I was going through Mahesh Murthy’s rant on capital dumping recently. The rant can be accessed here. For those who don’t know, Mahesh Murthy is one of the top Venture Capitalists in India and is part of Seedfund. He has been an investor in RedBus, which he exited, and is really proud of his investments. He ought to be.

In his rant, Mahesh Murthy has attacked the likes of Vani Kola and effectively all those who are raising a voice against capital-dumping by ‘foreign’ companies. He, and many others following the startup world, would like to see a free market that provides equal opportunities to home-grown and foreign businesses to grow and fight it out. The fittest will survive. It’s a fair argument.

On the contrary, Vani Kola, one of the most successful female VCs around, is voicing support against capital-dumping. Founders of Flipkart and Ola have also been a part of the rising voices.

In his article Mahesh Murthy makes scathing attacks on Flipkart, Ola and many other Indian startups for adopting a copy-paste route to establish businesses. He sees these copy-paste firms as bad investments and hence in the garb of demanding a level-playing field, he feels that the investors in such startups are actually trying to limit their losses.

The copy-paste route basically refers to copying a successful business model that’s working elsewhere and implement it. Flipkart and Ola are indeed copy-paste companies. But, they are certainly not bad investments. True, the immature startup environment here meant that the CEOs and execs would draw fat salary checks. But, these companies were the poster boys of Indian startups post MakeMyTrip era. These companies inspired thousands of people to quit their jobs and try their hands at entrepreneurship. True, the whole thing ended up being a been-there-done-that for most entrepreneurs and eventually resulted in once reckless VCs realizing that their investments in mist startups were going bad. But, these two poster boys don’t belong to that circle of startups which took a naive idea and tried to make mo ey out of it.

Mahesh Murthy argues that Flipkart has spent over $3.5 billion and 10 years to reach where it has while Amazon did it using just $2 billion and 1/3rd the time. He draws similar comparisons between Ola and Uber. On paper, these are valid arguments. That’s the beauty of statistics, it’s objective and not subjective. 

Flipkart and Ola did what Amazon and Uber didn’t have to do. They built the market. Much of their initial days had to be spent on building confidence among consumers. 

When Flipkart started out in 2007 as an online bookstore, customers hardly had any confidence in buying commodities online. Till then, e-commerce in India meant booking rail tickets on IRCTC and flight tickets on MakeMyTrip. Few forward government corporations like Karnataka State Road Transport Corporation provided facilities to book bus tickets on their website. Back then, online transactions were exceptions rather than being the norm.

Flipkart and Ola have spent years building that confidence in the consumers by bringing the cash-oriented consumers onto online platforms and slowly move then towards credit and debit cards. Even today there are people who are wary of using their debit cards for online transactions.C ash-On-Delivery still accounts for most of the payments made in e-commerce.

Cash-On-Delivery and 30-day Guaranteed Replacement were two strategies which brought consumers online. Those product returns and the hassles involved with Cash-On-Delivery were necessary evils if the customers had to be acquired.

Logistics was another area where India was lagging behind. Efficient logistics that could handle the orders without taking a big cut didn’t exist. Flipkart invested in that sort of logistics and built that service well. On the sellers’ front, Flipkart gained a name in the form of WS Retail. The name WS Retail guaranteed quality products that were original while E-Kart meant timely delivery. Snapdeal, on the other hand relied on third -party sellers and delivery channels which resulted in bad and fraudulent deliveries.

By the time Amazon arrived in India, consumers were already purchasing more and more on both Flipkart and Snapdeal. The consumers now knew the waters and weren’t scared about purchasing online. Amazon has also innovated well. They adopted a marketplace model early on, tied up with the likes of IndiaPost and BlueDart to build an efficient delivery system and came up with Card-On-Delivery system. But they didn’t have to go through the ordeal Flipkart, Snapdeal or Mantra had to. They were dealing with much mature consumers and all they had to do was to offer good alternatives.

In case of Ola, it was about inspiring confidence in both drivers and customers that the whole concept of on-demand online taxis works well for both. Uber entered three years later and had to just lure drivers and customers to come onboard.

Another good example is how Airtel and Vodafone built telecom networks under stringent regulations and how Jio, backed by a behemoth conglomerate, is able to offer extreme discounts. Airtel and Vodafone will end up shutting shops if they do the same.

To pull in customers, all Amazon and Uber had to do was to offer hefty discounts and incentives to its customers and partners respectively. To hold forte, Flipkart and Ola followed suit. This resulted in higher burn rates than ever. 

And that’s where capital-dumping comes into picture. Amazon didn’t have to raise funding from VCs or angel and seed investors in order to startup. It took 10 years for Flipkart to raise $3.5 billion. It probably took ten-minutes for Jeff Bezos to divert some profits of Amazon.com and AWS towards Amazon.in. That’s pretty much like Vijay Mallya diverting USL and UBL profits to Kingfisher Airlines, only that Amazon.in is a successful business unlike KFA. Uber was already valued at $40 billion when it entered India. It isn’t tough for an established global company to take on a local company.

It’s like China dumping steel in UK. Remember how Tata-Corus almost shut down in UK? Do you know India has anti-dumping rules for commodities? Then why not for capital?

Why shouldn’t India defend its businesses by restricting capital-dumping? Mahesh makes an argument that this battle is similar to Big Bazar vs online sellers and to Big Bazar vs mom-and-pop stores. It isn’t, though. Big Bazar seeking protection against online stores and mom-and-pop stores seeking protection against heavily-funded supermarkets is a battle between an old business model and a disruptive business model. Mahesh Murphy’s argument would have been valid if Ola was a radio-taxi operator and Uber was offering something new to the customers. Equality should be among equals. Ola and Uber will not be equals till Uber is a subsidiary of a well funded giant global power. Same goes well for Amazon.

When two plants are allowed to grow in the same soil, in the same land-parcel, you have to let them fight it out. But, what if each plant has different owners? One a rich industrialist and the other a farmer who has taken a bank loan?

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