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Startup Ecosystem in India in terms of raising capital and expansion has again limited to few metro cities in India despite of efforts from the Government of India and various other organisation at national and state level owing to the federal structure in India.
This has been visible through the lens of funding the Startups we were able to receive for the past year. Some of the segments which were able to use Technology at the core were the ones which got maximum funding while others are still to witness the growth curve.
Why Funding is a parameter for Startup Ecosystem success?
Funding displays the sentients that promoters or financers hold. Investors are the primary keys to unlock Scale and Growth and are majorly responsible for the segment to see an upsurge. That does not mean they are the only parameter, but largely Yes!
Capital brings stability and cuts on the time factor to be able to scale to profitability for expansion. The only question that as an Entrepreneur we should keep revisiting is, How much of what we should take in to ensure that the process of growth remains a little sustainable act and not a pomp & show?
India is yet to pick up as a Startup Country!
While the Startup to much of Indian means launching an app or a website, which largely holds true too, because much of the efforts do not quantify aptly to the numbers that Indian population holds. In short, India needs to be pump in more funds, programs and support system for Startups to actually take place in villages, towns and cities of India.
We only get to hear some news related to initiatives of States offering few crores to Startups which are able to promote or build solution to government of state level. The amount is meagre and sounds more of a formality than a responsibility!
Now lets talk some numbers!
The year 2018 has closed with a total funding amounting to $12.7 billion across 864 deals. The value of investments went at par since last two years viz 2018 and 2017 however what is important there to notice is the number of Startups that have got funded have only increased marginally. What it means is, that the VC funding is getting concentrated to some of the handful of companies and the funnel is getting narrower and narrower. Organisations which were able to scale are getting follow on funds to expand more.
|Year||Investment (in $ Bn)||Number of Startups Funded|
While we are on to predict that the funding funnel getting narrower, the more disheartening info is that 10 companies cornered almost 70 percent of all the funding. The Paytms, Ola and Flipkarts of the Startup are no more a Startup as they lead the segment and their valuation amounts to billions of dollars.
It further translates to a bigger problem called as “Early Stage Crisis”
While the bigger companies absorbing the funds in follow on investments, the actual Startup is unable to get funds to sustain. Either they have to bring in seed capital through friends and families or they have to get to a business model which starts earning from Day1.
Listen to the exclusive Podcast of Siddhartha Ahluwalia with Ex Google Chief Rajan Anandan
|Year||Series A||Amount||Avg. Series A Funds|
|2015||716||$1.39 Bn||$1.94 Mn|
|2017||485||$421 Mn||$1.11 Mn|
|2018||352||$342 Mn||$0.91 Mn|
The number of Series A funds have reduced from 421 to 342 since the last two years and the average amount of funds given by a VC has also come down to $1.11 Mn from $0.91 Mn. This clearly states that the Startups aint brings the right scale and growth drive which could positively interest the VC community.
Some of the leading Angel Networking platform have raised concerns. Speaking on the development Padmaja Ruparel, Co-founder, Indian Angel Network said
“The market has given a strong signal in the year for entrepreneurs to create innovative propositions and not me-too products. Some government regulations like Section 56 of the IT Act have held back angel investment as investors. On the other hand, companies have shifted overseas (US/Singapore) to avoid the angel tax net. Investments of $1 million to $5 million or $6 million have been very difficult. Good companies have faltered for lack of funds/delayed at this stage. This has impeded growth for companies, and angel investors have become wary.
However, the Government of India’s Fund of Fund startups is committed to several venture funds. This should bring more money into the startup ecosystem and encourage entrepreneurs to get started. This is exactly the reason that IAN has launched the IAN Fund as it will bring critical post-angel round money to startups, along with mentoring and market access.”
Top Sectors in the Startup Ecosystem
Some of the leading sectors which continues to claim good amount of investment deals even in the current narrower funnel are mainly
- FinTech – Includes Payment Banks, Digital Wallets & Capital and Loan Lending Startups
- Analytics – Startups like Analytics Edge, Cropln and GyanData
- IT solutions – Companies like Zoho which continues to climb the growth ladder.
- IoT – StellApps, Zenatics, Smatron etc.
- Gaming – Organisations like 99 Games, Creatio Soft, Games2win
- AgriTech – Crofarm, Aaram Unmanned Systems, Aibono, CropIn etc.
- Artificial Intelligence – Active.ai, Alndra systems, Artivatic Data Labs etc.
- Co-Working Space- Awfis, Springboard, WeWork launched in India, Creator’s Gurukul
- Auto Commerce – Droom, Carwale, Cars24, Cardekho etc.
Read about the continuing war of Fintech companies in India
Is the Government doing enough?
Since the last 2 years post the exuberant start of the Startup India Standup India programme the ripple seems to be less impactful that it looked. Apart from some tax exemptions, patent reforms, incubation programmes and Mudra loan.
Under Mudra initiative the government has build a corpus of 10,000 crore ($1.6 billion) to support the Startups however only 10% of the total amount has been released so far. CR Chaudhary, minister of state for commerce and industry in an statement to the Parliament stated that “Rs 605.7 crore has been committed by SIDBI [Small Industries Development Bank of India] and Rs 90.62 crore disbursed to 17 Alternative Investment funds, who in turn have invested Rs 337.02 crore in 75 startups,” uptill Dec, 2017.
Apart from the funding the government has recognised over 5,350 startups in India and only a handful of 74 Startups have availed the tax exemptions in India. Out of the total Startups which have been recognised in India, Mumbai claims 1079, followed by Bengaluru with a count of 853 Startups and finally Delhi NCR with 748 Startups.
Well the number and the Startup distribution says all. Under the mission statement of Shri Narendra Modi, Startup have to start up in smaller cities, towns to be able to get to its real shape and fervour. With the population of 1.3 Bn people 5350 is an extremely small number and not to mention that these numbers come from some of the leading cities in India.
Hence India is still to see the dawn of Startups in India and there has to be a collective efforts from public as well as private sector to promote and foster Entrepreneurship in India.
Does lesser investments translate to greater maturity levels in Indian Entrepreneurs.
So far with the developments in the investment area of Starups it seems that the Startup community is undergoing a phase of auto-correction and eventually will come up with better and sustainable products. Some of the Startups which seemed to had lesser chances of survival i.e Snapdeal sustained through sheer efforts of the founders. On the other hand leaders such as Flipkart which were playing over heavy discount cycle clubbed with at par customer service saw a great upsurge on collaborations over technology, as Technology brings overlap of industry segments. And above all Active Consumer-base continues to remain the king.
So, it could be summed up as under.
- If your product and idea resonate with investors idea of scale and growth, investment doesn’t seem to be an issue. Examples are Flipkart, Byjus and Acko General Insurance.
- Gone are the days when as a founder you can claim seed capital basis Idea. Your MVP (Minimum viable product) has to be live and fetching progressive numbers for the investors to get on with the driving seat with you!
- Consolidation seems to bring in more confusions in the market. It has its own advantages and disadvantages. However, the end consumer will be benefitted. So far the Market is Softbank & Alibaba vs Amazon vs Google
- Some early on segments such as Auto-commerce, Co-Working Space, Online Groceries & Hyperlocal services are on the growth spree. They are yet to taste the glamour of Ecommerce and Fintech companies though.