India is the world’s third biggest startup hub. For any startup eco-system to thrive exits are very important because it helps put cash back in the system and also creates more ‘risk capital’. While going public is the best form of exit because it preserves the company and continues their work, the alternate if you cannot acquire the customer base required to thrive by yourself is to get acquired.
While India has not been able to see too many IPOs there is a lot of forward movement in terms of acquisition.
Acquisitions have not emerged this year, they have been happening for a while now. If fact 2015 and 2016 were the poster years for acquisition with acquisitions including Myntra, Jabong, Urbanspoon, Citrus Pay, Caratlane and several others.
They were mostly acquired by heavily funded established startups or by established companies in India or overseas.
The Acquisition market of 2018
Looking at the startups acquisition in 2018, there are few points to be highlighted. Startups were ahead in the race to acquire other startups. The investment raised by some of the startups during January and February resulted in some interesting acquisitions in the subsequent months. The sector which got highest attention was fintech; travel and hospitality sector saw some interesting acquisitions too. Few International acquisitions were the highlights for the Indian startup ecosystem. Indian startups also acquired some international companies creating a niche for Indian startups in the international startup ecosystem. Since the acquisition moved towards smaller companies, the size of many of the deals remain undisclosed. Also there seems to be a greater interest in acquiring for product and team rather than for customers.
Startups are acquiring other startups
If we look at the statistics of acquisitions, significant number of acquisitions were by startups or established startups. The large number of deals took place in the month of May 2018. The startups invested funds in various acquisitions in the new financial year.
Fintech saw the highest number of acquisitions
Fintech sector saw a boost after demonetization. Startups lending money to working professionals in tier 2 and tier 3 cities saw tremendous growth. Pune based EarlySalary has acquired Cashcare to have a strong foothold in the market against their competitors. GST came into existence from July 2017. Companies struggled a lot to comply with the new GST standards. Startups like SahiGST were working towards giving better GST compliance services to the companies. Vayana Network acquired SahiGST to strengthen their portfolio in GST and E-way bill space. Fintech saw some international acquisitions like Quantiguous by Deutsche bank and Chillr by Truecaller.
Travel and Hospitality sector surprisingly was the second most sought after for acquisitions. Cleartrip, an Indian established player in travel domain went ahead with an international acquisition. It acquired Saudi Arabia based travel startup Flyin. Virtual travel assistant Mezi got acquired by American Express. Leading Indian E-wallet Paytm has been on an acquisition spree in 2018. It has acquired startups in different domains including Nightstay, a luxurious hotel booking platform.
Acquisitions are usually undertaken for two reasons. One is for the product and the people behind the product, while the other is for the customers that a company has. Acquiring for customers usually involves buying very healed businesses.
Early stage acquisitions tend to be focused on product and team rather than customers. If the acquiring entity has an order of magnitude more customers, they are usually focusing on making their offerings more complete or eliminating a potential competitor. Sometimes it is used as a means of entering a new market.
The move by so many startups to acquire other startups seems to be driven more by the need to compete as well as quickly buttress their offerings rather than to have a few more customers added to their portfolio.
This is overall a very good sign for the eco-system. During the beginning of this decade, the e-commerce space was receiving a great deal of funding. They kept competing with one another forcing each to burn more capital in the constant effort to acquire more customers. In the end almost nobody merged as a clear leader which allowed Amazon to simply walk into the market.
Imagine if all that talent had worked together rather than against one another!
In the ride-sharing space, Ola took out Taxiforsure very early and it can be argued this worked out well for all involved. Ola today is really able to stand up to Uber.
We see this move as a positive one and one that is healthy for the eco-system as a whole.
Anticipating more of the same.
* Data on acquisitions collected from Yourstory.com, Inc42.com and trak.in