The holiday season brings with it a wave of festivity, starting from the third quarter of the financial year until the new year approaches. Amidst the celebrations and holiday spirit, it’s not uncommon for businesses, especially startups, to experience a slowdown in fundraising as reported by Entrackr, in the month of November, startup fundraising lowered by 48% from the previous month. And it is likely to stay that way for December, in line with the general fundraising trend. However, this is a good time for businesses and investors to focus on their operations and make improvements.
Increasing Holiday Business
During this period, business improves greatly especially for consumer goods companies. A surge in spending is observed, with consumption reaching an all-time high. A recent report shared by Redseer on the holiday season in India had some interesting insights:
- India is gearing up for an indicative 18–20% surge in online shopping during the festive season , ( Gross Merchandise Value (GMV) of INR 90,000 crore ) by ~ 140 million eager online shoppers.
Even physical retail stores, brands specialising in fashion, jewellery, and footwear are anticipating robust double-digit growth, potentially even reaching up to 20% in the third quarter indicating an increase in revenue for consumer businesses.
Due Diligence: Holiday Importance
While retail and consumer businesses witness increased revenue and profitability, there is a potential risk of overstocking inventories and overestimating revenue, as the monthly Management Information System (MIS) reports promise positive growth.
Another deceptive tactic sometimes used by consumer brands is overstuffing different distribution channels to showcase an increase in sales when in reality the inventory is sitting with distributors and retailers.
It is thus important to focus on startup due diligence, even in the current slow moving environment to ensure that businesses are growing in line with reasonable expectations and not employing various covert tactics and dark patterns to show promising results and make informed and improved investment decisions post holiday season.
DD: Definitive Decision(Making)
Much like how our shopping decisions are emotionally driven, the same might extend to investment decisions too; thus in the over-optimistic backdrop, there might be a tendency to take higher risks than usual and make investment decisions based on FOMO(Fear Of Missing Out). However, investments last beyond the holiday season and our decisions may come back to haunt us.This is why the exuberance needs to be tempered down.
“To acquire money requires valour, to keep money requires prudence, and to spend money well is an art”
-Berthold Auerbach (German author)
We could say that investing is both an art and science, as it involves our subjective opinions & preferences based on factual & statistical data.
Visualise startup investing as a river that flows from the mountains to the sea, due diligence, thus is our boat/vehicle on this journey that carries us to our destination safely and securely.
Navigating the Due Diligence Process
A proper due diligence process requires an objective eye, even amid holiday festivities. Thorough scrutiny ensures investments align with criteria such as
Takeaway
Due diligence process acts as a guiding light, helping investors make informed decisions when the festive glow fades away. As we navigate through the holiday season, let’s not forget that successful investments require a blend of courage, prudence, and discipline.
Author:
Mansi Handa
