While close to 1.26 million companies were formed during 2000-17, only around 0.5% were able to get venture funding, states the Indian Institute of Technology, Madras’ (IIT-M)10th annual report on Indian Venture Capital and Private Equity report on ‘The Success and Impact of Start-Ups’.
According to the report released during TiECON Chennai 2018, only three sectors - Software and Internet Services, Consumer Products and Services, and FinTech and Payments account for 63% of the companies nationally that received venture funding.
Does location matter
While the proportion of companies formed each in smaller cities and towns has increased from 65-76% from 200-2017, the proportion of companies formed in Tier 1 cities has decreased from 35-24%. However, the venture capital funding is routed more for the startups from Tier 1 cities. While large cities account for only 32% of start-ups formed, 89% of those that get angel or venture funding are from large cities.
Factors such as the start-up sector and age of the start-up mattered only in the initial stages of funding, states the report. As the companies mature, these factors cease to influence funding decisions, as the demonstrated performance of the companies outweighs all other factors.
Start-ups in sectors such as software and internet services, consumer products and services, and health-tech have a higher chance of getting first-round funding as compared to the other sectors, according to the report.
The report also states that the city in which the start-up was located did not play a significant role either in getting successive funding or in the quantum of funding.
Startups are not job creators
Startups have been promoted as job creators, however, according to the report, they must be treated as engines for innovation and growth instead.
While the average number of employees in large listed companies is about 35 per ₹100 crore of market value, in the case of established start-ups, it is only 0.04, which is a ratio of 875:1, reveals the report.