Why Kishore Biyani is scared of start-ups
- Donald Trump pressures US senators to back Republican healthcare bill
- India to send 700 tonnes of relief material for Rohingya refugees in Bangladesh
- Sushma Swaraj slams Pakistan at UNGA, asks its leaders to introspect
- Mexico jittery after new earthquake of 6.1 magnitude
- Sushma Swaraj calls for early start of negotiations for UNSC reforms
Have start-ups in India become too sexy? Yes, in the opinion of Kishore Biyani, the 56-year-old founder and group chief executive of retail giant Future Group. Biyani, speaking on Wednesday at The Economist India Summit in New Delhi, also said he thinks, according to multiple media reports, that 90% of the country’s start-ups are not going anywhere. “They are hopeless,” he says, according to a PTI report.
To be fair, up until a few months ago, it did feel a lot like a wild party was underway in India’s start-up market. A lot of that had to do with the copious amounts of capital sloshing around. Everybody was in the mood to talk up start-ups—investors, entrepreneurs, the media, even the government. The exuberance on all fronts, except maybe for the government, has lately died down with the advent of a correction in the funding market.
But here’s the thing. Correction or not, there’s very little that’s sexy about starting up in India. Especially for first-generation entrepreneurs, against whom much of Biyani’s ire is directed. Funds are scarce. There are just about 20 active venture capital firms in the country and less than five venture debt firms. Compliance is still a nightmare and then there are horrors like a tax on capital raised from angel investors. There are middlemen to deal with at every step in any business. And socially, it still remains far from acceptable compared with most other career choices. Even within hip start-up hubs such as Bengaluru, Mumbai, Gurgaon and New Delhi.
Yet, every year, more and more people from predominantly middle-class backgrounds take the plunge and start up. Some quit jobs that pay reasonably well. Others start straight out of college. By software industry lobby Nasscom’s estimates, there are currently over 5,000 technology start-ups in the country, funded or not by venture capital. More than 90% of such ventures are indeed doomed for failure. Often within a year of starting up. The high failure rate isn’t specific to India. It’s the standard anywhere in the world where entrepreneurs, usually first generation, have tried to disrupt traditional markets.
What’s important to remember, though, is that it takes only the surviving 10% to make all the difference. Let’s set aside the e-commerce sector, everybody’s favourite whipping boy these days, for the moment. Instead, take the example of the business process outsourcing (BPO) industry. India’s BPO start-ups were born in the shadow of the dotcom bust. Out of the hundreds of BPO companies that started up at the time, 90% failed or wound down operations due to lack of funds. But the less than 10% that survived, among them Daksh eServices (acquired by International Business Machines Corp.), Spectramind (bought by Wipro Ltd) and Customer Asset (acquired by Firstsource), became the foundation for a $25 billion industry, turned India into the world’s back-office, and now employs millions of people.
Coming to e-commerce, the poster child of the current start-up wave in the country, there’s no doubt that there’s been some excess in terms of the capital that has been gobbled up by start-ups in the space. Most of that money has in the past chased valuations rather than profits and many in the start-up ecosystem fear that the irrational exuberance that existed could still prove costly in the long term. It doesn’t help that a certain e-commerce company in Bengaluru, that seems to be losing value, on paper, ever too frequently these days, is perceived as being on the verge of collapse.
Yet, despite those drawbacks, the verdict is still out on e-commerce start-ups and the overall well-being of the start-up ecosystem. The correction in the market has ensured that ‘tourist entrepreneurs’, as one venture capitalist in Mumbai put it half in jest, are being weeded out. As long as the 10% who survive continue to push through, it will be more than enough to prove that start-ups have and will always matter. As for Biyani, Alok Goyal, co-founder of recently minted venture capital firm Stellaris Venture Partners, summed it up best in a tweet on microblogging platform Twitter, “He (Biyani) should be worried about the remaining 10%!”
Snigdha Sengupta is a consulting writer with Mint. She contributes stories on venture capital and private equity.