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8 Moments In 2016 That Changed India's Startup Ecosystem

Indian Prime Minister Narendra Modi gestures as he speaks during an event to launch an initiative to bolster start-ups in New Delhi on January 16, 2016
As we stand at the cusp of 2017, it's time to gather one’s thoughts regarding the year that passed us by. For startups in India, 2016 proved to be the year for consolidation and transition, where entrepreneurial mindset metamorphosed from a gold rush-like mentality into an ecosystem where preference is being given to quality over quantity. Even though the velocity of capital flowing in has slowed down, the quality of work being completed with was a tad higher. The spectrum of innovation by startups expanded across many verticals of the Indian economy. During the year, Indian startups experienced numerous moments that made this ecosystem vibrant and tested its inhabitants for survival; this resulted in a year that was rather a memorable one.
Startup and Standup India
This scheme was launched amidst a lot of fanfare on 16 January 2016. It was implemented through 125,000 bank branches and after initial hiccups, the government of India decided to revamp it to woo more entrepreneurs and startups. As part of this scheme the government announced a $50 billion credit guarantee fund, and banks were instructed to provide loans at the least applicable rate of interest. Finance Minister Arun Jaitley further noted, "Every bank branch, including private sector, will give loans between $1 million and $10 million to at least one SC/ST (Schedule Caste/Schedule Tribe) and one woman entrepreneur under the scheme."
Emergence of a new set of investors
Apart from the established names of Softbank and Tiger Global management, the ecosystem witnessed an emergence of a slew of investors such as Stripes Group (Bookmyshow), Thrive Capital (Practo), Sands Capital (Bigbasket), Fosun Group, Xiaomi's founder Lei Jun (Shunwei Capital Partners), Cheetah Mobile, Baidu and Tencent (Hike instant messenger). Snapdeal raised $200 million in fresh funds from investors led by Canada’s Ontario Teachers’ Pension Plan, which is Canada’s largest single-profession pension plan with $154.5 billion in net assets. Along with this, Malaysian sovereign wealth fund Khazanah Nasional Berhad invested close to $100 million in Fractal Analytics, which is an India and U.S. based data analytics provider. Also Mark Zuckerberg and Priscilla Chan’s investment arm The Chan Zuckerberg Initiative (CZI) made its first investment in Asia and as part of this deal Byju’s in-education sector raised $50 million from the Chan Zuckerberg Initiative, Times Internet Ltd, Sequoia Capital, Sofina and Lightspeed Ventures.
Nikesh Arora resigned from his role as president of SoftBank
Arora was set to become the next CEO of SoftBank when its Chief Executive Masayoshi Son was contemplating resignation. However, later Son changed his mind about the succession plan and decided to retain the post as SoftBank’s CEO for the next five to 10 years. Japanese SoftBank is one of the biggest investors in the Indian startup ecosystem these days and Arora's departure came at a time when SoftBank had decided to prune its holdings. Despite Son's insistence that SoftBank is a long-term shareholder, the company recently sold a large chunk of its shares in Alibaba and its entire stake in Supercell, a Finnish gaming company.
New wave of FDI reforms
The Government of India took a significant step towards making India the most open economy in the world. Through these reforms it allowed 100% Foreign Direct Investment (FDI) in food retail, civil aviation and 74% in private security agency and pharmaceutical businesses. This step came at a time when the Indian startup network was witnessing one of the hottest summer seasons of the past few years. The inhabitants of this third-largest ecosystem in the world had been in search of new resources of liquidity to ensure their survival. The step was imperative as the funding scenario was turning out to be a drought, which had potential to last for some time to come.
Downgrades of established names
Morgan Stanley, MF investors T Rowe Price, Fidelity and Valic marked down their holdings in Flipkart and U.S. based investment firm Vanguard readjusted the value of its shares in the e-tailer from $102.6 per share in March this year to $68.72 per share in September. Also Japanese investor SoftBank marked down and wrote off around $550 million in two of its largest Indian startup investments, India’s largest cab aggregator Ola and Jasper Infotech, which runs e-commerce marketplace Snapdeal. Around half of the value of this markdown was due to appreciation of the yen against other currencies.
Merger and acquisition
Two prominent strategic agreements signalled a sign of consolidation in consumer internet and e-commerce sectors in India. In the first one MakeMyTrip and Ibibo agreed to merge in a stock transaction estimated at $1.8-2 billion; creating India’s biggest online travel entity. The merger brought together brands like MakeMyTrip, Goibibo, redBus, Rightstay and Ryde under one roof. Also a $70 million acquisition of Jabong from Global Fashion Group along with its fashion centric portal Myntra, further cemented Flipkart’s place, as the undisputed leader with 70% of the e-commerce market share in the high margin fashion and lifestyle segment in India. Research Director at Gartner Sandy Shen said, “Fashion (especially women’s fashion) is a top category on e-commerce platforms in terms of transaction volume and growth, and also one of the most competitive due to lots of brands and manufacturers. The acquisition of fashion platforms is a move for Flipkart to not only further penetrate into the red-hot category but also maintain its leadership position in the market and keep Amazon at bay.”
Rise of protectionism
At a panel discussion Flipkart chairman Sachin Bansal and Ola chief executive Bhavish Aggarwal said India should protect its start-ups against “foreign” rivals in a similar way that China did with its own in the first decade of the millennium. The skirmishes to retain market leadership amongst Ola vs Uber, Flipkart vs Amazon, Hike vs WhatsApp and Patanjali vs Multinational FMCG (Fast Moving Consumer Goods) companies led to demands for protection for home grown startups. To justify this demand various ideas were put forth, including - do we want an internet market that is almost wholly owned by American and Chinese companies? Is that a healthy thing for India? Some have even raised the bugbear of national security saying that putting the shopping, travelling, messaging and other personal data of Indians in the hands of American and Chinese companies is asking for serious trouble. Rather, wouldn’t it be best to have a thriving domestic internet market controlled by local companies?
Demonetization
As development economist Jean Dreze said: “Demonetization in a booming economy is like shooting at the tires of a racing car.” Post the Nov. 8 announcement on the government’s decision to withdraw 500 and 1000 rupee notes that were in circulation in the Indian economy, startups in the jet charter industry, e-commerce and app based aggregators that include Ola and Uber have found the going to be tough. Domestic smart phone manufacturers such as Lava and Micromax have lost sales volume, especially in phones that cost less than $30, and Intex had to delay its plans for an IPO (Initial Public Offer); whereas in the end of this year the government’s pursuit for a cashless economy has turned out to be a boon for Bitcoin startups (Coinsecure, Zebpay, Unocoin) and numerous fintech startups (Oxigen, Paytm, FreeCharge and MobiKwik). Data from ministry of electronics and information technology shows that the number of daily transactions through e-wallet services has shot up from 1.7 million — recorded on November 8 when demonetization was announced — to 6.3 million as of December 7.

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