'65% startup leaders believe the sector is in a tech bubble': report
The study said that 63 percent of the respondents, who attempted to raise funds in 2016, confirmed that they had an unfavourable funding experience with almost half of these not being able to raise any funding
Mumbai: Nearly 65 percent of startup executives and founders believe that the Indian startups are in a technology bubble, while 18 percent feel that the bubble was close to bursting soon, a study by venture debt and specialty lending business, InnoVen Capital, said.
The India Startup Outlook Report 2017 highlights the perspective with responses from over 170 startup leaders across bootstrapped as well as funded ventures.
The study said that 63 percent of the respondents, who attempted to raise funds in 2016, confirmed that they had an unfavourable funding experience 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 in 2017, more companies with robust business models followed by more exits is most likely to improve investor sentiment.
The least likely factor to better the funding environment is Indian unicorns raising more money at a higher valuation, the report added.
"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..." Ajay Hattangdi, Group COO and CEO India, said.
Ninety four percent startups are looking to raise funding in 2017, with VC-backed companies aiming to raise a median of $12.5 million, the report pointed out. The average expectation on how long it could take to close the round is 4-5 months.
Difficulty in raising equity funding was voted as the top business challenge, followed by difficulty in managing talent and market creation. However, the respondents were uncertain whether fundraising will be more challenging in 2017 or less.
Overall, almost 75 percent of the set supposed that the startup ecosystem in 2017 will be driven by entrepreneurs, whilst 26 percent 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. For VC-backed companies, specifically, 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 percent 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 1-2 years, the report noted.
Separately, the preferred mode of exit for majority startups is to publicly list either in India or offshore with 30 percent selecting M&A as the top choice and another 30 per cent opting to continue to remain private.
In all, about 64 percent of the respondents expect an exit event in the next six years.
On the workforce hiring and representation front, 24 percent of the companies observed had women representation on the board, 18 percent had women in executive positions, and 33 percent were actively looking to hire women in senior roles.
GST was selected as the most helpful recent government initiative, especially by founders in retail consumer brands and logistics sector. Media sector and fintech companies found the push towards Digital India a shot in the arm.
Interestingly, demonetisation policy was seen as favourable by only 22 percent respondents in the short term, but increasing to 52 percent in the long term, the report said.
The Centre has frontloaded the release of Rs 1.15 lakh crore till date, 72 percent of the total estimated shortfall for the fiscal year. The balance amount will be released in due course, as per a Ministry of Finance statement
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