Last year ended on a rather wistful note, with an array of food-tech startups seeing the ugly side of their businesses. 2016 was led by the much talked about markdown of India’s unicorn Flipkart by Morgan Stanley. Every startup conference that I had attended over the last two months spoke about slowdown in funding and scepticism about a big downturn in this vulnerable ecosystem.
However, in an interview carried by The Economic Times, Sequoia Capital Managing Director Mohit Bhatnagar gave the industry the much needed hope that it needed. “We are aggressively looking for opportunities to invest because we feel 2016 will separate the men from the boys," Mohit told the business daily. On an optimistic note Mohit said 2016 will be of a "wonderful vintage" and a great year to make new investments in startups.
Mohit’s view came as a ray of sunshine for the industry, which agreed to the fact that this year was a good time to make new bets. However, they also said that startups with strong business models will only see the support of ace investors going forward.
The startup space had seen a flurry of investments over the last two years which made a lot of entrepreneurs ignore important metrics like unit economics, profitability and growth. A herd mentality that had crept in over the last few years will now see an exit and only the finest and strongest of entrepreneurs will survive.
In line with Mohit’s sentiments Pankaj Jain, Partner at 500 Startups said, “The euphoria of last year has died down and the skittishness of investors from the last few months also seems to have abated somewhat. There are great founders with strong experience building world class companies in India focusing on both, domestic and international markets. More and more international companies and startups are now entering the Indian market also, also showing that India is critical for growth.”
Time to buck up!
Investors and startups agreed to the fact that companies that had indulged in steep discounting and limitless cash burn, might now have to now sit back and rejig their business models. Food-tech startup Faasos flipped their business model last week, to lower costs and maintain growth.
“Investors are not investing the way it was happening a year back. The major concern is around burning of cash without real paid customer coming on board and with delay in further funding rounds, the businesses are made to work on profitability, basically better cash management,” Anil Joshi, Managing Partner of Unicorn India Ventures said.
Forrester Forecast Analyst, Satish Meena said, “The discount driven consumer acquisition model failed in 2015. So 2016 is going to be a year where good ideas combined with great business sense will be funded. This will also normalize the excess valuation of companies powered by the fear of missing out by investors.”
Availability of ancillary requirements at lower costs
Amid selective funding startups will now find it easier to recruit talent at believable pay packages. Sandeep Murthy, Partner at Lightbox Ventures said, “market down turn has distinct advantages such as lower costs of hiring and reduced marketing spend.
This allows early stage companies to focus their resources on building the consumer proposition and not burn excessive amounts of capital on customer acquisition. With that in mind we are in a downturn and it will be a great time for well capitalized companies to enhance their offerings and demonstrate leadership."
Prashant Sharma, founder of Shotpitch said, “2016 is going to be a year where startups with solid and proven fundamentals are going to have a tough time raising growth funding as well as seed/angel money. This makes picking that entrepreneur who has been ploughing away diligently in a corner with sound business principles and making them win as Sequoia outlined."