Startups: Losing their way

What’s common between Stayzilla, Fab Furnish and Eatonomist? Simple. They were among the most promising names in the startup universe at the beginning of 2017. But cut to the end of the year and all three–the hotel aggregator, the online furniture retailer, and the gourmet food company–were on a list of 180 startups that folded up in India.

Almost every college kid dreams of setting up a garage startup and raking in the megabucks later like Amazon or Apple. But turns out it isn’t that easy. There is no magic formula for success and several new ventures with cutting-edge ideas end up in the graveyard of startups. Last year’s shutdowns are a case in point.

Sure, the number of shutdowns fell last year–but then so did the number of startups. Bangalore-based analytics firm Tracxn has put together a “deadpool list” or a catalogue of dead or dying ventures which shows over 180 startups had called it quits as on September 2017, almost half the number in the previous year. Some big names include instant home services firm Taskbob, e-commerce venture InksEdge, and budget hotels startup Hotels around you. The maximum number of shutdowns was in the e-commerce sector followed by fintech, hospitality, and food.

What happened? The most common reason cited was lack of demand and an inability to convert investment into sales. Nasscom’s 2017 reports says 55% of the failed startups had received funding in 2017 itself, which suggests shortage of cash wasn’t the main reason why they shut shop.

An online fashion platform abof.com fell by the wayside even though it was launched by the cash-rich Aditya Birla Group. Stayzilla wasn’t exactly short of cash either: The hotel aggregator raised $33.5 million in three rounds of funding, says someone formerly associated with Stayzilla, who did not wish to be identified. “So, funding was never a problem. It is always about sustainability. A successful startup should always have a good expansion plan in place otherwise it falls apart,” he said.

Industry experts say lack of demand generation and regulatory roadblocks were major factors. Most tech startups using services such as hosting, database retrieval, and pay per use couldn’t survive the 18% GST under reverse charge. The Nasscom report termed the rollout of GST as “hasty” and said demonetisation was also responsible for the startup shutdowns in some industries.

While the government launched its Startup India programme in January, 2016 to handhold new entrepreneurs, a recent survey by Local Circles, a citizen engagement social network, shows there is still more work to be done. The agency surveyed 33,000 entrepreneurs to study the bottlenecks they faced. More than half put corruption and bureaucratic inefficiency at the top of their list.

Industry consultants, however, are cautious and say one should not read too much into such shut-downs alone. After all, for all the closures you also have some success stories – look at BetterPlace Safety Solutions, Fabdoro and Authorito Capital. So it might not be a win-win situation, but it isn’t a lose-lose one either.

“These [shutdown] numbers are not definitive or conclusive. They are only indicative of a trend. Nobody expects all the startups to work. In fact, 80% would fail,” said Vidhya Shankar, executive director, Grant Thornton India.