Founder's Diary: Startups dealing with funding crunch

Saahil Goel, CEO and co-founder, Kraftly

The Indian startup ecosystem is on a high driven by factors such as availability of funding, evolving technology space and a thriving domestic market. In fact, India today has become one of the largest bases for startups in the world after the United States, the United Kingdom, and China. All these facts reflect a healthy growth on the investment front in the Indian startup space.

Going by the Nasscom reports of 2015, it is predicted that by 2020 there will be 11,500 firms from 3,100 startups in 2014. Investment momentum in startups has increased rapidly over the last five years with investment values increasing at a compound annual growth rate (CAGR) of more than 75% between 2011 and 2015 while investment volumes have increased at a CAGR of over 80% in the same period.

But, of late it has been observed that the scenario is changing with the issue of funding crunch. A joint report by KPMG and CB gives an insight into a revelation that funding into startups has nosedived by as much as 24% from December 2015 of 48% to $1.15 billion in the first quarter of 2016.

Food-tech, payments and fashion-commerce sectors will have a tough time to get funds as opposed to earlier times. The figures throw light on the fact that Series-A funding can be expected to be around $2million instead of in the range of $5-10 million. Series-B is likely to be $5-10 million. And, now even investors will be cautious when it comes to Series-C funding.

There are angel investors, who bring with them more than just money to any startup initiative. They bring on board their share of valuable connections and experience, which can be a blessing for startups. The angel investing market had witnessed a spurt in the last few years. Reportedly, Indian angels funded about $110 million in close to 280 deals last year. It was surely a good start, but they also expect the government to simplify procedures and reduce bureaucracy across the board. And, of late, they too are responsible for this funding crunch.

So, to address these issues, the government has launched initiatives such as 'Start up India, Stand up India'. It has brought  much-needed relief to startup entrepreneurs in sectors across retail, entertainment, healthcare, energy, and education, among others.

The government has waived off inspection for three years of start-up businesses since its inception in respect of labour, environment law compliance post self-certification. It has also allowed 80% reduction in patent fee for startups. A dedicated fund with a corpus of Rs 10,000-crore will be created with three-year income tax holiday.

Nonetheless, there are issues, which still need to be relooked and addressed by the government  and need a solution at the earliest. The processes need to be streamlined with simple debt structures which should wind up within a period of 90 days from making of an application for winding up on a fast track basis.

Looking at the current scenario, one realizes that a pullback in funding will mean more selective investment and that doesn't look good for startups looking for funding. But, we need to understand that it would surely raise the bar of the startup ecosystem in terms of quality.

India has seen a spurt in startup businesses, owing to e-commerce and other innovative ventures in health and IT sectors. But, it's a long journey towards promoting both the small and large businesses that create jobs and build capital for the country. A lot more needs to be done in terms of not just promoting young talent, but also for creating a conducive atmosphere for both the investor and the new entrepreneurs to thrive.

The author is CEO & co-founder of Delhi-based startup, Kraftly, which is an O2O (online to offline) mobile marketplace.

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