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The year 2016 was not good enough for Mumbai-based startups. Although the city’s startup ecosystem is evolving slowly but a sharp funding decline of 44 per cent recorded in 2016 compared to 2015. According to a data released by VCCEdge, a financial research firm, the city of dreams, which spawned some of the high-profile startups like Ola and Housing.com, has registered a 44 % decline in funding deals in 2016. On the other hand, adjoining small city, Pune managed to buck the slowdown.  Mumbai racked up over Rs 1,550 crore worth of funding across 151deals in 2016; falling from 233 deals accounting about Rs 2,800 crore in 2015. The financial technology received the maximum funding with Rs 185 crore last year.

Many startups shut their shops

Many startups from pan India had shut-down in 2016 and same is the case with Mumbai. Taking a look, Mumbai also saw many shutdowns last year. The city based startups like Purple Squirrel, TinyOwl, Task Bob and many others have shut down their shops while few others moved away from the city to avail benefits of bigger tech and cheaper talent and living. Vidushi Daga, Founder of Clone Futura Education shared, “Although the city based startups are playing a key role in India’s start-up scenario but they always faced with the issue of lack of funding and interest from investors side. It slow down the overall process of growth as startup face challenges on sales, marketing, business development, and technology functions parts. Secondly the high cost of living is observed as another concern. Wages in Mumbai are traditionally low and rents are high. This eventually results in loss of good resources to other cities.  Thirdly even with the large number of investors, the first round of capital is not the easiest to come and even if it does, it is available at a high cost.”

Moreover, investors look for profit and not to build sustainable enterprises. Cities like Bangalore, Hyderabad, and Pune are technically cheaper and provide easy access to talent. May this is the reason that the city does not have a high number of big startups so far as most of the companies (Like Quikr and Ola) originated from Mumbai moved away from in other cities in an early stage.

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Pune Registered 69% Increase in the Financing Deals

Pune received Rs 350 crore worth of funding during the last year compared to Rs 260 crore in 2015. It also registered a 69% annual increase in the number of financing deals compared to Mumbai. The number of funding deals in Pune went up from 35 in 2015 to 59 last year. Investments in startups have come down dramatically after a few years of excessive capital coming into young tech startups in India. Last year, startups in Maharashtra collectively scooped up Rs 1,910 crore as against Rs 3,300 crore in 2015; a drop of about 42% in terms of deal value, the data said.

80 % Increase Recorded in Early–Stage Funding Deals

And the good news is that the state has registered a rise in early-stage funding deals during this time period because of promising business ideas. Data confirmed, despite the decline in big financing rounds, angel and seed funding of startups in Maharashtra as a percentage of the total number of deals touched a five-year high of 80 % in 2016.

In conclusion

A lack in the number of funding deals and rising competition will increase the number of shutdowns and exits in the coming time. However for startups that have a sustainable business model dependency on funding may not be necessary to be successful. Well, planned business strategies will definitely help startups to survive and render stability in the difficult times and also strengthen the ecosystem without cash burning marketing practices. In addition, the Mumbai startup ecosystem builders like angels, accelerators, investment firms, mentors etc need to work together to help the startups and entrepreneurs.

[Top Image – Shutterstock]

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