It was the best of times, it was the worst of times, as Charles Dickens would have described. Some unicorns raised more money than anyone expected to, and some did not get even a bailout. The tale of two ‘cities’ is now about Flipkart and PaytmMall, all in a matter of a year.
For the rest of the ecosystem, it was just about looking for some greenshoots. Here is what I think 2018 will look like, barring an apocalypse brought by pollution or traffic.
Sectors and Themes
Fintech will deepen, and lending & investing - which look overcrowded - will continue to attract money. Because they will continue to prove very large markets
Consumer behaviour will change for good, and finally prove that Indian consumers appreciate quality over discounts. And that the market is more than just college students. Swiggy now charges for delivery, Zomato Gold was oversubscribed and online fashion brands have steadily moved up to the premium range
Brands brands brands. There aren’t enough brands to sell, online or offline while the market gets deeper. Many more funds will want to get into this
Some of the AI and Big Data cos will turn out to be a farce, like in fintech, and the market will accept that high tech needs specialised investors. Some large funds will have to add partners, and some partners at big funds will realise they can’t add value to Board of all kinds of companies
Grocery/Food delivery/Hyperlocal businesses will make a comeback. Fundamental market demand was always there, and it will be apparent that the last time around the issue was quality of capital
Hardware will be a big theme, with Drones, IoT though this space may not attract big money yet
We will see a reverse crunch, where a lot of Series A & B money will chase fewer startups given that seed funding and new startup formation stopped for 16-17
The reverse crunch will mean another bout of seed investments by large funds like we saw in 2014-15
Smart angels will actually wonder if they should do bitcoin or startups. I recommend the latter
PE investments in older startups will be even more commonplace given that many cos will be closer to IPO. PE funds will announce big fundraises and PE will catch up on the space it lost to VC recently
There will be more debate about the quality of money among founders and the old hierarchy of ‘Top’ VCs will change. The same is already happening with some of the LPs, the investors into VC funds. And under this environment of upheaval, more VC partnerships will ‘fork’
The new VC top slots will include more Chinese VCs and strategics. The entry of the Chinese VCs coincided with the disenchantment of India-based VCs as evident in their focus on other geographies, other stages & non-consumer sectors.
IPO announcements will reach a crescendo and some actual IPOs will happen. Overall this will force actions towards profit with moderate growth towards IPO
More inbound M&A from Chinese majors will ensure that people will stop even mentioning FB and Alphabet as an exit option in their slides
Founders and Companies
Startup formation will pick up but in new sectors. Agri-tech, as an example, will be a sought-after sector, as startups follow the money and ‘follow the data’. The phenomenal growth of YouTube has been completely in tandem with that of Jio and at 400M users, it is the biggest mobile story in India. Indian founders need to dream big like ‘YouTube’ and not FB/WhatsApp
Sex will enter the Boardroom. 'Couples-Friendly' filter in hotel booking sites are getting common as cos recognise that fashion and lifestyle businesses hover around the need to 'date'
The Non IIT-IIM founder will finally start getting recognition and make a mark for herself. However, glam founders will continue to outfund them as ever. Some things won't change
Returning founder and failed founder will be proven overrated finally
Many companies that largely operate offline will shed their forced tech and online spends as offline business will deliver. UrbanLadder and FabAlley will be good templates to follow
Some weird vernacular content-theme investments will happen as everyone scrambles to get one in their portfolio. Similar tokenism will be seen in blockchain tech also
This post was written for the Economic Times, and appeared on December 18th 2017.