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A survey conducted by InnoVen Capital reveals that about 65 per cent startups in India believe the sector is in a technology bubble, while 18 per cent feel that the bubble was close to bursting soon. The majority of respondents stated growth as their focus area in 2017. VC-backed companies, however, rated achieving profitability in the next 1-2 years as the key objective. The report titled “Startup Outlook Report 2017” also concluded several other the most critical factors about the Indian startups and investors etc.

Ajay Hattangdi, Group COO and CEO India, InnoVen Capital Group said, “The report is part of our continued effort to understand and communicate the nature of the Indian entrepreneurship ecosystem. In this report, we explore the mood and outlook of Indian startups given the recent budget, cautious investor climate, and an uncertain global economy.” The report highlights theses outcomes with responses from over 170 startups across the country including bootstrapped and funded ventures.

Challenging Environment

The current environment is challenging for startups in India. The report pointed out, about 63 per cent respondents who attempted to raise funds in the last year confirmed that they had an unfavorable funding experience. Among these only half of companies were able to raise funds either in a sub-optimal external round or in a bridge round. Healthcare start-ups and E-commerce rated revenue and fundraising as the top business challenges in the current scenario. For enterprise start-ups, customer acquisition is a significant challenge. Whereas artificial Intelligence start-ups rated talent management and revenue growth as top two challenges. The most of the respondents believe that in 2017, more companies with robust business models followed by more exits is most likely to improve investor sentiment.

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Key Highlights

The report — Startup Outlook Report 2017 — highlighted the below key points:

  • 63 per cent of participants who tried to fund-raise in 2016 did not have a favourable experience.
  • 65 per cent believe that the Indian start-up ecosystem may be in a technology bubble
  • 94 per cent of participants would look to fund raise in this year; however opinion was split evenly on whether fundraising would be easier this year than the last
  • 70 per cent of participants were open to an exit
  • 64 per cent expect to achieve an exit within 6 years
  • 60 per cent thinks that an IPO as the most preferred exit route
  • 42 per cent of all respondents had women in leadership positions at their start-ups, up from 33 per cent last year
  • Respondents rated the emergence of start-ups with more robust business models coupled with more exit activity as most likely to improve investor sentiment in 2017
  • Raising equity, managing talent and market creation were voted top business challenges going into 2017
  • Artificial Intelligence, Agri-tech, and Logistics voted as most under-hyped sectors
  • Digital Payments and Hyperlocal sectors are voted as over-hyped ones
  • Artificial Intelligence and Digital Payments were expected to be hot sectors in 2017
  • The Goods and Service Tax was rated the most helpful Government initiative

The report pointed out the least likely factor to better the funding environment is Indian unicorns raising more money at a higher valuation. VC-backed companies are aiming to raise a median of USD 12.5 million in 2017. The average expectation on how long it could take to close the round is 4-5 months. Difficulty in raising equity funding was voted as the top business challenge, followed by difficulty in managing talent and market creation. However, the respondents were uncertain whether fundraising will be more challenging in 2017 or less.

Overall, almost 75 per cent of the set supposed that the startup ecosystem in 2017 will be driven by entrepreneurs, whilst 26 per cent voted that investors will play the pivotal role. The survey also concluded that the most critical factor in choosing a lead investor is a strategic fit with the startup followed by the investor network and commercial terms of the deal. For VC-backed companies, specifically, the strength of the institution brand was most important. Focus in 2017 for majority respondents will be growth, however, VC-backed companies opted for profitability as the primary factor to solve for.

Respondents felt further Government policies to improve tax policies, facilitate cheaper financing and increase investments in digital infrastructure would most improve the start-up eco-system. Respondents also concluded that the most critical factor in choosing a lead investor is a strategic fit with the startup followed by the investor network and commercial terms of the deal.

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