KAAND: The Blitzscaling Kaand TACTIC: Lose money in every transaction, call it growth, raise the next round before anyone asks when it becomes profitable
THE TACTIC IN ONE PARAGRAPH The tactic is simple: subsidize every transaction to acquire customers at a loss, then use the resulting user growth to justify higher valuations in subsequent funding rounds. The mechanism relies on three steps. First, price products or services below cost, often using venture capital or debt to cover the shortfall. Second, measure success in "gross merchandise value" (GMV), "monthly active users" (MAUs), or other vanity metrics rather than unit economics. Third, raise the next round of funding before the cash burn becomes unsustainable, ensuring that the question of profitability is deferred to a future investor. The goal is not to build a viable business but to create the illusion of scale, which can then be monetized through exits—acquisitions, IPOs, or secondary sales—before the model collapses under its own weight.
HOW IT WORKS IN INDIA SPECIFICALLY This tactic thrives in India due to a combination of regulatory arbitrage, fragmented oversight, and a funding ecosystem that rewards growth over sustainability. The Reserve Bank of India’s (RBI) 2017 guidelines on merchant discount rates (MDR) for digital payments, for instance, capped fees at 0.9% for large merchants, making it structurally difficult for payment apps to turn profitable on transactions alone. Yet, the same ecosystem allows non-banking financial companies (NBFCs) to lend aggressively to loss-making startups, with RBI’s oversight of these lenders often lagging behind their rapid expansion. The gap between SEBI’s scrutiny of listed entities and the lighter-touch regulation of private markets further enables this tactic—private companies can burn cash for years without the transparency or accountability imposed on public firms.
India’s judicial system compounds the problem. Contract enforcement is slow, and recovery of dues from defaulting startups is often a multi-year process, discouraging creditors from acting early. The Insolvency and Bankruptcy Code (IBC) of 2016 was meant to address this, but its implementation remains uneven, with cases frequently stuck in litigation. Meanwhile, the political economy incentivizes blitzscaling: state governments compete to offer tax breaks and subsidies to attract startups, while central schemes like the Startup India initiative provide regulatory exemptions, including relaxed norms for foreign direct investment (FDI) in sectors like e-commerce. These conditions create a perfect storm—capital is cheap, oversight is patchy, and the exit options (IPOs, acquisitions) are plentiful enough to keep the cycle going.
THE HISTORICAL RECORD One of the earliest documented instances of this tactic in India was the 2015-2017 hyperlocal delivery wars. Companies like Grofers and PepperTap raised hundreds of millions of dollars from venture capitalists to subsidize grocery deliveries, offering discounts of up to 50% on every order. Grofers, for example, burned through $120 million in 18 months, with its unit economics showing losses of ₹100-150 per order. The tactic worked—for a while. Grofers raised $120 million in 2015 alone, with investors valuing it at $400 million. But when funding dried up in 2016, the company was forced to pivot, laying off hundreds of employees and shutting down operations in multiple cities. The victims were not just investors but also vendors and delivery partners, many of whom were left unpaid when the company abruptly scaled back.
A more recent case is the 2021-2022 edtech boom. Companies like Byju’s and Unacademy raised billions in funding, using the capital to acquire customers at a loss through aggressive discounts and free trials. Byju’s, for instance, spent ₹2,000-3,000 per student on customer acquisition, while its average revenue per user (ARPU) was less than ₹1,000. The company’s valuation soared to $22 billion by 2022, but its financials—later leaked—showed that it was burning cash at an unsustainable rate. When funding markets tightened in 2023, Byju’s was unable to raise fresh capital, leading to defaults on loans, layoffs, and a fire sale of assets. The victims here were not just investors but also students who had prepaid for courses that were never delivered, as the company’s cash reserves dwindled.
THE INSTITUTIONS THAT ENABLED IT No tactic of this scale operates in a vacuum. The blitzscaling model in India has been enabled by a network of institutions that either looked away or actively facilitated it. Auditors, for instance, have repeatedly signed off on financial statements that treat customer acquisition costs as "assets" rather than expenses, allowing companies to defer losses. Deloitte’s 2022 resignation as Byju’s auditor, citing "non-cooperation" and "incomplete information," was a rare exception to the norm of unquestioning compliance. Rating agencies, too, have played a role. In 2021, ICRA and CRISIL assigned investment-grade ratings to bonds issued by loss-making startups, citing "strong parentage" and "growth potential" as mitigants for weak fundamentals.
Banks and NBFCs have been equally complicit. In 2020, Yes Bank extended a ₹300 crore loan to a loss-making food delivery startup, secured only by the company’s "brand value" and future cash flows. When the startup defaulted, the bank was left with non-performing assets (NPAs) and no tangible collateral. The RBI’s 2022 circular on "Resolution Framework 2.0" for COVID-19-related stress allowed banks to restructure loans to startups without classifying them as NPAs, further delaying the reckoning. Meanwhile, venture capital firms, often backed by foreign limited partners, have incentivized blitzscaling by tying founder compensation to growth metrics rather than profitability. The result is a system where no single institution is accountable, but all are complicit.
THE CURRENT STATE The tactic is alive and well in India, though its manifestations have evolved. The 2022 funding winter forced some startups to focus on profitability, but the underlying incentives remain unchanged. The RBI’s 2023 guidelines on digital lending, which require lenders to disclose all fees upfront, have made it harder for fintech startups to hide losses behind opaque pricing. However, the gap between RBI’s oversight of banks and SEBI’s oversight of listed entities persists, allowing private companies to continue burning cash without scrutiny. The Insolvency and Bankruptcy Code (IBC) has improved recovery rates for creditors, but the process remains slow, with cases often taking years to resolve. Meanwhile, the government’s push for "digital public infrastructure" (DPI) has created new avenues for blitzscaling, with startups in sectors like agritech and healthtech raising capital on the promise of "scaling first, monetizing later."
WHAT TO WATCH FOR Three red flags indicate this tactic is in play. First, look for companies that measure success in "gross transaction value" or "user growth" rather than revenue or profits. If a startup’s press releases focus on "record GMV" but its financials show negative unit economics, it’s a sign that losses are being subsidized. Second, watch for aggressive customer acquisition costs (CAC) that exceed lifetime value (LTV). If a company is spending ₹2 to acquire a customer who will only generate ₹1 in revenue, it’s burning cash. Third, pay attention to funding cycles. If a startup raises a new round every 12-18 months without showing a path to profitability, it’s likely deferring the question to the next investor. These are not just warning signs—they’re the core mechanics of the tactic.
This newsletter describes documented business tactics and systemic patterns based on public records, regulatory orders, and published financial journalism. It does not make allegations against any individual or entity. Readers are encouraged to consult primary sources and form their own conclusions.