In recent times our country has seen a rapid increase in numbers of startups than ever. Youth of the nation, now willing to take risks instead of settling for a government job. But not all of them make it big enough to get familiarized.
But even those who have made it big failed to make a mark. Yes indeed, we are talking about startup giants of India like Flipkart, Ola, and Snapdeal, all of these are running at huge losses and still getting funded by investors. Read more to find out why.
Now as we know these are some of those Indian startups who made it big in the market. But you will be shocked to know that these are running in losses from a long time and still the investors are funding them with huge amounts. Now investor funds a startup as per its core value and the portion of stake which the owner is willing to sell.
A startup gets funded on the basis of its capability to build revenue in the upcoming days. And this revenue represents the amount of profit generated after taxation. So these investors evaluate these startups on the basis of the revenue it generates in future.
Now coming specifically on the companies:
So the first question an investor has in mind while putting his money at risk is:
Can this product really bring a change? Because when you start using things as a source of convenience it later becomes a habit.
Remember those times when our nation did not have Ola/Uber. We had to wait at the stops and wait in lines for bus, or had to ask for a rickshaw only to face rejections. But then these firms arrived in India and changed the whole scenario. Not only we can book a cab from our own place but these are convenient at odd hours too providing more safety and security. No more quarrels during bargaining and no more congestion. Long story short, they make you use these services for your benefit and make it your habit.
So the only vision which the investors have in mind while funding is, What if the whole population starts using this service? What if this facility could reach everyone?
Although this is the case only when you invest for the first time. So the question is why is there a Follow up funding?
The answer is quite simple. The funding is done when you expand your business in new locations, or when you still want to use cash to attract customers.
Now the CEO of Uber sees a lot of potential to make profits in India, so he invests by giving free cash for first sign-up and cashback when you recommend it to a friend.
Zomato’s operating losses and revenues for the last four years shows us the real problem with Indian startups.
As we can see revenue of this firm is increasing every year but the operating losses are also proportionately increasing. This accounts in net loss and the same question, that why is this firm getting funded?
For our answer we have to look in the broader view. Right now, Zomato is present in 23 countries with approximately 19 million visits monthly. This is what the investors focus on while funding these kind of startups. This startup is now providing its facilities in countries like USA and Australia. This sector is booming and there’s a lot of scope in this industry. In India Zomato provides unique services like restaurant search and consultancy for the restaurants. This attracts the investors to fund these kind of startups even if it suffers losses in the beginning because they deliver a promise.
The most famous Indian startup by far is also under huge losses in-spite of increasing its revenues to all-time highs. Attractive offers and those Big Billion days have costed this company the losses in-spite of increasing revenues. Flipkart delivers the products to its customers on huge discounts and even if the seller is not providing any offer, Flipkart gives it by ceasing its profits.
So this is the most complicated startup to examine but the principles remains exactly the same. This firm like others is trying to make purchasing online a habit in India. Right now Online Retailing contributes in only 1% of the entire retail sales. But the investors think of the times when like USA people will prefer buying online in India and Online Retailing will increase to 7-8%.
I’d like to remind you that revenues are not the only factors for funding, but value is.
Make my trip
Indians have a mentality to keep everything perfectly planned years before it happens. But we are still reluctant to use our credit/debit cards for online booking of hotels or managing a trip somewhere. We still prefer a local tour guide or travel agent. This is the prime reason why companies like Make My Trip or Yatra.com are facing losses in our country.
But with the coming generations this taboo of not using credit cards is decreasing and youth of our nation is availing the facilities provided by them. This is the reason why investors are willing to fund these startups. In fact, make my trip has been reducing its Losses in the past five years.
So the investors try to put their money on what brings them fortune in the future.
Therefore, an advice to future-entrepreneurs – Always try to make a profitable business but focus on the change which you can bring in the society.