De­spite slow­down, fewer start-ups shut­ting down

Mint Asia ST - - News - BAY NIRBAN S EN SUB­DUED PHASE

While the num­ber of start-up launches has de­clined sharply in the first nine months of the year, the se­vere slow­down in en­tre­pre­neur­ial ac­tiv­ity has re­sulted in an­other phe­nom­e­non that high­lights the risk-averse sen­ti­ment that is sweep­ing through In­dia’s in­ter­net and tech­nol­ogy start-up ecosys­tem: fewer start-ups are shut­ting down.

Ac­cord­ing to start-up data tracker Tracxn’s so-called “Dead­pool” list—a direc­tory of dead or dy­ing early- and late-stage ven­tures—the num­ber of start-up shut­downs is on track to be much lower than last year. So far in the first nine months of the year, a lit­tle over 180 start-ups have gone belly up, com­pared with the 500-odd ven­tures that wound up in 2016.

The rea­sons for the slow­down in clo­sures and shut­downs are pretty clear, ac­cord­ing to sev­eral en­trepreneurs and in­vestors Mint spoke to: firstly, the slow­down in en­tre­pre­neur­ial ac­tiv­ity has led to fewer early-stage ven­tures be­ing launched, which, in turn, has led to fewer ca­su­al­ties.

Se­condly, the past 18 months have also wit­nessed an un­usu­ally high num­ber of dis­tress sales, as top in­vestors in In­dia’s start-up ecosys­tem have fought hard to re­coup part of their in­vest­ments—a clear case in point be­ing Snapdeal, which ear­lier this year de­cided to con­tinue as an in­de­pen­dent ven­ture af­ter talks to sell it­self to Flip­kart fell through.

While a de­cline in the num­ber of clo­sures is tech­ni­cally good news for the broader ecosys­tem, it is symp­to­matic of some large Com­pany Stayzilla Taskbob Yu­mist Fi­nom­ena Room­stonite Zafraa Eatonomist Getxs Med­dy­mart Gun­cha Busi­ness On­line ag­gre­ga­tor of home­s­tays Smart­phone app for on-de­mand home ser­vices Com­fort food on de­mand Emi-based loan provider Last-minute ho­tel book­ing mo­bile app Cross-border e-com­merce por­tal Foodtech start-up Blockchain-based dig­i­tal iden­tity cre­ator On­line pharma mar­ket­place On­line plat­form pro­vid­ing gift­ing so­lu­tions is­sues—firstly, it sig­ni­fies that en­trepreneurs have be­come more averse to risk.

And, se­condly, the slow­down in the growth of the con­sumer in­ter­net busi­ness in In­dia has spooked in­vestors, who have been forced to be more cau­tious about back­ing earlystage ven­tures and are writ­ing far fewer cheques.

“If you look at the vol­ume (of start-ups launch­ing and sub­se­quently shut­ting down) and com­pare it to what we saw back in 2015, it has def­i­nitely come down. In 2015, those vol­umes had hit a peak. What’s hap­pened is pretty ob­vi­ous—there was a lot of easy fund­ing that was avail­able back in 2014-15, and it en­cour­aged a lot of en­trepreneurs to start up Founded in 2005 2014 2014 2015 2014 2015 2014 2016 2014 2013 To­tal fund­ing ($) 33.50 mn 5.78 mn 3.35 mn 1.70 mn 1.50 mn 166,000 Undis­closed Un­funded Un­funded Un­funded Num­ber of ‘Dead­pooled’ start-ups in In­dia 500 and launch their own ven­tures. But now that fund­ing has dried up rel­a­tively, a lot of those en­trepreneurs—es­pe­cially the ones who were think­ing short-term and look­ing at quick, bigbang ex­its within a year or two of launch— have been forced to re­con­sider whether to start up or not,” said Rahul Chowdhri, a part­ner at Stel­laris Ven­ture Part­ners, a ven­ture cap­i­tal (VC) firm.

“And that’s not a bad thing—what has hap­pened, now that the qual­ity of en­trepreneurs and start-ups has im­proved a lot, (is that) you see founders be­ing more ma­ture about their ap­proach and in­vestors are also only back­ing ven­tures with solid busi­ness mod­els,” added Chowdhri.

Ear­lier in Oc­to­ber, Mint re­ported that the num­ber of in­ter­net and tech­nol­ogy start-ups launched in the first nine months of this year had slumped to 800 from more than 6,000 in all of last year, as start-up clo­sures, the strug­gles of large in­ter­net firms such as Snapdeal and a slow­down in the growth of e-com­merce mar­ket took their toll on en­tre­pre­neur­ial ac­tiv­ity.

The slow­down in launches and shut­downs is also partly cycli­cal.

“Th­ese things of­ten hap­pen in waves and cy­cles. Am pretty sure we will see a re­bound and a resur­gence in en­tre­pre­neur­ial ac­tiv­ity again in the near fu­ture,” said Chowdhri.

While the to­tal amount of fund­ing in In­dian start-ups has gone up sig­nif­i­cantly this year, the num­ber of deals has ac­tu­ally wit­nessed a sharp de­cline.

Start-ups have raised roughly $8 bil­lion in the first nine months of the year, com­pared with $4.6 bil­lion in all of 2016, ac­cord­ing to Tracxn.

The vol­ume of deals, how­ever, has dropped to 700 against more than 1,000 in 2016.

“The fact that fewer com­pa­nies are shut­ting down is clearly symp­to­matic of the fact that the fund­ing en­vi­ron­ment is not what it used to be back in 2014-15, and it has forced in­vestors to take a much more cau­tious stand, which, in turn, has led to fewer start-ups launch­ing and shut­ting down,” said a part­ner at an­other In­dia-based VC firm, re­quest­ing anonymity.

The no­table start-ups that have shut down this year in­clude on­line ho­tel ag­gre­ga­tor Stayzilla, home ser­vices start-up Taskbob, last-minute ho­tel book­ings ven­ture Room­stonite and food-tech ven­ture Eatonomist.

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