Kris Gopalakrishnan is right, most startups fail; but India is different: Experts

Infosys co-founder Kris Gopalakrishnan on Monday said only 5-10 percent of start-ups will become large and scale-up and that as much as 70 percent will fail. He said this should not be seen as a challenge and said that this was part of a natural process of evolution. In the present Indian context, where startups ecosystem is witnessing a churn and shakeup due to global and domestic reasons, the statement may be easily interpreted as a bleak comment. But it is not so. [caption id=“attachment_2734266” align=“alignleft” width=“380”] Kris Gopalkrishnan, Co-Founder, Infosys[/caption] The start-up industry has seen traction in India owing to many factors, one of them being technology. Technology has simplified the way business is done. There is no need for conventional retail, or distributors to go-to market. Entrepreneurs can access the market through the internet because everything is now tech-enabled. It has also helped in fostering a ‘can-do’ attitude across classes in the country towards entrepreneurship. Though nascent, there is a vibrant ecosystem which is supportive of entrepreneurship. There are a considerable numbers of failed start-ups in the country. However, there are institutions and others who are willing to give people a second chance. There are some that are still called start-ups though they have been around for over three years and are doing well. Can the term start-up be used for them, for instance? Firstpost spoke with a few sector experts to know their view on the sector and though all of them agreed with Gopalakrishnan’s views on the sector, they remarked that unlike Silicon Valley and China, India is a late entrant in the sector and it was not comparable to other markets globally. It is true that very few of start-ups in India will go through the IPO route and there will a number of exits through mergers and acquisitions, said Paula Mariwala, Partner, Seedfund, and Co-Founder, Stanford Angels. “However, our pace is different,” she pointed out. Though a growing number of start-ups call themselves unicorns, how many of them are sustainable is altogether a different matter. However, Indian start-ups are maturing and there is a lot of potential here, Mariwala said. A number of start-ups have failed, particularly in the food delivery space and also in the education sector, for instance. However, experts point out that most of them have been one-man founders and those who enthusiastically entered the sector seeing potential to make money fast without a robust business model. Failures have to be categorised differently. “Would you call those that shut down as failures or those that have slow growth as failures,” asks Sreedhar Prasad, Partner, E-Commerce & Startups, KPMG in India. “Startups that fail and that shut shop are different. There are some startups that have a slow growth. They are finding it difficult to get initial funding. “ The golden era of Indian startups, when any and every entrepreneur managed to get funding is surely all but over but there are still some venture capital funds that are willing to give money to those who are willing to disrupt the market, say experts. Recent surveys and studies indicate that the funding for start-ups is likely to become a trickle with fund managers tightening the scope and flow of capital. A joint report by KPMG and CB Insights reveals that funding into start-ups has nosedived by as much as 24 percent from the December quarter of 48 percent to $1.15 billion in the first quarter of this year. Year 2015 had a lot of investors and VCs parachuting into the country with the result that a number of non serious players also took a shot at the sector and were lucky to get capital to back their ideas. But that has changed, points out an analyst stating that the focus is now shifting to a rational deployment of funds for the sector in the country. Many start-ups in India do not have a global perspective, points out Sanjay Pande, Director and Fund Manager, YourNest Angel Fund, and that is the reason they find it difficult to get funding, he points out. There aren’t many start-ups in the country that are exporting and when this happens, the sector will do even better. However, “I am positive about the sector because India is a strong consumption market, and online business as a channel is booming,” says Prasad.