Sama is from BITS and has named his company Pilani Soft Lab.
With the support of Pilani, hiring interns and employees also becomes easier.
Last but not the least…A lesson to all institutions especially IITs
FREEDOM
For a student BITS gives freedom to explore and choose what interests them, unlike many other colleges that are unduly strict about attendance.
“I am not good with classes.. I cannot be involved in the class unless the teacher is extremely good and the subject extremely tough.. in all other cases .. I simply do not have the concentration .. ergo – BITS .. I had 0 attendance in almost all my courses in 1st semester.. I learn better when I take the time and do things my own way. Not possible at all in IIT.” [Quora user]
Update: This is NOT a Comparison
To those who are talking about bias of the article etc, my 2 cents : you haven’t read thru the piece.
This is NOT about the Bits Pilani brand (vs. IITs), but how alumni and students are creating a positive impact and bringing the change INSTEAD of expecting the college to drive the change, which is what most of the other colleges are all about.
After all, how many engg. college’ early stage entrepreneurs/alumnis are part of these groups of ‘let’s do early stage investments’ in our own college students. Either the circle gets bigger (i.e. if I am an early stage investor, let me invest irrespective of the college brand) OR the decision gets postponed (ah! will do a grand grant of $5mn after 30 years).
BITS Pilani has managed to find a balance and there surely is something to learn from (the art of giving when you have earned very little).
[Editorial notes: Guest article contributed by Sumanth Raghavendra, Founder of Deck.in. Sumanth looks at lessons entrepreneurs can learn from redBus acquisition – especially with respect to funding and importantly, what it means to be an India-only play.]
The acquisition of Redbus was formally announced last week – it was a blockbuster deal by any metric and predictably sparked off reams of print singing hosannas to the founders (undoubtedly richly-deserved) and existentialist questions on “what this means for the ‘Indian startup ecosystem’”.
While all of this was great, a slightly-deeper dive into the deal contours reveal some fascinating facets. I reckon that it might be useful to parse through these and present them as a series of non-obvious lessons for other Indian entrepreneurs.
Lesson 1: Hire a lawyer during your fundraise
redBus had raised $ 8 million dollars over three rounds of funding. While this is a fair amount of money especially so in the Indian context, it is by no means a large sum and is a fraction of the amounts raised by other Indian startups. Yet, the stake of the founders was very small at the time of the acquisition – less than 15% by some accounts.
5 lessons from redBus acquisition
While it might be fair to surmise that they diluted a lot of their stake by underselling the valuation at the time of the funding rounds, the real reason is elsewhere.
The real reason why the founders ended up with as low a stake as they did can be traced to the fact that their first round of funding had a “full ratchet anti-dilution” clause (*source). Anti-dilution is a fairly standard investment term which essentially safeguards the investor if a subsequent round is done at a lower valuation.
The standard way in which this clause is enforced is by following a mechanism called “weighted-average method” – this is a generally accepted way that is equitable to both the investor and the entrepreneur. However, the Redbus investor agreement had a “full ratchet” mechanism which is a death spiral to the entrepreneur.
I am not going to go into the minutiae of these clauses (for those who are interested, this blog post provides an excellent, succinct summary – http://www.feld.com/wp/archives/2005/03/term-sheet-anti-dilution.html) but this avatar of the clause is widely regarded as something that no entrepreneur should accept as this article explains – http://venturehacks.com/articles/terms-that-hurt – as it has a severe dilution impact on the entrepreneur’s stake if a subsequent funding round happens at a lower valuation (which is exactly what happened when Redbus raised their second round).
I am not going to speculate on whether the Redbus founders understood and appreciated the nuances of this clause when they signed the original agreement but one thing is for sure – they didn’t use a lawyer for their transaction. The Redbus founder actually went on record to explain how they did this deal without a lawyer.
As entrepreneurs, while it is nice to trust investors and work with them on good faith, it is suicidal to do so without having a lawyer in your own corner to safeguard your interests. Any half-decent lawyer would have pointed out the obvious pitfall in accepting a clause like this.
Lesson 2: Understand your investor’s imperatives
One question that has popped up regularly as a reaction to the acquisition is “why now” – why did Redbus choose to sell out now when there was presumably an opportunity to build a much more valuable and meaningful company in the future.
Now, while there might be many reasons why the stakeholders decided that now was the opportune time for an exit, it would be an exercise in speculation to figure out the actual reasons…but we do have one clue.
Redbus raised their first round in circa 2006 – which means that their first set of investors have been with the company for seven years or thereabouts. Seven years is the average lifespan of most early stage funds – by the end of this period, the fund managers are typically required to provide a return to their investors (LP or Limited Partners in venture capital parlance) and while some funds do let winning horses ride further in the expectation that a significant payoff will come their way at some point of time in the future, as these are “unrealized gains”, it is a far cleaner option to simply exit the portfolio and provide a cash return to the LPs. While there is no way to know if this was the primary driver for accepting the Ibibo offer, there is every chance that the timing helped line up the stars, in which case the Redbus founders might have been prompted to take the offer to provide a realized return for their early investors.
As entrepreneurs, what we need to keep in mind is that investors are bound by a timeline too and we need to keep these imperatives in mind when we take the decisions that we do.
Lesson 3: India/Bharat is a tough market. Understand your market’s natural limits.
While providing a timely return to investors might be one reason why Redbus cashed out, there could potentially be one another.
There is a largely-held belief that India is still in the nascent stages of market penetration for e-commerce and specifically for bus travel too, there is a lot of headroom to grow (online is only around 5% of total transactions) but there are two points which seem to imply that perhaps at least some of this bullishness is unwarranted:
Slowdown in growth: Redbus had revenues of Rs. 12 crores ($2 million) in FY11 – this grew to Rs. 32 crores ($5.4 million) in FY12 implying 171% growth YoY. In FY13, the revenue grew to Rs. 55 crores ($9.2 million) implying a growth of just 68% – a sharp fall from the comparable figure in the previous year. While one might justifiably argue that attempting to extrapolate a pattern from three data points is statistically risky, there is no denying the fact that in percentage terms, Redbus show a sharp decrease in revenue growth for FY 2013 compared to the previous year, arguably much more than what could be reasoned away due to the smaller base in the previous year.
Push, not pull: One of the points that has been bandied about a lot about the growth of Redbus is around how the company has not spent a dime on marketing and the growth has been entirely organic, driven by word of mouth boosted by achieving deeper engagement with existing customers. However, in the recent past, Redbus has started spending money on marketing and specifically on advertising on mass media vehicles including TV ads. This implies that Redbus felt that organic growth was no longer sufficient on its own and the numbers had to be bolstered by push marketing.
Both of these points, individually and together, tell us is that customer acquisition was not just slowing, it was becoming increasingly harder and more expensive. While it might be nice to talk about the “enormous size and potential” of the Indian market, it is probably not a stretch to conclude that penetrating this market is by no means, an easy task and there is a good chance that the immediately addressable market is a sliver of the total market. Also, as echoed by the state of telcos in India today, it might not be too difficult to achieve early success in a category-defining market in India but it is quite difficult to keep this going on an ongoing basis over a period of time.
The other part of this is that as far as profitability goes, Redbus has just about gotten started – they had a bottomline of $100,000 in FY12 and less than $2 million in FY13. For a company that has 26 offices, over 500 employees and millions of dollars of funding, these results are certainly not anything to write home about especially so as it has been the market leader and has been in operations for over seven years. While they could have presumably sacrificed profitability in favor of growth, these numbers are still underwhelming. Again, this could point to the fact that India is a tough market in more ways than one.
For us entrepreneurs, it is a clarion call to assess/reassess if it makes sense to attempt an India-only play and if one continues to do, attempt to understand what the market’s natural limits are and ensure that our per-unit economics make sense within that canvas.
Lesson 4: Fundraising in India is hard, very hard
By all accounts, Redbus is a marquee Indian startup – the founders have done wonderfully well to establish a meaningful business and a well-known brand and the company has been lauded by everyone from the Indian and international press to MIT (which recognized Redbus as one of the most innovative companies in the world). Despite this, it boggles the mind that the company started its fundraising efforts for its Series D in November of last year and wasn’t able to actually close that round in the subsequent eight months.
One would have guessed that it would have been fairly trivial for a company of this stature to raise a new round if it so desired. The fact that it didn’t actually close a round in eight months from the time they started looking for it can give us an idea of how hard it is to raise funds in India.
Even though the company apparently got eight termsheets for this planned round, the fact that they chose to take the Ibibo offer instead of any of these options implies that the offers weren’t particularly attractive by themselves and empirically so, relative to the Ibibo offer.
The lesson is simple – if you get a chance to take money and if the terms are broadly equitable, take it, even if you feel that other things like valuation are sub-optimal! Also, keep in mind that if you are in the market to raise funds, it is a long and time-consuming process, so don’t get into it in an unprepared or half-hearted manner and don’t leave it for too late.
Lesson 5: If you are an investor, requiring traction to invest in a company carries the risk that you are already too late
While the early investors of Redbus were undoubtedly the big winners in the exit, probably recouping their entire fund corpus in this single deal, for the investors in the subsequent rounds, the returns weren’t quite as impactful.
Admittedly, this is at least partially a function of deal mechanics over multiple rounds but what is interesting is that the firms that did invest in the later rounds are not significantly different from the one that invested in the early rounds. All these firms are ostensibly early-stage firms that make seed stage bets in promising companies.
The difference, I guess, is that the first investor backed the company when it was still a fledgling entity on the promise and potential that it showed whereas the subsequent investors came in only after the company had already demonstrated traction and executed their plans. So perhaps, there is a lesson in this for Indian investors too – bigger returns mandate bigger risks – if all the ducks have already been lined up, you are already too late!
References:
*: redBus Story – “we had a term called full ratchet. Which means that if we raise capital at a lower valuation than the previous round, then we have to make it up to them.”
[Edit Note: The e-commerce Industry in India is going through a growing up phase. There are happy and sad times, good and bad news, but it is all part of the game. At NextBigWhat, our endeavor has been to chronicle the journey, in a manner that we think is right. In keeping with the tradition of gleaning insights from the industry, we bring you views from Rahul Chowdhri, Director of Helion Venture Partners, on the fledgeling ecommerce sector. Helion is a $605 million India focused funds which has backed ecommerce companies such as redBus.in, Hoopos.com, Fashionara & ShopClues]
There are a few important trends that runs across the ecommerce industry. Fundamentally in India, we need more number of online buyers. About 10 million buyers are good for a country like Russia where on an average about $100-$150 is spent per person. But that’s not good enough for India. The market is large but scaling is a challenge in India.
Currently, there is a clear shift towards marketplaces. The clear logic is that inventory leads to more cash burn and limits you in terms of how much you need to spend to buy things. Wastage and liquidation of stale inventory changes the margin structure. If you don’t own the item, you can have a much larger range. If you don’t own it, all you need to do is cataloging.
But marketplace it is a bit abused term. Marketplace is when your brand to the consumer and make the merchants responsible. Returns and other heavy lifting must be managed by the marketplace to ensure smooth operations. This is starting to happen. But there are still a few things that need to be solved.
In the ecommerce industry, there are a few things the industry can solve and there are a few that can’t be solved by the industry alone. The balance between growth and profitability is the first that needs to be addressed. It’s tricky. You can’t stop growing but can’t afford to lose sight of profitability either.
Secondly, players need to bring in differentiation. Large horizontals will face pressure from marketplaces and in turn, large horizontal companies will challenge smaller niche companies. Another challenge is to figure out how to continue getting finance. Companies need to be in the limelight and look positive to investors.
There needs to be regulatory clarity as well. This is not an issue we can immediately address. We can’t do much about investor sentiments either. A global firm might have a negative outlook because it took a hit in some other market. Then there is the issue of broadband penetration which is again not in our hands.
It’s hard to understand the logic behind capping investments on e-commerce companies. Because large retailers won’t go to smaller towns anyway. One needs to analyze how many jobs ecommerce has created and build a case.
Venture Capital and Exits in Indian Ecommerce
In e-commerce, over 80% investment comes from venture capital. There was a dip in interest a few months back but deals are back now. It’s not at a high like in 2009-10 but that is good. If you have too much money, people will spend on useless stuff. Now people are more cautious. A mistake all investors made was that there was so much euphoria at the time that they forgot to look at the fundamental business. Large retailers like Walmart operate on a razor thin margin. This is a business in which you need to be very efficient. It’s a lesson all investors and startups are learning.
There are a few possible exit options in my view. The larger ones can go for an initial public offering. Large horizontal companies like Flipkart will qualify. Public issue outside India is surely a more reasonable possibility as there aren’t enough internet stocks traded from India. I don’t have confidence that there will be any big buys by Indian companies in the space. There will be foreign players wanting to buy in when there is more regulatory clarity.
As of now, most companies aren’t ready to be sold. There are a lot of things that need to be fixed before that. There are very few companies that are over $50 million in sales. It is nothing but a retail business done in a more efficient manner unless you are a brand. For a 3rd party retailer, $50 million is not a good size.
We bring you an UnPluggd conversation with Phanindra Sama, redBus Co-founder and CEO on the company journey and importantly, the funding milestones and how the company kept executing its plan irrespective of minor setbacks.
The redBus Story : How did it all start? Funding milestones?
We started because of a personal pain point. Couldn’t get bus tickets & we wanted to fix that problem. We didn’t know much about entrepreneurship or starting up. Initially, we wanted to do it as a non profit open source solution for free and give it to the bus operators. We were 2-3 years into bachelorhood and didn’t have much to do on weekends. So we started writing the software, went to operators. They didn’t take the software. That was our first challenge.
We felt really bad. Then we came in touch with TiE and thought maybe they could help us with some mentors. The mentors introduced us to venture capitalists and so on. They taught us all about venture capital. There were three venture capitalists interested in us at that time. Only one (Seedfund) was an early stage fund and the rest were large fund. At the time, as per our mentors advice, we raised funds from Seedfund because they were the only early stage fund. Such funds tend to be more patient. We then formed the company, hired people and set up offices.
During the course, we got educated about companies and entrepreneurship. We came in touch with other venture capitalists and raised capital. The second round came when we were doing very well and had a lot of venture capital interest. Almost every month, a venture capitalist would come to us and ask us about our business. In fact one of the VCs gave us an oral term sheet. Because of all the interest, we thought things will be great all the time and decided wait for some more time. But then, it was too late. We had about 10 months money and suddenly Lehman collapsed. All the VCs who were interested were not even talking to us. It was very severe. We panicked a bit. This is when we came in touch with Kanwal Rekhi, at an event. He said he would invest. They came up with a term sheet.
In almost all the rounds, the investor came up with the term sheet. We didn’t try to negotiate and get the best deal. The perspective was that if it was a fair deal, we took it. In series A, we were overwhelmed. They gave us a huge offer. In series B, there was no funding anywhere and the offer was lower than our previous round but we still took it. But we had a term called full ratchet.
Which means that if we raise capital at a lower valuation than the previous round, then we have to make it up to them. The first investor had done a bridge round. Until then, we didn’t even care about going into the details of the term sheet.In all the three rounds, we never hired a lawyer. There was a lot of good faith that was put forward. In almost all the transactions we trusted the investor and it has always worked for us. Some of the things we did were quite unique. Coming back, when the full ratchet kicked in, it was a little painful. But it was okay in the end. We never anticipated that the company would do well and in spite of that the valuation would go down. The company had grown 6x from the time of the bridge round and valuations went down because of a global impact. That was one learning.
After that came the series C round. We did not need the money at the time and the investors were ready to invest. After learning from series B, we thought it would be better to take capital when it is available than stretch it to the last minute. The money was never used and redBus turned profitable.
The Naspers offer came up when we were thinking of Series D. We had been telling investors that money from the previous money was still in the bank and we didn’t need it. But then we got some good offers and we thought of making the company robust. To do that, we needed a healthy balance sheet. Say for some reason, if the receivables don’t come on time, we needed about 15-20 days of money in time. Otherwise, an impact at some part of the world would make us vulnerable. That’s how we started on series D. The money was cheap and we got a record number of term sheets. Eight terms sheets were given and two more were on their way.
While we were evaluating the deals, Naspers came in and said they were willing to invest in whatever was available. They moved really fast. Our lawyers and bankers say that this is probably the fastest deal they have seen. Things fell in place. They were open and things matched. We didn’t negotiate because the valuation was fair. We had decided that whenever we exit, we’d also make the buyer successful.
We said that if the money was good for us, we would not worry about what we aren’t going to make. Deals don’t fall apart because of 20-30% here and there but we said we don’t want to put pressure on the buyer. We spoke to our investors. Some of them were fine, for some, it was too early to exit. But in the end, we all decided to go ahead with it. That’s where we are now.
What would you do differently?
Many things. But one thing that comes to mind is that we should have used an executive search firm to find senior management. I didn’t do it at the time because I thought it was expensive. But the value they can add is huge. I would hire early rather than wait until we can afford.
Your Facebook profile briefly showed Former- CEO?
Apparently, it was always like that. I noticed it after I read about it on NextBigWhat & changed it.
What are your immediate priorities with respect to the company?
Make it successful for the purchaser. Execute the plan and beat the plan.
What’s the plan?
Being a 100% subsidiary of a public listed company, we need to respect their governance practices and not talk about numbers. Our growth momentum shouldn’t change.
What are your immediate priorities with respect to your personal life?
Actually nothing much. At least the entrepreneurial life has been built over 7 years and I don’t intend to change either. I like to be simple and really hope I will continue.
Don’t you think rather than acquisition, redBus should have raised another round and aspired for an IPO?
I don’t think so. Going for an IPO is a big thing. You need big scale. With bus ticketing in India, it is possible but not any time around. If you are really practical, I don’t think it would be possible in the next 4 years. It would take us time to build for an IPO. The option was to wait for another 5-8 years or take the deal. These exits are a rare thing in India. How many times do we hear of such an exit? It was a good deal from all perspective. The valuation was fair, the deal structure was good and we get to run it as an independent company. Maybe if we had waited 1-2 years, we may have gotten a better deal. That was a personal decision. It would have affected 3 investors and 2 founders. These deals don’t come every now and then.
Now that redBus is being owned by Naspers, which has a global footprints – will redBus go global – especially in Asian market?
We want to continue to do what we are doing until the market is saturated. There are a lot of infrastructure problems that need to be fixed. For instance, the road transport corporations can’t take our load. The technology needs to be robust and someone needs to solve it. The return on our time is higher if we are working in a known market especially when there are fundamental issues to be solved.
At one point, we said we should be like Google. Innovate, be in many countries etc. But when we asked ourselves why, why and why? We arrived at a conclusion that Google was there because it has a cash cow in terms of its search business. If we need to experiment, we needed that.
How was the ESOP story played out?
There are a few crorepati employees!
Is there fresh infusion of cash? How much?
The short answer is no. Naspers has a very strong balance sheet and we don’t see any reason why we should manage cash at a subsidiary level.
Will the redBus APIs remain open?
Absolutely. We provided APIs to all our competitors. So it doesn’t make sense for us to close them because they compete with one of the group companies.
Watch Phani’s talk at first edition of UnPluggd:
RedBus has been an amazing journey – one of determination, great focus and one that changed the industry it was in. Earlier today, the company confirmed our earlier reports that a South African media conglomerate has acquired it. The Rs 800 crore exit is being celebrated by entrepreneurs as well as the tech media across the country. It is well deserved.
But at the same time, there are some questions that pop up.
“Why now?” is a question being asked. This was not an exit that was expected at all around now!
Some other questions are: What caused it? Was it the best possible move? Was it the right time for RedBus? For the investors? For founders? For the bus industry? What does it mean, now that it’s happened?
Based on the information we gathered, here are some facts
1. After the second round of fundraising, redBus founders had less than 15% stake left in the company.
2. Most of the private equity investors weren’t too keen on buying into redBus, as there wasn’t much to buy into.
It’s also undeniable that while redBus has impacted the bus industry already, there’s miles to go before that story is complete. Many geographies and segments are yet to adopt online ticketing and the bus industry has just tasted the impact of technology in a limited fashion.
It is worrying that ticket aggregators and resellers who do not understand the bus industry at all are starting to become the important players and redBus could have challenged and changed that through acquisitions, another round of funding that helped fight harder, and deeper connects into the industry. Maybe even create some (co) branded experiences.
Post acquisition, redBus will continue to grow and operate independently, and hopefully it will – redBus can indeed make a much deeper impact on the industry than they already have. Yet, ibibo will surely have a say in reBus’ strategy from here on, so there surely are unknowns on the road ahead for redBus.
But there sure are lessons to be inferred from the redBus story thus far.
Here’s what it means to you, the entrepreneur.
1. Build
.
No matter what, the redBus team gets a standing ovation for executing a game changing *original* business model in the country.
They started the fire. They created the business from a scratch. No ‘inspired by Silicon Valley’ model, but one that created its own pricing model, own distribution and a super sleek homepage.
And when you’re solving a fundamental pain point – even if the incumbents in the food chain of a business are not aware of it – it’s a business worth pursuing. redBus did that without initially worrying about scale, or exits – and were able to penetrate a very tough business.
Their focus on making sure the bus operators were won over – one bus owner at a time – and travellers had transparent, easy access to reliable information about choices when planning a trip helped them build trust amongst both these constituencies. Word of mouth was huge and they could not only keep costs low, but grow amongst their target audience base very quickly. redBus focused on several attributes – honesty, ethics, reliability and individual attention in case of problems – and this created a bigger brand than any of the existing online players (in fact, the brand value is much bigger than Naspers’ India companies!)
For this, they not only reaped the rewards, but will be remembered forever as the guys who changed bus ticketing in India.
2. What’s good for Investor need not be good for the Entrepreneur
Well, Investors got a decent exit from redBus. Take a look at the cap table (via: Quora).
redbus : CAP Table
Agree that for investors, they need at least 10 such deals to even match the fund size, but then those who got in early reaped the most out of the deal.
We certainly hope that investors will now really mean the ‘I am an early stage fund’ much more seriously than a namesake tag they have been carrying.
3. What’s good for Entrepreneur need not be good for the investor
We think redBus could have been a story that should’ve grown to its logical potential – being the technology and online partner to the bus industry for every bus operator and ticket agent in India, and maybe beyond. This would have been a much bigger play than it currently is, and might even have seen a small public listing, if not a much larger acquisition.
With successes such as the KSRTC partnership, we believe redBus was in a position to impact the bus industry much much more. In reality, redBus is more of a beginning of the story and not the end – but investors probably lost patience. Or perhaps, it got too hard to raise the next round of funds.
Bottom Line: Watch out for how the equity is divested relative to the size of the story that you’re looking to create. It won’t be the best feeling to have to take such decisions for structural, rather than business reasons.
4. Bharat IS a market.
The recent tendency amongst both startups and accelerators to dismiss India as a market has been quite pronounced. redBus is a great example of finding problems to solve that are unique here, and putting your head down and getting down to solving them whatever it takes without whining about the fact that nobody’s paying in dollars and “it’s just not worth it”. Serious kudos for that, guys.
Of course, apart from all this, Phani, Charan and Sudhakar themselves are terrific guys, and there’s much to learn from them as entrepreneurs and people; humility, level-headedness and the quiet, hard work one associated with the redBus founders will stand you in good stead through your entrepreneurial journey. Like most people, we loved those traits and the whole redBus story, and we’re sure it’ll inspire many many entrepreneurs. [With inputs from Sameer Shisodia]
For the starters, here is redBus founder, speaking at UnPluggd in 2009 – talking about value of mentorship, raising money during recession time and more.
Well it is official now, with ibiboGroup announcing that it has executed a binding agreement to acquire redBus for an undisclosed amount. Our sources had said that the deal was worth Rs 800 crore ($138 million).
ibiboGroup has said that redBus.in will continue to run independently and operate as a separate business and the founders and management team will continue to run the business.
ibibo also says the transaction will expand its existing travel assets Goibibo.com and TravelBoutiqueOnline.
The deal will make the combined entity one of the largest online travel players in India.
redBus.in was founded by Phanindra Sama, Charan Padmaraju and Sudhakar Pasupunuri in 2006 and currently aggregates 228,000 seats per day, sells more than a million tickets a month and has 600+ full time employees.
In one the biggest deal for the online bus ticket aggregator it had brought the Karnataka State Road Transport (KSRTC) inventory on to its site in early May this year. It already had tie up with 3 other state owned Road Transport Corporations – Rajasthan RTC, Goa RTC & Bihar RTC before that.
The company has apps for Android and Windows Phone and brought live tracking of buses to its Android app and website in March this year.
redBus also launched a Virtual Bus Stops feature which let users see all the bus stops with their GPS location on a map and also offered full 180 degree panoramic view besides photos from multiple angles of boarding points.
In 2011, the company, had raised $6.5 million in a series C round from Helion Venture Partners, SeedFund and Inventus Capital Partners. Earlier in 2009, redBus had raised a Series A round from Inventus Capital.
India’s first Internet success story has been written (and shuts those mouths that keep asking ‘where are the exits in India’). redBus, the travel booking portal has been acquired by South Africa based Naspers group, confirmed sources tells us.
Naspers runs ibibo group in India and earlier invested in Flipkart. Note that Naspers investments are independent of its India operations and in some of the cases are often competing with their India operations (for example ibibo’s Tradus competes with Flipkart).
As far as redBus acquisition is concerned, the biggest reason for Naspers to acquire the company (the deal is not yet confirmed) is the fact that ibibo’s foray into travel has taken off well and consolidation will help them target massive userbase and importantly, better margins (read our earlier taken on Why OTAs need to consolidate).
Phani, redBus Cofounder
redBus & Naspers. An Open Question
Post acquisition, will redBus operate as an independent brand? We certainly hope so.
But the ‘open’ question is whether Naspers will keep the redBus APIs open? We aren’t sure. In fact, if getting market share is the prime reason for redBus acquisition, Naspers probably will keep others off the API/Inventory.
And that probably means disaster for a few OTAs, unless the partnership agreement comes to their rescue.
The latest buzz in the deal market is that ibiboGroup, a joint venture between South Africa’s Naspers and Chinese Internet company Tencent is in advanced talks to acquire Redbus, India’s bus ticketing company.
“The deal is close to completion,” said a source. The deal, which values Redbus at over Rs 610 cr 800 crores, will be the largest ever among India’s internet companies. ibiboGroup is owned by MIH group-the Internet arm of Naspers and the Chinese Internet company Tencent.
Redbus did not respond to an e-mail sent by NextBigWhat at the time of writing. Phanindra Sama, the CEO& Co-Founder of Redbus said that there are many rumors going around and that he could not comment on it.
Updated
Phani, redBus (Former) Cofounder
redBus cofounder, Phanindra Sama has updated his title on his Facebook profile to ‘Former Co-Founder/CEO’. Plus, we expect the announcement to happen on June 25th, the day when Naspers will announce its quarterly report.
Updated : The title shows Phani as Co-Founder/CEO, sans the ‘Former’ tag. We hope this is a Facebook bug.
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“Redbus was in the market to raise funds for over a year. They came very close to raising another round, but the valuation was too steep at the time,” said an investment banker who did not want to be named. Earlier reports had indicated that the company was looking to raise about $20 million from private equity players.
We have reached out to Redbus for comments on the acquisition and will update the post when we have conformation. Last year, the MIH group had acquired a 51% stake in Gurgaon based Tek Travels, a B2B travel portal called Travel boutique online. The consumer facing Redbus is likely to be a good fit.
Redbus, founded in 2006 by BITS Pilani Alumni Phanindra Sama, quickly grew to become one of India’s largest ticketing companies. In 2011, the company, had raised $6.5 million in a series C round from Helion Venture Partners, SeedFund and Inventus Capital Partners.
There is hardly any margin left in the flight booking and most of the players are either getting into travel packages or selling bus tickets.
At the same time, the bus ticketing services are finding it difficult to scale up massively and comprehensiveness will drive more moolah for everybody in the industry.
A few days back we had reported that the 
ibiboGroup, a joint venture between South Africa’s Naspers and Chinese Internet company Tencent is in advanced talks to acquire Redbus, India’s bus ticketing company.
