The year 2016 will go down in history as a tumultuous one for India's new economy companies that utilise the reach of the Internet to do business. The year started off on a low in terms of funding and valuations of start-ups, carrying over a sentiment of excessiveness from the previous six months.
It was a contrarian 12 months, with every expert under the sun saying that the fundamentals of the market — growing Internet penetration, increasing per capita income, a strong economy compared to a weak global market — remained extremely strong, yet companies riding on this wave were being punished.
This neglect from investors finally culminated when Sachin Bansal
and Bhavish Aggarwal, two of the biggest poster boys for India's start-up ecosystem, passed on the blame to foreign competition which came into the country with pockets full of cash. To their dismay, the red carpet treatment for foreign firms isn't going anywhere, with Chinese big-daddy Alibaba
planning to make an entry soon.
"My concern would be that 2017 may be a resurgence of aggressive pricing and discounting. It's great for advertising and the media, but from the point of view of the sustainability of business, from the point of view of having a healthy consumer business ecosystem, you need a balanced approach," said Devangshu Dutta, chief executive of Third Eyesight. "Just purely from a capital availability point of view and ability to spend point of view, Flipkart
and Snapdeal would be at a bigger disadvantage."
The year began with Prime Minister Narendra Modi's big push for Start-up India
with announcements of a fund of funds, incubation centres and promoting local start-ups
across the country. But as the year came to a close, Modi's move to scrap large value currency hit start-ups
as business slowed across industries.
However, one bright spot was digital payment companies such as Paytm, Freecharge
which benefitted immensely from the move, with their user bases and the number of transactions on their platform going up in instantly.
Growth in digital payments, considered the backbone of e-commerce
globally, could turbocharge the rest of India's Internet ecosystem. Experts have dubbed 2017 the year of FinTech in India, with the government's digital push helping grow and giving rise to secondary digital finance companies that deal in lending, helping consumers invest in capital markets and those that offer services to small businesses for handling the day-to-day running digitally.
Going into 2017, it is to be seen if the confidence in India's start-up space returns. While angel investments have remained strong, the transition to Series A and further rounds needs to pick up steam. Consolidation in sectors such as e-retail, grocery delivery and food tech could give investors more confidence to return.
The focus on the scale will continue, however. "VC's today are looking at how quickly can you add your first customer, your millionth customer and your 200 millionth customer. India is a volume game, if you do not get your 10 million customers in 6 months time they feel you have lost the game," said K S Viswanathan, vice president, Industry Initiatives, Nasscom.