Industry POV

“2016 the year of Start-Downs” - Anish Behera

11/2/2016

Its seems 2016 will be a year of start-ups going down. Was waiting for the end of this month to write this piece, but I guess the way start-ups are going bust, it merits talking about it sooner.

Look around, everything is either in a state of ecstasy or in ruins.

Slowdown in automotive industry, realty hitting a speed breaker, the over all debate on the actual GDP slow down and now JP Morgan cutting India GDP forecast by .2%. In the nub of all this, is a world of start-ups that thrives in a promiscuous world of tomorrows.

Flipkart’s $16 billion valuation places it ahead of listed giants such as Indian Oil Corp. Ltd, Tata Motors Ltd and Mahindra and Mahindra Ltd. Snapdeal’s $5 billion valuation exceeds that of Yes Bank Ltd, Titan Co. Ltd, Vedanta Ltd and Tata Steel Ltd.

I see myself in wonderment when I read articles on the valuations of most B2C start-ups that are either delivering or processing request for food, grocery, clothing, shoes, books, cabs, plumber, mobile wallets, coupons, autos, janitors, pet care, nanny's, deliveries/pick-up's, medicine, hobby classes, at home chefs, travel, ticketing and whatever is the next human basics desire that needs automation.

Valuation is one thing I confess I don't understand. In my mind, I see this happening - There is this monkey (money with a K in it, so let's just call him Mr.K) in the room that takes out folded chits from a glass bowl full of random numbers, often in couple of million $, in a room full of men and women wearing Armani. Mr.K hands over the chit to them and then people look at each other and argue till Mr.K hands out a random chit with a number they all agree on OR maybe this also happens. (you could click on "happens"; Mr.K told me to tell you so)

Funding that follows post this valuation is even more interesting. Mr.K say these Armani suited individual and firms then do a certain tribal dance, soon it rains money in sporadic series.

Agree there are a few handful of start-ups that have done brilliant, but they are yet to show the moolah flowing in for their investors.

Profitability as a conversation is something Mr.K doesn't indulge in and runs away into a tree eyeballing me of my stupidity of even ask about such a thing.

The start-up ecosystem house of cards is listening to winds of change as of now.

In the past few months, we have start-ups going from ecstasy to ruins, overnight.

I suppose, Tiny Owl broke the glass and then came the promiscuous world of tomorrows tumbling down.

TinyOwl raised Rs100 crore in Series B from Sequoia sometime this week last year and we all know how abominably it went down.

Then came the article on Food Panda by Mint and that exposed the company's guise. Soon a company that was worthy to raise $300 million some months back, now wont find buyers for $10 million.

I had the opportunity to engage in a conversation with Mr.Rohit Chadda (Co-founder and MD Food Panda) over company vendor alignment issues and I was startled by him responding to my email after a whole one month, saying he didn't revert earlier as he couldn't see this particular inbox!! How many official inbox's do you have, buddy?

Some hours back came the precipitous news of Zo Rooms. Budget hotel room aggregator Zo Rooms seems to have shut down its website and its mobile app, while functional, doesn't allow you book hotels, indicating that the Oyo Rooms-Zo Rooms is likely done. This was first spotted by NextBigWhat which states that Zo Rooms has been inaccessible for the past 24 hours.

Yesterday, over a few drinks, I ask my friend about Localbanya (a start-up much like BigBasket, but way earlier) he use to passionately talk about, he just shrugged his shoulder, on inquiring today online, I found this.

Why is this happening and what can we learn from this? This is a result of many variables but a few constants. I believe the two constant identified here, is at the behest of understanding how we function. (human behaviour)

1.HM Syndrome: Herd Mentality Syndrome.
If he can do it, so can I.
Quick one: do you have someone in your circle of friends or acquaintance you know who is in a start-up OR owns one OR post the second peg, passionately talks of an idea they know for sure is start-up worthy and just needs the right VC?

My point exactly.

This is a tricky one, so please bear with me, Mr.K (remember the monkey) constantly keeps poking me as I write this piece.

My office is in DLF Cyber City, whoever works here or has been here, must have seen the mindless black, green and yellow autos zoom by.

Here is what happened. Couple of years ago, the roads to this place were chocked (still is, but not as bad) and the inside 1.5 kms or so was made one way.

At the end/start, depending which way you enter this place from, is a metro station, and most people use it, since the car parking cost and parking space here is like a first world problem.

The shared auto (shared by 10) charges 10 bucks to drop/pick anyone to/from the metro station and a private auto would take 60 bucks. I did the maths on the nos. of trip these auto guys make both ways, and the frequency and the no. of auto. There were passengers then who would have to wait. My maths (conservative) said this 1.5 Kms stretch is worth over INR 3 Lacs a day, in 20 working days a month its over INR 60 Lacs, in a year INR 7.2 Crs. Now that's a lot of money, and tax free.

So in a few months, we saw this 1.5 Kms stretch being bullied by mushrooming shared and private autos, then came a start-up who would/is running a bus shuttle service and Uber. Soon came the time when autos had to wait and not the passengers. Also, the private rapid metro was built and then the auto prices came down too.

Point is, just like this human behavior among autowala, spotting an opportunity and from a hand full of auto guys, there were so many that soon the law of averages came in and many other factors played up for the business not to be profitable as before, they became humble, mannered and aligned to loyal customers for repeats. It all cooled down, well actually the intrinsic value played up.

We all humans behave the same way at a micro and macro level.

There were a few airlines at one point of time, then low cost airline became a thing. Suddenly from being the most promising business, it became a struggling business. KFA went bankrupt.

Radio Cabs were few, then suddenly there were many and then consolidation and buy out eased off the sector.

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