Notwithstanding the Narendra Modi government’s ambitious Startup India initiative, there has been a steep decline in the number of new start-ups coming up in the country.

According to data from start-up research platform Tracxn Labs, there were only 2,654 new startups in 2017, a drastic fall compared to the 12,267 start-ups in 2015 and 7,837 in 2016.

BusinessLine spoke to over a dozen founders of newly-formed start-ups, several experts tracking the ecosystem and investors, who were of the view that the initiatives seemed more lucrative on paper. Lack of adequate early-stage funding, higher taxation structure, regulatory hurdles and ease of doing business still remain the biggest challenge for new entrepreneurs.

“It is an uncomfortable reality that start-up numbers are dwindling. Access to funds is getting difficult, finding the right talent was tough but now it’s even more tougher and finally economic uncertainty due to taxes, regulations and compliance. We are seeing a slow death of entrepreneurial activity,” said angel investor Sanjay Mehta.

He added that many start-ups are moving base to countries such as Singapore due to the low taxation structure of 17 per cent there compared to 33 per cent in India.

Small businesses in India have to pay an 18 per cent GST reverse charge on foreign services such as hosting, database retrieval, pay-per-use services, which has had a negative impact on the start-ups, forcing many to shut shops.

Unclear regulations

Ajeet Khurana, former CEO of crypto-currency start-up Zebpay, which recently shut shop due to unclear rules and regulations for the cryptocurrency sector, said the government has failed to improve the overall ease of doing business.

However, Sidharth Rao, co-founder of advertising agency WebChutney, which was acquired by media buying firm Dentsu, said the fall could also be due to the end of hyper-funding by private equity firms leading to consolidation.

“2014-15 was a period of a hyper-funding for start-ups, fuelled by blind belief of investors around twenty somethings with moonshot plans,” Rao said. The implosion of housing.com and challenges at Snapdealhave spoiled the party for both entrepreneurs and investors, he added.

He also said venture capital firms, which were once “mindlessly” pumping funds into several me-too start-ups just because the model was working in the US or China, are now preferring to focus on mature start-ups.

Kumar Apoorv, founder of start-up Taskbucks, said that early-stage financing in 2015 was quick and the timeframe to close early-stage deals was less but now the time taken to close the first fund is 4x-5x more than what it was in 2015.

“…The government support at seed or idea stage is very limited. Even under the Startup India initiative, the criteria for qualification of a start-up to be eligible under the programme aren’t very friendly for a start-up in its initial stages and this could be improved further by taking cues from countries like Singapore and US which are more friendly in these respects,” said Aditya Kumar Founder and CEO Qbera.com

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