Being approached by a Deepinder Goyal or a Sachin Bansal to invest in their new consumer-focused venture at an early stage will probably be every investor’s dream come true. It must seem like they have hit the jackpot. But historical investment statistics suggest otherwise.
Barring a couple of anomalies, none of the founders of the world’s most successful startups have gone on to successfully run a second consumer unicorn. Evan Williams (Blogger & Twitter) and Elon Musk (PayPal & Tesla) managed to achieve the seemingly impossible. But the other founders of PayPal have had to be satisfied with senior positions in B2B companies. Dustin Moskovitz, co-founder of facebook, has gone on to run Asana – a success but not in the consumer space.
Clearly then, you only have one shot at running a consumer unicorn. To make the most of that shot you have to have a strong team with domain expertise, a great product and a relatively stable market like any other successful startup. But you also have to have some sort of intangible, spiritual force to that propels you to the top of the wave you’re riding, crushing the competition beneath you. Only a few make it and investors today, are slowly understanding the huge risk involved in investing in these consumer technology startups.
“There is a trend away from consumer unicorns and valuations,” Andreas Liffgarden, Soundtrack Your Brand’s chairman and co-founder, told newswires recently. Soundtrack Your Brand is looking to raise USD 11 million to back its customized music-playlists for big companies like McDonald’s and Starbucks. According to Soundtrack Your Brand, businesses pay five times the amount consumers are willing to pay for music, thus making the business more stable and investable.
The Indian investor market is slowly but surely starting to realise this. B2B startups recorded 71 deals in from January to April of this year, up from 44 in the same period last year. There are some distinct advantages of a B2B business that investors are starting to take note of. Customer loyalty is more in a B2B business since businesses are contracted to the startup supplier through agreements for long periods of time. This means lower acquisition costs and long-lasting customer relations. In B2B commerce, companies generally tend to buy larger amounts of more expensive products thus increasing the average transactional value and therefore revenue.
Today, 59% of startups in India are in the B2C space, 37% are in the B2B space whereas the remaining 4% are a combination of B2B and B2C.The B2B numbers, however, are expected to increase as a Walmart report indicated that India’s B2B e-commerce industry will grow to $700 billion by 2020. Contrastingly, the B2C startups have suffered huge losses in the recent past. We have stories of PepperTap – hyperlocal delivery app – shutting down its operations in multiple cities; beauty start-up Amber Wellness started by former founder of Housing.com – Abhimanyu Dhamija – shutting down operations due to low margins. Grofers scaled down operations in January and is now reporting losses of 24 lakhs a day; Food Panda laid off more than 300 employees at th e end of last year; Tiny Owl laid off 100 employees and shut down its operations in all cities except Mumbai.
This is why Investors are shifting focus towards Enterprise companies like Pharmarack. Pharmarack – a Pune-based startup – provides a SaaS-based application for automated order processing and inventory management for pharma retailers and distributors. Since its inception in 2015, retailers and distributors have made transactions worth Rs 90 crore using its application. Currently 250 pharma distributors and close to 3,000 retailers use its product. Unicorn India Ventures made a decision to invest in the early stages of Pharmarack’s growth and has already seen great traction, thus giving credence to our strategy. B2B businesses are stable, grounded and comfortable predictable in their behaviour and acceptance in the market. We are aware that there are less chances of a B2B business being groundbrea king but we also know that we will be able to churn out a sizeable profit if processes are followed correctly.
The bubble is bursting, the market is maturing and Investors are beginning to see the wisdom in a sound financial investment in a B2B rather than a high-risk flamboyant expenditure in a B2C