Why Do Start-Ups Fail In India?
Start-ups are hard work. As we’ve seen in India, there have been many success stories and start-ups that have exceeded the bars they have set for themselves. However, these start-ups seem to be the outliers. Statistics show that over 90% of start-up ventures and businesses fail within the first five years of their conception.
Now, these statistics are severe and leads one to ask the question, why? Why do Indian start-ups show statistics completely against them? Why aren’t these businesses succeeding? Well, the main reason behind the same is funding. Most start-ups fail to catch angel investors, venture capitalists and other interested buyers. Failing to gain investors doesn’t mean that the idea behind the start-up is bad or it will not work on the Indian market. Instead, angel investors fail to find value in the start-up. Most often than not, it is because the business owner is unable to clearly articulate what exactly the business is about and how it can become profitable. This is just one of many reasons why the start-up ecosystem in India is slower than in other countries. Let’s highlight some other reasons for you.
Lack of innovation and drive
Statistics show that around 76% of angel investors and venture capitalists feel Indian start-ups lack innovation and a clear and precise business model. It is seen that rather than do the work and try to understand consumer needs and behaviour Indian entrepreneurs tend to create start-ups by emulating the better-known companies. So instead of putting in the time to do the research and create a business model for an untapped niche, Indian entrepreneurs will most of the time copy businesses and other start-ups that have seen success in other countries. Innovation is what will help our country’s start-up ecosystem beat and disrupt the competition. This lack of drive is what leads to the failure of start-ups.
Confidence is key
The lack of confidence as seen in Indian entrepreneurs does not go unnoticed by angel investors and other interested buyers. Some entrepreneurs can acquire funding for their start-up. However, they lack the confidence on how to properly use those funds. They either take too many risks or are unwilling to take any. Further, if entrepreneurs approach angel investors or venture capitalists too early for funding, they are bound to get rejected for the same because the investors are unable to judge the viability of the business. These rejections lower the confidence of the entrepreneur.
A saturated market
The population of our country is large. We are the second most populated country in the world. However, only a small fraction of this population stays in developed cities and towns. Almost 80% of our population live in rural settings. Start-ups cater to the population that is found in the urbanised areas of the country. Start-up niches don’t tend to be those that are found in villages. As such the demography of the population decreases in respect to start-ups. So we now have too many start-ups that cater to the same niche population. This saturates the market. With the number of start-ups exponentially increasing, and the start-up system becoming extremely crowded, it leads to a race for funding because funding becomes a rarity. This further increases the gap between start-ups that fail and those that succeed.
To sum up
Even though these are some reasons why start-ups fail, let’s look at the bright side. It’s important to note that in the years to come, hundreds of thousands of start-ups will succeed. They will get angel investors and venture capitalists that are interested in the company. The crux of the matter is funding. To acquire the funding you must be able to pitch your start-up to these investors in a very concise and precise manner. A manner in which will draw out attention to your start-up. This is where a company like Lakhani Financial Services can help you. We help start-ups create a well-rounded and level headed business plan along with organising your pitch deck. We help in the process of looking for angel investors. As a start-up ourselves we understand the work and dedication it takes to succeed in something like this and as such we are prepared to help you every step of the way.
About Devansh Lakhani
Director of Lakhani Financial Services, and a Chartered Accountant, he helps in start-ups funding India from his network of investors. He guides and advises start-ups to scale up by providing efficient sales, marketing, team building, and business management strategies. Being a business plan consultant he has executed fundraising by block deals on the stock exchange and conducted IPOs and right issues on the SME platform to the tune of over Rs. 50 Crore. He is currently working with start-ups from various sectors to help them channelize their business models and investments.
Check out a blog about Lakhani Financial Services written by Karo Startup here.