by Saheli Sen Gupta

Founded and well-funded, but have these companies profited?

Oct 09, 2017
BudgetingE-commerce ServicesFinance and Accounting Systems

While food-tech giant Zomato finally turned profitable last month, Paytm Payments Bank reported a loss of over Rs 30 crores just a few days later.

Earlier this month, Paytm Payments Bank reported a loss of Rs 30.7 crores. Incorporated in August 2016, it formally began operating from May 2017. In 2016, Paytm itself suffered a loss of Rs 383 crores. Despite this, the company successfully raised USD 14 billion in April 2017, taking its valuation to nearly USD 7 billion.

This trait of well-funded ‘successful’ companies, with high valuation not yielding profits seems to be running across the Indian startup ecosystem. Take Zomato, India’s leading food-tech company, which finally broke even and declared itself profitable in September 2017, almost a decade after it was founded. At a closer look, this phenomenon seems to be present in several internationally ‘successful’ companies like FedEx, Amazon and ESPN.

Industry veterans and experts have pointed out that Indian startups tend to have extremely high employee compensations and spend a lot of revenue on ads, and are in general “overpaid underperforming crybabies.” In February 2017, The Mint reported the 2016 startup market’s earnings and losses, marking Internet company Book My Show as the only one making any profit, despite a significantly lower valuation than that of the top five.

Here are five ‘successful’, well-funded and highly valued Indian startups, which haven’t yet been able to earn profits.

1. Flipkart: India’s poster-child for startups, this online retailer accounted for three-quarters of the market’s profits in 2016. Strangely, it also accounted for 46 percent of the losses. Valued at over USD 11 billion, it had managed to raise a total funding of more than USD 5 billion.

Flipkart’s revenue reached Rs 1,952 crores in 2016 and yet, the company reported a loss of more than Rs 2,300 crores. However, it successfully received a large funding of USD 2.4 billion in August 2017.

2. Ola: Second only to Flipkart when it comes to home grown startups of India, Ola is the largest cab aggregating Internet company of the country. While the consolidated revenue of parent company reached Rs 760 crores in FY16, it also posted a loss of over USD 2,000 crores in the same year.  The company has raised almost USD 4 billion in funding and managed to raise almost Rs 2,000 crores from several investors even after the losses.

3. Snapdeal: Despite raising close to USD 2 billion, the company was on hot coals since February when it decided to lay off 600 employees. The co-founders admitted that they had made ‘key mistakes’ and got distracted by the ‘influx of capital’ and have had to downsize since then. It had almost given up all hope and was looking to Flipkart for a buyout, when its partner Nexus Venture Partners injected an emergency investment of over Rs 100 crores.

4. Big Basket: Perhaps the only Internet grocery company to survive so far, it outlived its competition by quite a mark. Valued at over USD 500 million, this online grocery marketplace has successfully raised a funding of about USD 400 million. However, it also reported a loss of Rs 277 crores and was also supposed to be acquired by Amazon.

5. Make My Trip: This travel giant reported a loss of over USD 68 million in Q1FY18, from USD 14 million at the beginning of the same quarter. In 2016, it acquired and merged with the Ibibo group, which account for the losses incurred. The company has a revenue of USD 192 million and has raised a total funding of about USD 550 million.

In 2016 alone, the Indian startup ecosystem received a funding of more than USD 11 billion, and managed to incur a loss of Rs 16,000 crore. Startup founders may want to take risks and inject more money, but how far can the industry survive without a profitable future?