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How BigBasket’s stake sale proves that startups aren’t getting independent soon

Not all is fair and green with startups since their existence is a trivial session in such a space where the market is very c

Due to massive funding, consolidation activities, emerging technology, and a burgeoning domestic market, the Indian startup ecosystem has indeed started and come into its own in recent years. The numbers speak for themselves: from 3,100 startups in 2014 to more than 11,500 by 2020, this is not a fad. It’s a revolution, to be sure. And it will alter the existing state of affairs in India’s markets. The central government’s policies take into account the collective hopes and entrepreneurial spirit of the risk-taking Indian. Many indomitable and resolute Indians are at the core of Silicon Valley startup success (1).

In the Indian markets, startups have been the flavor of the year for the past few years. As a result, a variety of domesticated unicorns have appeared across the world. The massive funding poured into most of these unicorns between 2007 and 2017 has been one of the biggest parts of this progress. This is in line with the trend that has taken over space. And potential unicorns have had a good run during this period, even though finding investors is normally a difficult job. The current investment patterns indicate that investors want to be among the first to invest in a business, even before it is created.

However, 2015 has proved to be a year that has acted as a wake-up call to everyone and has dramatically altered the dynamics. The year also set the tone for the next step of the startup ecosystem’s evolution. The sophistication in decision-making that should hopefully emerge at this point will be a positive move in the right direction, propelling India’s startup scene to greater heights, as it deserves. (2) Companies’ larger issues, such as the unorganized and fragmented Indian market, a lack of consistent and transparent policy initiatives, a lack of infrastructure, a lack of awareness and visibility, and difficulties in doing business, are just a few examples.

Encouragement of startups, which will bring dynamism, creative thinking, and employment to the Indian economy, is critical to its economic future. However, the SSI’s and the rising Startup sectors’ performance has been unsatisfactory, with a high failure rate based on estimates. According to some reports, almost 90 percent of Indian startups fail within the first five years. This is a huge problem that is necessary to be resolved as soon as possible. The Indian startup ecosystem has increased in popularity and recognition in recent years. Factors such as funding availability, international investors, emerging technology space, and burgeoning demand within the domestic market drive this trend (3).

The rise of Startup acquisitions

With 65 percent of the population being between the ages of 25 and 35, startups in India did not occur immediately but rather gradually over time. However, if one were to pinpoint the exact year when India’s startup revolution started, it would be 2008. We’ve all heard about the global recession that struck the world in 2008, causing companies all over the world to reallocate resources and lay off large numbers of workers. It primarily affected IT professionals in India, who became extremely fearful of losing their jobs and began searching for alternative ways to stay afloat.

The startup economy in India has been booming. The establishment of new startups, the amount of funding and the number of investment rounds, the influx of foreign investors and startups, the growth of regulatory infrastructure, global mergers and acquisitions, and internationalization have all seen considerable activity in the last decade. There are several entrepreneurial success stories. India currently has 26 unicorns, with eight new members joining the club in 2018 (4).

It’s essential to take a step back during all this excitement and remember how the Indian startup ecosystem got to where it is now. They say history repeats itself, but we aim to understand evolutionary trends better. That can assist us in equipping ourselves and developing interventions to maintain the momentum. In consumer technology, IT, and IT-enabled services, the Indian startup ecosystem saw 259 exits in 2018, up 23 percent from 211 in 2017. However, until July 2, there had only been a handful of active IPOs or major exits in the startup economy, aside from the Walmart-Flipkart contract, which accounted for a large portion of exits and acquisitions.

Despite the COVID-19 pandemic (5) upending many sectors of the economy, investors poured 9.3 billion dollars into Indian startups so far in 2020, according to data from industry tracker Tracxn. This is a drop from last year, when domestic startups raised 14.2 billion dollars in 1482 rounds between January 1 and December 23. More than 1.5 billion dollars was invested in Zomato, a food delivery app, Delhivery, and InMobi’s in December aloneGlance. According to Tracxn info, the investments were spread over 1,088 financing rounds. (6).

Even though the number of funding rounds in 2020 was at its lowest in five years, the sum raised was higher than in 2016 and 2017, when investors contributed 3.51 billion dollars and 6.43 billion dollars, respectively. Several corporations and strategic buyers scooped up high-growth expectations this year, resulting in a surge in mergers and acquisitions. The acquisition of WhiteHat Jr for 300 million dollars by Byju’s and the acquisitions of online furniture retailer Urban Ladder for 24 million dollars and online pharmacy Netmeds for 83 million dollars by Reliance Industries accounted for more than 20 percent growth in M&A transactions over the previous year (7).

“Many startups are struggling to raise funds, but rather than shutting down, they are willing to be acquired,” said Rishabh Lawania, founder of Delhi-based Xeler8. “In reality, there are far more startups being purchased than is publicly known. Many entrepreneurs are trying to cut their losses and sell their companies, even if it means a simple acquihire (buying a company for its employees’ skills rather than its product) where they get a job at another firm.” Another explanation for the spike in M&A is that many late-stage startups are searching for buyouts to justify their valuations” said Lawania.

The wrath of the competition

The startup sector is very competitive, and a recent example of it is Big Basket. Tata Sons have applied to India’s Competition Commission (CCI) to acquire a majority stake in BigBasket, an online grocery delivery service. Via its wholly-owned subsidiary Tata Digital, the salt-to-software conglomerate plans to acquire the stake. The deal would help Tata Group break into the fiercely competitive online grocery retail industry, which exploded during the COVID-19 pandemic’s lockdowns. Amazon, Walmart-owned Flipkart, Reliance Industries’ retail arm Reliance Retail, and Grofers are currently engaged in the fierce competition in the market.

Tata Digital Ltd (TDL) proposed to acquire a 64.3 percent stake in Supermarket Grocery Supplies Pvt Ltd (SGS), which manages BigBasket brand business-to-business sales, through a combination of primary and secondary acquisitions in one or more tranches, according to the CCI filing. SGS can also gain sole control of Innovative Retail Concepts Pvt Ltd (IRC), which manages BigBasket’s business-to-consumer sales, according to Tata Digital. In the online grocery retail market, BigBasket competes with Amazon’s ‘New’ vertical and Reliance Retail’s JioMart.

BigBasket’s revenue increased by 36 percent year over year to 3,818 crore rupees in the financial year ending March 31, 2020. The Economic Times announced that the company’s expenses increased by 31 percent year to 4,411 crore rupees in the Fiscal year 2020, citing documents from business intelligence platform Tofler. During the year, its losses increased by 26 percent to 710 crore rupees.

BigBasket posted a consolidated net loss of 611 crore rupees in the Fiscal year 2020, up 6.7 percent from 572 crore rupees the previous financial year. According to financial data accessed by business intelligence platform Tofler, the Bengaluru-based company produced 3,822 crore rupees in revenue in the Fiscal year

2020, up 36 percent from the previous year. BigBasket’s overall expenses rose by 31 percent in the fiscal year 2020, from 3,376 crore rupees to 4,433 crore rupees. BigBasket has previously announced that it had seen an 84 percent rise in new customers, as well as a 50 percent increase in retention rates when compared to pre-covid levels (8).

According to documents collected from business information portal Tofler, the company’s losses rose by 26 percent to 709 crore rupees in 2019 to 2020 from 562 crores the previous fiscal year. Though total revenue increased by 31 percent to 3,818 crore rupees in Fiscal year 20 from 2,802 crore rupees in the Fiscal year 2019, expenses increased by 31 percent to 4,411 from 3,365 crores. BigBasket co-founder and CEO Hari Menon announced that the company intends to go public in India at an industry event. In contrast to pre-covid stages, he said, the firm’s company has doubled. BigBasket is up against Amazon Fresh, Flipkart, Grofers, and Reliance Retail’s JioMart, all of whom are stepping up their game in the hotly contested e-grocery market. Swiggy, a food delivery app, has launched instant grocery deliveries through its Instamart service. Redseer, a management consulting company, estimated India’s online grocery market to be worth 3 billion dollars. According to RedSeer, the market is projected to hit 18.2 billion by 2024, with an annual growth rate of 57 percent (9).