Exactly on this date, one year ago (January 16th, 2016), PM Narendra Modi had launched the Startup India Standup India scheme. While the scheme has been partially successful and has some achievements to its record, it has also had its share of failures. In this article I’m going to list some of the failures of the scheme and the reasons behind it. Read more on Investments Listed below are the failures:
- In 2015, the increase in the number of startups being funded was 87%. During 2016, this figure fell to 67%.
- The total amount of funding secured by Indian startups, during the year 2016, dropped by 47.7%.
- Around twenty Indian startups shut their operations within the first eight months of their launch, during the year, 2016.
- The scheme had received around 1,368 applications by mid – December last year, of which only 502 were recognized as startups by the Department of Industry Policy and Promotion (DIPP).
“The decline was ironical. Just after the government launched a Startup India initiative on January 2016, investments into startups dropped and therein lies a lesson”, said Praveen Chakravarty, co-founder of Mumbai Angels, an angel investment group. “To foster a good investment climate, what we need is not a policy for startups but a robust environment for starting a business, ease of capital flows to enter and exit”, Praveen Chakravarty added. According to experts, one of the main reasons for the decline in investments on startups was that investors were not able to exit from their previous startup investments. “Only when investors are able to exit with handsome returns will they invest more into newer startups”, said Chakravarty.
Mumbai – based angel investor, Sanjay Mehta, also blamed the valuations to expectations mismatch for the failures and loses of entrepreneurs and venture capitalists in India. “Nonperformance of milestones and profitability challenges by the startups is another reason”, Sanjay Mehta said. The Mumbai – based angel investor Chakravarty, also said that due to demonetization, uncertainty prevails over the Indian stock market, leading to a decline in the number of IPOs. This slump in the number of IPOs will not allow investors to exit from their previous investments, leading to decline and reluctance in investments on Indian Startups.
One thing is for sure. This year (2017), VC firms and angel investors will be much more cautious while investing on Indian startups. They will not invest heavily on any Indian startup until the investment climate allows ease of doing business, ease of capital flow and ease of entering and exiting investments. The Government of India should make the Indian startup ecosystem more efficient, investor friendly and robust. The investment climate in India should allow ease of doing business, ease of capital flow and ease of entering and exiting investments for VC firms and angel investors. Read more on Startup News