It’s being called the VC winter. Startup investment has cooled and valuations are falling. Experts are predicting a catastrophic shift downward, not just for one-time highfliers but across startup investing.
India: A compelling story
Amidst all the doom and gloom, India still offers a captivating story.
Unlike 2015, that saw the most fast-paced year in India’s startup space, the first quarter of 2016 has showed a change in dynamics. According to a recent VCCEdge report, startup funding deals in the first quarter of this year stood at $301 million, registering a 50 per cent decline over the same period a year ago when the figure stood at $611 million, indicating that this is a year of consolidation with startup valuations getting trimmed and early-stage investors turning cautious.
It is interesting to note, the last few months of 2015 saw investors and deal makers cautioning startups of a tough 2016 in terms of funding. However, the decline in value is not as high as was projected. Between January 2016 and February 2016, Indian startups raised an average $183.1 per second.
Indian startups raised $1.42 billion across 307 deals in Q1 2016 alone. While there has been a decline of over 16 percent in deal value compared to the same period last year, the number of deals has in fact increased by 108 percent.
Emergence of a robust ecosystem
So what has made this possible?
If we look at the evolution of the startup ecosystem in India, many factors have contributed to its maturity. Driven by factors such as availability of funding, government support, consolidation activities by a number of firms, the evolving technology space and a burgeoning demand within the domestic market - the emergence of startups has indeed put India on the map.
The data on startups speak volumes about the emergence of startups today— it is projected that by 2020 there will be 11,500 firms from 3,100 startups in 2014. Truly staggering and impressive numbers!
And it’s going to change the way the markets are working today in India. Between 2010 and 2014, the infusion of VC and PE has increased from US$ 13 mn to US$ 1,818 mn. Angel investment too has multiplied almost eight times from US$ 4.2 mn to US$ 32.2 mn.
A discussion of India’s vibrant startup space today would not be complete without a mention of the support and encouragement extended by the government.The Startup India Standup India initiative announced by Prime Minister Modi in August 2015 has been a shot in the arm for the startup ecosystem in India.
In a welcome move, the Indian government recently has approved aRs 10,000 crore Fund of Funds for Startups to support startups with an aim to generate employment for 18 lakh persons.The ambitious Startup India, Standup India initiative holds many promises to the budding entrepreneurs in the country, with many favourable policy innovations like free of cost patents filing and 80% reduction in filing patent fee, relaxation of the financial and labour norms and the latest being tax exemption for new businesses meeting government norms.
State governments too have been encouraging the ecosystem by introducing Venture Capital Funds, which are promoted by development finance institutions. Some of these are Hyderabad Information Technology Venture Enterprises Limited (HITVEL), Punjab Infotech, Gujarat Venture Finance Limited and Kerala Venture Capital Fund Private Limited.
An amount of Rs 500 crore has already been provided to the corpus of FFS in 2015-16 and Rs 600 crore earmarked in the 2016-17. Further provisions will be made as grant assistance through gross budgetary Support by Department of Industrial Policy and Promotion (DIPP) which will monitor and review performance in line with the Startup India Action Plan.
The world is looking at India
According to an ASSOCHAM report,India is amongst the top five countries in the world in terms of startups. Often perceived as a thriving under-penetrated consumer driven market with a scope for exponential growth, the sky is the limit.
Recent reports suggest that by 2020, 350 million more users are expected to be connected to the web. This also indicates that Internet penetration and its increasing importance will drive most of the businesses. On account of the consumer demographics, with China being out of bounds, India offers the largest pie of investment opportunity that the world is eyeing.
Making big bets on Indian innovation
India has become a global point of interest for the investment community today.
Despite the changes taking place which I discussed, Indian startups are still being viewed as attractive options.As entrepreneurs and startup founders, we must present the India story to the world and ensure we get the eyeballs and attention we deserve.
In my journey as a startup founder and CEO, one of the most illuminating and valuable experiences has been of attending the Horasis event organized annually.
This prestigious forum is an independent international organization committed to enacting visions for a sustainable future and acts as a true visions community. Fora such as the WEF and Horasis are powerful vehicles for us to take our story to a larger world, understand the workings of global capital deployment and recognize the benefits of being present in mature talent hubs of the world.
Lessons and learnings
Having attended last year’s event at Interlaken, Switzerland I was exposed to the unrivaled history of partnership with corporations from emerging markets to create a powerful platform for cooperation between emerging and developed markets.
This year the Horasis India regional summit to be held at Cascais, Portugal I look forward to showcasing the innovation coming out of India, including our startup’s efforts in the area of HR Tech.
Our time is now and we must ride this wave of enhanced interest. The top three opportunities working for us would be the rise of the startup ecosystem over the last few years, excellent support and mentors who have built startups ground-up and can guide founders in the right direction, and a diverse market before us.
Across the globe, we have very few markets which are as diverse from customer perspective as well sector and adoption perspective. That is where India offers great opportunity for many upcoming entrepreneurs to launch and succeed.