What 2015 means for Indian Startup & technology scene in 2016

Last year was a golden year for Indian startups. Venture Capitalists pumped in more than US$8.5 bn into companies and many hyper-funded startups scaled rapidly (or recklessly, depending on who you ask).

This year is when we wean the chaff from the wheat. The much anticipated winter, may be finally upon us. Companies demonstrating sustainability, better user understanding and capitalising on the network effect would manage valuation upticks.

However, companies which have got high valuations but have not been able to deliver due to either market specific or company specific traits will see down-rounds. This is the new normal.

Over the last few months, I’ve been closely tracking many companies, pulling up financial data and also understanding some of the markets where venture capital has made aggressive bets. Here’s what I think 2016 will look like.

Downward spiral of ad-tech

Woes of Indian ad-tech companies intensified through 2015 with the continued onslaught of owned and operated platforms (like Facebook) driving growth and take rates down. The industry flag bearer InMobi not only struggled to raise equity capital but also faced severe growth pressure. The expected valuation of US$2–3 b is down now to sub US$ 1b levels. Komli Media was forced to sell assets part by part at throwaway prices. It has sold its India and flagship SEA assets for around US$15–16m. For a company that raised nearly $100 mn in venture capital, this is nothing short of a fire sale. Adiquity was also sold off to Flipkart for a modest sum of US$12m. This year will continue to be painful for such companies.

Pre-ponderance of wallets

Alibaba’s backing of PayTM gave a big fillip to the payment wallet space. Snapdeal’s acquisition of Freecharge, Ola’s investment in ZipCash and Flipkart’s acquisition of FxMart were the notable transactions in this space. Banks have also gotten into the act promoting their own wallets aggressively. While economics of the wallet business is still suspect, I expect this battleground to heat-up further in 2016 as deep-pocketed players slug it out. Yay, more discounts coming your way!

Proliferation of hyper-local

Over one in two start-ups which emerged in 2015 had a significant hyper-local element to it. Not a single sub-sector (fashion/food/grocery among others) remained insulated from this onslaught of hyper-local mania. A few companies like Swiggy and Grofers seem to have managed to cross the cliff by differentiating themselves from the pack, the rest are going to struggle hard. Even among those well-funded, the key challenge of proving unit economics remains and 2016 could be the last stand on that front.

Urban transportation bandwagon rolls

Uber’s huge investment into India coupled with Ola’s big funding rounds rounds (latest valuation at US$5b) accelerated the Indian urban transportation revolution with the two flagship companies growing 10x through 2015 and now averaging over a million rides daily. Spill-over effects were seen in other modes of transport as well as auto aggregators like Jugnoo and bus aggregators like Shuttl attracted capital and gained some scale. Governmental push towards car-pooling, relaxation of regulations to allow bike-taxis in certain states and continuous innovation by Ola/Uber implies action is set to continue unabated in this space through 2016 as well.

Reality bites

Euphoria in the Indian start-up space made way to a sobering reality as a number of companies like TinyOwl, Foodpanda, LocalOye, Townrush, Spoonjoy, Housing among others were forced to pare workforce or shut down as the funding environment worsened. A number of companies managed to survive due to largesse of existing investors but with curtailed operations. This reality check has come across the start-up ecosystem spectrum and there seems unlikely to be any respite in 2016.

Source : medium.com