$9 billion was invested into Indian startups in 2015 which is nearly 50% of the past 5 years’ total deal value. At the outset, one might make a conclusion that investors have been quite liberal in their investments in 2015. However, these are investments which come with strict mandates of profitability.
Investors are getting quite strict with their investee companies and would be focusing more on profitability than Gross Merchandise Value (GMV) henceforth. This means that investee companies may not have the same luxurious bandwidth of irrational marketing spends for branding and driving GMV through rapid customer acquisitions which were characteristic since 2012.
The “FOMO” (fear of missing out) factor which drove up valuations in past few years is lower now as the market is concerned more about profitability. Investors would be more favourable to a “profitable” brand than a brand built on discount sales.
It would be interesting to know how this shift in investor mindset pans out for upcoming startups in the country. Let’s understand this by taking a glance at the online pharmacy space in India.
Online Pharmacy in India – A Snapshot
Considering the rapid growth of on-demand services in India in the last couple of years, the online pharmacy business has become one of the hottest segments for upcoming startups. Startups like Healthkart, Healthgenie, Healthadda, mChemist and Deemark Health are aggressively competing with each other for a better customer’s share of wallet in this space. However, Healthkart has been able to command a significant market share in terms of GMV during FY 2015.
A lot of this has to do with them being able to successfully raise over $ 22 million dollars of funding in 3 rounds since inception. This brings in the necessary moolah for marketing and operational growth.
Netmeds, a new entrant in the online pharmacy space, has raised $5 million worth of Series A funding in Q4 of 2015. While Healthkart enjoys top of mind recall of its brand, it would be challenging for Netmeds to compete with it in terms of customer acquisition due to the difference in their marketing war chests.
This might hinder the possibility of Netmeds raising a follow-up Series B round if they don’t show some good customer traction along with profitability.
David Vs Goliath
So, how does Netmeds make enough noise to trump the march of Healthkart, eat into their market share and make investors happy in the bargain?
Here are a few ways:
- By targeting a niche in terms of geography/customer persona and ensuring they become the best brand in that niche. For e.g. Netmeds can strive to become a household name in a specific city/state and gain the best market share in the same. This would itself become a case study for investors who can then look at them as a serious contender for future growth funding.
- Form a coalition of all David’s (i.e with competition), brand your coalition and grow together to outperform Goliath which is in this case represented by Healthkart. In such a scenario, David’s look for synergies in each other before forming an alliance. For e.g. Understanding unique advantages, access to a set of new customers, better technology, referral engagements etc is some of the ways in which a coalition or “competition” can be explored between the David’s.
There are many other ways of implementing a competitive growth strategy.
But an inherent part of any growth strategy is the relentless focus on building a consumer brand through an effective storytelling campaign.
A campaign which can relate to people, kindle nostalgic sentiments, tickle their funny bone etc. An inherent need can be fulfilled by a commodity. However, an aspirational value can only be fulfilled by a brand. The Ghar Ka Khana ad campaign by Fortune Foods was a wonderful example of touching hearts with a story. Moms, the target audience, loved it.
How does David brand himself as a Goliath?
So, how does a David like Netmeds invest in building a brand to compete with Healthkart and still have money left for growing operations?
There are interesting avenues to facilitate this startup dream in India, Brand Capital is one of them.
Brand Capital is the private equity arm of BCCL (The Times of India group) which provides funding to growth-oriented enterprises for their long-term brand building needs. In its 8 years of existence, Brand Capital has helped build brand value for over 450 companies.
Incubator Capital is a recent initiative of Brand Capital with the aim of positively impacting early stage start-ups in their entrepreneurial journey.
To understand how they help startups in brand building, let’s hear the story of the crowdfunding platform – Catapooolt which is one of their investee companies.
Crowdfunding in India – A Snapshot
“Crowdfunding in India has so far focused on funding social causes, personal initiatives and creative projects. We are planning to be a harbinger of change by focusing on creating an alternative ecosystem for funding startups”, shared Satish Kataria – MD of Catapooolt, one of the foremost crowdfunding platforms in the country. Since its inception in July 2013, Catapooolt has been catapulting crowdfunding campaigns including categories like sports, politics, social enterprises and startups apart from creative projects.
Wishberry, Catapooolt, Ketto and TheHotStart are the frontrunners in the nascent segment. They have collectively raised about Rs 10 crore through crowdfunding campaigns to back non-tech creative projects, specifically in the areas of film, theatre and music.
However, crowdfunding hasn’t seen any major traction in India till now as the pitching process mostly is being restricted to leveraging on social media reach of the influencers of campaigns.
It may continue to remain a small niche for some time due to lack of awareness as well as regulatory hurdles on lucrative concepts like equity crowdfunding.
Operational since 2013, Catapooolt has so far been able to raise just about a crore of rupees from about 6,000 people for as many as 40 start-ups.
Wishberry & Ketto, each have been successful in raising over 5 crores of funding from investors. This has helped them scale up faster through an increase in team size and marketing spends. Wishberry has been successful in raising around 12 cr from 19,000 funders from 50 countries to support over 400 creative projects with a campaign success rate of 75%. Ketto recently won the Wharton India Startup Competition and with it also $30,000 as prize money.
How does Catapooolt catapult over the competition?
In such a competitive scenario, Catapooolt wishes to carve a niche in this space and position itself as a supporter of innovation for startups. Their team has been striving hard to get traction from some interesting startups like CarIQ on the platform which got funding of nearly a lakh through a campaign with them in 2014.
However, to fully leverage on the government’s Make In India initiative, Catapooolt felt the need of a strategic investor who can help them gain the top of mind recall when startups look at alternative sources of seed funding.
Enter Incubator Capital
Incubator Capital is helping them roll out a nationwide crowd pitch event which will bring together innovators who will pitch their ideas to people from all walks of life. The top 20 ideas sourced from this campaign would be developed into a web-based crowd pitch campaign and would be given due media promotion to get them funded en masse.
The month-long campaign would go live mid-January with a regional marketing blitzkrieg covering top Indian metros including Mumbai, Delhi, Bangalore, Chennai, Ahmedabad etc and invite fundable ideas from masses at large. The marketing mix would include multiple insertions of regional newspaper ads, radio spots, online ads and social media promotions.
For a seed-funded startup, this seems to be a very ambitious media plan which sounds more realistic for late stage startups. However, this is where the expertise and strategic investment capabilities of Brand Capital kick in. They select the right media mix at the best cost and ensure that Catapooolt gets significant media mileage to pave the way for an inevitably successful fundraising campaign.
ET would lend its brand to the whole campaign thus boosting credibility and awareness amongst the right TG. Catapooolt can focus on leveraging its financial resources for managing operations rather than worry about investing in brand building.
Besides Catapooolt, Incubator Capital has also invested in startups like Oztern and FindYahan to help them scale faster and compete with established players like Toppr and Skillkindle in their respective categories.
In summary, these are interesting yet challenging times for start-ups who will have to prove themselves organically sustainable in order to seek growth. The profitable ones who will get fast traction in the marketplace and achieve a top mindshare in the customers’ mind will succeed in the long run.