After WeWork debacle, founders forced to chase profit, not just funds
The depleting market value of global startups has raised alarm bells about loss-making ventures and their business models. The focus, therefore, is growth with profitability, said founders and investors who attended The Economic Times Awards for C...
“Given the overall investment scenario, building a healthy and sustainable business while continuing to grow is the core focus for both founders and investors,” said Sujeet Kumar, cofounder of Udaan, a Bengaluru-based business-to-business ecommerce startup valued at more than $3 billion.
“Chasing growth without strong underlying fundamentals won’t lead to long-term value creation and that sentiment is something that the ecosystem is cognizant of,” Kumar, whose company raised the largest sum of capital when it closed a $585 million financing round in October, said.
The conversation change comes amid an Initial Public Offering debacle at office sharing startup We-Work, which is backed by Japan’s SoftBank, and Uber Inc’s underperformance after it tapped the public markets earlier this year.
The depleting market value of these companies – for long the flag bearers of the startup technology ecosystem globally – has raised alarm bells about loss-making startups and their business models.
SoftBank, one of the largest backers of private technology companies, has also asked portfolio companies, including the ones in India, to aim to turn in profits and stop chasing growth for the sake of growth. In India, specifically, it has been a long time coming, what with venture-backed companies continuing to clock massive losses, even at scale.
“Times are a little tough, but companies that have a sound business model which are not dependent on VC funding – especially the tech ones – will do well. Those that are dependent on capital, may find it a little difficult,” said Harsh Jain, cofounder of Dream 11, a fantasy gaming platform that is valued at over $1 billion.
Hari Menon, CEO of BigBasket echoed the sentiment, saying a correction was overdue for companies in the startup space.
“In terms of the larger ecosystem, there will be correction across the board for startups. It won’t be a downturn, but the overall push from VCs and startups will be on being profitable,” he said.
Usually, funding and the corresponding crunch come in cycles, and typically, these cycles take a few years to run their course. However, a new trend seems to be emerging, he said.
“Cycles are also getting compressed – earlier it used to be 15 years, shortened to five, and currently, we are seeing three years. But, I have a feeling it might contract further,” Menon said.
Since he had seen such cycles early enough, it had helped in putting together a strategy to build BigBasket, he added “This year, we experimented with various projects. Next year is going to be about consolidation and reaping the benefits of these experiments. We have big announcements planned for the first half of 2020,” he said.
The move towards profitability has already begun in some larger Indian companies. Homegrown ride-hailing company Ola has started the process of reducing overall staff strength by 5-8%, which is expected to impact about 350 jobs, ET reported last week.
Paytm chief Vijay Shekar Sharma, too, has claimed that some of his older businesses, including payments and commerce are turning profitable.
In the food delivery space, Zomato has cut its cash burn by as much as 50% to $20 million a month, amid a tightening funds environment.