Yeah! There are 7 solid reasons:
When I first read that redBus had got acquired for 800 CRORES, I felt JEALOUS. Yup! I don’t want to deny it. The thought that flashed in my mind was, “Heck man… 800 crores is serious S***!! What on earth is this Bus booking site…? How can you make money from ST bus tickets, etc, etc…??”
A few minutes later, I shook my head vigorously and asked myself, “Is this something to feel JEALOUS about, or GREAT about?” And then it kicked-in. The many reasons why we all should be celebrating this deal as if it’s our own!
These are 7 great reasons: (feel free to add some of your own):
1. There are Exits!
Most startups in India have been existing like that Life of Pi guy – adrift in an ocean, on a leaky beaten boat, with tigers, monkeys and all kinds of crazy, dangerous animals for company. We keep telling ourselves – we will see a Ship. We will see Land. Well, the redBus exit proves that startups with scale, ideas, innovation and traction can exit and how!!
If you don’t understand the enormity of this deal, trying typing 800 crores in your calculator and you will get the point I’m making 🙂
2. India back on the Radar
This deal is going to get reported far and wide. After all, it’s Naspers sending 100+ million dollars to buy something that sounds fancy, and MADE IN INDIA. People are going to take notice. They are going to ask, “India? Does Internet stuff happen there? Let’s take a trip (maybe during the Christmas holidays) and check it out.”
Yeah!! We WANT to be checked out! I want to stand at the immigration counter and garland every ‘checker’ who comes in!
3. VCs get to show that they are ‘Doing Something’.
Most VCs have invested their bucks and have been waiting. They have been waiting and waiting and waiting. It’s as if they have financed Shah Jahans in building Taj Mahals that would take 200-400 years to make (and yet land up being tombs). No offence… I’m merely trying to drive a point home.
Now, they take this deal and send nice, excited mails to their LP’s (Limited Partners) saying “Hey!! We are doing something! We are alive!! We sold some equity!!”
If I were that VC, I would write that mail in CAPS and end with a smiley 🙂
4. ESOPs prove themselves!
I’m assuming (or let me say praying) that the redBus Cap table has some serious allocation of ESOPs on it. Most startups in their 5-7th year of existence have 10+% allotted to ESOPs (at games2win, we have something like 11% given away).
So, let’s assume that it’s 10% in the case of redBus. That means 80 CRORES will be given to employees and key team members!!! Yeah!
For all the folks who said ESOPs were toilet paper (and not even soft tissue at that), this deal is meant to shut them up! For employees who have ESOPs in their startups, this deal brings the smile back (or at least the hope back). And for those who have been promised ESOPs (but have still been latkaoed [Hindi for strung] by the ‘management’) – this is the time you must go and buy some grenades and then threaten to toss them at your CFO if he doesn’t do anything.
5. Valuations are…..b..bb…bbbb…BACK!
I love Alan Greenspan just for his invention of the term “Irrational Exuberance”!
Well, this deal is definitely exuberant! (I dare not say Irrational). The 800 crores if justified as multiples of earnings or top line or bottom line (or clothes line or any line) will drive CFOs and Bankers to consume rat poison.
There is no (?) rationality in the deal, because it’s NOT being built on silly metrics of some 1957 era accounting.
This is a deal that is shouting a message from the rooftops, “India is hot. India has scale. Internet and Mobile are relevant to India. Values are comparatively cheap (try buying something like redBus in USA or China). Let’s get in and throw some money around – 10 years later it will all be worth it.”
Remember that when Google bought YouTube and later AdMob; and Microsoft bought Hotmail and later Skype; the world was laughing. But all those deals are more or less making sense today.
6. Serial Entrepreneurship will set the tone
The report I read mentioned that that Phani (redBus co-founder, Phanindra Sama) had stepped down as CEO. Maybe he has, maybe he hasn’t. But if I were him, with this kind of dough (and probably after serving out another 2-3 years at the firm as a contract), I would start up all over again!
Also consider the 80+ crores that will go into the hands of the employees (who were semi-entrepreneurial in the first place to join redBus)!
Assuming that even if 100 employees get 80 lacs each, lots of them will start up something of their own given the spectacular success they have seen. They won’t even need to put in their money – lots of seed capital will be available for them!
Think about it – How the heck is someone from redBus going to work for some Infosys bald boss when the company they helped build was bought for 800 crores in front of their very eyes??
7. ENTREPRENEURSHIP will become a career.
For years I’ve been observing that Entrepreneurship was considered taboo as a career option for kids in the eyes of their parents. It was like Marwari parents in the 70s not wanting to send their kids to Mumbai because they would get entangled in the ‘Film Line’.
Well, Entrepreneurship is a FABULOUS “LINE”. With the recent exits of JustDial, redBus and a lot more, kids can now point to success stories that their dads will have read in the daily newspaper and get them to bless them when they tell them, “Appa, I’m gonna be an Entrepreneur”.
The redBus deal simply made my weekend!
Be happy for the redBus deal as if it were your own. And if you are still riding a bicycle (a la doing some silly job in Infosys), then get your own bus and start it up, ASAP!!
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This article was first published on entrepreneurindia.in as well as on firstpost.com
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If you enjoy reading acquisition stories, do check out the lessons to be learnt from the Instagram 1 billion $$$$ deal!
Nitin Pulyani
This is the best and most visionary opinion I’ve read so far about Indian tech startup scene. Adding another point:
8. Entrepreneur confidence and belief in persistence. People give up just so easily. The expectation of early moolah drives them away from their ambition and vision. This deal means that persistence pays and wait till you’ve given you last breath to your venture.
Rushikesh Khadtare
Interesting post, good to hear about the 80 crore maths. 🙂
Tejas Vishnu Nimbargi
I am not an employee of Redbus…
But still I can feel that sense of happiness…
For a start up presenting the revolution of Internet booking in India.. This one is a grrreeeeaaaat news!
Nitin is absolutely right. I would call it “Delayed Gratification”
It is this delayed gratification which helped Hotmail win 400 million dollars(if I am not wrong) and made FB the largest social network.
Wonderful Read Alok Sir…
Anamika Joshi
Now that’s some significant yet a simplified analyzation on the acquisition. I feel more connected to the news and find much relevance in why one should celebrate it and not feel jealous.
Pratik Patel
Great Alok Sir ! As Usual !
Vasudevan Uppili
Fantastic Write up Alok. Infact, we here are really celebrating the RedBus Story. Infact, in todays meeting we have written what is 800 Crores with a 72 Font Size fully projected on the screen and were cherishing the number on the screen. And all the 7 points you have mentioned blaze like commandments, that are irrefutable. Jai Ho RedBus!!, Jai Ho Entrepreneurship!!!
Nishant Agrawal
RB acquisition is important also because it caters to the Indian market. The VC did not simply invest in RB. They invested in the Indian market, which is a big deal
Abhishek Verma
Redbus books on an average 10 million tickets grossing $200mn revenue annually. As such, on a revenue multiple terms the valuation of $139 mn or (Rs 800 crore) is not very high for Redbus.
Considering it will provide Goibibo with end to end solutions on hotels, air, rail and now road ticketing and also add to its portfolio of earlier acquisitions like Tek Travels and Travel boutiques online, the synergies & benefits are going to be way higher for Goibibo.
But nevertheless, good for Redbus, especially since they stuck it out for 7 years and built a good brand out of it.
Pawan Naulakha
This is something really really crazy the magic no 8 has worked for the red bus guys
8 years
800 crores
Damn it..!!
Wonder which 8 is coming in next.
Karan Ahuja
yes indeed – redbus news is super cool .
Sridhar V
When Facebook can pay $1 billion ($1000 million) to buy Instagram, which was once a startup with zero revenues and just a dozen employees, the above deal is not so surprising, but quite rare in India. The amount of Rs.800 crore or $100 million for Red Bus is more justified when compared to Instagram in my personal humble view – Im not an expert in evaluating these deals, but I do agree that it appear high from the little information I have.
The recent trends are pointing to another IT or e-commerce Boom which would appear similar to the past one in the year 2000. As usual everyone says its different this time, but its appearing like a Bubble as the economic slowdown is accelerating in India. Signs of cracks are visible in the IT services industry already, and in the job markets in general. A correction or in extreme case a bubble bursting cannot be ruled out.
In case of RedBus though I like the idea, the site, etc I have a few observations and find the valuations too high:-
1) I’m not sure if online bus ticket book can be highly profitable. One has to really check the margins – gross margins, net margins to make sure that its consistently profitable. Closer examination of the business model and their books will reveal this.
2) Competitive Advantage/Moat: Potential threats can come from similar players in the industry. Moreover, bus operators particularly Govt. bus/transport operators and private operators now have their own website with the same facilities. But an aggregator has an advantage or providing more options for the customer. We may have 2-3 dozen shopping websites, and it gets saturated. But in future I’m not sure if there can be 10 online bus booking sites doing the same business. You can go mobile, apps, etc….but its the same bus market, same no. of tickets, etc.
3) The financials need to be strong now – high ROE, ROCE, etc. May sound okay (given 800 crores coming in), but now that its moving from a start-up to a well-funded small enterprise they have to deliver results and show good numbers.
4) Continuing with point 2 some Govt. owned transport operators have good penetration via both online and offline networks – for instance contact points, franchise centers, etc. And these centers also have internet booking facility and they dont charge anything extra to the customers (thought they may get paid by the transport company). Its an Advantage for the consumer.
5) When I personally traveled I found online booking very convenient and I’m 100% in support of the idea. However, in the current economic slowdown people may travel less or might choose to go with Govt. transport sites which provide the same online booking, same comfortable volvo buses. What if people move away from Redbus to other alternatives? This is highly probably as pvt bus operators are sometimes expensive, and pricing is very adhoc..
6) Opportunity Cost: Assuming the buyer (investor) invests in a bank FD, he/she can expect 9% interest p.a. (approximate estimate) before taxes. The Redbus venture should deliver over 9% to be better than this (before tax) to make it more attractive than the FD. To be on par with FD the Redbus venture should generate Rs.72 crore per year as Earnings before Tax (9% of 800 crore).
If Redbus has EBT margins of say 10% (hypothetically), then the total revenue must be Rs.720 crore in a year (Rs.60 crores a month or Rs.2 crore a day). Even if we assume that this is a high-volume business and can have good seasons with windfall gains, I still find Rs.60 crore per month or Rs.180 crores per quarter in bus booking very high and astronomical. The size of the market (value of tickets) could be huge, but the revenue earned by the platform/site would be a small %age of that.
Since I dont know the exact business model of how they charge the bus operators, I would not comment on the merits or demerits. But the valuation looks stretched in my personal view or probably I’m missing something.
Like to invite comments or views from other Rodinhoods too.
Sridhar V
Hi Abhishek,
What you say gives a different view on the business. So this means Redbus is also in to software solutions for travel and hotel segments. This could have made the business profitable.
There is no way a company can make such a fortune on just selling tickets. If its a pure ticketing play, then 10 million tickets for $200 mn works out to $20 (Rs.1100) per ticket which is not making sense, as bus/travel operators may not pay so much per ticket. The revenue stream is actually coming from offering solutions, not the ticketing platform per say. I also hear in the past that they provide software and systems to the operators or travel guys as a service, and that works as another revenue stream, which could be more profitable.
Despite my comment below I think we should give RebBus its due credit for what they achieved after working hard for a long time.
Sarsij Nayanam
Nice read. Encouraging 🙂
And then I just happened to read a VC’s thoughts here – https://www.quora.com/Anand-Lunia-1/Posts/Is-the-Redbus-exit-really-good-for-the-venture-ecosystem-in-India?srid=pRam&share=1
Prakul Agarwal
Brilliant article but it over simplifies the process of valuation! Redbus is a pioneer and a leader in bus ticketing space which has built kickass and highly sophisticated technology platforms for bus vendors to enlist and manage their inventories and a few more solutions.
So they are not just providing ticketing to consumers but a lot of value to the humongous bus industry in India. I’m sure Alok Sir you understand the thing completely but many naive beginners can get a wrong idea!
Abhishek Verma
Hi Sridhar
$200mn is the Gross sales, which means the Total Merchandise Value. Out of this, Redbus has a net revenue of $10mn and gross margins are still not clear, though they did post a maiden profit this year.
Apart from being a ticket aggregator, Redbus also has two software platforms developed inhouse i.e. Boss and Seat Seller which it sells to bus operators and tour agents, so the avg ticket price should come down from Rs 1100 to Rs 6-700.
If you see the quora link, Helion had already valued Redbus at $23.5mn… ofcourse we dont know the date but i am assuming its before 2011.
So circa 2013, Redbus has almost tripled its market share to 65% amongst tour operators, posted a maiden profit but it’s valuation did not increase by that much proportion in revenue multiple terms. It would also require a lot of working capital to keep it going (esp since it employs offline agents as well). Reports do suggest it had raised some capital just a few months back. This is one reason that Redbus did not get a fair valuation (in my opinion) as the margins have been too low.
I think it is a great deal for Goibibo but not so much for Redbus as Redbus internally might be having (or approaching) cash problems. This does not underlie the fact that its a great company that is adding real value to the customers. I am just saying in pure business terms, Redbus could have fetched more..!!
Sridhar V
Hi Abhishek,
What you said gives a more realistic picture, which shows revenues are $10 million (Rs.55 crore). But you will be shocked to know that the expected net profit for 2012-13 is close to Rs.2 crore. (Source: https://www.business-standard.com/article/finance/redbus-in-being-valued-at-110-mn-113032700140_1.html)
Assuming the data to be right, the low profits look scary.
On the face of it the amount Rs.800 crore paid is 400x PE multiple even if we assume the profits to be Rs.2 crore. I believe more in the Earnings Multiple than the Revenue Multiple…….because the same kind of numbers were thrown during dot com era and you know what happened later. I’m sure there is some value for the proprietary systems, which is built in to the valuation, which could be an intangible value, which can be an argument to my point.
If I’m an investor who is paying Rs.800 crore, I should be atleast getting Rs.72 crore of earnings before tax (assuming 9% FD interest). Assuming the company is able to double its earnings every year (100% growth) it will take over 5 years to achieve Rs.72 crore. Even assuming the company is selling the software or the system as such it looks ambitious – even large IT players are not seeing such growth. The 100% growth itself is high, and repeating it consistently for 5 years non-stop….it has to be some Mayajaal. This can be a wonderful case study of how the next e-com bubble version 2.0 is going to burst.
One quick question: What abut competition from Yatra, MakeMytrip, TravelYaari, etc…..there are several other names which Im not able to recall? Are they using the software /system provided by Redbus?
Abhishek Verma
I think one of the reasons they are paid high valuations esp like FB buying Instagram is to grow market share esp before any competitor snaps it up. In instagram’s case, they had a cool mobile app which FB did not, and they wanted to market their mobile business, so it made sense. Also, they have the deep pockets to do so.
As i said, Goibibo also managed to get a good valuation considering the projected growth of Redbus.. besides the value of the ticket, the average volume is also going to increase considering the population and its travel needs. The most important thing is that Goibibo has just valued Redbus to be of 800crores, it remains to be seen how much stake it buys and if the previous PEs are exiting.
Usually, the time horizon might be less than 5 years, and the PEs also bank on changing economic scenarios to get a fair exit value, so they might not calculate profits linearly YoY.
The softwares are mostly used by the bus & tour operators i guess. No idea about Make my trip, etc though i read somewhere that Travelyaari is also looking to raise capital now after the Redbus deal.
Talking of exits, i think that Just Dial also needs a mention here especially for the beautiful IPO it had which was oversubscribed.. So, i think there are good apples where valuation might be based on certain market logic rather than financial logic and some e-comm sites like 99labels which provide no exits. Clearly, if not the internet bubble era, market is on a consolidation mode.
Aneja Raj
This is great news for everyone!
Red bus is a relatively straight forward idea but executed flawlessly. It goes on to say that you don’t always need a Brilliant idea for a start up. Your idea can be simple, but the Execution part is important.
Pooja Goshwal
Hi All
I have a doubt regarding this and Im not good at valuations so please correct me if Im wrong
REDBUS is making far less than INR 50Cr per anum so how the IBIBO group can get their ROI ?
Sridhar V
Redbus as a business idea is excellent and deserves due credit – I’m fully convinced with that.
Let me ignore valuation or the deal for time being. There are several experts and analysts talking about Redbus as the only one-stop portal for bus booking, which I dont fully subscribe to. The only thing that sounds unrealistic is the fairy tale about it being only one, which sounds little unrealistic. This might have been the scenario 3-4 years ago, but now several players have already entered this space. But Redbus as a First Mover will have an advantage – I’m not taking that credit away……..and best wishes and success to the team who built this great idea.
Prateek Knight
Was fun to read Alok.
That phrase is probably the most overused (and rightly so) to describe the stuff you write.
Prateek
Srikrishnan Ganesan
Definitely going to be interesting to see how many of these people end up starting afresh! Really look forward to a next round of innovative start-ups as a by-product of this deal.
Akshata Udiaver
Mahesh Murthy has provided very good insight on Quora into how RedBus.in is innovative on 3 levels and fully deserves the credit and the valuation it’s received. He says “RedBus is as much a normal bus ticket booking site as Google is a normal search engine.”
Article link: How is RedBus.in Innovative?
He talks about RedBus’ innovation at 3 levels: macro: the businesses it chose to be, to mid-level: its strategic thinking to the micro: its day-to-day processes.
Do read the entire post – there are some very valuable lessons to be learnt there.
Suresh Mansharamani
We all should be celebrating this deal as if it’s our own! Yes
Abhishek Verma
Fascinating Read.. Thanks for sharing the link…!!
I think early investors play a huge role with their wisdom and experience to determine a company’s choices and shape it’s strategy.
Parag Kulkarni
Yes I agree to Alok.
Gus, K Ganesh and Meena Ganesh has acquired a 35% stake in the year-old venture OnlinePrasad (JUST A YEAR OLD)
Online religious spends among Indians was around $1-billion last year.
https://timesofindia.indiatimes.com/business/india-business/Ganesh-Meena-queue-up-for-OnlinePrasad/articleshow/20735957.cms
Kasthuri Kumaran
You have rubbed a lot of enthusiasm and exuberance with this post! We at VCville are keeping our fingers crossed to see many colourful Indian startup buses riding on the entrepreneurial highway!
Abhishek Verma
And we have something to carry on this conversation…
https://www.nextbigwhat.com/redbus-acquisition-lessons-297/