Entrepreneurs believe Indian startups are in a technology bubble: Survey

As per an InnoVen survey, entrepreneurs feel demonetisation policy was seen as favourable in the short term by only 22% respondents, increasing to 52% in the long term

InnoVen Capital releases its ‘India Startup Outlook Report 2017’: presents founder insights on the startup ecosystem

74% founders believe 2017 will have an entrepreneur driven startup ecosystem

InnoVen Capital, a venture debt and specialty lending business in India, recently released India Startup Outlook Report 2017 that highlights the perspective of founders and CXOs of Indian startups with respect to fundraise and investor sentiment, business focus and challenges, and on policy and government initiatives amongst others.

The survey captures responses from over 170 startup leaders across bootstrapped as well as funded ventures.

As per the report, 65% believed that Indian startup is in a technology bubble, of which 18% felt that it was close to bursting soon. On the fundraising environment in 2016, 63% of the respondents who attempted to raise funds confirmed that they had an unfavourable funding experience in 2016 with almost half of these not being able to raise any funding and the rest raised either a sub-optimal external round or a bridge round.

The respondents believe that what is most likely to improve investor sentiment in 2017 is more companies with robust business models followed by more exits and the least likely factor to better the funding environment is Indian unicorns raising more money at a higher valuation. 94% are looking to raise funding in 2017, with VC-backed companies aiming to raise a median of $12.5 million.

The average expectation on how long it could take to close the round is 4-5 months.

Although difficulty in raising equity funding was voted as the top business challenge, followed by difficulty in managing talent and market creation, it seems however uncertain whether fundraising will be more challenging in 2017 or less as the group was equally divided on this when specifically asked.

Overall, almost three-forth of the set supposed that the startup ecosystem in 2017 will be driven by entrepreneurs, whilst 26% voted that investors will play the pivotal role. The survey also concluded that the most critical factor in choosing a lead investor is strategic fit with the startup, followed by the investor network and commercial terms of the deal, while specifically for VC backed companies, strength of the institution brand was most important.

Focus in 2017 for majority respondents will be growth, however VC backed companies opted for profitability as the primary factor to solve for. Only 38% of the cash burning companies had a higher burn rate in 2016 as compared to 2015 and overall, the median timeline for achieving profitability is expected to be one to two years.

Separately, the preferred mode of exit for majority startups is to publicly list either in India or offshore with 30% selecting M&A as the top choice and another 30% opting to continue to remain private. In all, ~64% of the respondents expect an exit event in the next 6 years.

Workforce hiring & representation was another aspect covered in the report. Of the companies observed, 24% had women representation on the board, 18% had women in CXO positions, and 33% were actively looking to hire women in senior roles. Sales, technology and marketing were areas in which hiring top executives has been or is expected to be the toughest.

More than a quarter of respondents would prefer to relocate to another city with Bangalore being the top choice destination.

GST was selected as the most helpful recent government initiative, especially by founders in retail consumer brands and logistics sector. Media and content sector found the push towards Digital India a shot in the arm and fintech companies were appreciative of digital payment tools such as UPI.

Interestingly, demonetisation policy was seen as favourable in the short term by only 22% respondents, increasing to 52% in the long term. The entrepreneurs converged on the following three major measures that can make India more appealing for startups: better tax policy, facilitation of cheaper financing and investment in digital infrastructure.

Commenting on the report, Ajay Hattangdi, Group COO & CEO India, said, “The startup outlook report is part of our continued effort to understand and communicate the nature of the Indian entrepreneurship ecosystem. In this report, we explore the mood and outlook of Indian startups given the recent budget, cautious investor climate and an uncertain global economy. We hope this report helps all stakeholders including entrepreneurs, investors and lobbying groups create more effective outcomes in engaging with the innovation economy.”

InnoVen Capital is a venture lending platform providing debt capital to high growth ventures. Started in 2008 as the first dedicated venture debt provider in India, the platform offers multiple debt capital solutions, including venture debt, acquisition finance, growth loans, and syndication.

Till date, InnoVen Capital India has provided 140 loans to more than 90 startups across stages, including Swiggy, Yatra, Byju’s, Snapdeal, Freecharge, Myntra, Oyo, Practo, Portea, and Voonik among others and certain mature companies not backed by venture capital investors.

—

Photo credit: Pixabay