Post the Q3FY23 results, the management said it was constantly re-evaluating, optimising investments, taking a hard look at resource allocation across functions, shutting down non-performing markets and reassessing headcount. (File)
Karthik Reddy, co-founder and managing partner, Blume Ventures, told FE startups are course correcting. “Every start-up has got the memo in bold letters and is sincerely acting on it. Nervous investors mean no easy capital and reduced runways,” Reddy said.
Written by Tushar Goenka
February 20, 2023 05:45 IST
Weighed down by combined losses of Rs 1 trillion in the two years to March 2022, some of the country’s top startups have been forced to go off the beaten track of ‘splurge and grow’ and focus more on bottom line. An industry watcher sums it all up by saying the earlier empire building strategy is giving way to wealth creation.
Most of these startups were chasing growth and market share, either by wooing customers with discounts or acquiring companies. They were also hiring in big numbers.
Since then, the environment has become more challenging with investors becoming more circumspect on funding. Compared with the $41 billion raised in 2021, only $24 billion was raised by startups in 2022. By one estimate, the startups spend Rs 3 to earn Rs 1. Now, with investors a lot more focused on the bottom line as they look for exits, startups have been forced to tighten their belts and bring forward the timelines on profitability.
Karthik Reddy, co-founder and managing partner, Blume Ventures, told FE startups are course correcting. “Every start-up has got the memo in bold letters and is sincerely acting on it. Nervous investors mean no easy capital and reduced runways,” Reddy said.
As Byju’s founder Byju Raveendran had told FE, the many acquisitions were more a “one off” as the company sensed an opportunity and the team was not really prepared for the complexity of it all. In the current year, the company has been focusing on making growth sustainable and profitable by investing better.
Gaurav Munjal, co-founder, Unacademy, conceded that until some time ago, frugality had not been one of the company’s core values.
“Honestly, since we were focused on growth and had raised millions of dollars of capital, it wasn’t a priority. But now the goal has changed. We have to do an IPO in the next two years. And we have turned cash flow positive – for that, we must embrace frugality as a core value,” Munjal said.
The Zomato management, too, is talking more about profitability. Post the Q3FY23 results, the management said it was constantly re-evaluating, optimising investments, taking a hard look at resource allocation across functions, shutting down non-performing markets and reassessing headcount.
“Having a profitability mindset is the key. In the last year or so, investors have been far more focused on profitability and we are doing our best to deliver on those expectations,” the management said.
Vijay Shekhar Sharma, founder, Paytm, said recently the company had completed its clean-up in the last quarter and was focusing on profitable revenues that lead to predictable growth.
“So, we probably would have purged literally hundreds of merchants if they were not profitable or if they were not useful for us or generating some pain in the system,” Sharma told investors. He pointed out the company had become “Ebitda break even or Ebitda profitable”.
“A year ago we were negative 27% of revenue. Now we’re positive 2% of revenue,” Sharma said.
Sriharsha Majety, co-founder and CEO, Swiggy, told employees in an internal mail the company had advanced the timelines for profitability on food delivery and Instamart. “While our cash reserves allow us to be fundamentally well positioned to weather harsh circumstances, we cannot make this a crutch and must continue identifying efficiencies to secure our long term,” Majety wrote.
At VerSe Innovation, which operates Dailyhunt and Josh, the focus in the current year is on profitable growth across all parameters, including user growth and revenues. “Our cash burn has reduced by around 50% from last year, helped by reduced marketing spends which have gone down from 300% of revenues in FY18 to around 30% now,” Umang Bedi, VerSe co-founder, said.