With insufficient capital available, startups are going hungry. Only 8.3 per cent of them are successful in getting funding, said Thillai Rajan, Professor, Department of Management Studies, Indian Institute of Technology- Madras, releasing the India Venture Capital and Private Equity Report 2016, titled ‘Inspiration and Momentum for the Gladiators’ at TiECON 2016.
“Odds of success for getting funded continue to be low. In our estimate, for every 875 startups that get founded, only one is able to successfully raise 4 or more rounds of funding,” Mr.Rajan said.
Out of the total start-ups that get founded, about 6 per cent take part in an accelerator or incubation programme. A total of 75 of the 875 are able to get first round of funding, only 15 get second round of funding and 5 are able to secure the third round of funding.
Industry experts say that investors are getting more cautious when it comes to putting their money in startups and picking up stakes.
According to Prof. Thillai Rajan, who co-authored this study, investments in startups during 2005 to 2015 are estimated to be around Rs. 1, 11,700 crore. The annual growth rate in investment flow was 42 per cent and over 10,000 start-ups have received funding.
“The statistics that I’m talking about here today are the ones that are reported; there are several others that go unnoticed,” Mr Rajan said.
Angel funding
Angel deals have shown an annual average growth rate of 124 per cent from 2008 to 2015 in the country. The estimated investment amount through angel deals has increased at an annual growth rate of 205 per cent from 2008 to 2015. The number of angel investors also has grown at an annual average of 107 per cent during the above period. While the number of first-time angel investors has grown at the rate of 98 per cent, that of investors who are reinvesting has been 105 per cent.
Mr. Rajan said that there has been a steady decrease in the average age of the startup at the time of receiving angel investment from 4.77 years in 2008 to 0.54 years in 2015.
It was interesting to note that, among all the major cities, the age of the startup at the time of receiving angel funding is the highest in Chennai.
“In the spirit of making investors chase entrepreneurs, we have come a long way as reflected by the steady and significant reduction in the average age to receive angel funding,” said Lakshmi Narayanan, Vice Chairman of Cognizant, and senior charter member of TiE Chennai. The average investment received from an angel round by a start-up has increased from Rs 10.63 million in 2009 to Rs. 46.76 million in 2015. The average investment made by an individual angel investor has gone up from Rs. 2.16 million in 2009 to Rs. 16.95 million in 2015.
The six tier 1 cities received the largest chunk of investment of Rs. 661.29 billion, accounting for about two-thirds of the angel and venture funding. Tier 2 cities received 31 per cent (about Rs. 306 billion) and start-ups in Tier 3 cities accounted for only Rs. 19.74 billion.
