Boom or Bust, Startups Rake In Moolah

Much has been talked about the startup ecosystem which has been abuzz with activity over the past few months. Hordes of capital, increased investor interest and some great innovative ideas – startups have never had it better than this.

So far, as many as 12 startups have raised over $100 million this year, putting certain mid-sized firms behind in terms of raising a large corpus, as per data collated by research firm Venture Intelligence.

Mumbai-based cab service provider Ola Cabs has raised $900.15 million from a clutch of investors such as Falcon Edge, Tiger Global, SoftBank, SteadView, Accel, among others. E-commerce marketplace Snapdeal has received funding worth $750 million and the investors who have backed them include SoftBank, PremjiInvest, Temasek, Tybourne, Ru-Net.

These are not the only ones. There are more to the startup list which have received large chunks of funding. Sachin Bansal and Binny Bansal-promoted Flipkart raised $700 million from SteadView, Tiger Global this year.

Experts tracking the sector say that increased competition in the market is prompting startups to undertake massive expansion in a bid to take the ‘top’ position. In fact, this in turn is also prompting them to take steps to acquire other startups to add muscle to their existing businesses and alongside foray into other areas. Ola, for instance, has acquired TaxiforSure, while Snapdeal has acquired Freecharge.in, LetsGomo, among others.

“Today, the amount of investments that you see going into this space is something new,” said Arvind Mathur, Private Equity and Venture Capital Association (IVCA) President. While the ecosystem has improved for startups in the country, even the talent pool from premier engineering institutes are extremely capable of taking on new venture especially in the technology field,” he added.

Ventures that have raised over $110 million this year include Quikr, Grofers, Ecom Express, Oyo Rooms, Yepme.com and Zomato Media. Finally, those that have been in news for raising $100 million are Pepperfry.com, Saavn.com and ShopClues.com.

However, the nature of the startup business is such that going forward there may be a handful of them who will die down. “Startups may undergo massive consolidation going forward and the ones who will survive will beat all competition around,” said Mathur.

Typically, funds required by startups are much smaller in size when compared to those required by mid-sized firms that go in for massive expansion. The reason behind this is obvious. Startups need money to establish the business they are in, while mid sized firms typically require capital to grow and expand their operations, both organically and inorganically. Therefore, the corpus requirement in the latter is much bigger.

Funds Vs Expansion
“Small is beautiful.” For, many of these small firms today will go on to become the big daddies of corporate India tomorrow. Thanks to the changing digital landscape – both mobile and internet – several budding entrepreneurs are looking to ride the domestic consumption wave. Entrepreneurs today know that there is immense potential in e-commerce that is yet to be tapped. However, in reality, industry analysts caution the situation may be not be as rosy as it seems! There are too many startups mushrooming in the country and in many cases it is the ‘copycat startups’ that are chasing the money-making opportunities and are leading the startup boom. In other words, success of one startup is leading another to follow the same dream, eventually resulting in lesser number of original ideas and at the same time inflating valuations. And who knows, with this problem of plenty in the startup space, in no time this boom may also turn into a bubble for some! Already some ventures have been in news for not so great reasons as they had to adopt drastic measures to curtail expansion plans.

As per data collated by 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, as per data available with Grant Thornton.