Reality check

India has been the preferred business destination for startups for over a decade now. However, it has only been in the past couple of years that the country’s startup ecosystem has really come into its own. The industry has witnessed unprecedented growth over the last two years with a rapid mushrooming of next-gen startups cross categories such as e-commerce, foodtech, fintech, and logistics.

This growth has been driven by factors such as accelerated funding, a burgeoning domestic market and constant technological innovations. The ‘Make in India’ has also given the startup landscape a massive shot in the arm.

But behind this veneer of exponential growth, the harsh truth is that nearly 90 per cent of the startups fail to survive. So where are we going wrong?

The years 2014 and 2015 saw money pouring in easily through venture capital and private equity firms, resulting in unrealistic valuations for several online players, some of whom managed to cruise past the elusive billion-dollar valuation mark. But as these valuations were not based on any financial outcomes or intrinsic value appreciation, several e-commerce players have, in recent times, run into valuation speed bumps.

The VC community has noticed the trend, and, as a result, is now putting up tough questions on key business metrics, slowing the big ticket deal-making in this sector. This drop off in the inflow of funds has forced several startups to either shut shop or merge. The fact remains that a technology business is at the end of the day just like any other business, and an entrepreneur cannot ignore business fundamentals such as sales, expenses, profit and loss for too long.

The government’s ‘Make in India’ initiative has also unconsciously tilted the balance in the favour of innovating for the world rather than emphasising on creating conditions that encourage innovations for India’s own needs. Indian startups have been making efforts to replicate Silicon Valley and have even believed that long operational periods of heavy losses are justified because global leaders such as Google, Facebook, and Amazon have gone through it.

The underlying belief in the entrepreneurial community has been that even if money is lost on each customer, the volumes will more than make up for the loss.

This approach can’t be labelled as flawed but when it becomes the de facto model of how young founders look at their business, it yields a lot more failures.Instead of just copy-pasting innovative ideas, Indian entrepreneurs need to develop highly localised solutions that are relevant to the Indian consumer before they can take on ventures from the Silicon Valley in terms of size and scale.

‘Make in India’ has indeed made it easier for new generation businesses to build their business models and scenarios to satisfy investors. But this is also a game of winning over your customer and sustaining them in the long run. Only a paying customer can perfectly define the value of your business. Although Indian startups have realised this, they still have a long way to go before they can truly call themselves successful on a global level.

Only companies which are able to build value, solve real problems, create new business models and new industries, and run with a key focus on unit economics and data, will eventually be worth their unicorn valuations.

The writer is angel investor & CEO at Junglee Games

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