The loss-making business startup has become a trend but will not last long in the next few years. The bleeding of capital does not make sense unless the same is being taken over in consideration that the business will grow revenue from another stream of business. Well, strategic cost management seems to be the wrong subject for these loss-making Startup Business models. I request my readers to explain or rather comment their views on this type of business models which will be a threat for the Indian economy in the coming days. Does the subject of profit has changed?

Disruption against disruption will play in the coming decade. The fiasco which will be created when one disrupted company is being brought at a premium and later on another company comes to throw that Premium valued disrupted company out of the game. The collapse of the valuation of disruption will meet its end when the premium takeover will become a pain for the acquiring company.                                                                                                                                                     
The loss-making company as startup and the Private Equity investor game seems that they have learnt the subject from different planet.  If we make a quick look towards a few data we will find that the current pattern of Private Equity investments and their understanding of valuation metric forces management theories to change.

Ola doing business of Rs.2500 cr. and loss of Rs.2500 cr. Dunzo doing business of less than Rs.1 CR and loss of Rs.170 CR; Udaan doing business of Rs.12 CR and loss of Rs.338 CR. Same is story applicable to most of the other startups. Sustainable business model theory has been shattered and these type of companies how does one think to have long term career and long term business association.  These Private Equity game are beyond any management books. A more detail looks into the below data will give a broader idea about how the Unicorns are playing the game of attracting money, generating loss and attracting inflows.

This theory will not last much longer the day a new pattern of startup challenges this disruption and then makes loss-making into a really difficult business model. The theory of strategic cost management has been just torn down by these players who seem to learn the subject of valuation from a different earth. Being an ex-merchant banker it becomes quite difficult for me to understand these valuation models.

Loss-making, creating an unsustainable business model and creating short term employment with long term stable unemployment seems to be the theme of these Private Equity companies. Valuation companies will soon face more stringent rules and regulations when these models will create a massive problem for the Indian economy as well as for genuine startups.

The good quality startup will fail to attract quality resources and hence the problem in the long term will increase and will not decrease. Startups with a genuine business model for the benefit of the social benefit will face more difficulty in attracting genuine capital.

PMS-Portfolio Management services – These several start-ups have been created as a bucket where investors will invest and will get a return over the long term. The risk of failure and loss has been converted into a profit-generating model.  These investments will face hard times when the disruption against disruption will come into play and will create a massive blow to these investors. Further, this loss-making bucket clubbed in the form of AIF-Alternate Investments Fund is a significant risk for the investor. Short term, few clicks of growth does not guarantee long term sustainable returns.

The coming decade followed with 5G will create more disruption and more unique business model challenging the existing disruption. This phase will create a more stringent assessment of valuation models, rules and regulation. Indian economy is on the path of becoming a developing economy. These models of practices should be looked with efficient eagles eyes so that they don’t place brakes on Indian economic growth or attracting FDI investments or Private Equity.

The compliance and legal aspect of the merchant bankers and registered valuers need to be very careful about their business practices. These valuations might be challenged by the Indian legal system when a crisis strikes. Hence better safe than sorry.

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