you have to review the article and consider the problems of passion connect company which has been presented in the attached file. You have to consider the Information Technology part of the company , mention its problems and analyze the problems and risks and then you have to present your solutions and recommendations for the Information Technology segment to lead the company to profit.

9B18M027

PASSION CONNECT: TURNING PASSION INTO PROFIT Monique Tuin wrote this case under the supervision of Professor Dominic Lim solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. This publication may not be transmitted, photocopied, digitized, or otherwise reproduced in any form or by any means without the permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western University, London, Ontario, Canada, N6G 0N1; (t) 519.661.3208; (e) cases@ivey.ca; www.iveycases.com. Copyright © 2018, Ivey Business School Foundation Version: 2018-02-28

In February 2017, Karthik Kittu met in Bangalore, India, with his co-founders, Abdul G Sait and Shubham Deva, to discuss possible monetization strategies for his start-up, Passion Connect. Passion Connect was a start-up that helped people discover and pursue their passions, through a platform of curated content, targeted experiences, and specific services to connect with mentors and other users who share their passions. The company was founded in August 2013, but the team needed to consider the company’s current situation and was trying to raise a Series A round of financing by the end of 2017. However, with increasing pressures for returns by Indian venture capitalists, the co-founders needed a monetization strategy in place first. In its first few years, their company site had gained 40,000 registered users but had not made a return. While the business was operating on a lean model, further investments in sales and marketing were necessary to continue to grow the platform. The co-founders needed to know how Passion Connect could begin generating revenue, turn users into cash, and help others like themselves discover their passions. INDIA’S START-UP SCENE With a population of 1.3 billion people1 and a projected gross domestic product growth rate of 7.2 per cent in 2017,2 India was attracting attention as the world’s fastest growing economy. The opportunity for technology start-ups was compounded by record-breaking growth in smartphone adoption (see Exhibit 1), in a market expected to have 730 million Internet users by 2020.3 Start-ups in India faced an increasingly favourable regulatory environment with Indian Prime Minister Narenda Modi preaching the importance of entrepreneurship and technological innovation. In 2016, the Startup India Action Plan was launched with the directive to “build a strong ecosystem for nurturing

1 “India Rising,” PRB: Population Reference Bureau, December 2015, accessed July 16, 2017, www.prb.org/Multimedia/Infographics/2015/india-story-map.aspx. 2 “India Development Update: Unlocking Women’s Potential,” The World Bank, May 2017, accessed July 16, 2017, http://documents.worldbank.org/curated/en/107761495798437741/India-development-update-unlocking-women-s-potential. 3 “The Future of Internet in India,” Your Story: Nasscom, 2016, accessed July 15, 2017, www.communicationstoday.co.in/images/reports/20160820-nasscom-the-future-of-the-internet-in-india-19082016.pdf.

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Page 2 9B18M027 innovation and start-ups in the country.”4 The government decreased bureaucratic hurdles to launch new companies and provided support for start-ups through government schemes. For example, start-ups could self-certify regulatory compliance with a smartphone and use a fast track for patent applications.5 The Indian government also launched a Fund of Funds, which invested in venture funds to provide financing to start-ups, with a value of ₹25 billion6 (approximately US$3.9 billion) per year.7 One city in particular had been the focus of much entrepreneurial activity—Bangalore, the capital city of the state of Karnataka, with a population of over 10.8 million people.8 The South Indian city, officially known as Bengaluru, was heralded as the Silicon Valley of India. Home to numerous multinational IT companies, the city also accounted for 28 per cent of domestic start-up activity.9 India had already witnessed the emergence of several “unicorns” (pre-initial public offering companies with a valuation of over $1 billion). Bangalore-based Amazon competitor, FlipKart, raised over $2.4 billion in funding by July 2015, at a valuation of $11 billion. Taxi-hailing start-up Ola, with a valuation over $5 billion, moved its headquarters from Mumbai to Bangalore.10 The enormous domestic market positioned Indian start-ups for significant growth if they capitalized on the unique challenges and opportunities they faced in this rapidly developing country. VENTURE CAPITAL FUNDING IN INDIA Entrepreneurs had several options when raising funds to start and grow a company. In the early stages of a company, founders typically approached family and friends, applied for a bank loan, or sought financing through an angel investor—wealthy individuals who invested their own money—in order to raise a seed round to get the idea off the ground. In India, seed rounds were typically smaller than in the United States, averaging $100,000 to $250,000.11 Following a seed round, a company’s first significant round of venture capital (VC) financing was known as a Series A round and was followed by subsequent rounds (Series B and C) to raise more funds as the company grew. While venture capital funding was focused on early-stage companies, Indian funds typically wanted to invest in firms that had a track record of performance. Consequently, the majority of investments were made in companies over five years old,12 which showed a contrast to the investment trends in other countries with similar VC activity.

4 “Startup India Action Plan,” Government of India: Ministry of Commerce and Industry, January 16, 2016, accessed July 16, 2017, http://startupindia.gov.in/pdffile.php?title=Startup%20India%20Action%20Plan&type=Action&q=Action%20Plan.pdf& content_type=Action&submenupoint=action. 5 Ibid. 6 ₹ = INR = Indian rupee; all currency amounts are in US$ unless otherwise specified. US$1 = ₹65.4 on October 8, 2017 7 “Startup India,” op. cit. 8 “Bangalore Population 2017,” World Population Review, October 20, 2017, accessed January 14, 2018, http://worldpopulationreview.com/world-cities/bangalore-population/. 9 “India 3rd Largest Base for Start-ups in the World,” The Hindu Business Line, October 29, 2014, accessed June 4, 2017, www.thehindubusinessline.com/info-tech/india-3rd-largest-base-for-startups-in-the-world/article6545415.ece. 10 Shilpa Phadnis and Shalina Pillali, “Bengaluru Is Home to 5 of India’s 8 Unicorn Startups,” Gadgets Now, October 12, 2015, accessed June 4, 2017, https://www.gadgetsnow.com/tech-news/Bengaluru-is-home-to-5-of-Indias-8-unicorn- startups/articleshow/49316190.cms. 11 Ajay Yadav, “How Securing Startup Funding in India Differs from the U.S.,” Forbes, September 22, 2016, accessed May 11, 2017, https://www.forbes.com/sites/ajayyadav/2016/09/22/how-securing-startup-funding-in-india-differs-from-the-u- s/#faddeda6b1b0. 12 Thillai Annamalai and Ashish Deshmukh, “Venture Capital and Private Equity in India: An Analysis of Investments and Exits,” Journal of Indian Business Research 3 (March 2011): 6-21, accessed May 11, 2017, https://www.researchgate.net/publication/235317490_Venture_capital_and_private_equity_in_India_An_analysis_of_invest ments_and_exits.

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Page 3 9B18M027 The early appearance of modern venture capital in India came through the establishment of the Technology Development Fund of the Industrial Development Bank of India in 1987.13 When India’s IT sector took off, domestic funds emerged to provide funding at the same time as foreign funds entered the country looking for significant returns. National level organizations, including ICICI Venture Funds and the National Venture Fund for Software and IT Industry (NFSIT) were complemented by state-level venture capital organizations such as Gujarat Venture Capital Finance and the Karnataka Information Technology Venture Capital (KITVEN) Fund.14 Several American funds established large and active Indian funds, including IDG Ventures India, Sequoia Capital India, and Accel India.15 Other local players, such as Mumbai-based Blume Ventures, emerged through investments by successful Indian entrepreneurs. In 2016, $3.3 billion in risk capital was deployed through 859 venture deals in India.16 Of these deals, 68 per cent were made in pre-series start-ups,17 showing more difficult access to capital for companies in later stages. Overall, 2016 investments represented a decline of 60 per cent of capital invested in 2015 (see Exhibit 2). While the investment climate remained positive, deal cycles became longer, and investors looked for companies with proven business models and unique value propositions. Companies copying existing business models to the Indian market had trouble raising funds, as financing shifted to companies with unique business models in prominent industries such as financial technology (fintech) and healthcare. With increasing pressures to make a return, Indian venture capitalists shifted their focus from users and growth to sales and profit. Passion Connect’s co-founders recognized it would not be possible to raise venture capital financing based on users alone—the company had to demonstrate an ability to generate revenue and a concrete strategy to make a profit if it were to have any chance of catching the interest of investors. IN PURSUIT OF PASSION In India, social acceptance of non-traditional career paths was low. Young adults faced pressure to graduate with university degrees and become engineers, doctors, or businesspeople. Indian parents’ most popular goal for their children was career success, and over three-quarters of parents wanted their child to pursue studies in medicine, business, engineering, computer science, or law.18 These societal and familial expectations meant that young people were often discouraged from pursuing careers in fields such as music, arts, or social sciences—despite these being popular areas of interest. As a result, while young educated Indians were making money and accessing the latest technology, they often were disinterested in

13 B. Bowonder and Sunil Mani, “Venture Capital and Innovation: The Indian Experience,” Paper presented at International Conference, November 7, 2002, accessed May 10, 2017, www.insme.org/files/148. 14 S. Jayalakshmi, “Problems and Prospects of Venture Capital Undertakings in Tamilnadu,” Alagappa University, October 20, 2015, accessed May 10, 2017, http://shodhganga.inflibnet.ac.in/bitstream/10603/54276/9/09_chapter%203.pdf. 15 Snigdha Sengupta, “Venture Capital Firms Shy Away from Backing New Start-ups in India,” LiveMint, June 2, 2017, accessed July 14, 2017, www.livemint.com/Companies/12mjDmcMQyanFPlwsol2SL/Capital-crunch-Venture-capital-firms- shy-away-from-backing.html. 16 “Venture Pulse Q4 2016: Global Analysis of Venture Funding,” KPMG Enterprise, January 12, 2017, accessed June 4, 2017, https://assets.kpmg.com/content/dam/kpmg/xx/pdf/2017/01/venture-pulse-q4-2016-report.pdf. 17 Emmanuel Amberber, “In 2016, $4 Billion Invested in Indian Startups—Deal Value Decreased 55%, Volume Increased by 3% from 2015,” Your Story Research: 2016 Year-end Funding Report, December 31, 2016, accessed May 10, 2017, https://yourstory.com/2016/12/indian-startups-funding-report/. 18 “The Value of Education: Learning for Life,” HSBC: Global Report, 2015, accessed May 10, 2017, https://www.hsbc.ca/1/PA_ES_Content_Mgmt/content/canada4/pdfs/personal/HSBC_VoE_LearningForLife_Global_Report.pdf.

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Page 4 9B18M027 their jobs, and stress levels were at a record high. Over 42 per cent of Indians working in the private sector suffered from depression or generalized anxiety disorder.19 In 2013, to build social acceptance to pursue passions outside of traditional career paths, the friends had founded Passion Connect to help more Indians realize their passions. After nine years of work for companies such as Infosys and KPMG in the IT Industry, and as the president of Rotaract South Asia, Kittu noticed that there was an opportunity to help others like him discover their passions and receive career guidance to realize those passions. When he was studying for his MBA in 2004, Sait had started his first entrepreneurial initiative—a risk and wealth management company called Basket Option Pvt Ltd. While working with other entrepreneurs, he realized that many had passions that were unfulfilled, negatively affecting their quality of life. Deva could see the same happening to his classmates at the Indian Institute of Technology Kanpur; many were graduating and entering unfulfilling career paths that left them feeling unhappy and unmotivated. Deva joined the team after graduating in June 2014. The three came together to research platforms to help people maintain their passions while they pursued their careers—finding none, they decided to build one. Passion Connect initially began as a psychometric test to help users identify their passion (see Exhibit 3), whether it was music, painting, extreme sports, or social work. The co-founders realized the need to provide an ecosystem for users to nurture their passion once it was identified, and gradually extended the platform to include several products catering to passion discovery and pursuit. In July 2015, Passion Connect was accepted into the Jain University Incubator Centre (JUIC), a joint initiative by the Department of Science and Technology (DST) in India, ALSTOM India Limited, and Jain University, based in Bangalore. Through JUIC, the co-founders were able to access entrepreneurship services, training programs and mentorship, and an initial round of seed financing to help get the company off the ground. In the three years since the company had been founded, the team had grown substantially, with the three co- founders at the helm. Sait, the managing director, focused on finance and strategy. Kittu led research, networking, and marketing as the chief executive officer. Deva, as chief technology officer, led technology engineering and product innovation. A team of 12 people, including developers, a marketing team, and content curators, supported the company. While the initial seed funding had helped the company grow to this stage, and they operated on a lean model made possible due to the low cost of human capital in India, the co-founders realized that to continue to support the team’s salaries and business expenses and to provide more funding for marketing, monetization and further investment would be critical. PASSION CONNECT PLATFORM Passion Connect provided a website and mobile application to help users discover and connect with their passions. The platform was centred on the concept of a three-step module: 1. Identify—Identifying and connecting with passions through psychometric tests, curated articles,

blogs, quizzes, polls, and videos 2. Nurture—Nurturing one’s passion by sharing it with buddies and getting mentored by experts who

have made a career from their passion 3. Live—Providing access to mentors for users to live their passion and facilitating organized events,

mentor meet-ups, and internship opportunities offered on the platform

19 PTI (Press Trust of India), “42% Indian Private Sector Employees Face Depression: Poll,” The Economic Times, April 6, 2015, accessed June 4, 2017, http://economictimes.indiatimes.com/magazines/panache/42-indian-private-sector- employees-face-depression-poll/articleshow/46827593.cms.