Bengaluru: As Internet start-ups enter their second decade, they have one message alike for demanding customers, disrupted traditional businesses and bewildered regulators: the fun has just begun.

It’s a truism that most of us continually underestimate the impact of technology. For evidence, consider this. If anyone had told you in 2007 that within a decade, a start-up run by two geeks operating out of an apartment in Bengaluru will become India’s second-largest retailer of consumer products; that a mobile recharge service will be seen as one of the biggest threats to banking giants such as State Bank of India and HDFC Bank Ltd; that you wouldn’t need a television to watch TV shows—you’d have dismissed that person as a fool (not that anyone made such predictions!).

Yet, that’s precisely what’s happened. Start-ups such as Flipkart Ltd, Paytm (One97 Communications Ltd) and Ola (ANI Technologies Pvt. Ltd), as well as the giant American tech companies, Google, Facebook Inc. and Amazon.com Inc., are transforming business and everyday life in India. And they are just getting started.

In this series, Mint chronicles the rise of start-ups and looks at the entrepreneurs and investors who have driven the start-up boom. The series will explore what’s worked in the start-up world and what hasn’t. We will also try to capture the disruption caused by start-ups in retail, finance, healthcare, education and other businesses; their impact on everyday life and jobs; and their place in the broader corporate world.

Until recently, the middle-class dream was defined by a stable and well-paying job, preferably at a multinational company. While that hasn’t changed, the success of the likes of Flipkart and Paytm is slowly helping make entrepreneurship and start-up jobs acceptable, even desirable choices, for college graduates.

Regulators and lawmakers continue to lag behind in understanding the shape-shifting businesses and accompanying challenges of tech start-ups. In December 2014, when the Delhi government tried to ban Uber after one of its drivers raped a woman, the police didn’t know the location of the company’s office. India urgently needs laws on data privacy and better ones governing e-commerce, cab hailing and other Internet ventures. Antitrust regulation will become increasingly important as so-called network effects lead to monopolies and duopolies. The rise of new technologies such as artificial intelligence and blockchain will only make it tougher for regulators to keep up.

Since venture capital firms entered India in 2006, they have backed companies providing so-called value-added services on mobile phones, e-commerce start-ups, advertising tech companies and others. The current favourites seem to be software sellers and financial technology providers.

The evolution of investor preferences in the past decade has led to, and been changed by, the two or three cycles of boom and bust. The start-up funding mania of 2014 and 2015 that was based on the expectation that India’s consumer market had endless potential was misguided. The market is much smaller than previously believed but it’s big enough. Strategies need to be evolve beyond plying customers with discounts and ads; entrepreneurs have to find much smarter ways to tap the windfall-in-waiting from the hundreds of millions of Indian consumers in order to make profits. Investors in turn will need to be more daring, and provide encouragement and pushback to entrepreneurs when required.

While start-ups have been disrupting traditional businesses, doubts remain about their own health. Of the country’s top 41 private consumer Internet companies, only one generated a profit in the fiscal year ended March 2016, a Mint analysis in February showed. In the past 18 months, companies have become more sensible and leaner. Investors have also prompted many to merge.

Still, most start-ups are struggling to find the right balance between cutting losses and expanding sales. It’s not clear how and when the likes of Flipkart, Ola and Paytm will become profitable and deliver initial public offerings, particularly with Amazon, Uber and others threatening to overtake them.

The entrepreneurs who led the start-up boom over the past decade have changed, but the investors who backed them have largely kept their positions. The Bansals of Flipkart, the country’s entrepreneurial icons, no longer run their company but Lee Fixel, the New York-based fund manager who backed Flipkart and tens of other start-ups, still remains the single most influential man in the start-up world. Hundreds of start-ups have shut shop in the past decade, but the churn among venture capital firms has been limited. Most venture capital firms (VCs) have failed to deliver satisfactory returns so far but their fund sizes and fees have only become bigger.

The truth about tech investing in India is that start-ups here won’t deliver returns on the scale of the US and China. It will take much longer for start-ups to make money and for VCs to become insanely rich.

But the advance of technology is unquestionable. You will always have some app for buying phones and clothes, booking a cab, paying your bills, ordering food and messaging your friends. The ephemeral nature of the Internet business dictates that those who deliver these things will keep changing.

Source: livemint