Investments in start-ups in Tamil Nadu remained stagnant in 2017. Even the value of venture capital (VC) investments increased only marginally and stood at $66 million, compared to $56 million in 2016 and $100 million in 2015.
Data from information provider Venture Intelligence shows that there were only 16 VC deals (defined as seed-series D investments up to $20 million in companies less than 10 years old) in the State in 2017. Last year, the number of deals stood at 17 and 2015 saw 30 VC investments. Even angel investments saw a dip with only 16 deals compared to 20 in 2016.
“With VC investments having touched new lows in 2017, the start-up ecosystem in Tamil Nadu has been badly affected. Ours has not been the most conducive State for start-ups, to put it in the simplest of terms,” Anil Jain, founder and CEO, AJ Ventures and Investments and founder, Refex Group, said. According to him, the need of the hour – apart from technology institutes, which are aplenty – are good incubators and mentors.
Vijay Anand, CEO and founder of The Startup Centre, pointed out that India is still producing ‘high-tech entrepreneurs’, who helm companies such as Ather Energy, Uniphore and Mad Street Den. There are also several companies building cutting-edge technology, which venture capitalists have rightly backed.
“However, most of the so-called tech start-ups can’t be or should not be financed through venture capital, but through high-risk business loans. In India, that is still hard to get. This is an area which a business bank, or perhaps entities like RBL or Paytm, can get into given the fact that the players are not averse to paying relatively high interest rates.”
According to Mr. Anand, for the next two to three years, start-ups will attempt to ramp up cash flow with a focus on B2B and low-asset models. “Most of the money that has been lined up to be deployed in India has dried up and is finding its way to south-east Asia, which means starting 2018, we need to evolve as an ecosystem and go beyond just being a market for companies like Micromax and Xiaomi,” he said.
Stronger year
Arun Natarajan, founder and managing director of Venture Intelligence, feels that 2018 will been a stronger year for start-ups in Tamil Nadu. “In a year when VC investors posed some very tough questions to B2C e-commerce businesses, Chennai start-ups – which have a clear B2B/enterprise flavour – had a relatively better run,” he said. “Going into 2018, with the preference for B2B and financial services (and also for more sustainable B2C models) only continuing to rise, Chennai-based companies can expect to emerge stronger on the radar screen of PE-VC investors,” he added.
V. Shankar, president, The Indus Entrepreneurs (TiE) Chennai, said: “Private equity and venture capital players have started asking some tough questions, particularly in the e-commerce sector, where the burn rate is the highest. After the initial euphoria that lasted for a few years, the fundamentals of a business, such as its path to profitability and unit economics, are back in focus.”
However, Mr. Shankar believes that the worst is over and 2018 will be a promising year for start-ups. “We are seeing demand from entrepreneurs in smaller cities. I believe this is the beginning of a second awakening of the entrepreneurial spirit in Tamil Nadu,” he added.
