The number of new internet and technology startups launched in the first three quarters of this year has gone down to 800 from more than 6,000 in all of last year, as startup closures, the struggles of large internet companies such as Snapdeal and a slowdown in the growth of the e-commerce market took their toll on entrepreneurial activity.
According to data from Tracxn, a startup tracking firm, the number of new startups has slumped dowm for two years in a row. In Tracxn’s separate report of August just 497 startups have been founded in 2017 compared to 10,906 in 2016.
The fall in launch of new startups is partly cyclical. Budding entrepreneurs who had flocked to start consumer internet companies in 2014 and 2015 have shifted to areas such as software as a service (SaaS), business-to-business e-commerce and financial technology over the past 18 months.
Related Reading – 11 Promising Indian Startups that Shut Down in 2017 [January- July’17]
In 2016, the expansion of the e-commerce market nearly halted. Since then most e-commerce companies, which had relied on deep discounts and extensive advertising for growth, have been struggling to find the right business models for a market that hasn’t lived up to their expectations.
If the e-commerce and the consumer internet market pick up in a big way, entrepreneurs will again shift their efforts.
Apart from the slump in new startup formation, startup investments have been low for the second year running. While the amount of startup funding so far this year has already exceeded last year’s levels, the volume of deals is lower, according to data from Tracxn.
According to a recent study by IBM, ‘unethical business conduct’ is the major cause behind the failure of Indian startups. Around 64 percent of 100 venture capital (VC) investors, who are polled in the study, highlighted the fact that startups face failure because of poor corporate governance due to entrepreneurial inexperience [Read more here].
Moreover, India’s inefficient legal system makes it an extremely difficult country to start a new business [Read more here]. It is interesting to note that it is easier to do business in Nepal, Pakistan and Bangladesh than it is to do in India. According to a latest study by World economic Forum, out of 137 countries India ranks 110th in time taken to start new business.