Two years can make all the difference. If start-ups - especially those with Internet business models - were riding the crest of the roller coaster till early 2015, they are now nearing the trough in early 2017. During the heady days of 2014 and early 2015, many start-ups had got accustomed to raising money from venture capital (VC) funds at ever higher valuations. In turn, VCs hunted out start-ups beginning to gain traction and practically begged them to take more money. The easy funding environment had set off its own chain reaction. First, every start-up was expected to scale up exponentially in double quick time. It did not matter how much cash they were burning up or how much red ink they were accumulating on their balance sheets. What mattered was growing revenues at a breakneck speed, even if losses were growing even faster.
The easy inflow of cash and the pressure to grow revenues in turn meant that the start-ups threw cash at every problem. It created a culture of excess.
Sometime in late 2015, the scenario started changing. The leaders in each market still found it easy to raise lots of fund. But things became increasingly difficult for everyone else. Some had to down shutters, while others had to scale down operations. For much of 2016, this was the recurring theme.
In January 2017, things have deteriorated further for Indian start-ups. Now even leaders are finding it difficult to raise funding at anywhere near the valuations they commanded in 2015. Worse, almost all investors are asking tough questions about the path to breakeven and cash burn and unviable operations.
It is belt-tightening time for most start-ups in the digital space in the country - bar a couple of exceptions. As a result, most of them are now hiring CFOs (or expanding the scope of their responsibilities), and cutting costs in any which way they can.
I believe that while the pain is likely to be immense, the survivors in this round will be companies that have the most realistic business models and who are as focused on keeping cash burn low as they are on growing revenues. Senior Editor Goutam Das talked to some of the most prominent founders in the start-up ecosystem to put together our cover story this issue.
Meanwhile, this is also our annual ranking of Best Banks in the country. Last year was particularly tough for Indian commercial banks, and mainly for the public sector banks. The best private sector banks have taken care to increase their balance sheet size, while simultaneously keeping non-performing assets under check. With our partners KPMG, we conducted a quantitative survey and this was followed by a jury meeting to decide on the best banks in some specific categories. Deputy Editor Anand Adhikari anchored the project, while the eminent panel of jurors - M.D. Mallya, former chairman and managing director of Bank of Baroda; Alok Agarwal, Chief Financial Officer, Reliance Industries; Vimal Bhandari, MD & CEO, Indostar Capital Finance; and Ramaswamy Venkatachalam, MD (India & South Asia), FIS - chose the exceptional banks in various fields.