The year 2106 started on a high with most of us assuming that the funds would continue to rain in 2016. The euphoria did not last long, and reality started settling in, 2016 saw a steep decline in startup funding as compared to 2015. Rain dance parties, fancy bonuses or an increment every quarter vanished from the market, the Human Resources and founders transformed into devils from the yester years Santa. The job seekers finally gave up their birthright of getting a 50 % pay raise with every job shift and the ones in the job, saw their salaries decreased or being delayed at most of the startups. Finally, the big investors have stopped showering money on time before this bubble would have become unmanageable like the real estate or dot-com bubble. Here are the five myths that got shattered for startups in 2016.
Investment is an entrepreneur’s birthright
Till last year, if you had an idea, entrepreneurs considered investment as a birthright bestowed by the forefathers of our Constitution. Investing in startups was a new fad for those who considered themselves to be smarter than the average citizens of their homeland. Illegally many crowdfunding platforms have mushroomed blatantly violating local guidelines, thanks to them; many IT professionals suddenly became angle investors in multiple companies, with paltry investments of USD 2000 in a startup. The page three clubs evolved, and new pecking order was in place, depending on the number of investments done.
Startups have the right to interpret laws differently
It started with the poster boy of online retail claiming a few years back in Bangalore that the rules of taxation do not apply to them. Uber joined the bandwagon and argued in many parts of the world that the norms applicable to a taxi player don’t apply to them. Entrepreneurship was interpreted as the game of finding loopholes in the existing legislation, which was drafted in the pre-internet era and benefiting from the lack of clarity. The focus was not on solving the real problem but on insisting that the governments and law have not defined it clearly enough, hence the birthright of entrepreneurs to take advantage of it.
If you have the money, a billion dollar company is easy
Raising multiple rounds was seen as the gateway to heaven, and the race was to paint the town with expensive hoardings or give free gifts with every purchase using the funding round. Traditional marketing was seen as passé and the biggest expense line was Google or Facebook ads; customers had to be bought into because once they tasted free service; they would keep on coming back. Multiple firms that raised millions of dollars vanished overnight. Inexperienced and so-called marketing gurus led good business models to inevitable disaster. If any company dreamt of breaking even in the first two years, the founders were considered to be plagued with small town syndrome. If you could make an excellent presentation and prove using an excel sheet that returns were possible, the young and reckless investment managers were ready to pump in millions of dollars of third-party money.
Money can buy and retain talent
Most of the startups were in a race to look cool, starting from putting up games consoles to free food or expensive holidays. The founders were on cloud nine, and each company wanted to offer the best perks in the town. The work was secondary, the first objective of the firm was employee happiness, and it was assumed if employees were happy the productivity and survival are guaranteed. Most of them forgot that in early years, startups need a lot of hard work and even till date apple, google or Facebook are not comfortable places to work in. They are highly meritocratic, and fun is secondary. For the first time, the funding dried up, and freebies had to be cut. As a result, employee’s left in hordes; many had stuck to the firm because of money. There was no emotional connection or cultural bonding.
Technology makes the business
The definition of launching a business had got simplified; a bunch of coders could get together and make an app, release it on google and apple play store and the consumers would instantly start downloading it. Every coder dreamt of becoming a billionaire and weekend retreats or family time had given away to start up discussions. The technology was the king, and if you knew how to build an app or launch a marketplace, you had arrived in life. Taking to customers, refining the product or prototyping were the signs of feebleness.
What’s in store for 2017?
The world is moving to startups 2.0, marketplaces, aggregators or e-commerce will no longer remain the poster boys of the startup world. The low-level fruits have been plucked, and the world is increasingly funding newer domains like Robotics, Virtual Reality, MedTech, FinTech or SpaceTech. Pure science-based startups with patents to defend them are seeing a comeback and increased investor interest.
Having burned their hands by backing startups that were keen to exploit loopholes in the law, the investors have become cautious. The Courts and governments have started taking a tough stand and coming down heavily on offenders. As an entrepreneur, you would not be able to build your business by exploiting legal loopholes only.
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The world is no longer ready to fund ideas unless you have can prove that its unique and patentable, the entrepreneurs will have to build a prototype on their own, test the market for six months to a year and after that go for fund raising. There is no dearth of capital in the world. However, the capital is looking for scalable prototypes and the days of backing a young entrepreneur just because he/she is doing something on his own will be over.
Investors and businesses will value startup teams that have a mix of energy and experience, teams that are either too young or with loads of experience may not cut ice. Being an entrepreneur is no longer a qualifier and world will not start showering goodies because you have selected this journey. More and more people will realize that entrepreneurship is a lifestyle choice and not a glamour-studded voyage; it comes with a fair share of stress, loneliness and struggle. In the end, only those who have the grit and skill will survive the ordeal of entrepreneurship, success will be built on years of toil, and there are no shortcuts.
Wannapreneurs, self-styled angle investors, self-proclaimed mentors and startup hobbyist would continue to see a decline in their TRP ratings, people from the ranks or genuine contributors will continue to be in demand. So In a nutshell, if you are serious about entrepreneurship, 2017 will be a good year for you.