Startup Predictions for 2014 : Rise of AcquiEntries; Angel Investments Will Slow Down; Exits Galore

Before reading this, I’d recommend that you read the 2013 Indian startup trends which sets the context for 2014 prediction.

Crystal Ball Gazing
Crystal Ball Gazing 2014

If 2013 witnessed a lot of acquihires and smaller exits, 2014 is going to be a year where global firms who have already entered the Indian market will take the acquientry route to expand into the country.

Rise of AcquiEntries

Every global player wants to enter Indian market. But very few get it right. Most of them stumble, fall and declare a ‘cautious’ approach.

India is a tough market to crack. Be it about distribution, pricing or marketing – the rules of the US of A just doesn’t apply here (even KFC ended up launching a 100% vegetarian outlet).

These global companies *do know* that their current presence is a mere presence (to look good for IPO filing) and is a threat to nobody.

While China continues to be the battlefield for most of the global corporates (especially handset manufacturers/telecom), a lot of global Internet/Mobile companies (be it AirBnB, Yelp or Uber) will look at M&A route to expand into Indian market (unless they want to ignore the Indian market, which they can’t afford to).

Exits Galore

Some sectors are ripe for consolidation, either because a lot of VC money has been poured in (and VCs are getting restless now) or some of the firms have hit the growth ceiling.

Expect more consolidation in this space [Flipkart will lead the M&A route as they focus on improving margins – i.e. high ticket items (Fashion), Private labels etc. ]. We have hinted at few (Flipkart:Myntra), but vertical players will be the first ones to get lapped up.

Expect surprise announcement(s) from Snapdeal.

Retail players like Reliance will acquire Ecommerce companies.

Mobile Payment
Bringing users on to the platform is a tough challenge. Selling the platform operators is another story.

The ones who have built great piece of technology will end up in bed with the ones who can bring customers/transactions.

Enterprise = Global Play From Day Zero

If you are an enterprise/saas startup, your chances of raising Series B from Indian investors is almost zero (assuming you manage to raise Series A).

The reason is very simple – most of the VCs find it hard to believe that one can scale up enterprise business from India. And they are right to a large extent – you will have to go global sooner than you’d thought of.

So far, most of the Indian startups first tried selling to Indian businesses and later moved to global diaspora. This will change – the new crop will be global from day zer0.

And that also translates to startups demanding convertible notes and better terms/valuation.

Will VC community too adopt the global standards? Only time will tell. My sense is that they will be forced to.

B2C : Go Easy

Simply put, there are very few B2C startups in the country and except commerce, very few B2C plays have made it big. B2C continues to be overshadowed by Enterprise/Healthcare/Education sectors.


Total washout of VAS business in India. From what we know, some of the famed ones are already shutting down and investors are trying to get their money back.

Wise ones have already exited VAS business.

Angel Investment will slow down.

And here is why:

There aren’t enough lead angels in the country. The ones who were leading in 2012 and 2013 are focusing on helping their current portfolio raise Series A (between the top 3 angels, more than 40% of portfolio hasn’t managed to raise Series A).

For instance, one of the most active angel fund, Blume Ventures is raising it’s next round ($50mn), out of which it plans to put 70% in follow-on rounds and the rest in seed stage rounds.

It’s not that the $ quantity of angel funds will go down, but instead the same quantity will get spread over more startups, thanks to the increase in supply of startups.

What does this translate to? For sure, the startup ecosystem needs new angels who can also lead a round. Tough ask? We hope not.
For bootstrappers, keep up the fight. Prepone your angel funding cycle, if you can.

Upcoming sectors/trends :

Hardware is the new sexy.

Ecommerce Tool makers will continue to thrive (and go global).

Messaging Apps’ war will be led by WhatsApp, WeChat, Line and Viber (i.e. mostly global players). Indian players will mostly try the transaction route and will try to get lapped by either operators or companies like Onmobile/PayTM/Times Internet.

Education and Healthcare continue to remain hot (as they were 4 years back).

VC firms will pivot.
Plus, some of them will realize the need for inbound marketing. They will be forced to rethink newer strategies to builid the pipeline. Their conferences/meetups are boring, as of now.

What about accelerators?

We still believe that they need more brakes and clutches. Spending INR 10L for your demo day isn’t acceleration – but that’s a topic for another day.

TL;DR: It’s going to be a helluva ride for Indian entrepreneurs in 2014.

Remember this quote by Christopher McDougall:

“Every morning in Africa, a gazelle wakes up, it knows it must outrun the fastest lion or it will be killed. Every morning in Africa, a lion wakes up. It knows it must run faster than the slowest gazelle, or it will starve. It doesn’t matter whether you’re the lion or a gazelle-when the sun comes up, you’d better be running.” [Tweet this]

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