KEY HIGHLIGHTS:
– 58% of founders expect fund-raising to be more challenging in 2020
– 79% of founders have more bias on growth over profitability (v/s 85% in 2019)
– 75% of startups expect a higher pace of hiring in 2020 v/s 2019
– 25% of the founders rated government efforts to improve the start-up ecosystem as Excellent or Good
– 74% of start-ups had less than 20% of women in leadership roles (69% in 2019)
– Fintech & AI voted as the most over-hyped sectors, Consumer brands as most under-hyped sector
– Swiggy was chosen as the most favored Indian startup by the respondents.
Mumbai, March 17, 2020: InnoVen Capital, Asia’s leading venture lending firm, recently released its Annual Startup Outlook Report, that highlights the perspective of start-up founders & senior leaders with respect to areas like fund raising, investor sentiment, business focus, challenges & other trends.
Commenting on the report, Ashish Sharma, CEO, InnoVen Capital India said, “This is the 5th series of our annual Startup Outlook Report, which helps to gauge the current mood & sentiment through the lens of entrepreneurs. We hope that this report will be useful to all the stakeholders, including entrepreneurs, investors, media professionals and policymakers. It should be noted that the survey was carried out in February, when Coronavirus impact was largely concentrated in China and it’s logical to conclude that the sentiment has turned a more unfavorable over the last week”
Fundraising & Investor Sentiment
Founders expect a weaker funding environment in 2020. While 75% of founders had a favorable funding experience in 2019, 58% of founders believe that the environment will be more challenging in 2020. This is a reflection of several factors including the failed WeWork IPO, lack lustre public market performance of Tech IPO’s as well as the impact of coronavirus.
The top two criterion founders use to choose a lead investor were strategic fit (23%) and strength of the institutional brand (22%). Interestingly, 59% of growth stage founders (v/s 45% in 2019) are seeking to engage with private equity & hedge funds as part of their next fund-raise. The reliance on Chinese & Japanese investors has gone down, with 42% of founders looking to engage with them v/s 55% in 2019.
Respondents identified Fintech & AI as the most over-hyped sectors, while Consumer brands start-ups were voted as the most under-hyped sector in 2019. Founders expect Fintech (largely Neo Banks) & Enterprise Tech to be hot in 2020.
Profitability/Growth
While both growth and profitability are important, majority of founders (79%) highlighted growth over profitability as their primary focus for 2020. All late stage start-ups and 91% of growth stage start-ups aim to become profitable in the next 4 years. 60% of the total respondents said that they are targeting profitability over the next 2 years, with Consumer brands & Fintech being most optimistic.
Exit Expectations
Respondents identified M&A & Secondary sale as the most likely exit scenario to provide exit to investors. However more founders are now starting to look at IPO’s as a viable exit option (42% in 2020 v/s 38% in 2019). Over 60% of Ecommerce & Consumer brand start-ups view M&A/Secondary as the most preferred exit option, while 53% of Fintech companies feel IPO is the most likely mode of exit.
Priorities & Challenges
Fund raising & managing talent were identified as the top two priorities by a majority of respondents. Startups in the Logistics & consumer brand sectors identified path to profitability as the top priority. Early stage start-up’s top priority was to achieve a better product market fit.
Hiring good talent & meeting growth aspirations were identified as the top challenges by a majority of respondents. However, 37% of Enterprise tech start-ups rated customer retention as their key business challenge.
Hiring, Talent & HR
Over the last several years, startups have led the way in generating employment in the country and this trend is expected to continue. 75% of respondents plan to hire more in 2020 than last year, with Enterprise Tech & Fintech start-ups being most bullish on the pace of hiring.
Limited participation of women in leadership roles continues be a challenge. The survey highlighted that in 74% of companies, women constituted less than 20% of leadership roles (v/s 69% in 2019). In fact women constituted less than 10% of leadership roles in almost 50% of the start-ups.
Government Policy
Only 35% of respondents rated Government’s efforts to support the start-up eco-system as either Good or Excellent. While most founders were appreciative of government’s efforts, a majority of them felt that the government needs to do more. A stable regulatory environment and better incentives for domestic players to compete against global giants were identified as the two most important areas. 82% of Fintech startups and 66% of Media/Content startups identified the need for a stable & predictable regulatory regime as the key area of concern.
About InnoVen Capital
InnoVen Capital is Asia’s leading venture lending platform with offices in India, China and Singapore. It provides structured debt capital to high growth ventures. Started in 2008 as the first dedicated venture debt provider in India, the platform offers multiple debt capital solutions, including venture debt, acquisition finance, growth loans, and working capital support. Some of the prominent current & past investments include Swiggy, Byju’s, Oyo Rooms, CureFit, Snapdeal, FirstCry, Blackbuck, Rivigo, Myntra, Quikr, Dailyhunt, Pepperfry, Eruditus, PharmEasy, GreyOrange, Ather & Bounce.
For more information, please visit www.innovencapital.com
