A cursory look at the financial reports of the Indian start-ups, including some of the unicorns (with more than $1 billion valuation) reveals that they have been bleeding money in FY2019 like in the previous few years since their inception. However, the staggering losses reported by many of these start-ups had no impact on the overall revenue, in fact their valuation has jumped two, three-fold as compared to the previous fiscal. In other words, investors, both domestic, as well as global, have shown an increased interest in funding startups.
According to a report by data intelligence firm Tracxn, the total money that was invested in start-ups in FY2019 increased by 35 per cent at $14.8 billion compared to the previous year that stood at $10.5 billion, although the money went into a fewer number of companies, indicating investors are spending big on a few start-ups with bankable business models.
ALSO READ: Despite slowdown, Bansal invests heavily
A total of 817 investors participated in 1,185 funding rounds this year. Losses galore From one of the India's top valued unicorn, Paytm that recorded a 165 per cent increase in the losses in FY19 at Rs 3,959 crore from Rs 1,490 crore the previous year to a hyperlocal delivery start-up, Dunzo that witnessed a loss of Rs 168.9 crore, a 671 per cent jump in losses with a meagre operating revenue of Rs 75.9 lakh — Indian start-ups have the same story to tell.
Heavy cash burn doesn't imply that these companies are doomed. Earlier this month, Paytm received a funding of nearly $660 million from global investors like Singapore Alipay Singapore Ecommerce Pvt Ltd and US-based T Rowe Price Growth Stock Fund Inc.
In November, T Rowe Price led a $1 billion funding round in Paytm, which raised the valuation of the digital payments start-ups to $16 billion.
Dunzo, on the other had raised $45 million in a Series D round funding, which it said would be used to strengthen its logistics capabilities.
In both the above cases, the start-ups have been incurring losses to capture market by means of offering discounts, expand operations and diversify business amid fierce competition in each segment.
Walmart backed e-commerce giant, Flipkart valued at $21 billion, for instance, said in its Ministry of Corporate Affairs (MCA) filings that its losses in FY2019 were Rs 38,368 million as compared to Rs 20,638 million the previous year, which implies nearly an 85.9 per cent jump in the losses.
On the other hand, its operating revenue witnessed an increase of 43 per cent to Rs 30,931 crore in FY19 compared to Rs 21,657 crore the previous year. OYO, India's biggest hospitality chain's loss amounted to Rs 2,384 crore in FY19 registering a six-fold increase than the last year. Its revenue jumped to Rs 6,547 core from the previous Rs 1,413 crore.
OYO received the biggest funding in 2019 of 1.5 billion by investment giant Softbank and founder Ritesh Aggarwal's RA hospitality. Start-ups on way to profitability Although the losses soared for a majority of start-ups, some of them are marching on their way to profitability and cutting expenses on both operations and employee fronts.
Ride hailing platform Ola that saw rapid overseas expansion witnessed a 9 per cent dip from the previous year at Rs 2,593 crore from Rs 2,842 crore in FY18. Online marketplace, Snapdeal cut its losses by 73 per cent in FY19 at Rs 186 crore from the previous Rs 611 crore. Online platform for classifieds and advertising, Quickr posted losses worth Rs 234 crore in fiscal ending March from Rs 237 crore a year ago.
"While start-ups are still making losses, we have witnessed a conscious and positive shift in the "type of losses". Both investors and founders have become smarter about how they spend the investment dollars. Not every market is seen as a "winner-takes-all" market, and there is a marked increase in focus on unit economics. Consequently, we are witnessing a continuous reduction in losses due to advertising or marketing that is discounting campaigns. Start-ups are investing more on product, customer experience, and fundamental capability-building initiatives," said Atit Danak, manager and head, CoNXT, Zinnov.