82% Start-ups did Not get Benefits of Govt.'s Startup India Initiative: Report

Around 82% of startups in India are yet to receive any benefit under the Centre's Startup India initiative, a report.

"Only 18 per cent start-ups and SMEs (small and medium enterprises) in the next poll claimed to have benefited from the Startup India Mission. This means that a huge 82 per cent start-ups or SMEs felt that they did not receive any benefit from the highly publicised scheme," said the LocalCircles Annual Startup Survey 2019.

LocalCircles, a community social media platform, conducted the survey among over 15,000 start-ups, SMEs and entrepreneurs in the country, it said.

The Startup India initiative was launched in January 2016 with an aim to support the growth of start-ups in the country by providing incubation, funds and tax exemptions among other benefits.

Further, bringing the glare back to the "angel tax" issue faced by start-ups, the survey showed that about 32 per cent start-ups received multiple notices from the Income Tax Department in 2018.

"The angel tax has not made the life of an entrepreneur any easier with many SMEs and start-ups receiving income tax notices this year," the report said.

"32 per cent said they had received multiple notices while six per cent said they had received one notice. 62 per cent said they did not receive any notices."

The issue of tax notices to start-ups received public gaze after several start-up founders took to social media after receiving tax notices.

This led to the government ordering the Income Tax (IT) Department on December 24 not to take coercive measures to recover the outstanding angel-tax dues.

The order issued by the Central Board of Direct Taxes (CBDT) said the matter was under consideration and directions were issued to the IT Department not to take any coercive measures to recover the outstanding demand till further instructions.

However, according to the report, issuance of assessment orders against start-ups continued despite the government orders.

"Though an order was issued to not take coercive measures to recover the demand, assessment orders continue to be issued against start-ups," it said.

About 97 per cent of the people surveyed felt the IT Department officials should be educated on start-up valuations.

On the outlook for the year ahead, 71% of start-up founders said they would like to grow their organisation while 24 per cent said they would close their businesses and the remaining five per cent intend to sell their business.

In a recent report by EDII (Entrepreneurship Development Institute of India), business discontinuation in India is among the highest in the world at 26.4%. Only 5% of the country's people go on to establish their own startup ventur, which is among the lowest rates in the world, said the report.

In 2017, industry body FICCI, in its report suggested that startups in India need government support to lessen the number of failures and revealed that startups success rate is not up to the mark in the country.

Last year, in a report called Asia’s startup-friendly countries list - 2017, India stands at 8th rank -- behind China and even Malaysia because of the very fact that it is still the poorest country in Asia with GDP per capita of $1,710, in 2017 and a high unemployment rate.

Harder Times Ahead of Indian Startups?

This year, we saw Germany based Rocket Internet backed Jabong's acquisition by Flipkart-owned Myntra was something that the Indian e-commerce space had been expecting for a long time. The Indian fashion e-tailer had been on the shopping aisle itself for quite sometime before being finally snapped away by Myntra.

While Jabong's acquisition wasn't such a shocking news, what caught everyone's attention was the price point at which the e-tailer was acquired. Myntra has paid just $70 million for Jabong, which was much less than the expected figure of $250-$300 million figure. Founded in the year 2012, the online fashion portal till a couple of years ago was negotiating with Amazon at a price tag of a whopping $1.2 billion, a figure which is much more than the $70 million figure at which it was finally sold.

While dissecting the Jabong case, Industry experts came to the conclusion that a number of factors were responsible for the once shining star of e-commerce to take such a plunge to the grounds. According to them, Jabong's weak business model, an inefficient execution of the same, loss of market share, senior level churn and finally, it's investors' unwillingness to invest more capital, all actively contributed in one of the biggest etail failure in the recent times.

Jabong's failure wasn't a one off case. The e-commerce startup's debacle proved to be a warning bell for the Indian startup sector and helped in pulling the sector's attention towards the frequent shutdowns, layoffs, devaluations, funding crunches and mergers & acquisitions that the sector had been witnessing in the last couple of months. Some experts believe that a majority of venture funds end up forcing their companies to become unicorns, $1 billion valuation startups, just so as to brag about it. Because of this very reason, in various sectors valuations ended up going way ahead of value creation. And now, it seems, some catch up is happening.

Between the years 2014 and 2015, a lot of new investors like late-stage private equity (PE) funds and global hedge funds debuted their game in the Indian venture capital ecosystem. With these new debutants, the Indian startup ecosystem has seen a lot more money being pumped into the sector. An important factor here is, a majority of these investors are valuation insensitive. This had resulted in the startups raising much more money at higher valuations than normal. In addition to this, the subsequent funding rounds were also being done quicker than before.

Industry experts believe that this was just a temporary situation and now investors are trying to bring normalcy back into the Indian startup ecosystem. The investors are now focusing more on their startup's profitability, their path to achieve it, unit economics and basic business model defensibility as against to the prior approach of just looking into growth, GMV (gross merchandise value), market share, etc. In today's time, in order to raise money, startups have to answer a lot more difficult questions and be much more convincing and give the investors solid proof of their concepts.

Flipkart's journey from 2007 till now, rightly documents the journey of the Indian startup ecosystem till now, in terms of funding. Since 9 years of its inception, Flipkart has been successful in raising a whopping $3.2 billion till now. Considered as one of the most successful startup in India till date, Flipkart last raised funds in the year 2015, which resulted in the company being valued at a whopping $15.2 billion. But since last year, Flipkart's valuation has been going downhill, with the company currently being valued at around $10 billion.

According to data from Venture Intelligence, between April 2014 to March 2016, the Indian tech startup industry has seen some 29 acquisitions. This figure has shot up to a whopping 40 acquisitions from April this year to mid-August and the 2016-17 touted as year of acquisitions. In the year 2015, 16 VC-funded startups had to shut down their shops during the course of the entire year. What is shocking is the fact, that an equal number of startups have shuts down their operations in a short period of January to July this year. It would be interesting to know the final figure when the year ends.

The biggest mountain that the Indian startups are currently facing is the mountain of funding crunch. According to data from Venture Intelligence, from January to June 2015, the Indian subcontinent saw PE investments of $7.31 billion across 373 deals and VC investment of $970 million across 242 deals. During the same January-June period this year, the PE investments dropped to $7.16 billion across 314 deals and VC dived to $646 million across 211 deals.

What lies ahead?

For the next 12 to 24 months, the Indian startup ecosystem is expected to experience something similar to what happened after the big dot-com bust. The startups will find it highly difficult to obtain funding, especially around the e-commerce sector. This is mainly because the quantum of funds required will be very high and it’s still very unclear on how the Flipkart vs. Amazon vs. Snapdeal scene is going to pan out. Current investors will have to take some difficult decisions like if they want to continue investing or just bow out by selling the business.

According to many experts, the current scenario will help in weeding out the weak. The only way startups can survive this period is by being a full stack company that is capable of solving the full problem of the consumers rather than just parts. The startups need to focus on creating their own brand, differentiate themselves from the pack and have a clear monetization model and viable unit economics. The players need to understand that they have to get their core model right because no amount of funding can make a company with a broken business model work.

[Top Image - Shutterstock]

Harder Times Ahead of Indian Startups?

This year, we saw Germany based Rocket Internet backed Jabong's acquisition by Flipkart-owned Myntra was something that the Indian e-commerce space had been expecting for a long time. The Indian fashion e-tailer had been on the shopping aisle itself for quite sometime before being finally snapped away by Myntra.

While Jabong's acquisition wasn't such a shocking news, what caught everyone's attention was the price point at which the e-tailer was acquired. Myntra has paid just $70 million for Jabong, which was much less than the expected figure of $250-$300 million figure. Founded in the year 2012, the online fashion portal till a couple of years ago was negotiating with Amazon at a price tag of a whopping $1.2 billion, a figure which is much more than the $70 million figure at which it was finally sold.

While dissecting the Jabong case, Industry experts came to the conclusion that a number of factors were responsible for the once shining star of e-commerce to take such a plunge to the grounds. According to them, Jabong's weak business model, an inefficient execution of the same, loss of market share, senior level churn and finally, it's investors' unwillingness to invest more capital, all actively contributed in one of the biggest etail failure in the recent times.

Jabong's failure wasn't a one off case. The e-commerce startup's debacle proved to be a warning bell for the Indian startup sector and helped in pulling the sector's attention towards the frequent shutdowns, layoffs, devaluations, funding crunches and mergers & acquisitions that the sector had been witnessing in the last couple of months. Some experts believe that a majority of venture funds end up forcing their companies to become unicorns, $1 billion valuation startups, just so as to brag about it. Because of this very reason, in various sectors valuations ended up going way ahead of value creation. And now, it seems, some catch up is happening.

Between the years 2014 and 2015, a lot of new investors like late-stage private equity (PE) funds and global hedge funds debuted their game in the Indian venture capital ecosystem. With these new debutants, the Indian startup ecosystem has seen a lot more money being pumped into the sector. An important factor here is, a majority of these investors are valuation insensitive. This had resulted in the startups raising much more money at higher valuations than normal. In addition to this, the subsequent funding rounds were also being done quicker than before.

Industry experts believe that this was just a temporary situation and now investors are trying to bring normalcy back into the Indian startup ecosystem. The investors are now focusing more on their startup's profitability, their path to achieve it, unit economics and basic business model defensibility as against to the prior approach of just looking into growth, GMV (gross merchandise value), market share, etc. In today's time, in order to raise money, startups have to answer a lot more difficult questions and be much more convincing and give the investors solid proof of their concepts.

Flipkart's journey from 2007 till now, rightly documents the journey of the Indian startup ecosystem till now, in terms of funding. Since 9 years of its inception, Flipkart has been successful in raising a whopping $3.2 billion till now. Considered as one of the most successful startup in India till date, Flipkart last raised funds in the year 2015, which resulted in the company being valued at a whopping $15.2 billion. But since last year, Flipkart's valuation has been going downhill, with the company currently being valued at around $10 billion.

According to data from Venture Intelligence, between April 2014 to March 2016, the Indian tech startup industry has seen some 29 acquisitions. This figure has shot up to a whopping 40 acquisitions from April this year to mid-August and the 2016-17 touted as year of acquisitions. In the year 2015, 16 VC-funded startups had to shut down their shops during the course of the entire year. What is shocking is the fact, that an equal number of startups have shuts down their operations in a short period of January to July this year. It would be interesting to know the final figure when the year ends.

The biggest mountain that the Indian startups are currently facing is the mountain of funding crunch. According to data from Venture Intelligence, from January to June 2015, the Indian subcontinent saw PE investments of $7.31 billion across 373 deals and VC investment of $970 million across 242 deals. During the same January-June period this year, the PE investments dropped to $7.16 billion across 314 deals and VC dived to $646 million across 211 deals.

What lies ahead?

For the next 12 to 24 months, the Indian startup ecosystem is expected to experience something similar to what happened after the big dot-com bust. The startups will find it highly difficult to obtain funding, especially around the e-commerce sector. This is mainly because the quantum of funds required will be very high and it’s still very unclear on how the Flipkart vs. Amazon vs. Snapdeal scene is going to pan out. Current investors will have to take some difficult decisions like if they want to continue investing or just bow out by selling the business.

According to many experts, the current scenario will help in weeding out the weak. The only way startups can survive this period is by being a full stack company that is capable of solving the full problem of the consumers rather than just parts. The startups need to focus on creating their own brand, differentiate themselves from the pack and have a clear monetization model and viable unit economics. The players need to understand that they have to get their core model right because no amount of funding can make a company with a broken business model work.

[Top Image - Shutterstock]