2016: When start-ups sought protection

2016 will go down as a tumultuous one for India’s new economy companies that utilise the reach of the Internet to conduct 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 experts saying the fundamentals of the market — growing Internet penetration, increasing per capita income and a strong economy — remained robust, yet companies riding on this wave were being punished.

This neglect from investors finally culminated when Sachin Bansal and Bhavish Aggarwal, poster boys for India’s start-up ecosystem, passed on the blame to foreign competition. To their dismay, the red carpet for foreign firms is not about to be rolled back, with China’s Alibaba planning to make an entry soon.

“Next year may see a resurgence of aggressive pricing and discounting. From the point of view of sustainability of business, of having a healthy consumer business ecosystem, you need a balanced approach,” said Devangshu Dutta, chief executive of Third Eyesight. “From a capital availability point of view and ability to spend point of view, Flipkart and Snapdeal will be at a bigger disadvantage.”

The year began with Prime Minister Narendra Modi’s big push for Startup India with announcements of a fund of funds, incubation centres and promoting local start-ups.

But as the year came to a close, demonetisation hit startups as business slowed across industries. One bright spot was digital payment companies such as Paytm, Freecharge and Mobikwik which benefitted immensely from the move, with users and transactions 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 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 day-to-day operations.

Going into 2017, it is to be seen if the confidence in India’s startup space returns. While angel investments have remained strong, transition to Series A and further rounds needs to pick up steam. Consolidation in sectors such as e-retail, grocery deliver and food tech could give investors more confidence to return.

The focus on scale will continue, however. “Venture capitalists today are looking at how quickly you can 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 six months they feel you have lost the game,” said KS Viswanathan, vice-president, industry initiatives, Nasscom.