Many startup businesses around us have high running costs. Not the basic ones, like salary and rent. The marketing costs are just too high, as is the cost of acquiring new customers. I mean, the majority of the money is spent on offering outrageous discounts, cashback, and other rewards. We frequently hear stories and read news pieces saying that an E-commerce mall spent XXXX crores and that some food delivery services burn XXX crores each year. However, these companies have been around for more than 5 years. The fact is that whatever fancy offers and rewards might help in building revenue, no company can continue running a business on VC money or just keep raising VC money. Profit toh karna hoga bhai!!
The question that arises is how VCs continue to fund these start-ups even while they keep losing money.
I read Nithin’s tweet, and we all know that India is one of the world’s fastest-growing economies.
Also, having a large population and a younger population sorta make way for more spending power will drive business prospects and deliver returns at some point.
So, why do you think billions of dollars are still being put into loss-making start-ups?
Greed does drive people to make crazy bets. But may be some people are betting with money they can afford to loose for an out of the world return from that bet.
Remember the dot com bubble. We are currently in a fintech bubble.
It’s the current thing, I mean what can I say. It’s hot like the 504 boys, as they try to move through the lobby. 100 Bills down on their desk and they are still up deciding. They had some good years, ain’t no way they are getting tired. With so many Indian startups joining the “unicorn” club, it feels every day is a Superbowl or something. They deserve it though, they put a lot on themselves. But the stark comparison between US and Indian startups has to be considered. It feels they are not living the same, they are not makin’ the same, so are they equal? VC this, VC that, when do we see Indian Startups making it big on the global stage you know like
It’s the basic trader/investor mentality. A low performing stock has more chances of growing. A stock that is already huge has fewer chances of growing more.
I have also been doing that for quite a long time. This strategy has worked in history and I am quite sure that the same would be the scenario in the coming time as well.
A small, short plant has more chances of growing than a big, tall tree. That’s what most stock traders believe. A company that is making a loss at the moment has more chances of giving better profits than a company that is already huge.
Startups have more scope of growing and becoming big companies. They may have the plan of action but not funds. With investments, they get the power to grow and every investor wishes to take advantage of that before anyone else does.
These VCs think that by offering cashbacks they can make the consumers addicted to product/service. And once that happens they can make big money like Google/Facebook
even if 9/10 start-ups fail, the 1/10 that succeed provide enough returns to cover for the 9 failures. startups can easily provide 10x return on investment
Shorter investments have room to grow, which is why this kind of a strategy worked. The company’s financial growth looks promising, so it’s better to invest in. This is how they earn profit.
