IBM’s study titled ‘Entrepreneurial India: How startups redefine India’s economic growth’ has reported that ‘unethical business conduct’ is the major cause behind the failure of Indian startups.
It is said that around two-thirds of 100 venture capital (VC) investors — 64% — polled in the study, which was commissioned in the second half of 2016. Apart from leaders in enterprises, government and academia, the IBM study consist of about 1,300 Indian respondents, around 600 of whom are entrepreneurs and another 100 VC investors.
In answer to the report, industry experts and entrepreneur denied the fact stated in the report for startup failure. Instead they highlight the fact that startups face failure because of poor corporate governance due to entrepreneurial inexperience.
Commenting on the development, Nipun Mehrotra, Chief Digital Officer, IBM India and South Asia said, “Thinking of that money as their own, as opposed to taking care of it because the capital is vested in a company or to build a certain technology, affects the organisation, and how people are treated.”
According to the report the key factors leading to unethical business conduct are misreporting of financial and other data, misrepresentation of financial plans or achievements, and ignorance of regulatory requirements. It further Cited that More than 3,000 startups have been funded in the past five years.
If we look at the figures highlighted by Tracxn, a startup analytics firm, private equity and VC funds have pumped in more than $22 Bn of capital into India since 2006. Not only this, firm estimates that over 212 startups shut down in 2016 and witnessed 50% increase as compared to last year.
Meena Ganesh, co-founder of investment firm GrowthStory, which has backed companies like healthcare venture Portea and food portal FreshMenu told to ET, “lack of experience in founders may affect their judgement,” citing the difference between ‘booked revenue’ (based on orders) and ‘accrued revenue’ (based on business serviced). First-time businessmen find it hard to understand the difference in applying the right accounting minutiae.