Are Venture Capitalists Acting As A Catalyst For The Startup Ecosystem?

The industries have evolved drastically as compared to how they were earlier in the 21st century. Earlier, companies struggled to attract foreign investors to invest in their startup companies, but today there has also been a major increase in investments from countries like Singapore, Japan, and China. It is fascinating to note the projections made during the pre-coronavirus era, which showed that by 2025 the country would have more than 100,000 startups employing more than 3.25 million people and producing 100 unicorn companies, all with a total market value of $500 billion.

This slow but gradual boom in the world of?startups?expedited by the boom in the digital scene in the country, more so with the introduction of cheap and convenient?internet access reaching?even the furthest corners of the country. Moreover, India’s diverse religions, cultures, and languages helped in creating diversified products, which in turn became a USP for the country as they appealed to a mass audience, enticing the probable investors.

Having said that, the journey of a startup company is not all rainbows and butterflies. According to a study conducted by International Business Machines (IBM), Oxford?Economics?and?Institute for Business Value (IBV), within five years, more than 90 per cent of the country’s startups fail due to a lack of unique business models and innovation.

Some of the other reasons include lack of market needs, lack of the right team, competition, and marketing. The pandemic also did not help the situation as a KPMG report stated that "In 2020, as many as 70 per cent of Indian startups had less than three months of runway left, while 35 per cent of them saw their revenues decline by more than 80 per cent."

One of the biggest challenges that a startup faces in its initial years is funding. As stated on the startup India website, a startup may require funding for purposes such as prototype creation, product development, team hiring, working capital, legal & consulting services, raw materials & equipment, marketing & sales, and more.

This is where?Venture Capitalists?(VC) come into play. Now, if you haven’t heard of VC earlier, let me give you a brief explanation. A VC is an investor that financially supports a startup that has the potential to reshape markets and grow rapidly?in return for an equity stake. Apart from this, a Venture Capitalist also provides startups with mentorship and guidance at different stages of their journey to really unlock the company’s potential.

Speaking of benefits, a startup can access a VC’s resources, including its network of connections, industry expertise, and marketing strategies. Startups also have the option to?tie-up with some of the VC’s global connections?which will allow them to position?themselves in the international market. Through this process, some companies with the right product will definitely reach out to the market abroad.

Statistics show that in the last two and a half years, the top 10 Indian VCs have backed more than 420 ventures and participated in nearly 600 funding rounds, and the numbers don’t seem to be slowing down anytime soon.?

Even with the pandemic, a report by the Indian Private Equity and Venture Capital Association (IVCA) and Venture Intelligence?stated that during January-July 2021,?VC firms added a total of $17.2 billion in investments towards the Indian startup ecosystem,?which is much more than the $13 billion?and $11.1 billion investments made by?Venture Capitalists?in 2019 and 2020, respectively.?In the past few years, SoftBank Corp topped the VC charts with more than $3.5 billion worth of investments, followed by Tiger Global, Temasek, Sequoia?Capital?and Prosus Ventures,

Some major?Venture Capitalists?deals include?those in Lenskart, Udaan, Mamaearth, Zomato, Swiggy, Meesho, PharmEasy,?Cred, RazorPay, Byju's, HealthifyMe, Unacademy, and more.?

It is now safe to say that the Indian Venture Capitalist ecosystem has truly come a long way. From its humble beginnings a decade ago, when only a handful of them were active due to the lack of startups in the country, to now being one of the largest ecosystems in the world, only behind superpower countries?like?USA and?China?and home to more than 50 unicorns,?30 gazelles, and 54 cheetahs.

With that being said, our journey is far from over. With startups emerging from all parts of the country, the government should also bring in more initiatives and programmes to support the young entrepreneurs that desperately want to take their company to the next level.

According to my assessment, venture capitalists are important as they play a vital part in the development of small businesses and help entrepreneurs transform their ideas into viable projects. This process also allows capitalists and startups to work together and promote the various new and upcoming ventures of entrepreneurs.

As an investor myself, I am always in search of businesses in their early stages that have the potential to really reach the sky, but because of low funds and lack of someone pointing them in the right direction, they miss out on the opportunity to make it big and that's where I come in. I also nurse sick companies and help them make a U-turn and get a fresh start in their professional journey.?

(The writer is the Managing Partner, Ansan Group Holdings PTE).