Startup ecosystem is at its all time high in India and on every 2nd or 3rd day, a new startup is getting funds from various venture capitalists or from individual investors. Last 18 months have been the golden period for the Indian startup ecosystem in terms of startup funding. But since the month of October, capital raising has become quite tough for new startups. Companies laying off employees, halting expansion plans, etc. have become common these days and investors have made up their mind to play safe. Experts believe that this situation may last for somewhere around 1 to 2 years. The most interesting thing to note here is veteran investors and industry insiders already warned the budding entrepreneurs about the coming danger.
October witnessed a new low in terms of deals closed and money invested in Indian startups. 24 transactions worth $112 million (Rs 730 crore) were closed in the month, compared with a peak of 43 deals worth $831 million in March 2015, according to VCCEdge. In addition to this, the first week of November was even slower with a value of around $40 million.
We have seen companies like TinyOwl that has laid off more than 200 employees in last six months. Tiny Owl is a classic example of how bad the things can go if not checked at the initial stage. Mass firing in the company resulted in heated arguments among the employees and co-founders.
With slow funding scenario, startups have started to acquire other small startups. Recently, Wassup acquired Chamak, home services startup Taskbob acquired competitor Zepper that would help it to enter the market of Bangalore. Old startups have decided to acquire smaller companies that are keen to sell their equity due to two reasons. One, similar business model and the second cost-effectiveness of such deals.
The main question still remains that what has caused to slow down funding and why Venture Capitalists are reluctant to invest money. Well, there are various factors responsible for the same. Most of the recent startups are the carbon copy of established startups like Foodpanda, Ola, Paytm etc. Newer entrants face a challenge of establishing themselves because of two reasons: the first being that they are new in the market and the second & the most important reason that they lack uniqueness. Though they have found a new way to offer heavy discount coupons, but this option too is not able to take them a long way. On the flip side, lucrative offers and discounts are able to garner customer attention upto a certain extent, but it also affects ROI of business. Usually VC’s look forward to exit from a startup in a period of 2-3 years and slow and sluggish returns irritate investors as well.
One more factor for failure of new startups is that they plan expansion too early. It has become a practice of hiring graduates from the Top-notch educational institutes at an unreasonably high salary package. Very soon founders realize that those employees or team members are taking the toll on business and founders end up being frustrated.
It is high time that budding entrepreneurs should brainstorm new ideas rather than tweaking or copying their counterparts. New startups should focus on unique and out of the box business ideas because discounts and offers won’t work anymore for them in the long run. Indian business ecosystem has a huge potential and budding entrepreneurs have proved this to the world. It is true that the second half of 2015 has not been that good for startups, but we are confident that very soon, the tide would turn its ways.