Rise And Fall Of The Indian Startup Bubble: 2016 Is The Year Of Rationalisation

Source | INC42 : By Aarti Venkatraman

Over the past few years, the Indian startup community has received a shot in the arm with investor confidence rising exponentially with every deal made, every round of funding raised and every product rolled out in the market. Clear winners in the space have included startups as diverse and innovative as Flipkart, Ola, Paytm, CarDekho, Zomato, and many others – with aggressive expansion policies, viable business models and problem-solving attitudes – investors poured in money to the tune of billions of dollars.

While 2015 was a golden year for startups and investors in general, 2016 is a whole different story altogether. This phenomenon was first reported in our half-yearly analysis ‘The Curious Case Of The Indian Startup Bubble’ of the Indian startup ecosystem.

The report explored possible issues like late-stage funding crunch due to market capriciousness in H1 2016. February 2016 emerged as the worst-hit month, with late-stage deals receiving only 40% of funding and minuscule seed funding.


Early stage startups, on the other hand, received a lion’s share of investment with all six months of 2016 reporting a huge amount of money being invested. This tide has slowly but surely turned by August 2016, wherein late stage startups received around $463 Mn in Series B and above rounds of funding.

Healthtech Emerges As Clear Winner, Hyperlocal Shows Slowdown In H1 2016

Sector-wise, healthtech emerged as a strong contender in the first half of 2016, to be on the receiving end of investor interest. With the rise in fundings for startups like AlternaCare, Tricog, and Ratan Tata-funded MUrgency Inc., investor confidence in the sector can be safely attributed to the potential $280 Bn available in India’s healthcare sector by 2020.

While traditional safe choices like ecommerce and fintech chugged along with 7% investments coming into these spaces respectively, it was hyperlocal services that took the biggest hit with a number of shutdowns, pivots, and M&As happening in the segment.


Once-promising startups like LazyLad turned B2B from B2C, andPepperTap initially shut down operations in six cities followed by becoming a ‘full stack ecommerce logistics company’ and shutting down hyperlocal entirely. Grofers, too, shut down operations in nine cities in January 2016.

Reasons for this meteoric rise and equally quick fall in the sector could be attributed to a number of reasons – such as aggressive use of an aggregator model, the rise in me-too startups with no clear, unique product or execution, and difficulty in conducting ease of business across states or even pan India.

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