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India may be ranked a lowly 130 in World Bank’s Ease of Doing Business report, yet that has not fazed our young entrepreneurs, whose collective enthusiasm has made the country the third biggest startup ecosystem in the world, behind the US and the UK. A Nasscom-Zinnov report earlier this year pegged the number of new-age tech startups in India at 4,200, a growth of 40 per cent over last year, and also noted that there was a 100 per cent growth in the number of angel investors, private equity and venture capitalists.
Today, for high networth individuals from Ratan Tata to Nandan Nilekani, startups are the new gold to invest their millions in. No wonder, there has been a 125 per cent growth in funding in 2015 with about $5 billion riding on startups — up from $2.2 billion a year earlier.
It’s great that the money is flowing in. After all, India needs jobs and startups are emerging as the most aggressive hirers employing an estimated 85,000 people. But such easy access to funding creates its own vicious problems. Flush with funds, some startups are overhiring, throwing 4X salaries at people. The fall-out? Rapid cash burn, disintegration and mass firings.
In many spaces such as food tech, grocery and budget hotel room aggregation, there is also overcrowding and lack of differentiation. It is baffling why VCs are opening their purse-strings to so many me-too startups. At the same time, why are we seeing so few startups in manufacturing or in agro services?
The other worrisome issue is the lack of management depth. Remember how even Steve Jobs (then only 27) hired Pepsico veteran John Sculley to steer Apple through its scale-up. The mass firings at outfits such as TinyOwl and Housing.com all appear to be a symptom of not thinking through scale-up strategy. At a time when PM Modi has given a clarion call for Start Up India, Stand Up India, and asked banks to give quick loans to entrepreneurs, they cannot afford to abuse trust or lose the momentum by being too rash.
Editorial Consultant
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