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India has been a great patron of Entrepreneurship. Since the era of this Startup splurge from Mid 2014 to 2016, it has attracted over $20 Billion of global venture capital primarily from Silicon Valley. Numerous Business Houses of Indian origin like Tata came into the business of private equity and Seed funding. Home grown unicorns basis their market valuations went on the spree to achieve consolidation. Billions of dollars were burnt to achieve commission transaction revenue in mere millions, in the E commerce business. Gross merchandise revenue became the most preferred vanity metrics for E commerce Business Behemoths and User Acquisition and Valuation reached its acme.
This froth was created because of herd mentality of the VC fraternity and the Entrepreneurs (who were eyeing for bigger success in lesser time) rather than putting in the sense of Ingenuity. VC’s kept eyeing for the bigger fishes in the private equity businesses to come up with their funds and they would then put the funds in either the similar sector or an ancillary sector. What went popular was how fast can become Big and the modus-operandi was of Spray & Pray.
India Started with the Big Bang Way!
The Big Bang Theory relates to the theory how Earth was born. There were massive clashes of heavenly bodies, huge head-on collisions of planets and meteoroids releasing enormous amount of energy. Everything was big, large and tremendous. This resulted to severe loss of resources, casualties and energy but takes lesser time and seems as Big Bold and Beautiful.The better way to understand this phenomenon in Startups is, that you will lose users and may experience massive cash burns with less results but you will move boldly and later you might be able to sustain the brunt.
E commerce Industry became the torch bearer of Startups in India. Flipkart, Snapdeal started to bring in funds and went to give away discounts out of VC’s funds. Nobody even the regulatory bodies were able to understand what was happening around. Majority of the big ecommerce businesses try to operationalize the supply chain and the market places with great operational excellence but they failed on the financial aspect of raising a business. They tried to balance the demand and supply side by bearing the brunt of discounts from their losses. What was worth doing became worth overdoing! Flipkart had approximately 50% of its GMV started coming in by selling Motorolla phones. No one looked on the user behaviour and the user psycho-graphic phenomenon. User started getting pampered with more discounts and soon the Indian Ecommerce Segment was looked upon by the public as the discount machine. Ancillary Segments like Mobile Wallet, Coupons and Logistics started picking up.
While all this was happening sectors which picked pace were Foodtech, Taxi and Travel, Hyperlocal Services, Education, Fintech and bits and pieces of Internet of Things, Artificial Intelligence and Virtual Reality. They started with the great ideas of solving consumer issues however their modus operandi was similar to ecommerce.
The Froth starts settling in 2016-17
The year started with the spill overs of the Bing Bang way and what was natural to happen was, “The declining interest of the VC’s fraternity”.
Private equity inflow of $2.3 billion in the first three months of 2016 is 49% lower than the inflow of $4.5 billion in Q1 of 2015 as reported in VC Edge Report
Startups which were on their hiring and appraisal spree started austerity drives. Zomato, Grofers, Snapdeal, Tinyowl and Flipkart laid off huge headcounts in lieu of low performances. Acquisitions which were thought to be strategic resulted into a complete failure. Taxi for sure was closed by Ola and eventually they had to lay off employees which they later claim as performance driven too! Food techs which went to an extent to advertise on the porn websites in the areas where more colleges were present, had to lay off heavily. The bloodbath continued and the great talent pool started to shift to bigger and established companies which don’t promise immature growth but were highly credible on the ground of stability and work life balance.
Some of the organisations which were rewarded invariably high valuations were exposed to have been mismanaging the investor’s funds. FoodPanda had to go under a complete reshuffle and had to automate their Operations to stop pilferage which resulted to a huge loss to the organisation. Some of the Startups in the recent past were unable to balance the discounting model of acquisition and the declining interest of VC’s and they finally came to an end. Ask Me was one of the examples, to have not been able to manage the balance and resulted to a close down.
The VC’s who started relying on the abstract values associated with Startups like Team, Idea Strength and Culture were now talking of revenues and profit margins. It was soon revealed by one of the major researcher CB Insights that only around 1% of the total investments goes upto the 6th round. What was more worrisome was, that more than 50% of the Investment is not materialised into growth and dies out before the 3rd round!
Sooner the herd mentality pervaded in the air and all of the VC’s fraternity started seeking Product Market Fit before making seed investment. They were more curious to know of revenue channels than knowing about teams and culture.
India 2017, Needs the Nirma Moment!
Nirma is one of the Indigenous Brands in FMCG (Detergent Segment) which paved it’s way to every Indian house by its utility, quality and affordable pricing. Indian companies have to seriously think on Value Creation and Great Product Development. The internet companies have to build The Real India in their product. They just cannot base their entire marketing and operations on the 150 million users out of 350 million (of total Internet Mobile users in India) which are capable to spend on their urban lifestyle.
While this froth was created and settled down there were Startups which were gradual and realised the potential of user experience, consumers issue resolution and localisation such as Hello English and DailyHunt. They started making steady and firm growth. They chose the Incremental way of raising a Startup.
What is the Incremental Way of raising a Startup?
Incremental Growth theory is around building something from scratch with gradual progress and stability. You could be bigger but the progress of becoming bigger shall be always proportional! The better way to express is that you will have enough amount of experience to handle the new users on boarding you and would support it with robust operations.
Startups have to realise that the 65% of the population which is only going to be penetrated through mobile internet has to be brought into account. With the advent of Reliance Jio as the impetus for the mobile internet revolution in India, the total number of mobile internet users is expected to increase upto 750 million. The real India is yet to board the Internet medium and sooner or later every player would have to understand it.