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Start Up Ecosystem

  • IASbaba
  • June 29, 2022
  • 0
Economics
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Context: The startup ecosystem which has been in overdrive for the past few years — propelled by a combination of factors, but largely, by the era of cheap money — is now showing signs of weakness.

  • Built on a narrative — the combination of accelerated financial inclusion (bank accounts), ease of identification (Aadhaar) and connectivity (mobile phones) — it is ultimately a bet on the Indian consumer, and the economy

Current Status

  • Among the startups that have gone public in recent times, Paytm’s losses stood at Rs 2,396 crore in 2021-22, while for Zomato and PB Fintech (PolicyBazaar) losses were Rs 1,222 crore and Rs 832 crore respectively.
  • The seemingly inexhaustible source of cash that funds such losses is now being squeezed.

Reasons

  • During the heady days, many numbers, indicators of the size of the market or TAM (the total addressable market), were discussed about.
  • But in reality, for most of these startups, the market or even the potential market is just a fraction of this.
  • The reality is, there aren’t that many consumers with significant discretionary spending capacity, and those with the capacity aren’t increasing their spending as these companies would hope.
  • This seems to be the case across startups for a range for products/services.

Digital payment platforms

  • When it comes to consumers with considerable discretionary spending, the size of the market shrivels considerably
  • While these companies have seen an increase in the number of transacting customers, to what extent the overall customer base for these startups can expand further is constrained by the number of households in the cohort that has significant spending power.

Tighter financial conditions, a re-rating of the market, will impact both fundraising efforts and valuations. Some startups will survive this period. Many may not. And changes in the dynamics of private markets will also have a bearing on public markets.

Source: Indian Express

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