Startups Brace Yourselves, Shakeout In Investments Expected

At a time when startups seem to be the buzzword for the investor fraternity with hordes of capital being pumped into innovative ideas, there arises a crucial question on sustainability of early stage ventures.

Will all startups succeed? Perhaps not. In what may seem to be the initial signs of an impending shakeout in the ecommerce sector, certain startups operating in this space are already facing the heat.

Bangalore-based food tech startup Dazo recently decided to wind up its operations and that too within one year of launching. It failed to keep pace with its competitors and was short of capital even after raising its first round of funding from Google India chief Rajan Anandan, Amazon’s country manager Amit Agarwal, Commonfloor founder Sumit Jain, TaxiForSure founder Aprameya Radhakrishna and former FreeCharge chief executive Alok Goel.

Similarly Talentpad and DocTree, which had raised money from investors had to wind up, in 2015, because their ideas could not build revenues. Several entrepreneurs even became open to acqui-hiring, where the business was acquired for the skill set of the engineers more than the business that they operated upon. Classic example was Flipkart's acquisition of Appiterate, an app testing platform, for an undisclosed sum. Doctor discovery and hospital management tech platform company, Practo, acquired Genii for their talent. Flipkart's subsidiary, Myntra, acquired mobile app design company Native5. The entrepreneurs of these companies cash in on a respectable salary that these funded companies provide for talent.

"Raising capital is not a problem. The challenge lies in building businesses and taking them to the next level,” says K Ganesh, founder of Growth Story. There is a growing list of early stage ventures which are currently facing challenges in terms of scalability as they battle with similar issues on how to get enough margins, how to be price competitive and how to keep customer acquisition costs low.

“Six months ago everyone was euphoric and now everyone is predicting a blip. It is not a slowdown in funding, but a correction in the ideas that will succeed and fail,” says K Ganesh if Growth Story. He added that it was sad to see that too much money went after businesses whose ideas were not tested; instead, entrepreneurs were asked to scale up fast. 

Echoing the same sentiment, ace angel investor and former Infosys Director Mohandas Pai in an earlier interview to BW Businessworld said: “Many startups will fail. But those that survive will make an impact on the Indian society.”

Bengaluru-based online restaurant SpoonJoy recently announced that it will be shutting down its operations in Delhi. However, it did not divulge reasons behind it. Online food ordering firm TinyOwl too hit the headlines earlier this month for retrenching over 110 people. Restaurant-discovery platform Zomato too has laid a part of its workforce. Although the exact number could not be ascertained, executives privy to the development say the number could go up to even 300 in the coming months.

Also, Zomato-backed Pickingo, a hyperlocal B2B logistics startup based in Guragon, too, seems to be focusing on consolidating its services by halting its hyperlocal logistics services for retailers and restaurants. "There is a shake out happening. But technology companies in the business to business segment will survive because they do not need much capital to survive," says Sharad Sharma, co-founder of iSpirit.

However, it is not about the online food tech companies alone. While this is definitely a sector that seems to have been affected the most, there are other sectors too which are starring at a similar story.  In fact, if this the current situation is any precursor of the to what lies ahead, certain startups operating in the country’s e-commerce space may well be in for a shakeup as their sales soar.

Real estate search portal Housing.com that had been mired in controversy a few months ago with the exit of its former chief executive Rahul Yadav, is once again back in news and that too not for the right reasons. It is slated to lay off 200 employees this month in a bid to tighten cost targets.

Going forward, mass layoffs may become a common phenomenon in the startup ecosystem where ventures are currently doling out huge remuneration and roping in executives from the corporate world. “The nature of the business in the startup space is such that on an average even if one out of 10 becomes a blockbuster, the purpose is served,” said Arvind Mathur, President at Private Equity and Venture Capital Association (IVCA).

However, the actual problem will be seen in how blue collar workers in India cope up with such lay-off news. Recently, when the news of layoffs at TinyOwl came by, massive agitation was faced by those laid off, who actually held co-founder Gaurav Choudhary hostage for over two days. This is just the beginning. Layoffs have never gone down well in India. Even in 2008, the following year after the boom period of 2007, news of startups had gripped several sectors across the country. Certainly the impact will be more on society than ever before.  But there will be several startups cropping up employing those displaced. It certainly will be easier for people between the ages of 18 and 28 to get jobs in startups; whether it will meet the requirements of a lifestyle and, a long career, is certainly to be questioned because only 10 per cent of the startups will survive.