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Start-ups: How to reverse the decline in new companies?

Goutam Das     September 11, 2019

When it comes to the start-up world, one of the more interesting findings is on the pace of new start-ups that get started. This has slowed considerably over the past three years, a study by not-for-profit organisation TiE Delhi-NCR and Bangalore-based research firm Zinnov, found.

The report, titled 'Turbocharging the Delhi-NCR start-up ecosystem' stated that the number of start-ups founded every year in India had dwindled from a high of 6,679 in 2015 to just 2,036 in 2018. The first half of 2019 hasn't gone great either with a mere 800 start-ups founded. While the founding graph rose consistently since 2009 (818 founded) until 2015, the graph has consistently fallen ever since. And Delhi NCR has mirrored the national trend - the pace of new start-ups founded had fallen from 1,657 to 420 in 2018; in the first half of 2019, only 142 got started.

This begs the question: how to reverse the declining trend?

TiE Delhi-NCR thinks the problem begins with funding - access to funding across all stages need improvements. The study's analysis found that of the 3,800 new start-ups in Delhi NCR between 2015 and 2017, just 8.7 per cent could raise a seed round. Between 2012 and 2014, 13 per cent could. The problems don't end with the seed. Of all seed-funded start-ups between 2015-2017, only about 17.5 per cent manage to raise Series A, 7 per cent Series B, 2.4 per cent Series C, and 0.9 per cent Series D. The comparative numbers for earlier years look better. The number of seed stage deals in India has dropped from 1,127 in 2016 to 887 in 2018, underlining that angels have become cautious.  Me-too companies have a tough time raising money.

TiE believes that seed and early stage funding needs to be significantly boosted for the trend to reverse.

The report also found a disconnect between the number of active start-ups in Delhi-NCR and the number of incubators and accelerators in the region. While Delhi-NCR has the largest number of active start-ups in India at over 7,000, it only has 10 per cent of all the incubators in India and 8.5 per cent of all the accelerators. The report noted that "absence of high-quality programmes at key lifecycle stages limits the extent to which entrepreneurs can leverage local ecosystem". Delhi-NCR also has just 9 per cent of all corporate innovation programmes in India which "limits access, reduces opportunities, and awareness to new technology".

The study pointed out that there is a "critical need to increase affordable co-working spaces". Cost per desk in the central business districts are quite high in both Delhi and Mumbai versus Bangalore. While cost per desk averages at about Rs 13,500 in the central business districts of Delhi-NCR, it is about Rs 11,500 in Bangalore.  It is astronomical in Mumbai at Rs 24,000.

Most of the established co-working operators prefer corporate customers rather than start-ups. That's the more reliable and profitable segment to target. The start-up community, therefore, has its work cut out. Bodies such as TiE and state governments must ensure that founders don't run out of real estate options in city centres. 

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