Photo credit: Pixabay.
New data confirms the funding squeeze in India, after the irrational exuberance of 2015. This has in turn led to a rise in failures of startups as well as forced exits and consolidation this year.
On the positive side, new startups continue to emerge at a healthy rate, despite the correction in the funding scene. So there’s no real let-up in enthusiasm for entrepreneurship yet.
Software industry body Nasscom’s startup report for 2016, released this week, notes a 20-30 percent decline in funding volume, from US$4.9 billion last year to a projected US$3.8-4 billion in 2016. Startups registered or incorporated in 2011 and beyond were taken into account for this report.
Gone with the wind
The squeeze has come mainly in big-ticket deals from major VCs. Even marquee startups have failed to raise anything like the billion-dollar funding round Flipkart had last year. The average ticket size came down to US$6 million this year from US$8 million in 2015.
Lower-rung startups have also struggled to raise follow-up funding. This has contributed to nearly 1,000 startups shutting down. About 550 were founded in 2013 and 2014.
B2C startup failures have failed at higher rates than B2B startups, which have better unit economics and depend less on funding. The reckless burning of cash to scale up, which many B2C startups embarked upon last year, proved their undoing in 2016. This was perhaps most starkly evident in food startups, which saw the steepest decline in funding.
See: The sordid saga of a $300 million-funded startup going bust
The number of mergers and acquisitions is projected to be around 80 this year. The rise in exits should normally be good news for investors and signal a maturing of the ecosystem. But a closer look reveals that the size of deals are relatively small, suggesting that many were distress sales. Only 5 percent of the acquisitions were from companies abroad; mostly, it was a case of Indian startups acquiring their smaller or troubled cousins.
See: Something’s rotten in India’s startup scene – and it’s time to call it out
Images: Nasscom report.
Silver lining
There was silver lining in the gloom. The number of startups funded and funding deals actually went up marginally this year despite 2015 being a boom year. VCs raised a corpus of US$2 billion for investment in seed or early-stage startups.
What it shows is that there’s no loss in enthusiasm for tech entrepreneurship. Student entrepreneurs formed as many as 350 startups this year, a 25 percent rise from 2015.
The rise in seed and early-stage funding also shows the confidence that investors have in the future potential of the Indian startup ecosystem, even if they make corrections and shift their focus to B2B and new age tech startups in the short term following the profligacy of 2015.
This post The rise in failures and fall in funding for Indian startups in the winter of 2016 appeared first on Tech in Asia.
from Tech in Asia https://www.techinasia.com/failures-and-funding-for-tech-startups-in-2016-india
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