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Everyone loves an Indian start-up success story. Not too many know that 2,000 failed last year

Larger players dig in, leaving little room for their smaller counterparts to survive. But strengthening rupee capital base for startup funding could be a way out of this.

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Bengaluru: Nearly a third of Bengaluru’s online food and grocery delivery companies have closed operations, shows data from startup tracking platform Tracxn. The figure highlights the other side of the city’s triumphant startup story as larger players consolidate their positions, leaving little room for their smaller counterparts to survive.

Out of 383 food and grocery delivery apps in Bengaluru, 129 have shut shop, according to Traxcn.

In the last week of November, a fruit delivery app, Juzi, shut operations citing “adverse business circumstances”.

Calls to the company’s executives did not yield any concrete answers. Most of the ones still receiving calls are just as bewildered at the decision of the founders, shared via an email, as their customers in Bengaluru are.

Though the city has over 11,000 startups, most of the attention is focussed on the ones that made it big, like Ola, Byju’s, Swiggy and others, who have captured significant market share in their respective sectors and have also managed to secure huge rounds of funding at billion-dollar valuations.

But the pan-India figure is just as surprising, if not more. The number of startups across the country that have been forced to shut down operations has more than doubled since 2021, data from Tracxn shows, indicative of funding-related pressures on several of these companies to remain afloat.

Also read: Zomato, Flipkart, Paytm — flush with unicorns, India’s tech moment arrives

Dead-pooled startups 

There were 975 “dead-pooled” companies, in other words, companies that are no longer operational, in India in 2021. The number has more than doubled to 1996 in 2022, according to Tracxn, referring to technology companies that were founded in the last 10 years.

Persons closely associated with the startup ecosystem said that there are 10 times more $100-million valuation companies in India for every $500 million one, and 10 times more $50-million valuation companies for every $100 million company.

“In India, the power-law of start-up scale has been out of whack for some time because a lot of VC/PE (venture capital/private equity) funding has been going only to the larger players. We don’t have a sufficiently robust early-stage funding ecosystem,” Sharad Sharma, co-founder, iSPIRT Foundation, said. “The funding channels are also slowly drying up as we stare at another imminent global economic downturn.”

The power law states that a few companies will achieve exponentially greater value than all others.

Indian startups raised $3 billion in the third quarter or Q3 (July-September) of calendar year 2022, which was 57 per cent lower than the previous quarter and over three times lower than funds raised in Q3 last year, data from Tracxn shows.

The data, however, is viewed differently by different people, with some preferring to put the numbers from Bengaluru in the context of the overall country.

“Out of nearly 70,000 or so start-ups in the country, this number of around 2,000 (dead start-ups) is a low mortality rate,” Prashanth Prakash, a partner at Accel Partners and chairman of Karnataka’s Vision Group on startups, said.

“It’s less than 5 per cent of the total startups, so this mortality is an extremely good thing to highlight as people should know that startups are doing a really amazing job. Usually, people think that 20-30 per cent of all startups don’t make it,” he pointed out.

‘Tourist’ capital 

Much of India’s VC funding comes in from overseas and it rarely finds its way into early-stage companies and continues to flow into larger companies.

Although more than 77,000 start-ups have been recognised by the Department for Promotion of Industry and Internal Trade (DPIIT) across 656 districts in the country as on 29 August this year, most people know just a handful of them. These include companies functioning in food and grocery delivery, mobility, and some form of entertainment, among others.

“Startups that get some kind of escape velocity get lots of funding. Most of this is ‘tourist’ money,” Sharma said, referring to the inflow of capital from VC-backed funds in countries like the US and China.

He added that the way out is to strengthen the rupee capital base for start-up funding.

“We have to draw in local high-net-worth individuals, insurance companies, private companies which have large balance sheets, to invest in the early-stage ecosystem,” he said. “Only then will we be able to solve this problem. Once this happens, our vulnerability to this ‘tourist’ capital, which comes in and goes out, will come down.”

“The current downturn is a call to action to address the issues that prevent a stronger rupee capital base forming for early-stage funding,” he added.

(Edited by Nida Fatima Siddiqui)

Also read: Where do founders of 100 Indian unicorns come from? IIT Delhi tops list, IIMs nurtured many too

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