2015 was the year of e-commerce with $40.4 billion funding and 1649 deals in Asia. 2016 is set to end with much lower funding and lesser no. of deals with $14.6 billion and 732 deals in the first half of the current year. According to global startup analytics firm CB Insights – India’s funding ecosystem saw a 46% fall in in the 4th quarter of 2015, compared to the previous quarter. Their latest report says funding to Indian startups dropped a further 60% in the second quarter of 2016.
But this ‘funding-detox’ is giving way to better startups – more space to grow. It isn’t stopping people from starting on an entrepreneurial journey and the investors too think there has never been a better time to start-up. Upside of funding drying up is that “hobby entrepreneurs” with nonsensical ideas are retreating and real entrepreneurs are getting a fair hearing.
E-commerce was the top-funded category in 2015 but this year its the B2B products in the space of Artificial Intelligence (AI), Internet of Things (IoT), Edutech, Fintech, Machine-Learning, Robotics etc. IT trade association Nasscom’s Startup Warehouse has already received 2,700 applications in 8 months of this year as compared to 3,400 applications received in the whole of last year. They expect to receive 2,000 more applications in the remaining part of this year which is in fact pleasantly surprising.
While the average age of the founders continued to be between 25 and 30 years; nearly 25% of Nasscom’s applications are from repeat entrepreneurs. Many entrepreneurs who failed in the previous venture have learnt from their mistakes and are trying again. This time they are more prepared and understand the product-market fit.
Various popular startup-accelerators too continue to see growth in the number of startups applying for their accelerator programs by as much as 80% this year. Axilor Ventures, Jaarvis Accelerator, Microsoft Accelerator, TLabs and others busy are hearing pitches from startups.
Accelerators have also noticed that the percentage of founders with startup experience has gone up so there is a certain level of maturity in the market. The ecosystem has developed, the entrepreneurs know what products to build. For accelerators it is a good target group where the founding team has two to four years of prior startup experience. Second and third-time entrepreneurs are tackling bigger problems and building deeper technology products.
As it seems – for entrepreneurs who have done their research well on their super-solid idea – a downturn is a good time to start up. And for investors – it is a great time to invest. The next six months are crucial as smart investors might take contrarian bets.
So you’re a startup who has an amazing, unique solution that’s gonna hit the niche with a bang or has already taken the market by storm and is now “the talk of the town.” Obviously VCs also have, by now, heard about you and they come knocking at your door with bags full of money. What next..?
Here’s the checklist: First – You need to know about yourself, whether you’re a Bull or a Bear. Yes, like in the stock-market, there are people with different ways of looking at businesses. Check this out how different can be founders’ views about getting funded:
“Bootstarpping allows the founders to retain substantial skin in the game.” ~ Nemesh Singh, founder Appointy – bootstrapped for 7 years.
“It is like rocket fuel. You can expand at a faster rate with better access to great resources.” ~ Girish Mathrubootham, cofounder of Freshdesk.
Next: Ask yourself – Am I getting funded too early or too much..? Why am I in such a rush to find a new boss who may be worse than the old boss (that is, if you’ve sacrificed a corporate job and a consistent pay-check to be an entrepreneur). Sometimes a VC-led intervention early in a startup’s journey may not be in the best interest of the venture.
- The Benefits: VCs are an experienced lot – guys who’ve been there, done that. They’ve seen startups succeed and fail so they’re good at mentoring. While you might become emotionally attached to your venture; VCs bring in objectivity. OK you have a great idea but networking – which is a forte of of VCs – helps take the business ahead. You’re brilliant at ideating but when it comes to hiring the best talent, it is usually the experienced eyes of the VCs that can spot the right guy. A strong financial backing helps get acceptance among clients/ consumers. Finally, by buying into your startup, VCs are buying into an opportunity – as well as the downside. So you share your risk.
- The Downsides: Every step you take, VCs will be watching you and they have the right to veto key decisions. VCs are not here for charity – their investments have a fixed time-frame so they will exit sooner rather than later. Too much capital ensures you hire too fast, pursue too many ideas, and spend massively on advertising, marketing and PR. Remember Rahul Yadav of housing.com’s nasty public spat with his VC? You can’t fire your VC but a VC can fire you. VCs have a lot on their plate and your startup is just one of their portfolio companies. So you don’t always get what’s promised. Lastly, you are backed by a VC, but statistically, you might fall as only 1 out of 10 startups that get money succeeds.
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