FinTech, EdTech, and Consumer Tech have lately become the new buzzwords. Thanks to our burgeoning start-up culture India counts herself among the top 3 start-up ecosystem in the world. The credit goes to aspiring Indian bourgeois and their obsession with professional education.
Owing to the stupendous success of a few e-commerce companies in the recent past, we have seen an upsurge in start-ups including Fintech, Logistics, Healthcare, Aggrotech, SAAS, etc.
However, these start-ups have been largely dependent on Foreign Investors for their funding. A big chunk of which has been received from North America, Europe, Japan, and China. Global Tech giants like Softbank, FAANG, and BATX have been investing huge amounts already in Indian start-ups. Amazon has recently announced a USD 250 million venture fund for Indian start-ups and Facebook has been investing in unicorns like Meesho.
India boasts of 50 Unicorns today but unfortunately, the domestic investors have little or no exposure to them and the founders get a very small pie as they have to give up majority stakes for raising growth capital. This poses a lot of challenges for the ecosystem.
What if there is a freeze on foreign funding? Or a global funding winter?
Not to forget, the bulk of the profits made by successful exits will also leave the shore.
There is a dire need for India to build a formidable venture capital industry funded by Indian Corporates and HNI investors. With a wealthy population that is expected to be the 10th fastest growing in the world why should they be left behind?
So far as an asset class, fixed income, real estate, and Gold has had the lion’s share of Indian investors, and investing in start-ups has been their last priority. With a meagre 25%, we score poorly when it comes to domestic investments in Indian start-ups as compared to an 80% for Japanese investors in their start-up ecosystem. With the right strategy, we can raise this figure to 50% by 2025.
According to a 2018 report by Price Waterhouse Coopers, Indian family offices invest 1 percent or less of their portfolio capital in start-ups. Perhaps the traditional family offices are risk-averse. There is no denying that the majority of them close down in their early years and failure is an integral part of a start-up experience.
What about missing an opportunity to be a part of the growing kitty of unicorns and soon-icorns? Arguably, there is an equal amount of risk involved in not investing. An Investor may end up missing out on such multiple generating opportunities. Imagine, all the profitable corporates allocating an additional 1% to their CSR contribution as funds for supporting early-stage ventures, there will be such a gush of liquidity for our cash-starved start-ups. And, unlike pure CSR contributions, there will always be a possibility of earning exponential returns.
Devesh Sachdev, Founder and CEO of Fusion Microfinance Ltd states that, Overall, the ecosystem has now come of age and the number of angel investors ready to invest has gone up many times in the last 10 years. I remember my journey and difficulties faced to raise a small amount from angel investors in 2009-10. The change is due to many factors but the most important ones in my view are active participation from first-generation entrepreneurs like myself, who understand this space in comparison to traditional businessmen and have a genuine commitment to developing start-up ecosystem in India, and then some senior corporate professionals wish to realise their entrepreneurial aspirations through investing in new ideas and founders. We would see more activity in this space once there are more success stories and evidence of start-ups scaling up thereby creating value for angel investors. I think the next decade truly holds amazing promise for the Indian start-up ecosystem.”Start-ups will be the growth drivers for the Indian Economy in the future. Before the liberalization, growth was carried out by Public companies. This changed after 1991 when the baton was passed on to the corporates and there has been no looking back for our economy. Enviable GDP numbers, job opportunities for the youth, bulging forex reserves, and India becoming one of the superpowers in the IT industry is testimony to our entrepreneurial success.Vikram Singh Co-founder, Renaissance Startup EvangelistA similar kind of trend can be seen in our start-up ecosystem. With exponential growth in the number of unicorns, we are ready to leapfrog. Cred, Meesho, Moglix, Pharmeasy, ChargeBee, Firstcry, etc have been great success stories. New ventures in the field of space and new-age technologies like artificial intelligence, big data, and I.O.T. have paved the way for innovation in the country. We are at the cusp of a start-up explosion and Indian investors need to grab this opportunity. Although the oligarchs of traditional business families prefer to focus on their businesses it’s heartening to see their new generations taking a step forward and following the paths of their International peers. Family offices like Aarin Capital, Artha Indian Ventures, Burman Family Office, Catamaran Ventures, etc. have been the first movers.Vikram Upadhyaya, Start-up Evangelist, and founder GHV Accelerator says, "There have been several discussions around why we don’t see ventures like Facebook and Google coming out of India, even though the leaders of these companies include likes of Sundar Pichai and many more. I believe what is required is an effective framework, and an information system on the lines of GHV’s Digital Transformation (DX) framework which would help Corporate Investors, Angel Investors, and Government Funds along with 1000’s Corporates CXOs as mentors to build confidence with start-ups, work with them and yield edification.”In the coming years as India grows, our capital needs will rise. This will require us to build a venture capital system that can fund billions of dollars into the equity and debt requirements of our start-up ecosystem. To create future behemoths, the investor community needs to take the plunge. Whether we make exponential returns or get immense learning the journey of engaging and supporting our youth will be worthwhile. With the right push from the government, guidance from our Institutions, and funding from our investor community we will soon have a thriving entrepreneurial culture and nothing can stop us from rightfully owning our homegrown start-ups.