Manishree Bhattacharya

Funding slowdown in tech start-ups - a curse or a boon??

Blog Post created by Manishree Bhattacharya on Oct 12, 2016

Snippets from our start-up report to be unveiled in October at NASSCOM Product Conclave, Bangalore

 

Amidst the regular hue and cry around drying of funds, the spirit of start-up entrepreneurs remains undefeated. In this blog, we are going to understand 'WHY'.

 

The overall funding this year may have gone down by 20% to 30%, but does that mean our start-up ecosystem is in a state of turmoil? Absolutely not! Most industry thought leaders see this as a sign of maturing and rationalization. Last year's extravagant funding cannot be considered as a benchmark of steady growth of an ecosystem. In fact, the funding slow-down (or rationalization as I would like to say) that started by the end of 2015, has pumped up the maturity quotient of the entire ecosystem. Both investors and start-up founders have now become cautious on how and where the money is being spent. Business leaders would say - that is how it should be.

 

''One can't defy the basics of doing business. Quickly burning out cash, in the name of scaling, is not an ideal way. Innovation only comes when there is a shortage, and when people queue for funds. In such shortages - the right business model emerges, the right talent emerges, and adequate innovation pours in. So let the best ones get the best.''    - Investor Speak

 

Investors changing strategy to get more out of less

VCs are revising their strategy of investments. Some of the key strategies being deployed by investors this year as a means of better ROI and risk diversification are:

  • Small ticket size investments
  • B2B investments
  • Mixed portfolio of companies - including HealthTech, EduTech, and FinTech
  • Rise in angel investments
  • More focus on stronger unit economics, significant addressable markets, and long-term business model

 

"Ups and downs happen in every industry. India opportunity has not really shrunk. VCs are just readjusting their strategy. At the same time, angel and seed funding are going up. Better margins, and defensibility of businesses is the key focus of the year."   - Investor Speak

 

Innovation as a means of better utilization of funds

As of date, every tech start-up in India is trying to fortify its bastion. No one takes their businesses or investors for granted. Every tech start-up company is trying out innovative ways to run their businesses - taking cues from traditional principles of business management. Take eCommerce for example - the three big giants - Flipkart, Amazon, and Snapdeal, recently concluded their big billion sales. Following were the numbers reported by ET Now:

  • Flipkart: Sold 15.5 million
  • Amazon: Sold 15 million
  • Snapdeal: Sold 11 million

Whatever be the numbers, important it is to note how these companies immaculately delivered the big billion day sales, with their own unique positioning and strategy. While Flipkart's Co-Founders gave a personal touch by delivering some of the products themselves; Snapdeal promoted its brand 'Unboxed Zindagi' - the whole concept of giving wings to aspirations. Today's eCommerce business in India is so much more than 'deep discounts'. Companies are relying on big data analytics, personalization, augmented reality, and many other e-com technology enablers to gain competitive advantage. This is all happening because of the funding slow down. Focus is now shifting from GMV to profitability.

 

To conclude, we are still 3 months away from closing the calendar year, and I am hopeful that there are many funding activities enroute. As reported by Inc42, 13 start-ups raised USD 56 million worth funding just between 26th Sept 26, 2016 to 1st Oct, 2016. That is something, right?

 

For more details on funding and strategies, stay tuned for our start-up report to be launched at NPC, Bangalore in Oct 2016! Meanwhile, please share your comments on your take on the start-up ecosystem.

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