It is raining money, at times from the most unlikely quarters, for India’s consumer internet bellwethers. For instance, take Berkshire Hathaway. Otherwise known to take long-term bets in hugely profitable companies, it recently invested in Paytm, which posted a loss of about Rs 900 crore on revenue of Rs 829 crore in FY17. The moat here, it is said, was Paytm’s scale—1.3 billion transactions in the June quarter.
At a time when startups such as Oyo, Byju’s, Swiggy, Zomato and Ola are gearing up for their next fund raise, investors have turned euphoric about Indian ventures after a protracted lull of about two years. Till 2015, a bunch of them led by Tiger Global Management flushed homegrown startups with unprecedented funds. A valuation bubble ensued and subsequently burst, leaving several companies in a quandary.
It seems big money is now chasing the biggest startups, which also hints at the fact that sectoral winners are gradually emerging in India. The likes of SoftBank, Alibaba, Tencent, Naspers and Berkshire Hathaway are rolling out the red carpet for potential winners, largely based on their user base and frequency of transactions, although they continue to bleed.
Take for instance foodtech startups, which were the major beneficiaries of the funding boom and the worst hit by the bust. Swiggy, the leader in the segment, is a product of those halcyon days, but survived. The food delivery segment has turned out to be a land grab between Swiggy and Zomato, who are spending about $15-20 million a month to wrest market share. The same holds good for Byju’s, which launched its flagship mobile app about three years ago and became a breakout success among online education startups. Oyo is the biggest online hotel aggregator; its nearest competitors are Treebo and Fab Hotels.
Sectoral winners are gradually emerging in India
Similarly, Paytm, the most valuable homegrown consumer internet startup (after Flipkart was acquired by Walmart), once jostled with the likes of Freecharge, Mobikwik and Oxigen. It is the biggest in its segment with Flipkart’s PhonePe, a relatively new entrant, being a formidable competitor.
The sectoral bellwethers continue to bleed to incentivise consumers, but it is unlikely that an upstart will dethrone them. Most challengers have been weeded out and in most cases, it is a dual or at best, a tripartite race.
Where does it leave the smaller rivals? “New startups in areas where there are established players may struggle to raise funds. Another online marketplace or food delivery company is unlikely to strike a chord with investors. But there are new avenues; for instance vernacular content or consumer products, which will attract investors,” says a venture capital executive. “Because well-funded startups undercutting smaller companies to gain market share is a given.”
Sreedhar Prasad, partner and head, consumer markets and internet business-advisory, at KPMG India, says there is ample scope for multiple businesses to coexist. However, some smaller companies may struggle to scale beyond a point. “This isn’t a situation where there is no room for growth because consumers in India are not loyal. The idea is to differentiate. There has to be a clear differentiation in two things—value proposition and customer experience,” says Prasad.
Time will tell if the Davids will slay the Goliaths. For now, the battle is on.
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(This story appears in the 28 September, 2018 issue of Forbes India. To visit our Archives, click here.)