Even as 2016 comes to a close, startups are hopeful that the New Year will bring in some joy. The last two months of 2016, have been a dampener for the Indian startup ecosystem in hyper-local, food tech, software and investment domains.

While grocery e-tailing and payment wallets have gained this year due to demonetisation drive by Modi government, other segments of the startup world have floundered.

Startups hope that 2017 will be more optimistic than 2016. Here are some trends we forecast:

Shutdowns in e-commerce: With demonetisation curbing consumer spending sentiment and GMVs expected to fall for almost all commerce players, the ones who were sitting tight with less cash will be the first to fall. Investors are likely to clinch to their purses till the consumer sentiment gets back on track. Entrepreneurs in online retail space will face a tough 2017, as they will look cut costs and save on their last penny to survive the trenches. The outlook for 2018 is positive if Indian GDP growth rate gets back on track.

Rise of the Fintech: From lending platforms to e-wallets to credit rating agencies and payment gateways, the whole financial technology space is expected to gain due to currency ban. Payment wallets have already seen a rise in download and transaction numbers. This is expected to grow as government has pushed for discounts across board for those who pay digitally for rail tickets, fuel, toll fees, and retail goods. New investment bets are expected by global investors in this space even as the smaller players will consolidate with big ones.

Analytics and Big Data: Targeting the right customer will become super important. Companies in online hotel or travel services aggregation will look to target only the buyer who is interested than wasting dollars on an irrelevant customer. Big data and analytics will play a key role as more customers will pay digitally. Large binary footprint will lead to a huge rise in targeted behaviour by all brands.

Lessening of cash discounts: As online firms struggle to raise cash to sustain operations, expecting huge customer discounts will be a far-fetched dream, except in the online payments and wallets space. Forget the 30 percent or 50 percent cash discounts on that mobile phone or pizza delivery. Wallets and government agencies will continue to run cashbacks and discounts. OTAs are likely to run cashbacks in order to sell unsold inventory as travel sector is impacted due to demonetisation.

Valuation deals: Late stage valuation deals in startups will be problematic as investors have become cautious. Even though long term prospects of Indian economy look bright, internet entrepreneurs will have a hard time justifying declining sales or lower download numbers to investors. In the short to medium term, large deals look grim. However, seed deals in startup space are likely to continue as angels will want to take early positions at lower valuations. Large mergers and acquisitions are likely to get into a deadlock due to lower valuation proposals compared to 2015 and 2016.

Increase in smartphone and Internet penetration: With a digital push by the government towards cashless payments, more and more Indians will adopt smartphone based payment methods. Merchants are already buying smartphones to download wallets to keep their business afloat. The launch of free 4G service from Jio has catapulted the push for mobile broadband. All this will increase India’s smartphone penetration (about 350 million phones now) drastically. India will also see rapid adoption of the internet, making this market ripe for digital entrepreneurs for years to come. It will lead to a rise in consumption of on demand videos on the second screen. Payments Bank launches in 2017 are also expected to exacerbate mobile linkages.

Large scale consolidation expected: Portfolio consolidation by investors is expected to be enforced as hundreds of startups are expected to flounder for lack of funding in early part of the year. Investors backing entrepreneurs in similar segments are likely to push for mergers. Online retail, food tech, healthcare may be the key focus for mergers here. However, those startups who survive the trenches of 2017, and come out heroic will have a lasting play. India’s digital economy is expected to see a hockey stick rise in second half of 2017 which will continue into 2018.

Source: Money Control