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National Start-Up Day: Junking Valuations, Founders Finally Focus On Real Market Needs

Founders are now aware that valuations can sink and drop, but they can survive the long haul if they solve real market needs

National Start-Up Day: Junking Valuations, Founders Finally Focus On Real Market Needs
POSTED ON January 16, 2024 1:24 PM

On National Start-Up Day, celebrated on 16th January, the one emotion running high across the industry is that of cautious optimism. Holding on to their seats tightly during a rollercoaster 2023, which witnessed more downs than ups, they hope that things will be different this year as companies pivot towards focused innovation, sustainability and financial prudence. 

Most stakeholders believe that the only way to tackle the challenges is by identifying real market needs rather than trying to get inflated valuations for their companies. Gone are the days of building solutions in a sanitised echo chamber; founders are now more focused on making data-driven decisions, optimising resources, and fostering a resilient culture. After all, these are some learnings they learned the hard way in 2022 and 2023. 

Creating Longevity For Businesses

Ankur Mittal, co-founder of Inflection Point Ventures, is happy that the prudent amongst the legion of start-up founders have picked up cues from the second half of 2022 and 2023. These months held the same level of importance as those between 2020 and 2021 when the global spotlight was on the ever-expanding start-up ecosystem, and even entities without a viable product market fit were getting funded.

The investment activities in 2020 and 2021 made India the world's third-largest ecosystem and garnered much global attention. However, 2022 and 2023 brought things back to basics," he said.

Ankur Mittal
Ankur Mittal, co-founder of Inflection Point Ventures

While in 2020-21, capital was available relatively easily for many startups, which made founders try to solve problems through additional use of capital in hiring, marketing etc, 2023 has taught them the optimum use of limited capital, which, if not managed and respected well, could affect future prospects. "So, in 2024, too, investors may probably continue to prefer investments in companies whose unit economics is good and are building sustainable businesses with path to profitability," Mittal emphasised.

Pop Goes The Valuation Bubble 

A major challenge for growth-stage start-ups in 2023 was raising funds, especially those eying rounds upwards from Series B. However, 2024 appears promising despite the market's slow pace. Already, several early-stage start-ups are seeing green shoots of capital infusion, whether it is The Baker's Dozen bagging Rs 33 crore in a funding round led by Wipro Consumer's VC unit or insurtech Riskcovry bagging $4.5 million in a bridge round.

Late-stage companies like Mamaearth and ideaForge went public last year, while others, including FirstCry, Mobikwik, Awfis and Ola Electric, are waiting in the wings for an initial public opening (IPO) this year.

Sudeep Kulkarni, founder of Game Theory, backed by Nithin Kamath's Rainmatter Capital, is unsurprised by this turn of events and is delighted that start-ups are finally looking at the business through the lens of profitability. When they realised that the largely unrealistic valuations of 2021 and 2022 would not continue in 2023. 

Now they know that chasing these unrealistic figures will take the business to doomsday. The industry has seen a downfall in the valuation of prominent players like Byju's, PharmEasy or Meesho, once the darlings of the investor circuit, which have seen multiple rounds of valuation markdowns in recent months. 

Anand Agrawal, co-founder and CPTO of Credgenics, a debt collection soonicorn, emphasises that start-ups that have successfully navigated past uncertainties are better positioned to capitalise on emerging trends and evolving consumer needs, especially if they can identify real market needs and make data-driven decisions and that is the only way to sustain in the market for the long run is to identify the real market needs and address them.

Edtech Gets A Crash Course 

Edtech was one sector that saw a massive impact from the funding freeze. The industry's flagbearer Byju's painted itself into a corner as it tried to deal with issues related to corporate governance, layoffs, shuttering operations, inability to repay its debt and battling legal cases. Its valuation was marked down significantly from a peak of $22 billion in 2022 to $1 billion by some of its marquee investors. 

Another edtech Doubtnut, once valued at $100 million, got sold off at $10 million. Funding in the edtech sector experienced a 48% decline this year compared to the same duration in 2022 and a 50% decrease compared to 2021, as per findings from a Tracxn report. 

While many had started writing off the sector since many players could not create a post-pandemic model that did not depend heavily on online education, Prateek Maheshwari, co-founder of Physics Wallah, is optimistic that it is poised to grow. He stated that the company observed a 5x growth in the student base for vernacular languages. Hence, they addressed the real market need and started launching more courses and expanding the reach in the segment, which has worked wonders.

Prateek Maheshwari
Prateek Maheshwari, co-founder of edtech Physics Wallah

Another edtech, Coursera, recently launched around 4000 translations of various courses in 18 languages, including Hindi, to serve the local audience of India, which is also Coursera's second-largest market. This move is expected to deepen edtech's foothold in the country further.

Similarly, ride-hailing platform Rapido, which recently entered the cab segment, has come up with a solution for the major pain point of drivers. Co-founder Pavan Guntupalli states that valuations are just figures, and the company believes in generating more employment locally. 

While ride-hailing apps provided users with the convenience of getting autos, taxis and bikes at their doorstep, many consumers were hassled by issues like last-minute cancellations of rides by drivers and their reluctance to go to a particular destination and accept digital payment. In a survey by community social media platform LocalCircles between September 2023 and January 2024, 84% of the respondents claimed to have experienced ride cancellations by drivers over these issues, up from 79% two years ago.

To address these real-life issues, Rapido decided to offer a zero-commission model to its driver partners, thus letting them earn more out of the rides. "For Rapido, the journey is not just about numbers; it is about people and creating lasting impact. This vision has led us to 1.5 million rides daily from a modest 500 rides per day," Pavan asserted.

The National Start-Up Day signals hope that the trials of 2023 have seen founders learn some tough lessons. They are gradually shifting towards factors that determine the tangible success of the business rather than chasing vanity figures which are not backed by reality. 

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