After witnessing a boom in the startup ecosystem in India, the market is now witnessing a slowdown in the same environment. The startup frenzy in the market has cowed down to a crawl. We can no longer boast, thanks to a lesser number of new entrepreneurs coming out of India’s hat due to many reasons.
Risk Aversion
The reluctancy of investors to invest in high risk startups, as investing is a gamble where higher the risk one takes, higher are the chances of reaping greater profits. Innovative ideas usually call for the courage to take risks. There are numerous examples, such as FedEx and Facebook, which were promising startup ideas but were turned down by investors multiple times as they were either exceptionally risky or highly unlikely to succeed. However, these are a couple of the best performers in the global market today.
In India, a very rigid ideology is still followed by investors. The ‘Copy and Paste’ models are seen as a much safer bet by Indian investors, rather than putting their money behind novel ideas. These ‘Copy and Paste’ business models generally struggle to pick up their pace, as replicating the same model in India is difficult due to a difference in the needs and mindset of people residing here. Industry statistics state that the reason for the failure of 40% of startups is lack of ‘product-market fit’. This means that we are developing products which do not meet the needs of the people here and therefore do not sell.
Startups like Rapido and Ather Energy are examples where investing in ideas formed according to the needs of the particular place has proven to be a game changer for the startup ecosystem in India. Where Rapido became a pioneer in bringing the concept of ‘Bike Taxi’ in India, Ather Energy is first in the country to launch EV scooters.
Skill Shortage
Shortage of skilled personnel is another reason for the deflating startup ecosystem in India. A startup is formed by a group of skilled professionals, who possess enough knowledge to pull the product through. There is a huge gap between rote learning and industrial learning. The country’s age-old education system is producing professionals who lack analytical and practical teaching, which is required by the startups and companies.
Statistics show that less than 5% of the Indian software engineers can write functionally and logically correct code and yet we have entire cities that are hubs for IT startups in India. This dearth of talent would eventually mean that startups will find it close to impossible to hire the right talent, especially in non-metro cities. In order to fuel the Indian startup ecosystem, the country needs to revamp its education system to make individuals more industrially capable.
Economic Slowdown
The most glaring problem that India is witnessing is the overall slowdown of its economy. The number of startups in 2019 fell to 5462, a 35% drop from 2018. As the government was unable to fulfill its promise of providing Rs 10,000 crore fund support under StartUp India along with incentives of Rs 1,000 crore, this decline has not come as surprise. Investors have lost confidence in India and we need more successful schemes from the government in order to boost foreign as well as domestic investment.
Startup funding is bound to get affected when there is a sluggishness in the economy. Investors will be highly cautious before financing a venture. Fund raising by entrepreneurs will depend on various factors such as the nature of their business and their respective competitors.
Lack of proper business incubators
What India really needs is the growth of business incubators that are built by successful entrepreneurs themselves so as to understand the pain points of new businessmen. One great advantage of incubators is that the funding is provided solely on the basis of the merit of your idea. A lot of market research is done before the incubator decides to stand behind an idea which is the need of the hour. Incubators also provide another option to entrepreneurs looking for seed capital.
The current situation of the startup ecosystem in India might improve when angel investors within the country and other successful startup founders pump in capital in order to aid in the growth of startups in the country. These investors will drive the smaller startups to achieve better yields and help in the recovery process of the dwindling economy. Entrepreneurs need to become smarter and address the problems that people are facing instead of trying to copy a success story.
For more information on the financial stand of startups in India, visit The Company Check!
