[carwatcher]

Reading this thread remind me of many parallels with the Film Industry.

Everyone looking for financers for their scripts.

Making mediocre movies but popularising them with huge marketing.

Who needs moral or preachy movies as long as it joins a 100-crore club.

Cut-throat competition.

Absolutely No job security, comforts etc. except with big studios.

The list can go on and on...

[AltoLXI]

The media and startup community is crying hoarse over how the "ecosystem" does not favour the entrepreneurship. If a startup fails and the owner fails to pay the dues, it is obvious that the lenders will hound him. After all the lenders are also in business and are not Government agencies to waive off the bad debt.

These startups raise millions in VC funding, blow away the money on insane salaries, upset the equilibrium and then when things don't fall in place, cry for help, blame the "ecosystem" as not supportive and that they need to be rescued.

[ShaileshHinge]

Snapdeal layed off a lot of people last month. Flipkart has been having its own up and down. Though both these may not categorize in the startup bucket anymore the whole scenario looks bad.

We get to hear only about a few ones like the tiny owl, foodpanda etc but then there might be many more dumping their staff without anyone knowing.

But i think its a calculated call taken by people who join these firms too. People going there know very well about the instability and lack of stability. So why make noise when the fears hit you ? they earn huge money to be able to sustain for a few months before finding a new job.

[arindambasu13]

Originally Posted by Samurai

T

The MO is very predictable. Create a company whose sole aim is to get lots of subscribers. With the right pitch, VCs will jump in...... Most of these are nothing but get-rich-quick schemes. At least they are not scamming the public.

I would tend to agree with some of your observations. I am PE/VC lawyer who works very closely with startups and I also head the startup practise at my firm, and therefore, am privy to a lot of incidents which are ordinarily invisible to the general public regarding the operations of startups. I also often or represent PE/VC funds who invest in them. To that extent, I get to see both sides of the startup coin.

A tiny percentage of these so- called startups (the name itself is fashionable now, every other person 'has a startup) actually live to see the light of day beyond the first few months, sometimes, the first few weeks. Sustainability is a huge challenge, what with such cut throat competition. The ones which do manage to survive rapidly run out of innovative ideas, services and products, simply because there are very few "new" services to provide which are not already being provided by another five startups!

But the one thing which everybody wants is VC funding- whether or not they actually need it, and even when there is a possibility of them self-sustaining through their own internal revenues. If you have not been funded by a VC, you're not successful- this seems to be the general mantra (with a few exceptions). And yes, we all know what happens when that funding does come in, especially when there are multiple rounds. Fat salaries are siphoned off in many cases, as are crazy levels of employee perks. Without wanting to generalise, it can be safely said that this is the story in many cases, and it is just a matter of time when the bubble bursts- in fact, in my view, this has already started in the past year or so. A case in point is the multiple rounds of mark-down in Flipkart's valuation, and this is just one of the many instances. I would watch this space with a lot of interest in the coming couple of years!

[arunphilip]

I've started reading this story on The Ken: https://the-ken.com/complete-story-g...pigeon-part-i/

It describes some of the murky shenanigans and changes of ownership that have been occurring at the delivery service provider GoJavas. (However, in my opinion, the writing is a bit incoherent, as it tries to lay out the events in a slightly dramatic manner instead of a straightforward narrative.)

A distressed, once promising business that most people knew of. A buyer that barely anyone had. And yet everyone took the information at face value. And ran with it.

Pigeon Express in talks to acquire GoJavas, the headline in the Mint said, dated 12 August 2016. To quote from the story:

And just as suddenly as the news of “advanced talks” had appeared, so did the news of the sale too. Only a few days later, on 17 August, most publications carried some form of this news: Pigeon Express Private Limited acquires QuickDel Logistics Private Limited. Anand Rai joins as managing director.

Except for one minor detail—Pigeon Express never acquired QuickDel Logistics or GoJavas.

Yes, you read that correctly. This is that story.

[ashis89]

Originally Posted by arindambasu13

A tiny percentage of these so- called startups (the name itself is fashionable now, every other person 'has a startup) actually live to see the light of day beyond the first few months, sometimes, the first few weeks. Sustainability is a huge challenge, what with such cut throat competition. The ones which do manage to survive rapidly run out of innovative ideas, services and products, simply because there are very few "new" services to provide which are not already being provided by another five startups!

But the one thing which everybody wants is VC funding- whether or not they actually need it, and even when there is a possibility of them self-sustaining through their own internal revenues. If you have not been funded by a VC, you're not successful- this seems to be the general mantra (with a few exceptions). And yes, we all know what happens when that funding does come in, especially when there are multiple rounds. Fat salaries are siphoned off in many cases, as are crazy levels of employee perks. Without wanting to generalise, it can be safely said that this is the story in many cases, and it is just a matter of time when the bubble bursts- in fact, in my view, this has already started in the past year or so. A case in point is the multiple rounds of mark-down in Flipkart's valuation, and this is just one of the many instances. I would watch this space with a lot of interest in the coming couple of years!

+1 to all that you mentioned.
I have been keenly observing this space for the past 3 years. As a B-school graduate, I have seen my batch mates join these startups. Some regretted the move while some haven't. I have also been using these app based service providers and e-tailers for past few years. My views will be from these above exposures.

When the e-tailers started their business (I believe they started the startup movement), the model was very good and looked sustainable. But with the ambition to grow, I feel they diversified a bit too soon. This impacted their service quality as they weren't ready to handle a business of a much larger scale and lacked expertise. Then came the VCs into the picture.

VC/PE funds and brought in the term called Gross Merchandise Value. This was one of the biggest mistakes IMO. With a mad rush to generate revenues, we saw Big Billion Days and similar. Print and digital media talked about the revenues each company was generating and how it impacted their "Valuation". Nobody worried about profits as long they got funding. Long story short, they spent Rs. "X" as discount to get Rs."Y" as revenue in their books. Here Y>X but Y didn't have any profit component.
The underlying assumption was that once they get customers onto their apps (through attractive and massive DISCOUNTs), they will remain loyal in future. They will start appreciating the convenience of the service provided and continue to buy product/service after discounts are gone. Second mistake.

We have been brought up in a way to understand the value of every rupee. We can travel 5 kms to buy vegetables at few rupees cheaper rather than having them delivered at our home. We enjoy the look and feel of the products we buy rather than seeing on the screen. We can switch brands if there are better offers elsewhere (especially in not-so-important commodities/services). It's the discounts which attract us in a big way. It matters little if the discount is borne by the OEM, the dealer or the intermediate seller (some start-up). And then we need good service as well. So, the companies have kept on burning money through discounts, discount coupons, referral plans, etc; while the average Indian buyer is happy with the cheap choices at disposal. Now that these companies are running out of cash to fund discounts, the consumer is starting to get uncomfortable (my friends feel Uber/Ola are getting "very expensive" now).

Somewhere in-between, while these companies were expanding their business, they needed to augment their infrastructure and resources. They thought of getting the best talent on-board so that they are innovative, efficient and maintain the spirit of the company. Since they were new companies and lacked market reputation, they offered bigger pay packages to attract talent. Slowly, it turned into a fight of ego, each one trying to out-do the other. They poached employees with huge salaries, bought huge office spaces, doled out incentives, bought expensive hardware and software solutions.
But since they aren't making profit, sustaining these expenses is becoming difficult now. Some of might have read about companies selling off office spaces and closing some of the offices. They are firing employees and reducing incentives/salaries. I know of a leading e-tailer company which is trying to "return" software solutions they bought and get some money back.

Like you mentioned, it's the funding and valuation which fueled this fire.
GMV -> Discounts -> Cash burn and perish.
I don't see any solution to this mess in the near term. Unless they move away from the pure discount model, lose a lot of customers (but not all), trim their operations and then stabilize. And yes, all this will lead to job losses at all the levels and impact supporting businesses like logistics, automobiles (2/3/4 wheelers), advertising and the likes.

Note: I have given examples of e-tailers but most of the above are valid for any startup. Most of them have followed the same strategy. These are my point of views only. Some of the perspectives of an "Indian" has been gathered from feedback from friends, family and strangers.

[V.Narayan]

Originally Posted by Samurai

The MO is very predictable. Create a company whose sole aim is to get lots of subscribers. With the right pitch, VCs will jump in with their hoard of cash, which the company will spend on poaching and employing people with right experience for a brief period of time, until either the company goes bust or gets bought by a greater fool.

Originally Posted by GTO

What worries me more is, most entrepreneurs these days seem to have one objective - FUNDING. Sign, whatever happened to building companies from the ground up with your own hard work & own money.

Mine is a brick & mortar business with a lot of hard core engineering and flight operations. We were approached by a PE fund from USA who wanted to invest. To say I was flattered is to put it mildly. They were bright highly educated folks who clearly understood balance sheets and XL spread sheets very well but none of them had ever built a business with their own hands or run a team of greater than 5 people. They could not understand that for us customer satisfaction, customer touch and weekly cash flows is what counts....not EBITDA, top line CAGR or a notional valuation. I had to tell them I prefer my 15% growth p.a. and a full head of hair rather than your 50% growth and no hair. One thing I learnt was that these guys operate under the pressure to invest $XX in a defined time. No wonder they look for short cuts of Gross Merchandise Value and millions of eyeballs etc. Needless to say we did not take their money.

Originally Posted by vinit.merchant

PS: Had T-bhp been a start up right now and in need of VC funding, but with the condition of the strict principles laid down (on membership registrations, advertising, etc), chances are none of the VC's would have put in their money. Such is the change in the business environment. All VC's look for is an exit in a couple of years with a 100% mark up minimum, long term sustainability being out of the window.

Bingo. Well said. T-BHP with its rules for quality would not fit the bill for the VC's.

Originally Posted by ashis89

VC/PE funds and brought in the term called Gross Merchandise Value. This was one of the biggest mistakes IMO. With a mad rush to generate revenues, we saw Big Billion Days and similar. Print and digital media talked about the revenues each company was generating and how it impacted their "Valuation". Nobody worried about profits as long they got funding. Long story short, they spent Rs. "X" as discount to get Rs."Y" as revenue in their books. Here Y>X but Y didn't have any profit component.
Like you mentioned, it's the funding and valuation which fueled this fire.
GMV -> Discounts -> Cash burn and perish.

We face this situation in one of our divisions in a B2B environment. The service we provide has only 5 suppliers for the continent. In 2014 one got invested into by a PE from Los Angles and went for market share at drop your pants prices much like Snapdeal or Flipkart. They were told to sell at just above variable cost. They got their market share and a profitable company was turned into a break-even case. They entered into long term cut throat price contracts with big powerful customers - I lost some of my clients. My PAT went from 10% to 2% and now the PE is demanding profits from its investee company!!! How do you make profits by killing price in a specialized B2B market with a very finite customer base. The investee company is up the creek without a paddle, engineering quality has suffered, clients are suing them for liquidated damages and I am stuck with a market that at least for another 2 years will think of the new low prices as normal. The PE managers play with some one else's money and are told to generate super normal returns in 5 years. It takes 15 to 20 years to build a real business. Their 5 year horizon is simply untenable from point of view of building a business. It may work only in artificially driving up valuations and selling.

[Chetan_Rao]

@V.Narayan:

I'm far from being a competent authority on running a business and this comment isn't meant as flattery, but it's very obvious that there aren't nearly enough people like you in charge of either businesses directly, or people funding them today.

Your last comment about people falling for short-term highs sacrificing long-term viability - not just for themselves but sometimes the entire segment they operate in - is just sheer common sense, but then you know what they say about common sense.

I could only wish more people had common sense businessmen making decisions and holding purse strings.

[Samurai]

Originally Posted by V.Narayan

They were bright highly educated folks who clearly understood balance sheets and XL spread sheets very well but none of them had ever built a business with their own hands or run a team of greater than 5 people. They could not understand that for us customer satisfaction, customer touch and weekly cash flows is what counts....not EBITDA, top line CAGR or a notional valuation. I had to tell them I prefer my 15% growth p.a. and a full head of hair rather than your 50% growth and no hair. One thing I learnt was that these guys operate under the pressure to invest $XX in a defined time. No wonder they look for short cuts of Gross Merchandise Value and millions of eyeballs etc. Needless to say we did not take their money.

Very well said... this is something that can be understood only by people who built companies from scratch and sustained it by revenues. I mean no offense to others who don't have that experience. But this one needs first hand experience, no amount of case studies will get you there. It is a collection of feelings that is impossible to put down on paper.

While some of us love to build something and keep it running, financiers (VCs, PE fund) generally have a very different agenda. They just want to grow the money for their investors. They won't stay and fight to make something work. Their capital will fly where they see maximum ROI. This is the reason we always keep away from finance companies.

Recently, I posted in our economics thread about how a super healthy company in my industry was bled to death by PE funds.

[Saanil]

Originally Posted by V.Narayan

Mine is a brick & mortar business with a lot of hard core engineering and flight operations.

This first line of yours caught my attention. I too believe in your theory - the people behind VC investing may be Harvard/Stanford Graduates but in my opinion, experience is something which can never be replicated. Businesses are not so simple that they can be analyzed in a spreadsheet. Somehow I feel running the numbers in an excel sheet gives a misplaced sense of confidence to the people who want to invest large sums of money. I understand that going through the numbers is an essential step but there are other non-quantifiable things about a business which only experienced people can understand.

I actually hate all start ups because of the media coverage they get. The usual narrative is - A guy doing a conventional job/studying in college getting an idea, starting his business, growing strongly in the first few months, raising money, building fancy offices, offering crazy pay packages to employees. I hate reading such stories. There was one start up I used to hate from the bottom of my heart - a website called Housing.com. Everyday there used to be articles about what the owner is saying/doing. I do not even know what is the state of that start up since articles on it have literally dried up.

[dark.knight]

Originally Posted by Saanil

I actually hate all start ups because of the media coverage they get. The usual narrative is - A guy doing a conventional job/studying in college getting an idea, starting his business, growing strongly in the first few months, raising money, building fancy offices, offering crazy pay packages to employees. I hate reading such stories. There was one start up I used to hate from the bottom of my heart - a website called Housing.com. Everyday there used to be articles about what the owner is saying/doing. I do not even know what is the state of that start up since articles on it have literally dried up.

The problem is that, "startups" are now associated with only, app-based, techy-techy stuff, heck we all know the origin of the word - people used it when they wanted to glorify their profession to describe their state of operations out of a dingy garage or a one-room cabin for the time being. I.T entrepreneur is an overused term now and startup has replaced it.

Here's my idea of being a VC (I know a few)- they most often look at the viability of the business from the start, they look into things like how essential would be the services of the startup, what can be charged for said services and how can profits work out over time. Sadly, they also fund heavily for lying (marketing) - it ain't cheap, advertising over radio, newspaper, internet etc. Some VC's get into real businesses (non-techy) i.e funding the importing of raw materials and goods, funding production of unique products etc but sadly I have to admit, I.T is where the focus is today, without the internet, marketing is non-existent today.

As someone who has gotten into entrepreneurship recently (I would consider calling it a startup as an insult as it is self-funded), I understand the tremendous pressure that comes with the responsibility, but I don't value an organization which simply focusses on making quick money and doesn't care one bit for what services it gives, I've seen many brainstorming sessions by people in bermudas and baniyans as to what the next great internet information wave would be that would make them into the next Bansals, here are a few ideas that have come up :

1) Group of 5-6 people jointly sample a meal in a restaurant and publish their opinions, contrasting or otherwise - revenue comes from restaurant advertising and collaborating with delivery apps *facepalm*

2) Housing portal (yes, one more) - all I've seen of them are lies, lies, and more lies, howsoever high the promises are of transparency and ethicality. The industry is tainted largely because the on-field brokers/agents spread disinformation via such sites.

3) Localised aggregator services like medical shops, doctors etc, problem is medical shops are happy with their on-field revenue and one should leave the doctor industry untouched by I.T, doctors are a hit-or-miss and no app can promise otherwise not to mention that this idea has NO revenue plan at all and even if it does good luck trying to get your 10% off the medical bill or patient fees.

Consciously, I've decided to keep far away from the disinformation technology in what I do, its become a joke for the modern age. Businesses were good in the growth age of Godrej, Piramals and specially Premji, whom I have tremendous respect towards, for being a man who doesn't crave publicity and attention and has just gone about his life in a simple manner, his son Rishad is the same. Contrast that with the "CEO's" of today who go one an expletive tirade to boast about their achievements in an office party (few may know who I'm talking about), businesses have fallen down a long, long way.

[Samurai]

This is a real startup. Of course, none of the VCs will come sniffing around.

http://www.thebetterindia.com/93516/...iry-karnataka/

[Dieseltuned]

Originally Posted by dark.knight

2) Housing portal (yes, one more) - all I've seen of them are lies, lies, and more lies, howsoever high the promises are of transparency and ethicality. The industry is tainted largely because the on-field brokers/agents spread disinformation via such sites.
.

Not to hijack this thread or deviate from topic, but the above point mentioned by dark.knight is 100% true and I have experienced it first hand. I have been house hunting recently and have come across tens of fake or incorrect information and most of the contacts you get from these home hunting portals are the same brokers who seat on the nukkad pan shop. So what value are these portals bringing in. Food for thought!

Regards
Dieseltuned

[rdst_1]

It's a shame that I find the word startup mostly associated with an IT based firm. Either it is a delivery service, an aggregation service or a 'post your ad service'.
Most, if not all, such startups are only based around services. I guess the issue crops up because most of our young college graduates get absorbed by IT companies and hence when they later turn entrepreneurs, all they can think of is an IT based service.
Secondly, I hate that these so called startups only worry about capturing the market share. I feel the reason behind it is, since they are usually just a medium between producer and buyer, all they ever worry about is revenue. They don't have to worry about production costs etc. and so they splurge by moving into fancy offices and providing huge salaries. I really hate it, that these businesses never worry about profitability from the get go. For them, the dream is only to capture a huge market share so as to get acquired by a bigger firm. This mentality might work in a few cases but for me, that isn't entrepreneurship.

I am in the process of setting up my farm. My aim is to come up with a blueprint of a model farm which uses latest technologies and provides reliable source of income for a farmer. I am more inclined towards indoor farming and since that means spending money on infrastructure I have been finding new ways from building fences to even building my farm buildings such that I can save money in every way possible. Also all my customer acquisition will be through direct contact and I hope I won't have to ever pay for online ads or such stuff. I am also hoping to provide jobs to my local people at respectable wages. For the next 5 or so years, I plan to learn and then set up processes that can be replicated and only after that would I even consider looking for VC money so as to accelerate my growth exponentially.
I personally believe that only when one is profitable and running a business with standard set of practices, should the VCs invest the money so that that business can scale up rapidly than stick with the slow organic growth it can accomplish on their own.

I have always loved how Kevin O Leary from Shark Tank is a disciplined investor and I hope other VCs can learn from him and not keep pouring money in evey next start-up just because of the fear of missing out.

[dark.knight]

Originally Posted by Dieseltuned

Not to hijack this thread or deviate from topic, but the above point mentioned by dark.knight is 100% true and I have experienced it first hand. I have been house hunting recently and have come across tens of fake or incorrect information and most of the contacts you get from these home hunting portals are the same brokers who seat on the nukkad pan shop. So what value are these portals bringing in. Food for thought!

The only way to ensure genuine deals is to have people within the company visit the site and verify, or at the least ask for owner identification alongwith a first-page xerox of the property document scanned and uploaded to the site, the former will be an expensive way to get things done in an industry where the revenue is only from advertisements from major builders, the latter would seem like invasion of privacy. Also while the housing website is justified in charging a nominal fee per ad (Rs.1000-Rs.3000/-) which when compared to the 1% commission of "agents" is a tiny drop, people will still prefer to go via the agent than have to see a faceless website. Coincidentally I've discussed this with people interested in a housing startup, I saw zero viability in it.

Originally Posted by rdst_1

I have always loved how Kevin O Leary from Shark Tank is a disciplined investor and I hope other VCs can learn from him and not keep pouring money in evey next start-up just because of the fear of missing out.

Kevin O Leary may have become like this now, when he's established and sitting on a 400 $ million stockpile, he had a good start to his money and with such resources it is easy to pick and choose and wait for high-income deals and squeeze for even higher gains. He also has safe investments which will give him the monthly returns - wine, which the whole of earth consumes specially in America and Europe, and maple syrup (investing in maple syrup in Canada is like investing in rice in India), both guaranteeing optimal returns.

I think every venture capitalist has his or her own story, own rationale and own motivation, I had a chance to invest in and fund (though a very low sum) a person I came to know from the alumni meet, it was again an e-commerce related business where the funding would be used to manufacture or source stock and then for marketing expenses etc, I gave it some thought and felt that this platform would be great outlet for my marketing skills but eventually opted out because we were two headstrong people and I didn't see it working, also the products were kind of "useless" decor/accessories if I may say so, just another money-making sca.. er business.

We need honest businesses today, more than ever, businesses that add value to this earth.. are eco-friendly and are manned by great people who don't just see money as their ultimate redemption. Growing up in a lower middle class household I saw the MBA degree as a money making scheme, I wont hesitate to admit I was greedy as heck as well.. I saw things only as black and white.. either there is money at any cost with maximum margins or the business is a loser, a few years of experience and real life schooling I've come to understand that the economy should function as an ecosystem, where checks and balances must exist, money must to spread across for it to come back to you, of course this too, will happen only when the business is well established.

In the end money IS important, but one needs to put some back into the business/society as well.