Is it going to be a Nervous November?

Last evening I read an article about the freshly listed stocks of the start-up world – Nykaa, PolicyBazaar, Delhivery and Paytm.

The article reported that these four stocks had lost 19% of their value in the last month, while Sensex & NIFTY indices have grown by 4%.

The question of the public market performance of start-ups has always been simmering in my mind.

Once the training wheels are taken away and the focus shifts from valuation to profitability – a lot changes for the business.

In my journey, I’ve understood that PE/VCs offer start-ups training wheels to fuel the innovation/consumption pattern changes that the founders envision.

This risky nature of innovation and behaviour changes makes start-ups super volatile (and highly rewarding too). High risk, high reward principle stays.

However, if these changes are fuelled by VC money – are these changes sustainable? In Saurabh Mukherjea’s book – Unusual Billionaires – he shares the secret sauce of businesses which have maintained a sustainable Return on Capital Employed (ROCE) year-on-year while continuing their innovation.

For instance, if we refer to Page Industries (the suppliers & distributors of Jockey in India), they won and have been growing their market share in the country because of their innovation-driven practices compared to the traditional players.

Page Industries started manufacturing all components of their product in-house plus focussed on creating aspirational value via their marketing activities – these two things have been their winner strokes.

Tinkering around the fundamental operations of a business could work in cases of pre-existing or traditional products – though will this work in cases where the product is undiscovered for the masses, something that never existed before?

Would Jockey have seen the same growth if it was one of the first undergarment companies in the country?

Today, start-ups like Zomato, Paytm, Delhivery have become irreplaceable parts of our daily routines. They have transformed the way dine in, transact, and even shop (Delhivery powers a large chunk of e-commerce today with its logistics services)

Would such scale and velocity have been possible without the training wheels? Also, what would be the next strategy changes for these players to shift their focus to sustainable growth and existence?

Amongst the four players, Nykaa is the only one with profits.

With Zomato, I did observe the organisation shutting down some of its non-profitable businesses and shifting its focus from acquisition to retention.

Nervous November would be a nail-biting affair to watch and learn from.

As the lock-in period for PE/VC investors comes to an end, they might be looking for an exit – which could harm the stock values.

What are your thoughts? Are you watching this space?


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