startups

Companies cautious after WeWork, Uber hiccups – Economic Times


BENGALURU: WeWork’s IPO debacle and Uber’s below-par listing had a perceptible impact on overall sentiment in the startups space, injecting a note of caution after nine months of a funding deluge, according to a majority of India’s top technology investors and founders.

In a survey on The State of Startups conducted by The Economic Times, as many as 37% of the respondents said the Masayoshi Son-led SoftBank, a leading investor in WeWork and technology firms globally, had negatively affected India’s startup ecosystem over the past 4-5 years, ever since the Japanese group began plowing billions of dollars into the country’s emerging sector.

ET had asked a select group of around 80 investors, entrepreneurs and executives from across the startup ecosystem to respond to the emailed survey over the course of this month.

The perception change means the focus for 2020 will be on improving unit economics and driving sustainable growth, with 73% of the respondents saying aggressive discount-led growth will take a backseat. Still, there has been no let-up in entrepreneurs wanting to start a business.

In fact, more than 42% of the respondents said the current environment was highly conducive to build a company in India. The survey revealed that consumer internet, food delivery and financial services would remain the most hotly contested categories. Respondents also said the sector would see consolidation next year.

GOING SOFT

On the world’s largest tech investor, SoftBank, 35% said its impact had been mixed, even as 26% considered it had made a positive rub-off on private markets in the country. About a third of these respondents blamed investors for a lack of profitable business models in India.

Untitled-3

Founders, Investors Bullish

In an interview to ET on December 24, Rajeev Misra, the CEO of SoftBank Vision Fund (SVF) said the fund will recalibrate its strategy to focus on mid-stage growth companies that have a positive top line and as valuations of tech startups have already started readjusting.

Misra said SVF would likely announce a first close of around $30 billion for its second fund by the first quarter of next year, a considerably smaller amount compared to its maiden corpus of $100 billion.

It would become cautious about companies with negative unit economics and would adopt a granular approach in their selection and diligence, he said.This followed its once prized portfolio firm, office space sharing platform WeWork, shelving its IPO plan earlier this year.

Even as SoftBank steps back, founders and investors remain bullish on garnering the interest of a more diversified set of backers across stages. More than 70% of the respondents in the survey indicated that Chinese and US strategic firms and businesses, as well as other new investors, would back late-stage companies.

“One of the biggest evolutions I see is the transition of focus from vanity metrics to real revenues, unit economics and lean operating costs,” said Kunal Bahl, cofounder and CEO of ecommerce player Snapdeal.

CONSOLIDATION PLAY

The survey also revealed that consolidation was on the anvil, with as many as 75% of the respondents saying it would likely start next year. A few also highlighted that mergers and acquisitions would primarily be investor-led.

“We have just been through one of the longest expansion cycles in our history, and currently all economic indicators do point to a slowdown of growth. In such an environment, investors will gravitate more towards a few market leaders, and therefore, there is likely to be some level of consolidation in certain sectors,” said Alok Goyal, partner, Stellaris Venture Partners.

MORE IPOS

One respondent said on the condition of anonymity that “in 2020, it will be about chasing metrics which the public markets reward — revenue and net profit.” Another founder said that this would, in turn, lead to downsizing of workforce across sectors. Ola, Paytm, Zomato and Oyo have all cut staff in the past few months.

“The Indian technology startup ecosystem needs more IPOs as limited partners or sponsors in funds treat the public market as a consistent and predictable benchmark. They are now asking Indian investors — where are the exits?” said Shekhar Kirani, partner at early-stage venture fund Accel.

Freshworks, a company that provides customer service software and automation tools for businesses, is ranked the most likely to hit the public markets, according to the survey. Kirani is both an investor and board member in Freshworks.





READ SOURCE

Leave a Reply

This website uses cookies. By continuing to use this site, you accept our use of cookies.