National start-up day: Amid funding cloud, hopes for fresh pitch

The fifth episode of the second season of Shark Tank India, which was aired last week, saw a story unfold on live television. Ganesh Balakrishnan, who had come to raise funds for his casual footwear start-up Flatheads, made a pitch. All was going well until the difficult details came to the fore: Flatheads was neck-deep in losses, the founder was putting in money from his own pocket, and the venture was close to a complete collapse.
 

As India marks the first National Start-up Day on Monday — one year since Prime Minister Narendra Modi announced January 16 as the day dedicated to inspire and promote new entrepreneurs and their ventures — there appear to be more questions than answers with many Flatheads-like stories.
 

The ongoing Russia-Ukraine war, high inflation rates, and an economic slowdown have only compounded the problems. The effects are visible: A staggering 2,404 start-ups shut shop in India in 2022, more than double the 1,012 a year earlier, according to the Tracxn data.
 

Start-up funding in the cou­ntry declined 33 per cent during the year, the PwC data showed.
 

“After a path-breaking 2021, the year 2022 saw several challenges for start-ups in the country owing to various macroeconomic headwinds. This has also impacted the current funding scenario. Overall funds raised by start-ups have also declined. And, the funding winter led to business restructuring and layoffs,” Prerna Kalra, co-founder of Daalchini Technologies, a retail tech start-up founded in 2018, told Business Standard.
 

But, is the ecosystem in India not favouring start-ups and budding entrepreneurs any longer? According to numbers published on statista.com, the US was by far the best country for start-ups last year. With a score of 195.37, it had close to four times the points as the second country on the list, the United Kingdom (52.56).
 

India was at 19th spot.

“The US economy is the byproduct of strategic vantage points in history, and it has been earned over a century. It’s important to be aware that we are at a watershed moment in history again, which can easily tilt the next 100 years of prosperity towards India. Each market will have its constraints, as does the US with saturation. The US is also closer to the epicentre of large innovation hubs, financial institutions and firmed policy avenues, but such advantages are not set in stone any more,” said Aprup Shet, co-founder of Goa-based Numadic, a leader in autonomous vehicular payments.

Start-ups across sectors are optimistic that the ongoing cloud is temporary and will eventually clear.
 

“India today is at the precipice of leading four big changes — transition towards clean energy, rising as a leading manufacturing alternative, widespread and further penetration of digitisation, and the rise of a young population. As the levels of uncertainty compound, the world is increasingly looking towards India to be a multi-layered voice of leadership. This is where our start-up ecosystem will leapfrog the West,” Shet said.
 

The Central government has been upbeat about the start-up boom in the country. In a reply to a question during the recently concluded winter session of Parliament, Minister of State for Commerce and In­dustry Som Parkash said the number of recognised start-ups in the country grew from 452 in 2016 to 84,012 in 2022 (as on November 30, 2022).
 

Dr Raajiv Singhal, founding member, managing director and chief executive officer (CEO), Marengo Asia Healt­hcare, which came into being during the pandemic, said the government did deserve a share of the credit.
 

“Under the Start-up India initiative, the government has taken several positive steps. Now, early-stage entrepreneurs are receiving more help at the time of starting a business ... they are getting better access to funds,” he said.
 

Fintech start-ups, too, are looking at a strong few years ahead.
 

“Digital lenders are seeing a substantial scale, but they control only a fraction of the overall loan market across asset classes. This is likely to change in the coming years, with fintech-facilitated lending expected to grow from $38 billion in 2021 to $515 billion in 2030. This represents a compound annual growth rate (CAGR) of 34 per cent over a sustained nine-year period,” said Aditya Kumar, co-founder and CEO at fintech start-up NIRO.
 

Daalchini’s Kalra said for the time being young start-ups should follow some basic rules till happier times returned.
 

“Budding start-ups should not hire too many employees. They must look to reduce expe­nses and maintain a constant focus on revenues and profitability. They need to focus on budgeting and building an emergency fund to create at least six months of runway,” she said.
 

Meanwhile, Flatheads posted an update. Within a couple of days of the Shark Tank episode featuring the co-founder, its entire inventory in India was sold out. 
 

As one waits to find out what 2023 has in store, start-ups will hope to find a footing, just like Flatheads.