Thank you for subscribing to the 6th Edition of TheFridayEveningReport — Weekly report on Startup Funding, and the Week-That-Wasn’t.
… Before I dwell into the week’s trending startups, I wanted to write a little story about pricing your products right. As a startup’er, at some point your focus will be on sales. Yes, you can’t outsource these! As a creator, you might have worked hard on putting an effort to churn the best. But, if you don’t put a fair price tag for your product, you won’t land up with any buyers. 2 things to consider before you price your product — #1: Is your product unique? Does my customer feel unique? Are you building a CLONE? #2: Is my product affordable? Can I get my first 200 customers in next 18 months?
A theory on pricing was proposed a few decades ago, by George A. Akerlof, a professor of Economics from UC Berkeley who landed up in our own Delhi’s Indian Statistical Insistute, put 18 months into which, won the Nobel Prize in Economics for his resulting paper, “The Market for Lemons.”
Here’s the link. In his paper, Prof Akerlof describes how markets operating in the absence of quality information can lead to a cascading series of events that drives out good actors, leaving behind only bad actors selling poor quality goods (aka the Lemons). Here’s one simplified explanation of his work. Consider a marketplace of used cars, where sellers Sally and Sarah are selling the same model of used car to buyer Bob. Sally has a high quality car, the fair market value for which is $6000. Sarah has a car with a defective engine, one that she knows will fail in the next few years. The fair market value for her vehicle is $2000. Bob, however, is not privy to any such information — as far as he is concerned, both sellers are trying to sell the same product, although there’s a chance that one or both of them have a lemon.
In this market, Bob is willing to pay somewhere between the fair market value of a good car ($6000) and a lemon ($2000) to buy his vehicle. Let’s say he thinks that there’s a 50–50 chance he could land up with a bad car. Being a smart man who understands expected values and probabilities, Bob decides that a fair price for him to pay for the car is halfway between $6000 and $2000 — i.e. $4000. In these kinds of markets, sellers of good products (like Sally) are not getting as much as they should, and sellers of poor products (like Sarah) are getting more than they should. It is proved how this information asymmetry creates a market dynamic and economic incentives that over time “drives out the good actors” and keeps only bad actors. Eventually, the market is full of lemons — the good sellers have decided that this is just not worth their time, and buyers cannot access high quality products.
Here’s another scenario. Let’s talk about disruption. Shop1 has 100 brand new luxury cars, but heavy on their pricing segment that one car per year gets sold. Shop2 has 2000 cars, but 1000 of them are junk! But, 50 cars per year gets sold. And, Shop2 owner decides to sell them dirt cheap. Let us refer them as lemons for now. Sounds familiar? These are spam, bait-and-switch sellers, and overpriced and / or defective products, and legitimate sellers like Shop1 are drowned out in the noise. But with time, a demand for “better car” a necessity at a slightly better price segment. Enter Startup1. He has 200 cars, 5% of which might be bad, but 10x better build than Shop2. And, sells them in mid-range, 40% cheaper than Shop1, becuase he has identified the baseline for this market. One lesson in particular? Well, profit margin at a very basic level, Startup1 distrupts the existing market of what’s now sub-standard. Exit Shop2.
Smart founders are contrarian, thinking first principles while focusing on user delight over everything else, and building solutions that are unique to their markets and not simply clones of what works elsewhere. How do I generate opportunities? Look around you. Things happen for those who avoid to look for a sign. In enterprise, great product helps, but execution wins. In consumer startups, the best product almost always wins. But, what about pricing? How are your products priced? That’s a real important factor to spend your time upon. Work on your products. Price them fair, and importantly SELL!
- Bengaluru based Online Loan Matchmaking Platform Finzy has raised 8.48 crores as Seed/Angel Funding.
- Bengaluru based Varthana, which aims to provide Loans and Services To Affordable Private Schools in India, has raised a funding of INR 358 crores from ChrysCapital, Existing investors, Elevar Equity, LGT Impact, Omidyar Network and Kaizen Private Equity also participated in the round.
- Hyderabad based Ed-Tech company IndigoLearn, has raised a seed round for approx 1 crore INR from Maheshwar Peri, founder and chairman of career information portal Careers360, and Jamshed Jeejeebhoy, director at Byramjee Jeejeebhoy Pvt. Ltd were among the angels.
- Bangalore based Ed-Tech platform VEDANTU, Interactive Online Tutoring Platform has raised INR 65.25 crores from Accel Partners, Tiger Global & co.
- Chennai based Digital Financial Services Platform Kaleidofin has raised a Seed/Angel Funding for INR 18.27 crores from Omidyar Network. Blume Ventures and Professor Shlomo Ben-Haim.
- Mumbai based Fashion Accessories Etailer Pipabella has raised $1Mn from Fireside Ventures as Seed Funding.
- Mumbai based Blockchain Platform Elemential has raised a Seed / Angel Funding from Matrix Partner, Amrish Rau, Investopad, Digital Currency Group, Hinduja Group, Lightspeed India, Eight Innovate, Amit Ranjan, Prashant Malik and others.
- Delhi based Ed-Tech — Kriger Campus raised a Seed of 30 lakhs.
- Finance firm, Loanzen, a Digital Lending Platform In Logistics based in Bangalore has raised a seed funding from Kae Capital Management.
- Gurugram based Online Travel Marketplace — TravelTriangle — has raised 78.33 crores from Fundamentum, SAIF Partners, Bessemer Venture Partners, RB investments & Others.
- Delhi based Letsmd, a Platform To Discover Healthcare Financing Options has raised a Seed/Angel funding of $1Mn from SRI Capital, Waterbridge Ventures and ThinKuvate
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