Acquisition Is The Buzzword Among Indian Startups

Startups in the country have never seen so much of action. First, they have been in news for reasons good enough with investor interests increasing in the sector and lots of innovative ideas emerging with a few success stories in the market. Second, the sector has grabbed the attention of market watchers for not-so-good reasons as a handful of early stage ventures have adopted drastic measures to curtail their expansion plans, throwing up significant questions on the sustainability model of the businesses across.

Now, amidst all this, there is also a third category of early stage ventures which have not yet been in news so much. This category comprises powerful ideas that have been rolled out in the new entrepreneurial ecosystem that have been grabbed up by bigger venture-backed startups.

Consider this: e-commerce marketplace Snapdeal, which has so far received $1.7 billion in private equity and venture funding, has acquired 7 such firms this year, including names such as Freecharge, LetsGomo, RupeePower and Reduce Data. Snapdeal, founded in 2010, has so far received funding from Softbank Corp, PremjiInvest, Temasek, Bessemer, Ratan Tata, IndoUS Ventures, Kalaari Capital, Saama Capital, Nexus Ventures and Intel Capital, among others.

Well this is not the only one. There are many more in the burgeoning list of companies that are increasingly turning acquisitive. Real estate portal Housing.com that has been mired in controversy has recently acquired HomeBuy360, a unique cloud-based Sales Lifecycle Management Platform that connects developers, agents and buyers, for an estimated amount of $2 million. Housing.com's total number of acquisitions stands at 5 this year. The other ventures that it has acquired include Realty Business Intelligence and IREF.com.

Executives involved in the transaction process say that some of the deals that are sealed in the startup acquisition space are as small as $1-2 million. The acquisitions come in more as the bigger daddies see potential in the smaller ventures that give them an option to take over and mentor them and tap the market easier. More and more prominent startups are adopting this measures to expand their operations faster and compete with their rival firms.

"In today's day and age, one doesn't have the luxury to build a business in 10 years anymore. Everything has to be done fast," says a promoter of a prominent Delhi-based startup as he scouts for acquisition targets in the market.

Other prominent startups that have gone in for acquisitions in this year include ecommerce firm Flipkart and healthcare venture Practo. Grofers, an online delivery service which just received its funding from Japan's SoftBank Corp. Russian entrepreneur and venture capitalist Yuri Milner and existing investors Tiger Global and Sequoia Capital also has made 3 acquisitions this year.

As per data available with Venture Intelligence, the total number of acquisitions in the startup sector has gone up to 15, more than double the figure clocked in 2014. Last year, the total number of VC backed firms acquiring other ventures stood at 7. In 2007, the boom year of deals, only a handful if 4 deals were sealed in the startup M&A space.

Experts tracking the sector say startup M&A trend will pick in the sector with major consolidation happening over the next 1-2 years. With too many startups mushrooming over the past few months, it is bit natural for some to find it difficult to scale up businesses and take them to the next level. However, if their ideas are great, they will be grabbed by the bid daddies of the startup ecosystem. "There is a lot of innovation in the internet space and of course, there are too many players as well. While there is a lot of talent in this sector, going forward there will be a few success stories that will emerge," said Arvind Mathur, Private Equity and Venture Capital Association (IVCA) President. "The sector may undergo massive consolidation and the ones who will survive are the ones who will beat competition," he added.

Boom or Bubble?
Currently, there is a "problem of plenty" in the startup ecosystem, with a lot of ventures actually chasing money-making opportunities and leading the so-called boom. However, the question that arises for all of them is on their 'sustainability model'.

Going forward, there will be some clear winners, who will be able to generate revenue and those who cannot will automatically have to shut shop. All in all, the first signs of the shakeout is already visible especially across certain sectors such as food tech which has been the worst impacted so far. Firms which are able to create a niche for themselves will be the ones to stand tall. As per estimates available with Grant Thornton, in the first half of 2015 alone, as many as 363 venture capital deals were sealed, three times more than the number of private equity deals, which stood at 99. Traditionally, in terms of the total deal size, venture funding is always smaller than private equity funding. Denoted by data collected for this period which shows that the total venture capital funding stood at $1.9 billion compared to $5.1 billion pumped in by private equity funds.