What does the outlook for Indian startups seem like in 2015?
The
Startup Outlook: 'Billion has Become the New Hundred Million'
By K Ganesh
I always say that a startup needs lots of luck when it comes to securing funding. Each time a startup needs funding, the external funding environment and investor confidence is more important than how the company is doing... it is like you are underwater and you come up to take a breath.
The year 2013, especially the second half, was the worst of times. Things slowly changed in 2014 and ended with everyone scared of using the B word — Bubble!
The year saw a huge amount of funding even to companies with little revenues as long as they were in the mobile or e-commerce or, even better, both mobile and e-commerce markets.
By K Ganesh
I always say that a startup needs lots of luck when it comes to securing funding. Each time a startup needs funding, the external funding environment and investor confidence is more important than how the company is doing... it is like you are underwater and you come up to take a breath.
The year 2013, especially the second half, was the worst of times. Things slowly changed in 2014 and ended with everyone scared of using the B word — Bubble!
The year saw a huge amount of funding even to companies with little revenues as long as they were in the mobile or e-commerce or, even better, both mobile and e-commerce markets.
We
also saw crazy valuations — higher than for some US startups.
Hortonworks, which filed for an IPO in the US, is a leading big data
company and is valuing itself at $500 million, a comedown from its
previous private valuation of $1 billion. In India, on the other
hand, billion has become the new hundred million. Pity TutorVista and
Redbus, which sold for only $200 million and $100 million or so.
That's the kind of funding Indian startups are now getting!
What is also clear is that India is not China. We have a long way to go. Many great billion dollar companies will be built in India. But it will take longer than what it took in China.
The Boom and the Bubble
The year was also a tipping point in ecommerce. It is now clear even to the worst sceptics that e-commerce is here to stay, is huge and will keep growing. Flipkart, Amazon and Snapdeal have grown like crazy and will continue to grow. The question is whether they will ever be profitable and what they will do when the money runs out.
Everyone understands why e-commerce is necessary in India: organised commerce is still very small and the ROI just doesn't work given high rentals/real estate costs. Like wireless instead of copper landlines, we are leapfrogging organised retail and directly going to e-commerce. Customers from small towns can get everything they need from the internet and don't need malls or branded stores. This is obviously more efficient. So far most of the funding has gone to the leaders in each sector such as Flipkart and Snapdeal in e-commerce.
The surge in funding is having a ripple effect. Talent, advertising and office space have become more expensive. Well-funded companies are spending freely and it has become increasingly tough for smaller startups to hire people. This isn't very good for the ecosystem. I feel it is always better to start a company in a downturn than in a bubble. The flow of hot money won't last... no one knows when the bubble will burst. The recent collapse in crude prices already indicates a global recession. Hot money will vanish and in reaction, VCs will freeze — even though that is the right time for them to invest.
If you have cash, don't believe the hype, it won't last. Act always as if this is the last funding round... remember 2008 or the dotcom crash? If you haven't raised money, hurry up and do so...grow fast NOW and raise money soon.
(The writer is co-founder of TutorVista and an angel investor)
What is also clear is that India is not China. We have a long way to go. Many great billion dollar companies will be built in India. But it will take longer than what it took in China.
The Boom and the Bubble
The year was also a tipping point in ecommerce. It is now clear even to the worst sceptics that e-commerce is here to stay, is huge and will keep growing. Flipkart, Amazon and Snapdeal have grown like crazy and will continue to grow. The question is whether they will ever be profitable and what they will do when the money runs out.
Everyone understands why e-commerce is necessary in India: organised commerce is still very small and the ROI just doesn't work given high rentals/real estate costs. Like wireless instead of copper landlines, we are leapfrogging organised retail and directly going to e-commerce. Customers from small towns can get everything they need from the internet and don't need malls or branded stores. This is obviously more efficient. So far most of the funding has gone to the leaders in each sector such as Flipkart and Snapdeal in e-commerce.
The surge in funding is having a ripple effect. Talent, advertising and office space have become more expensive. Well-funded companies are spending freely and it has become increasingly tough for smaller startups to hire people. This isn't very good for the ecosystem. I feel it is always better to start a company in a downturn than in a bubble. The flow of hot money won't last... no one knows when the bubble will burst. The recent collapse in crude prices already indicates a global recession. Hot money will vanish and in reaction, VCs will freeze — even though that is the right time for them to invest.
If you have cash, don't believe the hype, it won't last. Act always as if this is the last funding round... remember 2008 or the dotcom crash? If you haven't raised money, hurry up and do so...grow fast NOW and raise money soon.
(The writer is co-founder of TutorVista and an angel investor)
The
PE Perspective: 'India Can be a Lone Bright Star'
By Ashish Dhawan
We entered 2014 after a difficult year. Investments had dried up as people turned cautious. In the private equity (PE) space, there were very few exits. Global funds were cautious. They were disappointed as people in the PE business had oversold India to their bosses in London and New York.
The year 2014 saw a big shift. From a macro perspective, we today have a truly independent and credible central banker who can easily figure amongst the top two or three central bankers in the world. The reforms-friendly government, focused on business, too has brought in a lot of comfort.
The big global bosses in the PE world are putting the spotlight back on emerging markets. There is a sudden enthusiasm. India looks good, in fact very attractive from a distance.
It takes a bit of time for things to turn around but one can already feel the change. People are gearing up to do a lot more deals. There are 5-10 bidders for every deal. Investors are fairly comfortable doing large deals. Global funds seem to be back. In 2015-16, more dollars will follow. Those PE executives spending time on the beaches (as business was slow) are back in their offices, busy in their work, trying to create deal flow.
Excited about Exits
In 2014, many funds started to get excited about exits. Every PE guy has got three to four companies lined up for exits and is looking at secondary sales and IPOs. I expect deal activity to pick up. . Secondary assets will also become available. In fact, deals done in 2013-14 have already been marked up 1.5 or two times. This is the moment PE guys have been waiting for.
Investing in 2014 was like whetting the appetite. Going forward, exits will go up dramatically. LPs [limited partners] are flush with funds. While the US — which is looking good — is getting their attention, amongst emerging markets, they are looking at India favourably. The macro-economic situation in Brazil does not look good, as reforms have stalled. Russia has gone to the dog house. China is doing okay and the Alibaba IPO has showed investors the potential. But investors fear that they are overexposed in that market. Most are looking for an alternative to China.
We just had Masayoshi Son of SoftBank cIf this government gets things right, we can be a lone bright star.
I see some strategic shifts though. The public market strategy of PEs has done well. LPs are beginning to say: "I am going to dabble between private and public." PEs too will ask for that flexibility.
For multiple reasons, I think 2015 will be an important year. The men will get separated from the boys. It will be clear what real returns on older funds are. And, of course, new investments will ratchet up. Even though the macro looks great, valuations will be somewhat rich. PE players will have to act judiciously. This is not a repeat of the golden era of 2002-2007.
(The writer is co-founder of ChrysCapital)
By Ashish Dhawan
We entered 2014 after a difficult year. Investments had dried up as people turned cautious. In the private equity (PE) space, there were very few exits. Global funds were cautious. They were disappointed as people in the PE business had oversold India to their bosses in London and New York.
The year 2014 saw a big shift. From a macro perspective, we today have a truly independent and credible central banker who can easily figure amongst the top two or three central bankers in the world. The reforms-friendly government, focused on business, too has brought in a lot of comfort.
The big global bosses in the PE world are putting the spotlight back on emerging markets. There is a sudden enthusiasm. India looks good, in fact very attractive from a distance.
It takes a bit of time for things to turn around but one can already feel the change. People are gearing up to do a lot more deals. There are 5-10 bidders for every deal. Investors are fairly comfortable doing large deals. Global funds seem to be back. In 2015-16, more dollars will follow. Those PE executives spending time on the beaches (as business was slow) are back in their offices, busy in their work, trying to create deal flow.
Excited about Exits
In 2014, many funds started to get excited about exits. Every PE guy has got three to four companies lined up for exits and is looking at secondary sales and IPOs. I expect deal activity to pick up. . Secondary assets will also become available. In fact, deals done in 2013-14 have already been marked up 1.5 or two times. This is the moment PE guys have been waiting for.
Investing in 2014 was like whetting the appetite. Going forward, exits will go up dramatically. LPs [limited partners] are flush with funds. While the US — which is looking good — is getting their attention, amongst emerging markets, they are looking at India favourably. The macro-economic situation in Brazil does not look good, as reforms have stalled. Russia has gone to the dog house. China is doing okay and the Alibaba IPO has showed investors the potential. But investors fear that they are overexposed in that market. Most are looking for an alternative to China.
We just had Masayoshi Son of SoftBank cIf this government gets things right, we can be a lone bright star.
I see some strategic shifts though. The public market strategy of PEs has done well. LPs are beginning to say: "I am going to dabble between private and public." PEs too will ask for that flexibility.
For multiple reasons, I think 2015 will be an important year. The men will get separated from the boys. It will be clear what real returns on older funds are. And, of course, new investments will ratchet up. Even though the macro looks great, valuations will be somewhat rich. PE players will have to act judiciously. This is not a repeat of the golden era of 2002-2007.
(The writer is co-founder of ChrysCapital)
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