Young entrepreneurs in a fix as VC funding for accelerator-backed startups hard to come by
BANGALORE: The heady promise of money and mentoring is proving to be short-lived for scores of fledgling ventures graduating from the growing number of accelerators in the country.
Every six months, there are at least 120 new ventures coming out of nearly 35 accelerators that provide the first helping hand to an entrepreneur starting on a career in business. However, at the next level, when they need venture capital, these companies are finding few takers. This mismatch is leading to a glut of young companies facing an uncertain future across India's entrepreneurial ecosystem.
"It is a painful process as it diverts attention from running the business to raising funds," says Apurva Wadhera, 23, who runs online book trading portal BucketBolt and is struggling to raise money even after graduating from the accelerator programme at Gurgaon-based GSF Accelerators.
With venture capitalists getting choosier about fresh investments in an uncertain business atmosphere, this trend is only expected to rise, say industry experts. "Every month, we see proposals from 30-50 new startups. Of this, we might pick just one or two in a quarter," says Prashanth Prakash, partner at Accel India, an early investor in online retailer Flipkart and Forus Health.
In the last seven years, only 19% of new ventures could manage a second round of funding, according to a study by Zinnov Consulting, which estimates that around 560 new ventures emerge in India every year. The failure rate of 81% could rise further as even funds that focus on early-stage investments say the pipeline of entrepreneurial aspirants is far higher than what they will be able to fund.
"The fact that startups get selected by an accelerator does not mean they are going to be successful," says Ramesh Radhakrishnan, partner at venture fund Artiman Ventures, which typically backs technology-intensive ventures such as imaging company Tonbo and Oncostem Diagnostics.
For players across India's booming entrepreneurial landscape, the high mortality rate for startups is a matter of concern as it exceeds even that in mature markets like the US. Typically in the US, up to 70% of new companies fail to secure a second round of funding.
"There is a big gap between seed funding and first round of venture funding," says Dave McClure, co-founder of 500 Startups, one of the world's largest accelerators that is planning to raise a dedicated fund of up to $10 million, or Rs 54 crore, for India. McClure believes seed funds such as his will need to write larger cheques to bridge this gap, stemming largely from a lack of exits in India to motivate venture capitalists.