Amidst this slowdown what is the future of billion dollar startup investors?
The Slowdown in Indian startup system has already approached and everybody is concerned about the future of startups, which are in a cash crunch, and are finding it difficult to raise another round of funding. Companies are controlling their high cash burn rates to survive this winter chill and move towards sustainable business models.There is a common worry that Amidst this slowdown what is the future of billion dollar startup investors? what will happen to the big investors of these companies who have already invested billion of dollars in them. This worry arises from the fact that if these global investors fail then it will have a huge impact on the Indian startup ecosystem, which is still in its nascent stage. Nobody in the world doubts the consumption story of India but keeping it aside and exploiting it needs a robust and efficient business model as India has its own challenges like infrastructure, low internet penetration, less reliance on digital transactions etc. There is a tremendous value that these startups can add in the coming years, but they have to pass this market correction and prove their worth to the investors.
For the present investors there are two main exit routes to make money out of their investment. First is the Initial Public Offering (IPO) and second is another huge round of funding from financial investor. Both of them seem to be far right now and I will discuss the challenges with each of them in this article.
1- Initial Public Offering (IPO):
IPO is far easier said than done. The biggest challenge in raising IPO at this stage is determining the metrics for measurement of their success. Flipkart and Snapdeal are big enterprises now and their financial goals cannot be measured alone on Gross Merchandise Value (GMV= total market price*quantity). There have to be some results in the bottom line of the company in terms of operating profit or net profit otherwise it will be difficult to govern such high valuation in the stock market. People are themselves questioning the sustainability of marketplaces that are offering such deep discounts to acquire new customers. There are companies in food tech and hyperlocal space that are making losses on every order. For such business, it implies more the revenues more the losses.
Another major challenge with the IPO is the regulation and compliance that companies have to undergo. As of now founders are sitting in their comfortable offices and have gained the trust of their investors in managing the company. But this will not be the case when the company goes public. All the financial data has to be shared with public and relevant agencies for scrutiny. There will be tremendous pressure on the management to show profits and sometimes in this kind of pressure it is difficult to innovate and make a massive organizational change. IPO in itself is a very daunting and demanding task even Jack Ma has acknowledged this.
2- Looping big financial investor–
Present valuations of startups are already questionable and there is correction due, looking at the present investment crunch. At these huge valuations, these companies need a multi-billion-dollar investor, which will be found mainly in US and China. Lately, US investors have not shown much interest in funding at this peak of valuation and are bit cautious about the business models of startups, which is visible with a fewer number of deals happening in last two quarters. This will result in long wait for the present investors to get any exit from their investment. Chinese investors know that Indian e-commerce industry is in growing phase and soon it will be compared to that of China. In addition to this investor in China have deep pockets and recently they have placed some big bets in startups like Didi Kuaidi investment in Ola Cabs and similar deals are likely to follow.
There can be a long wait for present investors to get exit, but one thing is for sure that Indian startup and consumption story is very robust and has huge potential. The Unicorns (startups with the valuation of more than 1 Billion Dollar) are going to add a lot of value for customers and at the same time the investment crunch will help them on improvising their business process and move towards the more sustainable business model.