1      India: Startup Scene

According to a report by World Startup, which evaluated universal startup ecosystems and recent NASSCOM 2015 startup report[1], India is the fastest growing startup ecosystem in the world with +4200 startups by October 2015, 110 startup incubators/accelerators and 2 times growth in number of investors in recent past[2].

A very high percentage of known new businesses are ‘technology-enabled’ which eradicates the need to list out ‘ICT’ as startup enabler in India[3]. Largely, ecommerce and aggregator startups have gained maximum visibility, traction and attracted investments in last 5 years and hyper-local ecommerce + consumer services have witnessed big investments.

Analytics across various domains (healthcare, travel, recruitment, supply-chain), robotics, 3d printing and machine learning are on the rise and can become the next big thing. A snapshot below lists the commodity innovation map from the World Startup report.

India’s commodity Innovation Map[4]

According to The National Science & Technology Entrepreneurship Development Board (NSTEDB) of Department of Science and Technology India (DST) booklet[5], the sector wise startup growth can be summarized as follows:

  1. Power (IoT, Alternate and renewable energy sources)
  2. Infrastructure (Traffic monitoring, travel solution apps)
  3. Healthcare (Patient – doctor relation, data analytics, point-of-care treatment)
  4. Financial Inclusion (Credit Scores, informal loans, digital baking services)
  5. Agricultural Productivity (Farmer produce and efficiency, supply chain)
  6. Education (Personalized learning, scholarships)
  7. Skills and employment (Grey collar skills training and platforms, Language courses, VET)

 

2      Raising Money

Breaking down the last 5 years into two halves (2010-2014) and (2015), an unseen trend in startup funding emerges. In the era of 2010-2014, Indian startups raised c. $3.2 billion while in 2015 alone, Indian startups have successfully raised $4.9 billion[6]. In 2015, 390 Indian startups raised money from 490 active investors in 2015, with 6.5 times growth in number of seed stage VC funding.

Most of the Indian startups are going the VC/PE route; a few also bootstrap and/or raise informal capital from peer-to-peer lending for seed stage, crowd-fund their seed capital, raise capital from Indian Government[7], raise capital from India based conglomerates (Wipro/IBM), raise capital from Indian business tycoons (Tata, Premji), raise capital from global investment ecosystem (Soft Bank, Alibaba)

As mentioned above, an exhaustive list of available funding options for Indian startups[8] are:

  1. Bootstrapping
  2. Informal borrowing (Friends & Family)
  3. Startup competitions:
  4. Crowd-Funding:
  5. High Net-worth Individuals (HNIs): Example: Tata, Premji
  6. Impact Investors – Example: Rockefeller Foundation, Dell Foundation
  7. Startup Accelerators
  8. Incubators
  9. Angel Investors:
  10. Venture Capitalists:
  11. Private Equity
  12. Bank Loans
  13. Convertible debt or debenture : Example Startup Mobstac
  14. Reinvesting profits into startup
  15. Advance/ Pre-payment from future customers
  16. Credit Card: Example: LaghuUdhyami Card from IDBI
  17. Government Institutions[9] – Example: SIDBI, NABARD and NSIC
  18. Indian government Startup Funds: India Aspiration Fund (IAF), SIDBI SMILE, Mudra Fund, etc
  19. Government (or semi govt) grants[10]

 

Venture Capital / Private Equity examples:

 Seed stage: (Less than $1 million): Example Vendantu.com

Early stage: (Less than $1.5 million): Example Flatchat, roadrunnr

Growth Stage: $5 – $20 million): Example: nearbuy

Scaling/ Expansion stage:  (More than $20 million): Example: Shopclues.com

Angel Investors also gave $196 million to Indian startups in 2015.[11]

2.1     Mismanagement of burn rate

Amid the rising competition, it is essential for startups to scale-up faster, requiring external funding. Several companies prioritize raising investment over efforts for revenue generation and when fundraising is halted, startup goes into trouble. Many a time, we observe that as soon as a startup gets funded, it loses its conscious approach to the burn rate and goes haywire. Recently in 2015, startup attrition rate grew by 25%[12]

2.2   Gestation Period, acceleration and deceleration

Indian startup ecosystem consist of two types of support institutions: a. inclusive support institute which offers open door support to any startup (Ex ample: TiE) and entrepreneur and b. exclusive support institute which offers exclusive services to only selected startups handpicked and chosen through rigorous checks. (Example: Microsoft Ventures)

If incubated, startups are offered gestation period during the physical incubation of 24 – 30 months in leading Indian incubation centers.  Startup acceleration programs offer networking, one on one mentoring, growth, access to market and other assistance for average duration of 3-4 months in strictly run acceleration programs.

 

On the other hand, according to SnehBhavsar, CoFounder and CEO, OoWomaniya , “the influence of external organizations” that is -businesses, incubators, institutes and all such organizations which are trying to control, manage, take advantage for their events, brand or just numbers, be the daddies of the start-ups and entrepreneurs in the name of helping, mentoring etc.’

 3      Various Startup Costs

A snapshot of basic startup costs are listed below:

 

Living expenses per month (startups migrating to Bangalore/New Delhi, etc.):

·         Phone: INR 600 – 1000

·         Transportation: INR 2000 – 5000

·         Internet: INR 2000 – 5000

·         Food: INR 10000 – 18000

·         Recreation: INR 4000 – 6000

·         Others: INR 5000

 

Total:  INR 35000 – 50000

 

Workspace expenses per month:

 

Office setup

·         Office space rent: INR 5000 – 162500

·         Infrastructure setup: INR 488000 – 800000

·         Recurring costs: INR 25000 – 35000

——————- OR ———————

Co-working space

·         Monthly membership per seat: INR 7000 – 12000

Incorporation costs:

 

·         One time expense: INR 25000 – 35000

·         Recurring costs, book-keeping: INR 15000 – 50000

 

 

Generalized Hiring Costs (monthly):

 

·         CTO: INR 100000 – 500000

·         VP: INR 100000 – 500000

·          Digital Media: INR 30000 – 150000

·         BD: INR 20000 – 120000

·         Admin staff: INR 20000 – 45000

 

3.1     People:

India is famous for its large and affordable talent pool, especially with respect to technology. However, when looked at startup hiring, right talent acquisition becomes is not swift because of two reasons[13]:

  • Most of the available talent is not employable and needs training
  • Best of the talent is still being attracted by MNCs

 

On the other hand, there is a lot of lateral movement by top management employees from big companies into startups[14]

 

3.2     Startup Infrastructure:

Indian startups at early stage prefer co-working spaces[17]Coworking startup in Bangalores, (Bhive Workspace), are able to bring a lot of value-add to Indian startup culture such as mentorship programs, events, cross-platform collaboration discussion and working with some of the best peers. They also offer flexibility for usage of plug and play space with respect to hourly, daily and monthly packages of access; these coworking spaces also offer a 24/7 open dedicated workspace for startups in India, for more serious and mature startups.

Establishing one’s own office comes with a lot of additional costs involving, but not limited to support staff, refreshments, setup for Internet, electricity and many such administrative overheads – this route is not advisable for early and growth stage Indian startups.

4      Average Life Expectancy of Startups in India

From close scrutiny of startups associated with India’s startup enablers and platforms such as Construkt Festival[18], Nasscom Startup Warehouse[19], CII Yi forum[20], TIE Bangalore[21], and Microsoft Accelerator Bangalore[22], every 3rd Indian startup fails within first 5 years of its operations. According to iSPIRT and SignalHill analysis reveals that India has the worst multiple in terms of M&A exits[23].

 

4.1     Estimated timeline

Averaging a small sample of young Indian startups, the following timeline can be considered

 

Year Activity
0-1 Gestation, incorporation, Seed fund
1-3 First employees, First customers, corrections and adaption of business model
3-5 Growth, series A
5-10 Scale, Series B

With insufficient secondary data for startup break-even in India, it can be inferred

  • Bootstrapped startups break-even within the first 3-5 years (or shut-down)
  • Startups that go on to raise Series B, are assumed to break-even in 8-10 years

 

—- Compiled by Ity Bhatnagar- Research Analyst.

[1]Source: NASSCOM Report: Momentous rise of the Indian startup ecosystem

[2]Zinnov Research & Analysis, The Next Web, LeWebBlog
[3]A PILOT STUDY ON TECHNOLOGY BASED START-UPS Centre for International Trade in Technology Indian Institute of Foreign Trade Supported by Department of Scientific & Industrial Research Government of India
[4] India Startup Report: http://www.slideshare.net/WorldStartupReport/india-startup-report
[5]http://www.nstedb.com/booklet.pdf
[6] Source: Yourstory Research, Unitus Seed Fund
[7]http://www.venturecenter.co.in/funding/
[8]http://www.startupash.com/
[9][9]http://www.venturecenter.co.in/funding/
[10]Venture Center Pune
[11]Zinnov Reports
[12]http://www.livemint.com/Companies/1jtiWDFFD7TccZ8tj5CTVI/Attrition-rate-at-startups-at-junior-mid-levels-soars.html
[13] Interview of ChiragGarg, CEO, HyperDell published in economic times
[14]http://retail.economictimes.indiatimes.com/news/e-commerce/e-tailing/how-top-managers-who-moved-from-established-companies-into-startups-are-faring/47242458
[15] By author
[16] Economic times article: How startups have successfully established their own rules of hiring, rewarding & retaining talent
[17]http://dazeinfo.com/2015/05/21/coworking-spaces-in-india-are-thriving-like-startup-garages-in-the-us/
[18]http://www.construkt.me
[19]http://10000startups.com/startup-warehouse/
[20]http://www.youngindians.net/yi_summits.php
[21]http://bangalore.tie.org/
[22]https://www.microsoftventures.com/locations/bangalore
[23]http://www.ispirt.in/Our-Industry/Industry-Evolution