Business Lessons From The Indian Startup CRASH! Part-1

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Before we start talking about the “CRASH ”of the Indian Startup space, let’s start talking about why there was such a boom in the startup space and funding in the first place.

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So I have decided to break this article in two parts:

  1. Focused on the uprising of the India Startup space
  2. How the artificial bubble of unicorn startups “crashed”?

Origin of Indian Startup space Uprising!

This story begins on 18 August 2018, when Walmart purchased Flipkart for Rs 1.5 lakh Crore ($ 1.85M approx). This was very surprising and very important for us because Flipkart was and is still an unprofitable business.

In 2018, when it was purchased, it had reported losses of about Rs 2,063 crores ( $ 255M approx) and in 2017 the losses were around Rs. 245 Crores ($ 30 M approx). And when Walmart purchased Flipkart despite such huge losses, Flipkart investors made a huge profit. SoftBank Group sold 99.95% of its stake to Walmart which made them a profit of about INR 10K Crore( $ 1.2B approx). A similar thing happened for investors in the case of Myntra when Flipkart acquired Myntra.

From here on, the Indian startup space had a new “trend”.

Investors had a change of perspective, instead of profitability, they wanted to invest in “sellable” companies, that is to say companies that can later be acquired or bought by bigger companies, so that they can earn profit in the process. So, now instead of focusing on revenue and profit, investors focused more on DAU, MAU and GMV.

image made by author with Canva

Many investors were shocked by these changes because now startups were evaluated on factors like GMV, which basically means how many goods they sold, how much merchandise they have, MAU i.e Monthly active users and DAU i.e Daily active users, instead of focusing on profitability and revenue of the company.

For eg: Flipkart was evaluated not based on its losses but instead on how many users were buying from the app, how much merchandise it had etc.

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Despite all the confusion, the plus point was, this new way of “evaluation” helped a lot of startups to raise funds.

Startups now only started focused on how to increase their DAU, MAU and GMV values instead of their revenue. Following this plan startups got a lot of funding but the big problem was that most of those startups weren’t profitable and didn’t have a proper plan for their future revenue growth.

According to data analytics company, Tracxn shows that out of all the unicorn startups in India more than 70% are not profitable.

Of course, at the time this wasn’t an apparent problem because the startup was assumed to become profitable in the future, but we all know how that turned out, right? I mean that is the reason I am writing the article in the first place.

Well, now that we know the back story let’s actually get to the part where this “artificial bubble” of well-funded startups began to crash. I will continue that in a new article, so follow my profile to get updates on the new article.

That’s it for this article, I’ll see you guys next time in the next part of this blog.