Page 24 - Banking Finance December 2022

ARTICLE

fields of mobility, e-commerce, education and banking and can just fathom as to what would have been our economy
finance and all of these fields have produced one or more had these companies not been there.
unicorns. But are all of these businesses profitable the
answer would be vehement ‘no’ at least for the time being Startups stir up economic activity and promote growth. They
but it is also a fact that they do command huge valuations. have a direct impact on the country’s GDP and have a
This valuation game is something that has resisted some of tremendous indirect impact on job creation and economic
the great investors / financiers of our time in investing in activity through vendors and suppliers. The wheels of the
startups. economy gets rolling as the banking system gets involved
to fund the startups and ancillary units / vendors, also the
We have even witnessed as to how fragile these valuations credit uptick happens as money starts coming into the hands
could be as was the case with some of the crypto and of the employees. It is imperative for us to understand that
metaverse startups. The valuations of these companies rose all aspects of the economy are related and when one aspect
significantly during their boom and when the tide turned is buoyant it automatically pulls up the rest thereby
against their favour, the companies became much less increasing the economic activity.
valuable that what the investors had believed while making
an investment. This led to investors losing huge amount of Having discussed the importance of startups in the financial
wealth in a very short span of time. and economic prosperity of a country it is also important to
note that when a startup goes bust it also makes a negative
Another reason for this wide variation is that these impact on the banking system and the economy as a whole.
technologies are relatively unproven and the valuation is all
dependent on its success with a certain revenue level. In
Opportunities:
the event the projections do not work out as envisaged the
Startups provide an alternative source of revenue and
valuations drop significantly as there are very less or almost
there is an increasing potential in startups as they cater
nil tangible assets to support their valuation.
to the ‘new economy’.
Majority of the startups are technology firms with a
The aim of any business is to be profitable and add value to
focus on the bottom of the pyramid and an opportunity
shareholders wealth and startups are no exception to that
to target a mass segment of the population.
fact. However startups have an added responsibility they
promote growth by disruption, by challenging the status quo. Financial Institutions who start early would be at an
All the big companies today were once a startup and one advantage as they would become startup compatible
early and would have a better chance to participate in
rapid growth and expansion.

There is also no denying the fact that startups have been
and continue to be a backbone to business development. It
is because of the will and vision of the founders that a lot of
services and benefits that were unheard of and not thought
about in the past are a reality today.

As we progress into the feature, entrepreneurship and
startups will gain more importance which would open new
opportunities for the banking sector as well. With the banks
also entering the game it means more disruption, better
opportunities, a healthy competition and a plethora of
financing options for the entrepreneurs to convert their
ideas into successful business ventures.

24 | 2023 | JANUARY | BANKING FINANCE