After a brief lull, money is again beginning to pour into start-ups. There’s a sharp dichotomy now though. Big e-commerce players like Flipkart and Snapdeal have seen a dip in their valuations despite a slight uptick in recent weeks.
Neither is getting much new funding due to valuation issues. Luckily both have full treasuries. Despite a cash burn of over Rs. 100 crore a month, they won’t need too much new money for at least another six quarters.
Snapdeal has a new red box logo. Flipkart is getting its delivery logistics sorted out. Both are gearing up for bumper festival-week sales.
They might be disappointed. In 2015, e-commerce sites sold products worth $13 billion (Rs. 88,000 crore). In the first six months of 2016 (Jan-June), sales are down an average of 15 per cent. Will Diwali turn the tide?
In the United States meanwhile, big start-ups are booming. Despite giving up on the Chinese market by merging with local ride-hailing taxi firm Didi, Uber (which now has a 20 per cent stake in Didi) is valued at over $70 billion (Rs. 4.80 lakh crore).
The real action though is happening at the other end of the start-up spectrum. Small start-ups are mushrooming. Many are getting angel funding of between $100,000 and $2 million – small beer by the standards of the e-commerce Goliaths.
Angels like Ratan Tata are typically investing as little as $1,00,000 (Rs. 68 lakh) in tiny start-ups. Others like Mohandas Pai and Nandan Nilekani are putting in larger amounts.
Data analytics, artificial intelligence and logistical services are drawing large funding. Interestingly, listings – from domestic help to laundry services – are attracting significant investment.
Tata group head Cyrus Mistry is also focusing on digital plays. He announced recently on the Tata website: “Tata CLiQ, our e-commerce platform, is an omni- channel marketplace with curated products that deliver value to our customers. It is quite a unique positioning we have chosen. We also have Tata iQ, our big data play which effectively uses data analytics to connect the dots with respect to our many consumers so as to ensure we have a more holistic picture of their needs. And finally, with Tata Digital Health, we are creating a platform where we are experimenting with different business models to build the de facto platform for healthcare in India.”
There’s a cautionary tale though: India’s Silicon Valley, Bengaluru, has been hit by Cauvery-linked violence that has disrupted many start-ups. Big Basket reportedly lost several crores and has a huge delivery backlog. Clearly, the start-up ecosystem needs law and order to achieve peak efficiency.
While the big boys of e-commerce, draw big dollars, small entrepreneurs are creating their own Start-up 2.0 universe.
So if you have a great new idea, will the money-tap magically open? Not quite. VCs and angels (including individuals like Ratan Tata) fund on average just one out of every 10 business plans they receive.
What do they typically look for in a start-up entrepreneur?
One, a committed team.
Two, a scalable business model.
Three, a clear path to profitability.
Four, and most important, founders with passion for the product or service they’re offering.
So if you are an entrepreneur-in-waiting, what are the hottest sectors in today’s start-up ecosystem?
Machine intelligence; automation; data analytics; video-based content; healthcare; online education; last-mile logistics; home design.
The big verticals like fashion, real estate and travel are saturated though niches in jewellery, luxury, beauty and specialised localised services have potential.
But remember: if you don’t love what you’re doing, chances are your customers won’t either. So the key to successful entrepreneurship is passion.
I should know – I’ve been doing start-ups, some successful, some not – since I was 25.
Columnist
Minhaz Merchant is the biographer of Rajiv Gandhi and Aditya Birla and author of The New Clash of Civilizations (Rupa, 2014). He is founder of Sterling Newspapers Pvt. Ltd. which was acquired by the Indian Express group
