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Investors

Why Indian Start-ups are Facing a Lack of Investors/Business Entrepreneurs

To be successful a startup must be innovative, unfortunately, Indian startups are less innovative than startups elsewhere
Why Indian Start-ups are Facing a Lack of Investors/Business Entrepreneurs
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Founder, Horses Stable
4 min read
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The Indian startup ecosystem has its share of success. In 2018, 8 Indian startups become unicorns with a valuation of over $1 billion yet a survey by the Institute for Business Value and Oxford Economics reveals that 90per cent of startups fails within the first 5 years. Flipkart $1 billion payouts to its founder are inspirational and will lead thousands of young Indians to pursue their startup dream. But for every Flipkart, there are 50 startups that fail. There are a number of reasons why Indian startups fail the most important of which is a lack of funding. Startups fail to attract funds for a number of reasons. If an investor sees value in a startup he or she is more likely to invest, however, investors often fail to see value in Indian startups and don't fund them. The problem of lack of funds faced by Indian startups is often a result of their founders’ inability to articulate their business model to the right audience.  

Indian Founders Lack of Confidence

Not all is gloom and doom in the domestic startup ecosystem. There are a number of startups doing exceptionally well, however many of their talented founders lack confidence. While the primary reason why 9 out of 10 startups in India fail in 5 years is that they lack funds, the founders of startups compound their problems because they don't know how to make the best use of funding. Sadly in India funding still works as money lending did in the past. Founders are often not confident to engage the services of professionals who can accurately evaluate their business and provide adequate funding. Other funding related issues faced by Indian startups are that founders misjudge the best time to attract funds. Often founders approach investors too early or too late. Asking for funding too early may not allow investors to judge whether a business is viable while investing too late means returns will be significantly lower than if money been invested sooner.

Lack of an Innovative Business Model

To be successful a startup must be innovative. Unfortunately, Indian startups are less innovative than startups elsewhere. Many Indian startups don’t have an original business idea that is disruptive and by which consumers will be provided with better service; in reality, most Indian startups are copying what has been successful elsewhere. Consider that both founders of Flipkart worked with Amazon earlier and, like Amazon in its early years, started their company selling books online. Because Indian entrepreneurs aren’t willing to be as disruptive as those overseas, they're less likely to have a business that adds value and as a result, attract funding.

Inability to Grow

At the helm of every startup is a young person usually in his or her 20s or 30s. A startup is a young entity and to maximise its chances of growth it must grow fast quickly. Too often those at the helm of startups are content with single-digit growth in the companies’ early months, but they shouldn’t be. If a startup has a viable model and a talented team it should aspire for double-digit growth. Many startups fail to grow at all which is another reason they fail. A fast-growing startup is likely to attract investors and therefore grow further until it's successful.

India Is a Saturated Market

India is the second most populous country in the world and a major economy; however, most startups serve the fraction of Indians who live in urban India. The majority of Indians who live in rural areas and small towns remain untouched by most startups. Too many startups serving too few consumers are saturating the Indian market. In India, less than 20 online retailers are enough to serve the current market, but there are too many online retailers chasing too few consumers. Similarly, there are too many startups serving other crowded industries as well. The increasingly crowded startup ecosystem means there aren’t enough funds to go around.

There are thousands of startups in India some of which will go on to become successful in the years to come. Every startup with an innovative idea and talented leaders can be successful anywhere in the world. For the moment, however, the challenges mentioned are not allowing Indian startups to reach their fullest potential. While funding is the crux of why more startups in India aren’t succeeding, there are innovative startups that bring together investors and founders and allow startups to make case for funding. During such sessions, founders articulate their company’s vision and how it adds value, if investors believe a startup is viable, they may agree to invest the sum requested by the startup. In return, investors own a share in the startup.  

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