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Clamorworld Exclusive – Startups In India: Risks, Challenges & Safeguards

 

Startups in India are facing a unique challenge, while there is no dearth of talent and passion, the key funding tap seems to be drying up fast. Whether you talk of Foodpanda, TinyOwl or even the much touted Housing.com, the rising job cuts amongst these relatively new companies, the instances of these shutting shop soon after opening has become rather worrying and raises key questions like what could be the possible safeguards that can be incorporated to help these businesses prosper?

Recent studies indicate that

  • Funding remains a fundamentals challenge for startups in India. Though nearly $242 million worth venture capital has gone into net 64 startups, this amount is almost negligible given the huge demand. The need for early stage risk capital is still very high.
  • Scouting for a good team and sustaining it over a period of time also plays a very important part. Nearly 23% startups had to shut down due to team problems.
  • Only 3 in every 10 startups are able to sustain beyond the certain threshold period
  • Huge competition and need to scale up at a relatively faster rate is seen as another major growth decelerator

The lack of relevant regulation is also considered as a major growth hindrance. The noise is no doubt rising to bring in more regulation to safeguard these firms. Perhaps it was to address this concern that Prime Minister Narendra Modi lined up government funding worth $1.5 billion over four years but as Venture Capitalists worldwide tightened their purse strings given the slowdown in China and its ripple effect, this amount is often considered less than a drop in the ocean.

Some recent surveys indicate that investments in Indian startups almost halved to $1.5 billion in the last quarter 2015  and this could have a big bearing on the ecommerce scenario in India. As per an earlier study by Bank of America Merrill Lynch, Indian e-commerce was expected to  surge to $220 billion by 2025 from about $11 billion last year.

But the question is how will they sustain in the current scenario? While some of the initiatives undertaken by SEBI, CBDT and regulatory bodies in terms of exposing the risk profile to the type of investors to opening up listing opportunities and freeing funds are great, any further step to limit numbers of foreign entrants or creating a protective environment might be detrimental for the businesses and economy over the longer term.

As Modi’s plan outlined tax breaks for the first three years of profit could help boost overall margins, Indian startups need to seriously relook their business strategy. For example some of the best known retail startups like Flipkart and Snapdeal have been trying to drive up sales through deep discounts. While these could be optically great steps, they have been continuously eroding the bottomline for these firms and ultimately putting a strain on the balance sheet of these companies.

There is an urgent need to combine potential sales boosters with overall business basics. One must understand the fundamental rules of the game remain the same whether we are considering a startup or an established player.

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