Pressure from investors is forcing start-ups to scale up operations too fast, says media entrepreneur and UTV Group founder Ronnie Screwvala.
“Several start-ups have had to scale back operations lately. It is not an ecosystem issue, but plain silly investor pressure to have a multi-city strategy that is creating these problems,” Screwvala, who is now leading seed fund Unilazer Ventures, told PTI.
The start-up space has been attracting billions of hot money from scores of PE firms and other foreign investors like SoftBank of Japan and Chinese online retailer Alibaba, jacking up values within months.
A whopping $14 billion got pumped into the country’s start-ups in 2015, though the tap has not yet turned dry, but this year it has started declining and hovers around $13 billion to date.
In the last few weeks, several start-ups, including restaurant discovery platform Zomato, food ordering platform TinyOwl, and online real estate portal Housing.com, have attracted bad press for sacking hundreds of their employees and pulling back operations.
While Zomato confirmed it is laying off 300 as of last month, Housing.com let go of more than 200 employees recently.
TinyOwl has also fired employees, shrunk its operations, and is restructuring the business model. The agitated employees of TinyOwl had reportedly even took its chief executive hostage for a couple of days, demanding unpaid wages.
“It is investors who stress on the growth plan and multi-city strategy knowing fully well that you have 29-year-olds out there who have never started an organisation before. And now, you want them to run a pan-India structure. Even a Hindustan Lever took 50 years to do this,” Screwvala said.
“There will be news of 20 to 50 more such companies in the next few years. It is, however, not an ecosystem problem. It does not mean they shouldn’t scale up,” he said.
Screwvala, who through his Unilazer Ventures has invested in an online educational start-up UpGrad, reiterated that these firms should think of scaling or they won’t be able to succeed.
“You have got to think of your ideas at scale, and that is a unilateral point of view. This doesn’t mean that a boutique operation isn’t great, but you have got to define your particular scale,” he said.
“Zomato has a phenomenal model, and they really thought big. But some investors would have forced them to do some multi-city approach and that led to their failure,” he explained.
While this has been bad publicity for many start-ups, he said this doesn’t signal that the companies would go bust.
“Customers are only concerned about services. If a company can retain that it should not matter,” he said.
On valuations, he said there will always be aberrations, and anything that reaches a limit will be a problem.
“In the e-commerce business, Amazon has doubled its valuation in the last four months; what it hasn’t done in the last eight years. What’s the logic to that? But is everyone in America is a fool? I don’t think so,” he said.