The massive success of the IT and Digital startups in achieving fascinating valuations in short period of time, is attracting attention of the young millennials. Startups, led by bright technocrats in their 20s, are mushrooming all across the country. Venture capital funding is its all-time high and consumption of digital products and services are rising at an exponential pace.
And as Spiderman says, ‘with great powers there must also come great responsibility,’ amidst the success of entrepreneurship in India in creating wealth for their owners and investors, not many are talking about the challenges and hardships faced by entrepreneurs in their journey. An extremely unfortunate incident that has come to light today, has forced all of India to sit up and notice the perils of running a business.
VG Siddhartha - founder of Coffee Café Day – and a first generation businessman has gone missing in a very tragic undertone. Most of us remember and probably try to draw parallels to businessmen such as Vijay Mallaya and Nirav Modi, who fled the law.
But Siddhartha’s case is different. In this letter, that was made public, to the Board of Directors of the CCD Siddhartha talks about the immense mental pressure he was in, from private equities who were forcing him to buyback and certain tax authorities who allegedly pursued non-existent cases, impacting the operations and the market value of the firm. The letter reads sad, dejected man who did not have the mental conviction to fight anymore.
Siddhartha’s firm Coffee Café Day was a superstar, being the first to corporatize the coffee business – much before international chains such as Costa or Starbucks cropped up. He hailed from a family of coffee gardeners and was able to successfully integrate operations – from growing to retailing, owning over 1770 outlets across 6 countries.
Listed both on NSE and BSE about 4 years back, CCD was backed by some marquee private equity firms such as KKR, Standard Chartered PE and New Silk Route. The company has lost more than 42% of its valuation in 6 months. Siddhartha was among the largest investor in Mindtree, and emerged as the lynchpin in the L&T-Mindtree deal – a deal Siddhartha writes in his letter that brought lot of troubles from taxmen in a evasion case. He was forced to pledge over 70% of his shares in the holding company, to borrow to tide over the losses that span over a decade. The borrowing via pledging of shares is over and above the company level borrowings. Imagine the amount of personal liability and debt pressure the promoter feels. This is now becoming a trend in banking sector. Capital employed by the company has jumped 14x in 10 years, considerable part of the capital was deployed in securing physical outlets that took a long time to break-even.
It is shocking how even a seasoned entrepreneur, like Siddhartha, was not able to manage the pressures of doing business. It also raises some important questions,
· In this hyper-vibrant fund-vs-startup landscape, what kind of relationships do both parties share? Is it of a friend who encourages you to grow and supports you in the down, or is it purely transactional in which they are happy to celebrate success but kick you down when going gets tough? Because most VCs and PEs, speak that they are the former though incident shows otherwise
· Role of tax authorities is to be logical in implementing law or shove it down our throats?
· What will happen to the future of CCD? Already the shares are trading at an all time low?
· Siddhartha in days leading up today, was in talks with Coke for possible divestment. What will happen to the deal?
· Will there be an investigation into what has led to these tragic events?
· Will we see a response from the PEs referred to in the letter?
· And last of all, what has happened to Siddhartha?
Most of us will have fond memories attached with Coffee Café Day – connecting with friends, business partners, or just to have a sip coffee alone. It feels personal to lose the businessman who had built such a fan-favorite brand bottoms-up. Perhaps, next time when we step into a CCD store, its worthwhile to remember that ‘entrepreneurship while highly rewarding is not for everyone…’