The Startup India campaign aimed at boosting entrepreneurship marks its first year anniversary January 16 but it has not yet rendered the desired results. The year 2015 saw an 87 per cent increase in the number of startups being founded, the number dropped by 67 per cent in 2016. Funding also slumped in 2016 by around 47.7 per cent. At least 800 start-ups founded after 2011 have shut shop, signalling a deteriorating health of the sector, according to data analyst firm Tracxn Technologies.
Startups such as Peppertap, BeStylish, Fashionara and Localbanya form a part of the Deadpool List, a catalogue of dead or dying startups compiled by Traxcn. Until 2015, startups in the country were consistently growing because of the government’s promises on funds, assistance hubs and tax relaxation.
Moreover, the Startup India initiative had received only 1,368 applications by mid-December last year, of which only 502 were recognised as startups by the Department of Industry Policy and Promotion (DIPP). “The decline was ironical,” said Praveen Chakravarty, co-founder of Mumbai Angels, an angel investment group. “Just after the government launched a Startup India initiative on January 2016, investments into startups dropped and therein lies a lesson.”
“To foster a good investment climate, what we need is not a policy for startups but a robust environment for starting a business, ease of capital flows to enter and exit,” said Chakravarty. According to experts, one of the biggest reasons for drop in investments in startups is that investors have not been able to exit from their previous startup investments. “Only when investors exit with handsome returns will they invest more into newer startups,” said Chakravarty.
Mumbai-based angel investor Sanjay Mehta also blamed the valuations-expectations mismatch for entrepreneurs and venture capitalists. “Non performance of milestones and profitability challenges by the startups is another reason.”
What to expect in 2017
In 2015 millions of dollars were pumped into sectors like e-commerce, fintech and foodtech, with investors not risking to miss out on the next Flipkart. These sectors were, however, the worst-hit by the slowdown in venture funding in 2016.
However, 2017 could be a year of clean-up in terms of investment. “The year 2017 will see realistic valuations and saner investments in startups. It’s the time to invest with right ideas and founders,” said Mehta. Education, fintech and healthcare are the sectors expected to do well this year. Spurred by the GST, logistics sector is also likely to do well, according to Chakravarty.
With the government’s leap towards a cashless economy this year, new ventures exploring alternate currencies such as cryptocurrency are likely to interest investors.However, Chakravarty said that the investment climate for new startups might not pick up anytime soon unless there are exits. “That can happen only when overall business climate is good. After demonetisation, the stock markets are in a state of fear over uncertainty. This impacts the IPO (initial public offering) markets which will be damp. If IPO markets are damp then exits for investors cannot happen,” said Chakravarty.