Venture charity

A problem of plenty leads to plenty of problems. The gush of venture money that fuelled a start-up boom over the past few years is finally manifesting its after-effects. We do not know how the final act will play out but the set-up isn’t looking good right now. So far, the start-up universe has largely been confined to e-commerce of one sort or the other. Be it Flipkart, Grofer or Ola, ventures have been based around the online delivery of products and services. Simply put, they have shifted consumer purchases online via smartphones. Conventionally, these start-ups should be less risky because in addition to the convenience they offer, their business viability has already been proven by their brick-and-mortar incumbents.

Unfortunately, things are not quite turning out that way. The problem is that the value proposition of these ‘disruptors’ has been built with scant regard to the basics of doing business. In a hurry to ensnare customers in the quickest possible time, the start-ups and their investors have been happy to drain capital through discounts and cashbacks. For a long time, cash burn has been the fastest way to success. But with start-ups hardly showing any signs of curtailing the drain, investors are tightening the tap. If cash burn was Act I, we are now seeing Act II, where investors are merging non-performers with better-placed investees. Several ill-modelled start-ups are already on the block, albeit with no takers. How long can this continue is the focus of associate editor Kripa Mahalingam’s cover story.

Start-ups that are trying to replace their brick-and-mortar counterparts are nowhere close to them in scale, but are worth much more on paper. Sure, venture investing is about taking risks and investing in innovative models that have the potential to scale up. However, unless, you are a Google — which figured out a way to monetise its customers at an early stage — you need to demonstrate your value proposition. And if a key component of that is low price, it will need to be accompanied by low cost as well. 

Otherwise, survival is surely in question.