Last year, we discussed how after the Unicorn startups (startups with a valuation mounting to $1 billion or more), the startup ecosystem has been experiencing the rise of cockroach startups. For the uninitiated, a cockroach startup is basically a term used to describe a business which treads on a slow and steady path from the beginning, keeping a close check on its profit and revenue. Unlike a Unicorn startup, a cockroach startup isn’t bullish towards making it way to the profit mountains but actually keeps a tight grip over its spending habits so as to sustain itself from any unexpected funding storm. Well, now according to several industry experts, after the unicorns and cockroaches, the startup ecosystem is currently seeing the uprising of a whole new wave of startups called as the Zombie startups.
As the name suggests, a Zombie business is a business similar to the Walking dead, which means even though the business has reached a dead end with no actual growth, it is still continuing to function with a hope that things will get better some day down the lane.
According to experts, one of the easiest way to find out if a business is a zombie business is by comparing its web traffic growth over the years. If a particular startup’s website shows little to no growth in web traffic in the past year, then it is probably a zombie startup. This is because every business at an early stage should have more and more people visiting its website to find more about them, which should result in a healthy growth in web traffic. So, if there is no or slow movement of web traffic in the early stages of a business, the startup is most likely to fail as no interest in the company equals no interest in the product/service provided by them which ultimately equals to no sales. And, if a startup doesn’t do good sales in its initial years, the following years are less likely to be different.
The past few years have been particularly tough for the startup ecosystem all over the world. The upward trajectory that the industry experienced in its initial phase is now over and the reality is finally setting in. When Morgaon Stanley trimmed down Flipkart’s valuation by a whopping USD 4 billion last year, the entire Indian startup ecosystem went into a tizzy (Read Here). A similar thing happened with Mumbai-based real estate startup Housing.com in 2015 when it saw its valuation decrease from $400 million to less than $50 million (Read Here).
According to industry experts, those huge valuations that took place in the past few years were ahead of their time by one or two financing rounds for many of the current Indian unicorns. The investors have now started realising this, and because of this Series C and beyond rounds are bound to bear the jolt.
Recent statistics have revealed that in the recent past, the number of funding rounds, especially falling in the range $15-50-million have taken a serious hit. Further, the time taken to close fund-raises has increased significantly.
According to WSJ, during the easy money years of 2014 and 2015, about 294 startups raised more than $50 million in funding. And as of today, a total of 216 of those 294 startups are still private and haven’t been able to raise anymore money.
Typically, a startup raises enough capital to survive for at least 18 months. That means it’s decision time for many of those 216 companies that have failed to raise anymore capital. So now, those 216 Startups have a number of options in front of them. They can either raise money somehow or get profitable or go public or even sell. Or, they can keep on functioning in the Zombie mode and wait for something miraculous to happen and save their business. While no one wants to accept they have failed but running a zombie business and not acknowledging your problems isn’t going to take your business anywhere.
Strive to be a unicorn or a cockroach business, but if you’ve somehow ended up being a zombie business, then it is probably best to shut the shop and look for more greener avenues.
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