Fund-raising to be more challenging in 2020: India Startup Outlook Report

According to InnoVen Capital’s India Startup Outlook Report 2020, up to 42 percent of startup founders look at IPO as a viable exit option; women in leadership roles remains a far-fetched dream.

Venture lending firm InnoVen Capital launched the fifth edition of its annual ‘India Startup Outlook Report 2020’ on Tuesday. It highlights the perspective of startup founders and senior leaders in areas of fund-raising, investor sentiment, business focus, and challenges, among other trends. The survey was carried out in February when the coronavirus impact was largely concentrated in China.

Ashish Sharma, CEO of InnoVen Capital India, thus says, “...It’s logical to conclude that the sentiment has turned more unfavourable over the last week”

Investment scenario

According to the report, 58 percent of entrepreneurs expect a challenging funding environment in 2020. This is despite 75 percent of founders having had a favourable funding experience last year. The report states: 

‘This is a reflection of several factors including the failed WeWork IPO, lacklustre public market performance of tech IPOs as well as the impact of coronavirus.’

Additionally, the two top criteria of founders to choose a lead investor were strategic fit, and strength of the institutional brand. In fact, 59 percent of growth-stage founders are seeking to engage with private equity and hedge funds as a part of their next fund-raise. Lesser number of entrepreneurs (42 percent, as compared to 55 percent in 2019), are looking to engage with Chinese and Japanese investors. 

With respect to exit expectations, up to 42 percent of startup founders look at IPO as a viable exit option. Over 60 percent of ecommerce and consumer brand startups view mergers and acquisitions as the preferred exit option, while 53 percent of fintech companies are more inclined towards IPO. 

What’s trending?

Founders expect fintech (mostly neobanks) and enterprise technology to be the hottest sectors in 2020. In 2019, fintech and Artificial Intelligence (AI) were the most over-hyped sectors in the startup ecosystem while consumer brands startups were voted as the most under-hyped sector. 

Founders also revealed that while both growth and profitability are important for startups, a majority of them (79 percent), preferred growth over profitability, as their primary focus for 2020. The report further stated: 

‘All late-stage startups, and 91 percent of growth-stage startups aim to become profitable in the next four years. 60 percent of the total respondents said that they are targeting profitability over the next two years, with consumer brands and fintech being most optimistic.’

On the other hand, logistics and consumer-brand sectors identified a path to profitability as its top priority, while early-stage startups thrive to achieve a better product market fit. 

Hiring trends 

Fund-raising and managing talent were identified as the two priorities by entrepreneurs. 75 percent of founders plan to hire more employees this year, than 2019, with enterprise tech and fintech startups being most bullish on the pace of hiring. However, women in leadership roles continue to be a far-fetched dream. 

The survey highlights that 74 percent of the companies surveyed, constituted women held less than 20 percent of leadership positions. In fact, in almost 50 percent of startups, less than 10 percent of the leadership roles constituted women. 

Majority of founders also felt that the government needs to do more in terms of providing a stable regulatory environment and better incentives for domestic players to compete against the global giants. 

(Edited by Saheli Sen Gupta)