Behind the decline of start-up ad volume in the recent months
Q1 inflation, hike in interest rates and surging fuel prices have promoted many venture capitalists, who were funding these start-ups, to tighten their purse strings
IPL 2022, played between April and May, turned out to be an extravaganza for start-ups with more than 60 of them coming on board as official on-ground and streaming partners and team sponsors.
Funded by venture capitalists, many of these IPL sponsors have either acquired the Unicorn status or are close to becoming ones. Some were even listed among India’s top advertisers in 2021.
They dominated the advertising landscape over the first few months of 2022, but not anymore.
As per the latest TAM data, the advertising volumes of India’s top startups shrank dramatically over the last 2-3 months.
For instance, during Jan-Jul '22, May witnessed maximum ads by start-ups on Television; 18 percent share in the total ad volume. In June and July, their share came down to a mere 11 percent.
The list of 60+ startups studied by TAM included BYJU’s, Ola Cars, upGrad, Spotify, Spinny, Dream11, Car24, PhonePe, CarDekho, Bigbasket, Meesho, Swiggy, Nykaa, Ather Energy and Unacademy. These were the top 15 advertisers in India in this period.
Radio witnessed maximum decline in the start-up ads; their ad volumes dropped from 25 percent in January to 8 percent in July.
Print media also bore the brunt. Although the startup ads in the print rose from 9 percent in January to 21 percent in March, it remained only 13-15 percent between April and July.
Digital ad volumes of startups witnessed ups and downs. While startups contributed 18 percent in the total ad volumes at the beginning of the year which peaked in March (20 percent), their share gradually declined to 13, 11, 7 and 13 percent in April, May, June and July respectively.
It is noteworthy that TV gets the lion's share in the start-ups’ ad volumes -- a whopping 87 percent to be precise, reveals TAM’s study of top 15 startup advertisers. In contrast, Radio gets a mere 12 percent and print media only 1 percent of their ad volume.
Interestingly, digital media didn't get their share of ads from these 15 companies even though they primarily operate in the digital domain, suggests TAM data.
Byju’s top advertiser
Think & Learn (Byjus) was the top advertiser across mediums. Top 5 advertisers on TV, Print, Radio and Digital accounted for nearly 50 percent of the total ad insertion share. While BYJU’s (21 percent) is far ahead of its competitors, Ola Cars (8 percent), upGrad (7 percent), Spotify (6 percent) and Spinny (5 percent) followed it.
Fund crunch or rationalization?
Funded by venture capitalists, many of these tech start-ups are among India’s top advertisers, thanks to their investment in big-ticket sports properties like IPL. Most of them, especially those listed among top 15, have been sponsoring high-ticket properties like the Indian Premier League and Cricket World Cup for a couple of years as on-ground, team or media partners.
May 22’ onwards, some of them like Unacademy, Meesho and Swiggy, have started laying off their employees.
A spike in inflation in Q1, a hike in interest rates, rising fuel prices and Russia-Ukraine war have prompted many venture capitalist funds to cut down on investments in public and private markets prompting startups to tighten their purse strings.
Lloyd Mathias, business strategist and angel investor, explains: “With the overall tightening of liquidity, VC funding slowing down and FDI funding diminishing, there is increasing pressure on companies to focus on the bottom-line. In this context, many startups will have to re-look at their ad spends.”
Rahul Vengalil, executive director of Everest Brand Solutions, a Rediffusion group company, echoes the sentiments: “With venture capitalists rationalizing their investments in startups and the government scanner, there would be a crunch in the advertising budget of these D2C brands.”
“The VC are also asking for unit economics now over hyper growth. It becomes imperative to invest in advertising avenues that work for the brand. This will also add to optimisation of ad spends,” Vengalil added.
Incidentally, amid market volatility and falling funding and valuation numbers, the Securities and Exchange Board of India (SEBI) has reportedly asked private equity (PE) and venture capital (VC) funds to share the calculation process for startup valuations, ET reported.
