It was a damp year for the startup sector in the country in 2017 with a significant drop in the number of new registrations from the year before. A mere 1,288 new startups registered across the country in 2017, according to Tracxn Technologies Pvt Ltd, a data analyst firm that tracks startups. In comparison, at least six times as many startups had come up in 2016.
Bengaluru, which is dubbed the Silicon Valley of India with startups mushrooming across the city, also saw a considerable dip in the number of new startups. While Bengaluru saw the birth of 1,316 startups in 2016, only 224 new startups registered in the city in 2017. The same phenomenon was observed in Delhi, Mumbai, Hyderabad and Gurgaon.
Investors and founders associated the downswing with the ‘natural progression’ of the sector. “We saw a disproportionate number of startups mushrooming in 2015 and 2016. This was the peak of euphoria when a host investors and entrepreneurs dived in. The bust came in mid 2016. It is a natural progression. After a peak, there will be a dip,” said Zishaan Hayath, a Mumbai-based tech entrepreneur who founded Toppr. Another Mumbai-based angel investor Sanjay Mehta said when the startup sector was thriving in 2015-16, many first-time investors decided to give startups a try but they were not too successful owing to poor technological know-how.
“Being an angel investor was a glamour tag for investors who entered into startup investments in 2015-16. Then they realised it’s hard work and continuous mentoring. Most investors have financial or business background and less of tech understanding. And most startups are technology-based,” said Mehta. “These so-called ‘tourist angels’ are no longer investing due to the high touch investment model,” said Mehta.
However, investors were more careful about where their money goes in 2017, according to Hayath, who is also an angel investor. “While new companies did not come up, there was growth in the existing startups. Investors have learnt their lesson and are now investing in smart and viable ideas,” he said. Data from Tracxn shows while fewer new startups came about, funding kept pouring in, possibly, for the existing and thriving startups. Almost the same amount of funds were invested in startups in 2016 and 2017 — $10,100 million.
Mehta agreed: “The quantum of investment has actually increased while number of deals and angels have decreased.” Startups in Mumbai received the second highest funding, hinting at the emergence of the city as the second startup destination.
Online retail and location services, which were the most sought after ideas in 2015 and 2016 following the success of e-commerce platforms Flipkart and Amazon, appear to have saturated in 2017 with few new ones coming up. However, the sector still received the highest funding — $3,183 million. “Business-to-business (B2B) startups take time to scale up and are not so sexy. So most of the money from venture capitalists still goes to business-to-consumer (B2C) startups as their valuations sky rocket faster,” said Mehta who said those who had burnt their hands with B2C investments were now exploring safer B2B options.
Edtech and Fintech emerged as the new trends as most number of new startups were founded in these spaces. Artificial Intelligence, too, made it to the top 10 sectors. “Year 2017 was definitely better than 2016 for the existing startups in the sense that there was lesser competition and more consumption. The new year is expected to be even better. We hope that 2019 is crazy year and brings another peak,” said Hayath.
Investors said they would be more keen on investing in startups in the healthcare, hospitality, edtech and blockchain sector in the next couple of years. “With the meteoric rise of bitcoin price, the cryptocurrency market has boomed. Lot of investors have taken large investment positions besides bitcoin in crypto assets like Ether, EOS, Litecoin, Ripple,” said Mehta.