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AcquisitionsMerger amp; Acquisition

Why Are Startups In India Opting For Acquisitions Amid Dry Funding?

Anyone thorough with the Indian startup scene might be aware of the sorry condition of the industry's funding situation right now. However, whatever might be the case with the funding, it seems to be having an almost negligent effect on the number of deals that we're witnessing on a daily basis. Almost every other day, we read the news of an XYZ company being acquired by another for a whopping ABC amount.

I'm sure many of us might wonder why would anyone be willing to give up something which they have given birth to and nurtured on their own? Why would they just give away their months of sleepless nights, hard work and sweat? There can be a number of factors influencing a company's decision for submitting to the decision for an acquisition.

1) The Bank accounts have run dry -

Seeing the current steep decline in the funding rate, many entrepreneurs are preferring to take the acquisition route than pull the plug once-in-for all. The stakeholders of the startup are man king a well-thought out strategic decision to cash out even if the value is considerably low than expected or trade their stocks in their company for stocks in a company with better and brighter prospects. Further, a follow up on the whole funding process is a big challenge for all those startups who haven't been able to have clear and substantial revenue model despite having gone through multiple rounds of the funding process. This is why one can see a substantial increase in swapping and acqui-hires in the Indian startup scene.

2) Innovation -

There are times when a particular technology's quality and innovation leads to the possibility of a company getting acquired. Whenever a startup sees an opportunity of increasing its reach in the market by making use of another company's technology, it goes on to buyout that particular technology. In situations like these, the technology ends up being the sell-out. In today's times, a technology is only beneficial to the company, is it is helping in increasing the company's efficiency and lowering its costs.

An apt example of this can be Snapdeal's acquisition of Freecharge. The acquisition was a strategic decision on Snapdeal's part as it helped the company in introducing a payment capability in its system that they predicted was compulsory so as to effectively compete in India's current eCommerce market.

According to some industry experts, an acquisition also helps in escalating the product's pace to the market.

There are various recent examples of companies getting acquired which were not that much of a position to scale but their tech part served as a bait to the acquirers. Facebook's acquisition of Little Eye Labs is one such example.

3) Lower costs, faster growth

Under current market circumstances, in order to make the cut, the startups have to cut down substantially on their costs and put real numbers on the board. Hence, under such conditions, various companies are forcefully going for acquisitions. In a majority of scenarios, common investors are doing the trick. They're acting as the middleman in catalysing the entire process. A classic example of this is,Tiny Owl's deal with Roadrunnr.

Startups have to continuously grow and produce numbers so as to constantly prove their potential to their shareholders. Because of this very reason, the path of organic reach turns way too risky for them as the situation can turn within a blink of an eye with just one round of funding. All of a sudden, your selected target acquisition could be in a situation where they are pinning to acquire you or they have fresh money flow so as to gear up for a fierce competition with you and hamper your position in the market. Therefore, acquisitions are great for delivering growth faster, removing the crazy pricing pressures and lowering the cost of acquiring new customers.

4) Beat the Competition, not the competitor

Sometimes in life, it's better to join hands with your competitor and rule the world together, rather than going after each other and stunting each others growth. This is exactly what happened in the case of Flipkart and Myntra. Instead of going after each and other and eating out of each others profit, they decided to burry their hatchet and compete it out together with their U.S. based rival Amazon.

Industry experts believe that if the Indian startup ecosystem continues with its operational challenges and funding issues, buyouts and mergers will soon become an everyday occurring.

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