Bursting Bubbles

All that glitters is not gold. This age-old proverb seems to be an apt description of the startup ecosystem in India, where a host of early-stage ventures is increasingly feeling the heat.

After garnering increased investor interest over the past few months, a handful of ventures are finally staring at empty coffers, and investors are refusing to shell out the next round of funding. This means they can’t scale up to the next level. Result: extreme measures including shutting parts of their business and retrenchment to curtail their expansion plans. It was bound to come as most of these startups are copycats and have suspect business models trying to take a shot in the dark. BWBusinessworld was among the first to warn of the e-tailing bubble in its cover story in its issue dated 30 June. And significantly, the crash among the early startups is not restricted to food aggregators as some seem to believe. It is across all denominations.

Consider this: The startup sector has raised more than $5 billion in 2015 and has completed over 600 deals. But the irony is, of these, several ventures have already seen a change in their business models. Realty portal Housing.com is a classic case in point where the company has repeatedly rejigged its revenue model. TinyOwl, a food delivery app, has also decided to go slow on its expansion plans and has been in the news for laying off large numbers of its staff.

These are not the only ones. Although these are the firms which are still functional, but there are others who are shutting shop. These include Bangalore-based food tech startup Dazo and online recruitment platform Talentpad.

Now, what is noteworthy here is the fact that these are the same ventures who were earlier in news for raising capital. So, the real questions are: where have these entrepreneurs gone wrong? And why didn’t the investors see it coming? With hindsight it seems many of these startups did not have a clinching enough idea that could transform initial consumer interest into revenue flows. A bright idea must also serve a real need that is strong enough to make a customer go online and carry out a transaction. For many, the monetary leap did not happen. On the other hand, after the initial rounds of funding based on random numbers thrown in by fund managers, have realised that there is no point throwing pearls after swine. It is better to cut one’s losses and get out.

There has obviously been a huge mismatch problem: the idea promoters sold to investors and their execution in the real world. So, while money has flowed in freely across all sectors such as real estate, ad-tech, food delivery, hyper local grocery and logistics businesses, there is only a handful — the top two or three in each sector who have understood the consumer — who will ultimately survive.

The shakeout has started, and could spell massive layoffs and pain in the nascent digital economy.

(This story was published in BW | Businessworld Issue Dated 14-12-2015)