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80 pc startup founders look to exit within 6 years: InnoVen report

Sampath Putrevu
3rd May 2018
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Mumbai-based debt lending firm InnoVen Capital recently released its third Annual Startup Outlook Report, which focuses on the overview of startup founders and CXOs with respect to fund raising, investor sentiment, business focus, challenges, and other trends that prevailed in the Indian startup ecosystem last year.

Flipkart, SpaceX, and Ola have emerged as a favourite for Indian startup founders. SpaceX founder Elon Musk was the respondents' favourite, followed by Amazon founder Jeff Bezos. Among Indian founders, Mukesh Bansal and Vijay Shekhar Sharma were voted as the most-admired founders.

InnoVen Capital is backed by Temasek and UOB Group. Started in 2008, the platform offers multiple debt capital solutions, including venture debt, acquisition finance, growth loans, and syndication. So far, InnoVen has provided loans to over 115 startups such as Yatra, Swiggy, Byju’s, Oyo, Firstcry, Blackbuck, Practo, Power2SME, Pepperfry, Snapdeal, and Mswipe.

Ashish Sharma, CEO of InnoVen Capital India, commented on the report, saying,

"This is the third series of our Startup Outlook Report and it provides some interesting insights on the current mood and outlook in the startup ecosystem as seen through the eyes of entrepreneurs. Our respondents comprised startup leaders across various industries and various stages of growth. We hope that this report will be useful to all stakeholders, including entrepreneurs, investors, policy makers, and academicians."

The survey curated responses from more than 100 startup leaders from various industry verticals and at different stages of growth. Here are the key insights:

Fundraising and profitability

About 54 percent of respondents said that they had a positive fundraising experience in 2017, compared to 37 percent in 2016. On an average, startups pitched to about six to 10 investors to close a funding round. About 56 percent of entrepreneurs believe that the fundraising environment will be much more challenging in 2018, than it was in 2017.

In order to choose a lead investor, the two most important criteria that respondents used were strategic fit, which is 30 percent, and their ability to do follow-on funding, which is 19 percent. For early-stage startups, the investor’s ability to help with networking and business development also assumed importance along with follow-on funding capabilities and the strength of the investor’s brand.

Further, two pivotal factors that founders believe will improve investor sentiment were more profitable exits and companies emerging with innovative and robust business models.

Respondents identified AI, Blockchain, AR/VR, and FinTech as the most overrated sectors while Agri-Tech, Logistics, and Content were identified as the most underrated sectors.

About 41 percent of respondents stated that their cash burn rate was lower compared to the previous year, which is an improvement from last year, and 34 percent of respondents had lower cash burn than the year before. A majority of early and late-stage startups highlighted growth as their primary focus area, while mid-stage startups had a greater focus on profitability.

Close to 50 percent of early-stage startups are aiming for profits in the next two years, which reflects a growing sense of accountability within the startup environment.

Also, the GST had net negative impact on most sectors, but logistics/enterprise tech startups saw benefits from the GST.

Exit story

Almost 41 percent of founders expected an investor exit by 2024, while 35 percent of them planned an exit between 2019 and 2021. Only 4 percent planned an exit in 2018.

While 46 percent of respondents believe that merger and acquisition (M&A) will be the most preferred mode of exit, which is up from 30 percent last year, 40 percent of respondents believe that IPO will be their preferred option, which is at a similar level to that of last year. About 80 percent (up from 64 percent last year) expect to achieve an exit within six years.

Gender neutrality and challenges

Approximately, 47 percent of respondents said that they will add at least 15 employees to their company in 2018, while 9 percent of them hope to hire more than 75 new employees. About 39 percent of founders, mostly VC-backed companies, highlighted that hiring a good Chief Technical Officer was the most challenging task, while early-stage startups had challenges in hiring good sales heads and CMOs.

On being asked whether women are present in leadership roles in their startup, 45 percent responded positively, with 21 percent of startups having female board members. The growing presence of women in leadership roles is a highly positive development and continues to build on the impressive year-on-year progress.

The percentage of startups with women in key leadership roles was 42 percent in 2016 and 33 percent in 2015.

Raising equity funding was seen as a top challenge by respondents, particularly in ecommerce and fintech sectors. The challenges enterprise tech startups faced were largely to do with customer acquisition, customer churn, and talent management, while healthcare and logistics startups faced more challenges in market creation and talent management.

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