Among all funded startups, 90-95% won’t survive: Shah
In a maturing market like India where new innovative businesses take time to become profitable, the biggest problem is entrepreneurs often get stuck in identifying and understanding their total addressable market, fintech unicorn Cred's CEO Kunal Shah said in a fireside chat at the Mint India Investment Summit and Awards.
These entrepreneurs often struggle with recognizing their profit and revenue pools, assessing the market they are going after, and the historical scope of the product they are building. “I believe we are not yet at the market depth where passion-based startups will thrive. They will succeed when there’s clear evidence of substantial revenue and profit potential on a large scale because the likelihood of success is directly tied to the size of the revenue and profit pool.”
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Indian consumption patterns, especially among youngsters, changing drastically in recent years, there are immense opportunities for startups and emerging businesses to disrupt the space. Today’s youth have a mindset to start something of their own and a greater tendency to build assets, Shah said.
However, with newer businesses, it is crucial to realize that 90-95% of all funded startups will not exist, he said. There ought to be a greater acceptance for startups to fail in order to facilitate innovation, Shah stressed.
In the current landscape of investment activity in the startups ecosystem, investors also demand that businesses show a clear path to profitability, as they have become increasingly wary about cutting cheques after funding dried up since the pandemic highs due to macroeconomic volatility and geopolitical tensions.
On the question of profitability, he said: “A business does not establish itself as a business unless it’s profitable. I think we have a problematic trend of celebrating founders who have raised a lot of capital despite not being profitable,” Shah said.
Specific to Cred, Shah said the fintech startup has made a simple rule to never operate with less than three to four years of runway to prevent the company from making panicinduced bad decisions. “If you take a long enough view, we are in the most lucrative category that exists. But if we kind of kill ourselves by doing something stupid, we'll lose our opportunity to build a generational company over here,” Shah said.