In
the last blog, I touched upon what it means for Flipkart when its founders are
not at driver’s seat. It would be interesting to see how this change of
leadership at Flipkart may shake-up other start-ups & the larger start-up
ecosystem in India.
Impact
on other start-up companies:
The
CEO level changes are not happening only at Flipkart but many other young
companies are
witnessing the same. The impact can come in following ways;
I.
Wake-up call for founders: The
message loud & clear for the founders of the VC-backed start-ups in India
is to show the results than promises. Founders
may increasingly face pressure from
investors to rework on their break-even estimation, to generate better
revenues, reducing the cost, put more stress on cost cutting & control,
rework on scale-up or expansion strategies etc. VCs may become more vigilant
about their investment in Indian start-ups and may take a look at current
valuation figure for their start-ups. If founders don’t want to see the
Flipkart story getting repeated at their own start-up, then they may have to
bring more professionalism, more focused approach towards achieving
profitability & maintaining it with decent rate of revenue growth.
II.
More professional hiring at top level: Since
founders may lack required experience to handle some of the business operations
and rising pressure from VCs after Flipkart incident, it may lead to more
hiring of professionals for top management positions to convince investors that
founders are ready to give up on some control for betterment of the firm.
III.
No easy availability of new capital: This may put a break on easy rounds of
fund raising, which was frenzy earlier. In the light of changes at Flipkart and
sudden heightened vigilance from VCs, many start-ups may find reluctant
investors to invest further equity and even if Investors are ready to invest in
next round it might be at marked down (lower) valuation. Due to this adverse
scenario playing out where suddenly investors are skeptical about further
investment in the start-ups unless the good results are shown, many small
start-ups (which has similar business model) who are surviving on the
investors’ money may get suffocated & eventually chocked to death.
Impact
on the start-up ecosystem in India:
Indian
start-up ecosystem may feel some shake-ups
and jolts after changes at
the market leader in e-commerce business. The impact may be visible in
following ways;
I.
loosing sheen in the Job markets: Push for cost
cutting may lead for lower recruitment requirement from start-ups.
Subsequently, the job market in India which has witnessed huge demand from start-ups
for last couple of years may dim significantly. Contribution from start-ups
towards new job creations may get hit due to pressure on cost reduction. Also
many start-ups
are already slashing existing jobs which
may add some trouble to the job market.
II.
Prolonged wait for start-ups to enter Indian IPO market: IPO market in USA is going hysterical on
announcement of Snap Inc.’s (maker of Snap chat App) IPO which is start-up. Initial figures are
showing it is valued between $19 Bil to $22 Bil. Indian IPO market &
investors can just be envy of this. Indian IPO market may not see in near
future entry of any big Indian start-ups heading for IPO route. Many
stake holders in Indian IPO market like merchant bankers, I-bankers, Legal
advisors, distributors, Brokerage houses, Retail & institutional investors
etc. who are expecting their business to zoom up due to start-ups entering into
IPO market, may have to pray for better financial health of Indian start-ups to
reach a stage where they can go for IPO. For many big Indian start-ups which
are daydreaming for IPO, the increased vigilance & tough demands from
investors (VCs) due to invisibility on sustainable profitability coupled with
scalable venture, the dream looks distant.
III.
Some rejig of Indian start-up ecosystem:
1.Shying
away from VCs & other tough investors: Having seen how Flipkart & other
stories are playing out at this juncture, founders of many new start-ups may
shy away from going to VCs for raising capital. But I believe this phenomenon
is temporary in nature, eventually if start-ups are lacking capital to fund
their expansion needs and if it has capabilities to convince VCs then it might
go ahead and take VC or other investors’ funding as we know in true sense there
are not much of venues (though theoretically there are many venues) where
star-ups can go and actually raise the capital.
2.Focus
may shift towards being differentiators rather than being ‘me too’ start-ups: For upcoming entrepreneurs who are
smart & observant will take a note of what is going around with Indian
start-ups. After witnessing the struggles of many existing start-ups to cross
break even after years, psychological shift may come to start a start-up which
is focused on differentiators (through innovation or by doing things
differently) which may have higher chances of break even than focusing on yet
another similar product/service –oriented start-up. Also pragmatic founders may
focus more on working out sustainable & profitable business model instead
of focusing on singular pieces of their business.
Apart from these aspects,
many more interesting and important aspects are there in the context with
Indian start-ups & ecosystem which are not covered here.
Note: VC/PE taking the control of the firm
is not
necessary bad signal always. If it can create win-win scenario for all
important stakeholders of the firm then sometimes it might be desirable!
