InnoVen Capital's 'India Startup Outlook Report' insights on startup ecosystem

Leading venture debt and specialty lending business InnoVen Capital in its India Startup Outlook Report 2017 highlights the perspective of founders and CXOs of Indian startups with respect to fundraise and investor sentiment, business focus and challenges, and on policy and government initiatives amongst others.

The survey by InnoVen captures responses from over 170 startup leaders across bootstrapped as well as funded ventures.

As per the report, 65 percent believe that Indian startup is in a technology bubble, of which 18 percent felt that it was close to bursting soon. On the fundraising environment in 2016, 63 percent of the respondents who attempted to raise funds confirmed that they had an unfavorable funding experience in 2016 with almost half of these not being able to raise any funding and the rest raised either a sub-optimal external round or a bridge round.

It says that the respondents believe that what is most likely to improve investor sentiment in 2017 is more companies with robust business models followed by more exits and the least likely factor to better the funding environment is Indian unicorns raising more money at a higher valuation. 94 percent are looking to raise funding in 2017, with VC 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 four to five months.

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 when specifically asked.

Focus in 2017 for majority respondents will be growth, however VC 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 and overall, the median timeline for achieving profitability is expected to be one to two years.

Separately, the preferred mode of exit for majority startups is to publicly list either in India or offshore with 30 percent selecting M&A 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 six years.

Workforce hiring and representation was another aspect covered in the report. Of the companies observed, 24 percent had women representation on the board, 18 percent had women in CXO positions, and 33 percent were actively looking to hire women in senior roles. Sales, Technology and Marketing were areas in which hiring top executives has been or is expected to be the toughest. More than a quarter of respondents would prefer to relocate to another city with Bangalore being the top choice destination.

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 Fintech companies were appreciative of digital payment tools such as UPI.

Interestingly, demonetization policy was seen as favorable in the short term by only 22 percent respondents, increasing to 52 percent in the long term. The entrepreneurs converged on the following three major measures that can make India more appealing for startups: better tax policy, facilitation of cheaper financing and investment in digital infrastructure.

"The startup outlook report is part of our continued effort to understand and communicate the nature of the Indian entrepreneurship ecosystem. In this report, we explore the mood and outlook of Indian startups given the recent budget, cautious investor climate and an uncertain global economy," said Group COO and CEO India, Ajay Hattangdi.

"We hope this report helps all stakeholders including entrepreneurs, investors and lobbying groups create more effective outcomes in engaging with the innovation economy," added Hattangdi.