From ET Realty
BENGALURU: Startups that may not have hyper growth but can boast of positive unit economics are emerging as investors’ favourites, as sustainable growth becomes the new mantra.
When a consumer-internet company can reap more revenue from a user than the money it spent on acquiring that person as a customer, that’s positive unit economics that metric investors are counting on to shine a more realistic light on a company’s business performance than sales fed by discounts.
As investors tighten their purse strings, India’s startup ecosystem, which until six months ago was driven by a rush to add customers without regard to costs or cash-burn, is increasing focus on scrutinising income statements and making money on an operational level. There are several examples of startups riding this trend, where better bang for the buck now counts more than quick growth.
Budget hotel startup Treebo was largely written off after its biggest rival OYO Rooms secured hundreds of millions of dollars in funding and New York-based hedge fund Tiger Global invested in ZO Rooms. But Zo is now being acquired by OYO after a bitter pricing war that left it without any cash in the bank. Treebo, meanwhile, is back on investors’ radar after proving that it is making money on each transaction, unlike its larger rivals.
“All investors are now looking for businesses that have sustainable unit economics, and to actually be gross margin-positive in the first seven months is a great place to be,” said Sidharth Gupta, co-founder of Treebo, which is backed by venture capital firms SAIF Partners and Matrix Partners.
“The average room rate at a Treebo hotel is Rs 2,100. Revenue per available room is Rs 1,600, which is 4-5 times that of other startups in this space,” says Gupta, adding that Treebo hotels have an occupancy rate of 76 per cent. But these numbers mean that Treebo has a smaller presence than that of its rivals, with 1,500 rooms in 53 hotels as compared to OYO’s 45,000 rooms across 4,500 properties.
But that also means that while Treebo, on an average, has 30 rooms in a property, Oyo has 10.
Faasos, Parcelled, TinyOwl and CitrusPay, too, have built their businesses to deliver sustainable traction driven by tech innovations and product differentiation rather than discounts.