 "Start-ups take to mergers to survive")
For nearly six months, CommonFloor, once considered a promising bet in the start-up world, was struggling to raise funds to grow its business.
The real estate listing platform was burning investor cash and needed money urgently to stay afloat. The window of opportunity for its founders - Sumit Jain, Lalit Mangal and Vikas Malpani - to cut their losses and merge with a larger entity with enough cash to scale up was closing fast. Then, in January, CommonFloor announced it was merging with Quikr, a classifieds portal with an increasing focus on real estate.
The deal is among the latest signs that start-ups are consolidating in India amid slowing venture capital funding and growing competition.
These deals follow several other acquisitions over the past year. In 2015, Ola acquired its smaller rival TaxiForSure and Snapdeal acquired FreeCharge to mark its presence in the e-wallet space, a key to retaining customers on its platform.
Among other acquisitions, Mahindra bought out BabyOye to integrate its offline stores with the online market and Yatra acquired Mumbai-based Travel-logs, a start-up focused on organising customised city walks and private tours.
"There were 540 e-commerce start-ups three years ago, now there are 10 that are serious," said Nikesh Arora, Softbank President and Chief Operating Officer at Start-up India event in October last year.
The pressure on start-up founders to consider merger is evident. In 2015, India saw over $5 billion in investments by private equity and venture capital firms in start-ups across verticals, the highest so far. However, these start-ups have spent more money on attracting customers than they could potentially earn.
Understandably then, investors are now demanding more accountability for their money. This has led to several companies shifting focus from growth to bringing in efficiency in their business or merging with larger entities to secure their future.
"It's a very tricky situation but I don't think the large guys are going to go anywhere. I think they will find a way to survive, but there will be consolidation. We're already starting to see that," says Ash Lilani, managing partner at Saama Capital.
According to Tracxn, a company that tracks the start-up sector, says merger and acquisitions in 2015 more than doubled to 128 from 55 in the previous year.
Anurag Jain, co-founder of GirnarSoft, which owns auto-listing platform CarDekho, says the consolidation trend is driven by the dearth of funding for the middle and late stage start-ups. "They are not able to raise money. If they are looking at the next funding to grow, it is not happening," he says.
Investors are spurring this trend too. "There are opportunities fortunately for people to acquire assets at a fair value; these typically are going to be the winners," says Jain.
Analysts say the M&A trend will continue. "Sanity is returning. Now, people are asking questions on whether it makes sense to pursue such business models," says Debabrat Mishra, director at management consultancy Hay Group. "In 2016, we will see more consolidation in Indian start-ups."
Quikr Founder and Chief Executive Pranay Chulet says, "I do expect some of the younger platforms to be consolidating into larger players. So, I see more of that happening across categories. Real estate already has seen such a phase. Services is where we will see some of them going into larger platforms. Cars also is another segments. There won't be much happening in the jobs verticals though."
Practo, the country's largest healthcare platform, backed by Google Capital, Chinese internet firm Tencent and Sequoia Capital, has made four acquisitions since April last year.
"This new environment is actually good for us because it reduces all the clutter. Also, for others the dust will settle down, so you'll know who have real businesses, and who don't," says Shashank ND, founder and chief executive of Practo.
The real estate listing platform was burning investor cash and needed money urgently to stay afloat. The window of opportunity for its founders - Sumit Jain, Lalit Mangal and Vikas Malpani - to cut their losses and merge with a larger entity with enough cash to scale up was closing fast. Then, in January, CommonFloor announced it was merging with Quikr, a classifieds portal with an increasing focus on real estate.
Read more from our special coverage on "START-UPS"
The deal is among the latest signs that start-ups are consolidating in India amid slowing venture capital funding and growing competition.
These deals follow several other acquisitions over the past year. In 2015, Ola acquired its smaller rival TaxiForSure and Snapdeal acquired FreeCharge to mark its presence in the e-wallet space, a key to retaining customers on its platform.
Among other acquisitions, Mahindra bought out BabyOye to integrate its offline stores with the online market and Yatra acquired Mumbai-based Travel-logs, a start-up focused on organising customised city walks and private tours.
"There were 540 e-commerce start-ups three years ago, now there are 10 that are serious," said Nikesh Arora, Softbank President and Chief Operating Officer at Start-up India event in October last year.
The pressure on start-up founders to consider merger is evident. In 2015, India saw over $5 billion in investments by private equity and venture capital firms in start-ups across verticals, the highest so far. However, these start-ups have spent more money on attracting customers than they could potentially earn.
Understandably then, investors are now demanding more accountability for their money. This has led to several companies shifting focus from growth to bringing in efficiency in their business or merging with larger entities to secure their future.
"It's a very tricky situation but I don't think the large guys are going to go anywhere. I think they will find a way to survive, but there will be consolidation. We're already starting to see that," says Ash Lilani, managing partner at Saama Capital.
According to Tracxn, a company that tracks the start-up sector, says merger and acquisitions in 2015 more than doubled to 128 from 55 in the previous year.
Anurag Jain, co-founder of GirnarSoft, which owns auto-listing platform CarDekho, says the consolidation trend is driven by the dearth of funding for the middle and late stage start-ups. "They are not able to raise money. If they are looking at the next funding to grow, it is not happening," he says.
Investors are spurring this trend too. "There are opportunities fortunately for people to acquire assets at a fair value; these typically are going to be the winners," says Jain.
Analysts say the M&A trend will continue. "Sanity is returning. Now, people are asking questions on whether it makes sense to pursue such business models," says Debabrat Mishra, director at management consultancy Hay Group. "In 2016, we will see more consolidation in Indian start-ups."
Quikr Founder and Chief Executive Pranay Chulet says, "I do expect some of the younger platforms to be consolidating into larger players. So, I see more of that happening across categories. Real estate already has seen such a phase. Services is where we will see some of them going into larger platforms. Cars also is another segments. There won't be much happening in the jobs verticals though."
Practo, the country's largest healthcare platform, backed by Google Capital, Chinese internet firm Tencent and Sequoia Capital, has made four acquisitions since April last year.
"This new environment is actually good for us because it reduces all the clutter. Also, for others the dust will settle down, so you'll know who have real businesses, and who don't," says Shashank ND, founder and chief executive of Practo.