Feb 15, 2017 12:02 PM IST | Source: Moneycontrol.com

Startups facing an unfavourable fund raise response from VCs

About 94 percent of the companies are looking to raise funding in 2017, with venture capital backed companies aiming to raise a median of USD 12.5 million.

Startups facing an unfavourable fund raise response from VCs

Moneycontrol Bureau

Over 60 percent of Indian startups surveyed by venture debt fund, Innoven India said they had an unfavourable funding experience in 2016, with half of them not being able to raise funds finally.

The report titled India Startup  Outlook Report 2017 highlights the perspectives of founders and CXOs of Indian startups with respect to fundraise and investor sentiment, business challenges, and on government policy amongst others. The survey was conducted amongst 170 startup leaders across bootstrapped as well as funded ventures.

The respondents expect that in 2017 more companies with robust business models followed with more exits will be the key factors to that will improve the investor sentiment.

About 94 percent of the companies are looking to raise funding in 2017, with venture capital backed companies aiming to raise a median of USD 12.5 million. The average expectation on how long it could take to close the round is 4-5 months.

As per the report, 65 percent believed that Indian startup ecosystem is in a technology bubble, of which 18 percent felt that it was close to bursting soon.

Although difficulty in raising equity funding was voted as the top business challenge, followed by difficulty in managing talent and market creation, it seems however uncertain whether fundraising will be more challenging in 2017 or less as the group was equally divided on this.

Almost 66 percent of the respondents said that the startup ecosystem in 2017 will be driven by entrepreneurs, while 26 percent voted that investors will play a pivotal role.

The focus in 2017 for majority of the respondents is growth, however venture capital backed companies opted for profitability as the primary factor to solve for.

Only 38 percent of the cash burning companies had a higher burn rate in 2016 as compared to 2015. Overall, the median timeline for achieving profitability is expected to be 1-2 years.

Separately, the preferred mode of exit for majority startups is to publicly list either in India or offshore with 30 percent selecting mergers and acquisition as the top choice and another 30 percent opting to continue to remain private. In all, 64 percent of the respondents expect an exit event in the next 6 years.

GST was selected as the most helpful recent government initiative, especially by founders in retail consumer brands and logistics sector. Media and content sector found the push towards digital India a shot in the arm and fin-tech companies appreciated digital payment tools such as UPI.

Interestingly, demonetisation policy was seen as favourable in the short term by only 22 percent respondents, increasing to 52 percent in the long term. The report mentioned that entrepreneurs believe that better tax policy, facilitation of cheaper financing and investment in digital infrastructure can make India more appealing for startups.

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