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Sequoia’s belated lesson
Also in today’s edition: Internet growth slows in India; A king’s ransom in royalties; Hedgies have a new king; Samsung plays hard and FAST
Good morning! If you were a billionaire, would you invest in minimising cow burps and farts? Coz that’s what some of the world’s richest people are doing. Bloomberg reports that Bill Gates’ energy venture fund Breakthrough Energy Ventures—whose members include Jeff Bezos, Mukesh Ambani, and Jack Ma—has invested in Rumin8 Pty. The Australian company is developing livestock feed made from lab-grown bromoform, an ingredient found in red seaweed. Seaweed can supposedly cut 98% of the methane output by farmed animals. Methane is a significant contributor to global warming.
The Market Signal*
Regulation & stocks: In a big relief to the National Stock Exchange, the Securities Appellate Tribunal set aside a ruling by markets regulator Sebi that had ordered the exchange to pay back the ₹687 crore ($85 million), including interest, it earned in profits. However, the appeals tribunal asked NSE to pay a ₹100 crore ($12.3 million) penalty for legal violations in what is known as the colocation case, Reuters reports. It also said former NSE managing directors Chitra Ramkrishna and Ravi Narain need not return a quarter of their 2011-13 remuneration as Sebi had ordered. They are also no longer barred from the capital markets.
It was a rare day awash in green. Sentiment across asset classes appeared to have turned upbeat as chances of a recession in major economies receded. Even cryptocurrencies perked up, including those considered junk a few days ago surging in value with an overall jump of $250 billion, according to Bloomberg.
Early Asia: The Nikkei 225 (1.44%) in Tokyo and Hang Seng (1.82%) in Hong Kong surged ahead in morning trade. The Nifty in Singapore, however, was behind its previous close by 0.11%.
Better Late Than Never
Sequoia, which last year announced the largest India-focused corpus by any VC firm yet, is tired of being taken for a ride. Having been burnt by GoMechanic, it’s considering “special audits” of its portfolio companies in South Asia and Southeast Asia. It’ll also exercise more discretion in taking board seats at companies.
Bitter pill: Car-servicing aggregator GoMechanic, which was looking to raise $75-80 million in funding led by SoftBank and Khazanah Nasional, was found to have cooked its numbers. It’s the fourth Sequoia-backed company after BharatPe, Trell, and Zilingo to be accused of financial irregularities. This development also came two months after Sequoia had egg on its face for having once written a 14,000-word paean to disgraced FTX founder Sam Bankman-Fried.
Meanwhile: GoMechanic, which has all but combusted, has reportedly approached Spinny, Cars24, and other unicorn companies for a buyout.
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Wither ‘The Next Billion’?
Internet growth in the world’s second-largest mobile market is stagnating. India added only one million mobile internet subscribers from August 2021 to October 2022. Higher prices, a sluggish economy, job losses, and longer upgrade cycles are slowing smartphone sales. The subdued growth will continue in 2023.
Chinese twist: Availability of cheap devices and data is critical for the ‘the next billion’—first-time internet users who go online via their phones. But the average price of smartphones has increased from ₹15,000 to ₹22,000 ($180 to $270).
Eighty percent of phones sell in the sub-₹20,000 bracket, which was dominated by Chinese brands. However, scrutiny against Oppo, Vivo, and Xiaomi resulted in lower-priced phones coming under the lens. The government even considered banning Chinese brands from the sub-₹10,000-12,000 category, only to push them to export more from India. Either way, it has hit India's internet growth.
Paying The Parent
Photo credit: Monstera/Pexels
Collecting for intellectual property and copyright is a touchy matter, especially in developing countries. Hindustan Unilever (HUL) raising its royalty payments to parent Unilever from 2.65% of its total turnover to 3.45% has not gone down well with the former’s shareholders.
HUL CEO Sanjiv Mehta says royalty payments always benefit the local arm in the long run. The raise is the first in a decade and far lower than the 5%-8% rivals P&G, Colgate, and Nestle pay their parents.
Royalty payments are tricky and often attract attention from the tax department because there’s no one way of valuing them, and disagreements are common. They also entail large outgo at a national level. Indian companies paid more than $28 billion in royalties and licence fees between April and September 2022, RBI data shows. That’s up from $24 billion during the same period in 2021 and $27.5 billion in the whole financial year ended March 2022 (FY22).
Nationalist organisations have been pressuring the government to put a cap on such payments. The government, too, wants auto companies to slash payments to parents. Maruti paid ₹3,000 crore ($368 million) royalty to Suzuki in FY22, according to the automaker’s annual report. The government also suspects Chinese smartphone makers of using royalties as a ploy to avoid taxes. Sebi had batted for a cap of 2% in 2019 but eventually settled for 5%, beyond which companies have to seek shareholder approval.
Citadel Of Bounty
Ken Griffin’s Citadel rushed past Ray Dalio’s Bridgewater in the hedge fund sweepstakes by raking in a profit of $16 billion in 2022. That beat the $15.6 billion John Paulson netted from his bet on the subprime crisis of 2007, immortalised in the bestseller The Greatest Trade Ever.
Lost tiger: The surprise exit from the top-20 list of hedge funds was Tiger Global, run by Chase Coleman, who oversaw a 56% loss. The fund, a “cub” of Julian Robertson’s Tiger Management, was 14th two years ago with a $10.4 billion profit.
The messy exit from the pandemic and war in Europe roiled markets, making asset-picking extremely tricky. While hedge funds together lost $208 billion in investor money, the top 20 gained $22.4 billion in 2022. Big losses also affected the flow of money into the funds.
The FAST And The Furious
Samsung has reportedly approached smart TV competitors to offer Samsung TV Plus on their devices. That’s Samsung’s free ad-supported streaming TV (FAST) offering.
Western markets are maturing for subscription streaming platforms such as Netflix and Disney+, which is why everyone is launching ad-supported tiers. But these are cheap, not free. Hence the battle for FAST, which is currently being waged between Tubi, Roku, Pluto TV, YouTube, Samsung TV Plus, etc.
Samsung has expanded exclusive content partnerships since 2022, the year it also launched TV Plus in India. India’s FAST market is currently dominated by JioTV.
As of now, TV Plus is available on Samsung devices. Making it accessible outside its own interconnected devices ecosystem will help Samsung rake in more ad and licensing $$$.
Job insecurity: Spotify is laying off 6% of its employees, or around 600 people. Ford may let go of 3,200 workers in the EU, while TikTok has warned remote workers in the US that they may lose their jobs.
#Fail: Zomato is reportedly shutting down its 10-minute food-delivery service, Zomato Instant, less than a year after launch.
Flying high: Vistara reported a quarterly profit for the first time in the three months ended December 2022. The company didn’t disclose the exact figure, but said it’d crossed the $1 billion revenue mark in the December quarter.
Amazon Air: Amazon has partnered with Bengaluru-based cargo carrier Quikjet to launch its maiden air freight service in India.
Energy crisis: Millions of Pakistanis were affected by a huge power cut on Monday following a breakdown in its national grid.
Hawkeye: The Federal Cartel Office, Germany’s antitrust regulator, is investigating PayPal over the possibility that it stifled competition.
Connecting people (indirectly): Nokia has signed a new multi-year cross-licence patent agreement with Samsung Electronics, covering fundamental inventions in 5G and other technologies.
THE DAILY DIGIT
The value of the US debt ceiling, which establishes how much the government can borrow to fulfil its financial obligations. The US hit this limit last week, sparking concerns over a possible bipartisan and economic crisis. (The New York Times)
A little bit of etiquette: You’re never too old to be reprimanded by your parents if you’re Asian. Ask 52-year-old Seiji Kihara, the senior aide to Japanese PM Fumio Kishida. Kihara was lambasted by social media users in Japan for putting his hands in his trouser pockets—which is considered rude in certain situations—while on a US trip. His mom’s scolding took the cake, though. Kihara admitted on a YouTube show that she’d expressed shame and told him to “sew up his pockets”.
Sam Sam but different: Turns out January 2023 isn’t just merciful to Bitcoin, which has jumped 37% this month, but to sh*tcoins too. Especially sh*coins endorsed by FTX founder Sam Bankman-Fried (SBF). FTX’s native token FTT, which cratered to near-zero in 2022 after he was charged with fraud, is up 160% this month. SBF-supported tokens such as Maps, Oxygen, and Serum are up too. The rebound won’t last, though. Analysts say this a short squeeze that’ll peter out.
Amen, sister: On Sunday, Sally Azar, a Palestinian from Jerusalem, was ordained as reverend at a Lutheran church. That makes her the first woman pastor in the holy city. This is a big deal not only because of her sex and because Christianity is a minority religion in the Palestinian territories, Israel, and Jordan, but also because most resident Christians are Catholic or Greek Orthodox. These denominations do not allow women priests. About time more women performed the sacraments, no?
Correction: The third paragraph in yesterday’s Signal story had an incomplete deletion that read “ShareChat parent Unacademy”. It should have read “ShareChat, Unacademy”. We apologise for the error.