It is a tough phase for startups this year as investments have slowed down and the ones that got them are running low. Crude oil was at a low, equity markets were a no show and currencies depreciating have lead to an economic slowdown overall.
The going has been especially tough for startups which operate in the online to offline markets. Further penetration into the pan Indian base is yet to be achieved and a sort of stagnation has come over the current customer base.
In such a situation the unicorns (companies with a valuation of 1 billion dollars and above), face a crisis as their growth has slowed down and VC’s are holding on to their cash. Mergers and acquisitions are on a hold till this phase pans out. Now, unicorns that had created more hype than revenue are viewed with caution. All eyes have turned to what is termed as the “cockroach” of the industry. Not exotic and flying high, but quietly capable. These cockroaches were always there, but we just didn’t notice them, so blinded were we by the brilliance of the unicorns taking the market by storm in 2015.
Tim McSweeney, one of the directors at the merchant bank Restoration Partners so rightly puts it, “Everything is about resilience now, to weather the storm”. He adds that while a Unicorn is a only a mythical beast, a cockroach can survive a nuclear war. So, the focus has moved to startups that are here to stay; the ones that can survive the test of time.
Investors are becoming aware of the unsustainable business models of many of the unicorns whose growth was fuelled by investors’ money. Unicorns focussed only on scaling up the business to grab market share before looking at profitability. But, the slowdown has happened before they were prepared for it. Businesses like Twitter, and Birchbox have made layoffs to counter the slowdown. At home, Snapdeal has put 200 employees on notice. CEO’s have been let off and divisions wrapped up. In such a scenario, the cockroaches of the industry seem to save the day. They put their head down, kept expenses under check, and have grown steadily and slowly with a close eye on revenues and profits. Cockroaches seem to be a safer bet for investors who have learnt valuable lessons in the last couple of years.
Investors have already labelled this period as ‘the great reset”. It is time they were “out” with the unicorns and “in” with the cockroaches. These firms who have the “bunkering” approach to long term survival in uncertain market conditions seem less of a risk for investors. These are here to stay; to build up something permanent from scratch.