Funds flow for start-ups with good working model

HYDERABAD: Even as the start-up ecosystem is going through a correction and investors are treading cautiously, Indian entrepreneurs are steadily getting funds, proving that there is no dearth of funding for the right ones.

Though the fund flow and new deals may not be as high or frequent as it was five years ago, start-ups that have created a track record and revenue stream, with good working model, are able to attract investors.
“In early 2010, any start-up with an idea and ability to pitch, succeeded in getting funding. But that’s changing now. Investors are only looking for start-ups that have already executed their idea successfully and have potential for growth.

This is a welcome trend as strong start-ups with good prospects will survive and grow while the unviable ones will perish. India has about 9,000 start-ups and it is always better to have fewer start-ups with successful models and strong potential than a large number which does not add any value to the existing ecosystem and economy. With more US investors looking towards India, start-ups here that can provide US players access to the Indian market are attracting funds,” said Ashish Paul, COO of Israel India Technology Group, which has invested in Indian start-ups and earmarked about $300 million over the next year.

According to analysts, the quality of Indian start-ups is improving, thereby bettering their chance of getting funding.

“According to studies by IIT Madras, about Rs 1.1 lakh crore has been pumped into Indian start-ups between 2005-15. Year-on-Year, fund flow is rising at 40 per cent and above. The scenario has been encouraging not just in terms of funding, but in terms of mentoring, incubating and support from corporates and government. Venture capitalists and investors say now they are getting good ideas from start-ups, rather than copy-paste models,” said Thillai Rajan, a venture capital expert and IIT Madras professor.

The recent Flipkart-Walmart deal is seen as positive impact on funding scenario in future. A look at deals over the last one year shows that start-ups working in Deep Tech, fintech, health tech and other evolving areas and social impact enterprises are attracting investors. “Rationalisation and consolidation is happening in the start-up ecosystem and though fancy deals are not happening, start-ups with a working business model and revenue flow are attracting VCs and PEs. Success of unicorn start-ups like Flipkart will impact start-up ecosystem positively,” said Sharad Moudgal, partner, Khaitan and Co, law firm.