What Causes Shake Ups In The Startup Sector

By:Vandita Jadeja 2017-04-21

The Indian startup sector has been one of the most exciting places to be in. Various startups have been consistently growing in terms of venture capital and technology. Recently, the sector has hit a rough patch and serious questions have been cropping up about the startup sector in the Country. After the arrest of the Stayzilla Co founder, many are questioning the system and the lack of protection for an entrepreneur, staff layoffs in Snapdeal has also led to an insecurity among the employees about their job. 

In the last five years, many entrepreneurs entered the startup sector, they left their cushioned jobs to start something new. Various startups catered to the everyday needs of individuals, ranging from shopping for clothes to groceries and booking an air ticket to finding a doctor. Huge investment poured from across the Globe with an estimated 97,000 crore invested in the startup sector. This is where the trouble comes in, with huge cash being available to the business, the companies burnt the same to increase their market share and to beat the competition. Even when the companies were making losses, they kept burning cash consistently. The huge expenses incurred to pay for the bonus of the employees or to lay out a new marketing strategy, were not thought across properly and led to an outflow which was more than estimated. In addition, the customer response did not match up to the expectations of the founders. This led to the increasing payables and the absence of adequate funds for the same.

The big companies started facing a cash crunch and the smaller ones had to shut down operations. The venture capitalists realized that the companies were unable to generate profits from their investments. With the investments, the companies tried our new ways of marketing and enter into non core areas or acquisitions. A lot of cash was burnt in the same and the right economic model could not be figured out. With a huge capital inflow, the founders started making mistakes, they took huge decisions without thinking about the consequences of the same. With the increasing losses, the venture capitalists did not show interest in another round of funding and there were no funds for the struggling company.

While Flipkart raised funds, Snapdeal is struggling to find money for the continuation of its operations. Both the companies are competing with the e-commerce giant, Amazon. Paytm is also looking eyeing at Alibaba for an expansion of the business. On the contrary, Stayzilla is struggling with its own issues. It is extremely important to understand that not all startups succeed, almost 70% of the ideas fail and do not turn into million dollar companies. A strong startup idea which was excellent at a certain point of time and received massive appreciation could fail. India is taking small steps and the investors should be aware of the same. Investors and the entrepreneurs should support one another and a few failures should not lead to skepticism towards the entire startup sector.

 

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