Internet businesses are shifting their focus from cash burn to profitability as the market has become saturated with copycat models. Venture capital activity has slowed and investors are now looking for sustainable business models with a path to profitability. The honeymoon period of raising funding rounds without regard for profits is over, as unit economics and positive cash flow have become priorities in an increasingly competitive market.

1. Internet Business – Shift in focus
from cash burn to profits
SAPIENCE 2016
Afzal Anwar
Class of 2017 | PGPM
20th October 2016

4. CHANGE IN CONTEXT
Saturation in the market Me – Too Models
Failed to raise the next
round
First 5 months of 2016 - 14 funded startups have shut
April-Total no. of deals = 63,; Deal value = $11.90 mill
June- 50 deals, making it the lowest in a single month
500 startups have shutdown in last 20 months
“Nobody looks at the
fundamentals of
valuations anymore”
“If a company is losing
money on every
transaction, then the
business model is not
sustainable”
-KarthikReddy, Managing Partner
Blume Ventures
Devangshu Dutta,Chief Executive Third
Eyesight

5. Deal Activity across PE firms, venture capitalist and
even angel investors has become conservative and
sluggish

6. Investors are looking for sustainable business models
with a path to profitability

7. Honeymoon
is Over
Its time for
profitability

9. INVESTOR’S VIEW

10. Niren Shah, managing director, Nowest venture Partners: says
"FOMO (fear of missing out) drove up valuations. That factor is
lower now. The market is worried about profitability.
INVESTOR’S VIEW

11. INVESTOR’S VIEW

12. Deep Discounts- Unprofitable GMV
Customer Acquisition Cost
Talent Acquisition and Retention
Nascent Markets with Long lead time
Strong International and Domestic Competition
Quick ScaleShorten Growth Cycle
CASH BURN TO ACQUIRE CUSTOMERS & SCALE FAST

13. FOCUS SHIFTS FROM CASH BURN TO PROFITABILITY

14. UNIT ECONOMICS
Life Time Value of a Customer
Repeat users
Gross Merchandise Value
Transacting users
Customer acquisition cost As the industry moves
towards maturity focus
required to shift
FOCUS

15. Scale-up of business models: capability of start-ups to grow consistently and rapidly
Unit economics of disruptive models
Pace of disruption slowing due to lesser gravity of need
Competitive intensity is not diminishing, leading to lower capital efficiency
Management depth to be balanced with entrepreneurial energy
KEY CHALLENGES

16. Unit economics
Bootstrapped
Down-round funding
Mergers
Venture Debt
EMERGING TRENDS

17. “ TOPLINE IS VANITY, BOTTOM LINE IS SANITY,
CASH FLOW IS REALITY”

18. Focus on
communicating
value
Leverage tie ups
with partners or
other niche players
Grow slowly
Focus on
Customer Loyalty
Think out of the
box on marketing
Focus on business
fundamentals
FEW SUGGESTIONS