LV Insights

Yulu rides into Product Market Fit

Syna Dehnugara, LetsVenture | Feb 5, 2020

Amit Gupta is hands down one of the most approachable ‘serial’ unicorn founders around. Hailing from a business family, Amit graduated from IIT Kanpur as a Mechanical Engineer, and worked for some years with CitiBank & two other startups in Bangalore. Later, he co-founded InMobi – a global ad-tech platform for marketers. Incidentally, InMobi was India’s first unicorn! 11 years after co-founding InMobi, Amit wanted to leverage technology to create a social impact – to make lives better and that was the starting point for Yulu in 2017. Yulu is a micro-mobility startup that works with cities, citizens, and corporations to reduce traffic congestion & pollution in urban areas with its ride sharing solutions.

2019 was a big year for the Yulu team not only because they cracked a partnership with India’s biggest 2-wheeler maker Bajaj but also because they finally found product market fit! In this interview Amit also talks about what it takes to raise and manage financing for an operationally heavy business like shared mobility and about hiring and building a positive culture. 

Syna: What stood out for you in 2019 from a Yulu perspective?
Amit: One of the highlights in 2019 was the launch of electric mobility at Yulu; and with that we believe that we have achieved product market fit for India which is a very different market compared to the West or China. We have been able to find a practical solution for micro mobility in India with the launch of our EV, Yulu Miracle. Along with that, we also closed our strategic partnership with Bajaj that included an equity investment from their side. Lastly, our business partnership with Uber gave our vision for micro-mobility a much needed boost and credibility.

S: Let’s talk about product market fit. You mentioned different playbooks in different parts of the world: EVs for micro-mobility have had very limited penetration in the US just 2-3 cities; in China we saw aggressive roll out of e-cycles, hyper funding, unicorns that lost steam and now the market seems to have stabilised. What has been your learning in India in trying to find that product market fit? And, how are we different from both the US and China in that respect?
A: We tend to use US and China as benchmarks because these are two large markets. Let me start with the US. First, vehicle type – which in the US micro-mobility market is predominantly led by standing scooters. These scooters are popular in the US because most folks get them as toys growing up; so, they don’t have any fear of using these vehicles. Second, infrastructure in the US like footpaths and roads are well-laid and vehicles with small wheels and motors become safer to use. 

When you compare the same thing in India, first of all, in our county kids get bicycles rather than standing scooters and secondly, infrastructure in India is not well laid out. That makes it difficult for people to use standing scooters. So, the bicycle was an obvious first choice for us. 

Now, in China micro-mobility solutions are used for ‘first and last mile’. If you look at the density and the way they have laid out public transportation like buses and metros, the average distance one has to go for the first and the last mile is around 2 kilometres. Also, from a weather perspective, China is cooler than India, so manual bicycles have been a good form factor. In India, manual bicycles did not do very well for us because of the temperature, and also the average distance that we need to travel for our first and the last mile connectivity is almost double that of China. 

That’s why we got an EV which is a hybrid of what is used in China and the US. We needed a motorised solution and at the same time we needed something which is more bicycle-like. After some customer trials and experimenting with 25 different models, we came up with Yulu Miracle which is a very practical solution. It weighs only 45 kg overall, has a range of 60 km, does not require a helmet or licence. And most importantly, for any one who has learned to ride a 2-wheeler, it takes less than a few minutes to get used to it. It is a simple machine that takes bare minimum space on the road to ride or to park. This is one part of product market fit. 

The other more critical aspect was the non-availability of parking areas in India. We had to create the network of ‘Yulu Zones’ where customers can pick up Miracles and put them back. India is not a good market for dockless anywhere unlike China where cities have got their own network of parking areas where you can legally drop off the vehicle. In India, it is either ‘no parking’, ‘paid parking’ or ‘private area’. We therefore started building our own parking infrastructure –  big corporations gave space in their commercial areas, we created parking facilities inside car parks or large residential complexes. 

Last, but not least we worked closely with local authorities in big cities, where we are seen as partners for electric mobility solutions. We are working with them for parking and to co-create policy documents for micro-mobility. 

We have solved many of the missing links, starting from vehicle by tying up with an OEM to design a ‘shared mobility first vehicle’ which is lean & practical. We have got the 3Cs lined up – cities, citizens and corporations and from them we have got space for parking and charging stations. Lastly, pushing for a policy framework for micro-mobility services in India.  It was a risk building this ecosystem and infrastructure where nothing existed a couple of years ago but that’s what entrepreneurship is all about!

S: Tell us about the learning curve in getting Yulu Miracle to be manufactured largely out of India – how were you doing it and now what do you expect with the Bajaj partnership?
A: When we bring these vehicles from China, we have to pay custom duty and manage our supply chain. We are not a company that should spend our energy building a supply chain for import and export because anything that we source from China takes over 60 days to get to us. If the same things are available in India, our supply chain will come down to 15 days. Our vehicle is not a complicated machine: a metal frame, a motor and a battery. India has been building two wheeler and four wheeler chassis for ages; we can definitely produce the metal parts here. As for the motor, it’s a simple 250 watt one, similar to what goes into a  ceiling fan. The third is the electrical part and while India is good with IoT and chip designing; we still have gaps in manufacturing the chips and these we will continue importing from China. The last thing is the battery pack which we have been designing and assembling in India but the cells come from China, Korea and Japan. Why? Indian chip companies were struggling with the demand and supply problem. Now, at least at Yulu we have a clear roadmap of deploying 100,000 vehicles by December 2020. So we went to Bajaj and told them what we need. We know the functionality needs, volume needs, quality needs and it is easy for Bajaj to now put this into their roadmap. The ‘time risks’ and ‘price risks’ have become predictable because we know just what to do. 

S: Is it correct to assume that the new Yulu EVs will be manufactured out of Bajaj’s assembly line? How exactly will the partnership work?
A: From Day 1, our vehicles are being assembled at the Bajaj plant (the manufacturing was happening in China). Now for us the end goal is that manufacturing, assembling and everything else will happen in the Bajaj assembly line – that’s the vision for this partnership. We can definitely start sourcing some components locally and reduce our dependence on Chinese imports; but I don’t see this happening tomorrow. Our goal is to make this big and to have an impact this whole thing will have to become indigenous. Hyundai used to import from Korea and assemble here but now it’s almost all done here. Similarly, Bajaj has invested into R&D of electric mobility for many years and our product is actually much easier and simpler than what they have done with Chetak. We hope to be largely indigenous in 2020 itself. 

S: In the press release of your partnership with Bajaj, it is mentioned that they have put down $8 million as equity funding. There was also a mention of a larger financing tie up. Can you throw light on why just equity funding for EVs is not viable and why debt or loan guarantee schemes by banks need to be the mainstay if as a nation we are serious about promoting startups in the EV space?
A: No matter what we do, this is an asset that will have a fixed shelf life. In our case, it is 3 years. The growth of our business is linked with the number of assets we have on the road. But as a startup my captable is finite so if I am trying to buy a perishable asset with equity, then I will hit a roadblock sooner or later. You need to have a model where you are not relying on equity forever. 

Why we are facing issues in raising debt is because the market is new – the lenders don’t know the value of the particular product as collateral. Hopefully, in the next 2-3 years, there will be an established value of the product in the market and you can calculate the credit risk on this particular loan and there is no money flow out. From Yulu’s perspective, we get cheaper loans, from the OEM’s perspective they are happy because they can sell more vehicles to Yulu and from the financer’s perspective, they are happy as their own book value is stagnant or going down as people are using mobility as a service. Actually, the government is also happy as they are not spending on anything but only putting a guarantee to make sure that the ecosystem will grow. 

S: What is your partnership with Bajaj as far as the financing of the vehicles is concerned? Bajaj could have written a bigger cheque but they haven’t – so tell us about the financing partnership.
A: The intent is to make it big and that’s how Rajiv Bajaj sees it too. If you look at their corporate history, they don’t do things for the sake of it. They clearly know what they are getting into and what they are not. They are valuable partners in helping us produce a world class product which is their core strength. The other big thing is their balance sheet! They produce $2 billion in profit every year. The intent for them is to deploy some of their capital into Yulu! If the business is producing a good margin, any finance vendor, not just Bajaj Finance, will be more than happy to partner with us. We will of course, get better terms from Bajaj because they are also manufacturing the product. We will have that synergy.

S: In terms of the startup and investor ecosystem, tell us a bit about what stood out for you in 2019: the kind of deals that got done in India, the kind of investments that came into startups? And what is your own thinking as far as angel investments are concerned?
A: If you see, the market has become much more mature. It is evident from the size of cheques that people are writing to startups. The average tickets which people raise in Series A or Series B has gone up significantly, 30 to 50% approximately. This is a sign that the market is getting mature and there are many reasons. The major one is that our own domestic market is gaining traction by becoming digitally ready. Second thing is the maturity of the ecosystem – people now know what a startup is and how to run it; as seasoned entrepreneurs come back to new ventures, the market shows confidence in their execution. From a sector perspective, a lot of fintech happened in 2019, social commerce is also taking shape. As far as I am concerned, I reduced my own angel investment activity because I need to keep liquidity for Yulu. I’ve done only four deals in the last couple of years but only to close friends or the ‘InMobi Mafia’. 

S: Speaking of the ‘InMobi Mafia’, let’s talk about one of the pillars of management that you are passionate about – hiring and building a culture in a startup. What are some of the key learnings that you brought from your InMobi experience to Yulu?
A: Culture is something that is ultimately what you think, say and do. If there is synchronisation among these three then you have a culture; good or bad you will know later. Problems happen when these three things go in different directions or pace. You should know what you stand for and if there is honestly in that, people know what is right and wrong in the organisation. If you are true to what you think, something good will happen. 

We hire for attitude and ability to learn. Skills are something that keep on evolving and we can train a person. For example, the person who heads our Bangalore operations is only three years out of college; another young person is responsible for building infrastructure and policy. We have many such examples in the company where people are empowered and we believe in them and their commitment. They have gone on to produce superior results. We are a 52 person team and there is no such role as a Director, VP, etc in our company – there are managers and founders. What has worked for us is that we value people’s passion, not their degrees. These things change as you grow but for startups which are just a few years old you should keep this in mind because ultimately you don’t know where product market fit will take you!

S: What’s your take on how ESOPs are rolled out and have you used them to build out the talent pool. Are ESOPs a good indication of the kind of culture that you want to build?
A: ESOPs have been a great tool to attract and reward talent, and also extend the tenure of talent within the company. At InMobi we were able to attract and retain top talent because of our ESOP policy and this is true for Yulu too. The biggest thing is that in the beginning, we are able to get high quality talent who are genuinely interested to be part of the team, because against that belief they let go of half of their earlier compensation and actually have skin in the game. 

S: What about the liquidity around ESOPs – is that becoming a sticky point with companies not listing and falling back on liquidity events in terms of secondaries or buyback programmes? Do you see this becoming a constraint going forward?
A: This is linked to the stage of the wider ecosystem in India and I don’t think there is a shortcut here. Ultimately for you to do secondary, you need to get interest from investors who are bullish about your company and they want to take more equity in it. Flipkart did well, not just for founders but also employees and we have seen many of them start their own companies or become angel investors now. I don’t think there is a shortcut but to keep the cycle of money flowing and giving it sometime – it’s only a 10 year ecosystem after all. 

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