The year 2016 was tough for startups and entrepreneurs. It just took 12 months for what was a norm in 2014 to 2015 to turn into tales or folklore. For the ones who were bootstrapped, the funding was tough to come by. For the ones that had funding, the investor expectations became difficult to match and manage. The customers were not easy to get, and once on-boarded, not easy to retain.
All the ventures, whether funded or bootstrapped, were stress-tested for their business models, unit economics, and the grit of the teams.
In the years 2014 and 2015, a lot of folks started up not because they wanted to be entrepreneurs, but because they were pulled into the game by its glamour. Everyone was getting funded. Almost everyone.
The Indian startup ecosystem became one of the most active ecosystems of the world. In the last quarter of 2015, things started falling apart. The funding winter set in. Many of the startups shut shop. Many of the founders went back to their day jobs. Some stayed back.
The ones who stayed back were either already funded or wanted to do it so bad that never wanted to turn back. They opted for the stress test — worked on to make the business models sustainable. They have tried to beat a dollar out of every penny.
The startups that will be now be vying for funding are the ones that have survived the winter and crossed the ‘valley of death’. Even if they haven’t been able to show spectacular growth of becoming profitable, they would have pivoted, experimented with multiple things, and learnt a lot. These are the very reasons the startups that get funded in the year 2017 will be in a different ball game altogether.
Let’s not get to what will happen in 2017 and just go back to 2014-2015 parties again. Besides the founders, the other important guests enjoying the party were the investors. During that time, the investors somehow showed very low immunity to FOMO (Fear Of Missing Out). Every one was high on just a couple of industry segments: e-commerce, hyperlocal, foodtech et al.
Everyone was focusing on growth and GMV — even when the companies they funded were bleeding by gallons a second. To be fair to the investors, FOMO is real and definitely a strategy that has been adopted even in the investment baking industry. Many have actually been successful at adopting this strategy.
This year, however, investors are not only lying low but also licking their wounds. I bet by now they would also have made better strategies regarding which battles to pick and which ones to leave.
Now combine the two sides of the story. The startups vying for funding are the ones who have much more mature business models than two years ago. The investors also have been sleeping for long and would definitely open up their war chests.
I have a strong feeling that the investments that will happen in 2017 will help launch or support companies that have long lasting impact.
I am not saying that we will be able to definitely create the Googles and Facebooks of the world (although I don’t even shy back from saying no to the possibility), but the companies that embark on a journey of scale and size fuelled by investments will be an entirely different ball game than the previous generation.