The Startup Outlook report is an annual report published by InnoVen Capital India & provides an outlook on the sentiment prevailing in the start-up eco-system through the eyes of founders. The survey is administered to founders (& few senior leaders) from a broad cross-section of companies (Early-stage, growth stage and late stage). It covers wide ranging topics around funding environment, exits, focus areas, challenges and other aspects that are on the mind of founders. This is the 5th Start-up outlook report and was based on a survey conducted with ~100 start-up leaders.
The Startup Outlook report Highlights
- Founders expecting a weaker venture funding environment this year. While 75% of founders had a favorable funding experience in 2019 , almost 58% of founders expect fund-raising to be more challenging in 2020
- Continued bias on growth v/s profitability. 79% of founders ranked growth higher than profitability as a focus area for 2020, slight decrease compared to 2019 (85%)
- 57% of founders believe that the most likely exit scenario will be through M&A/Secondary Sale. However more founders are now starting to look at IPO’s as a viable exit option (42% in 2020 v/s 38% in 2019)
- Private Equity & Hedge Fund gain more importance for growth/late stage funding rounds; ~59% of startups are looking to engage with PE/Hedge funds as part of their next fund raise (v/s 45% in 2019)
- Hiring good talent & managing growth expectations were identified as top two challenges for start-ups
- 75% of startups expect a higher pace of hiring in 2020 v/s 2019. Enterprise Tech, Fintech, Ecommerce and Media/Content are the most bullish on hiring in 2020
- 74% of start-ups had < 20% of women in leadership roles, which is lower than 69% in 2019
- 47% of founders open to possibility of a professional CEO running their business at the right stage of maturity
- Only 35% of founders rated government efforts to improve the start-up ecosystem as Good or Excellent. Founders want a stable regulatory environment & better incentives for domestic players to compete against global giants
- Fintech & AI highlighted as the most over hyped sectors, while Consumer brands was voted as most under-hyped sector in 2019. Founders expect Fintech (largely Neo Banks) & Enterprise Tech to be hot in 2020.
- Respondents chose Swiggy as their most favourite Indian start-up, Bhavish Aggarwal as their most admired Indian founder. Elon Musk was chosen again as the most favourite global founder (4th year in a row).
- Back to Back years of strong funding environment; 75% had a favourable experience in fund raising
- 58% of founders believe that fund raising will be more challenging in 2020
- Strategic fit & strength of institution brand are two most important factors
- For growth/ late start-ups, strength of institutional brand is the single most important factor
- More founders looking at Private Equity as opposed to Chinese & Japanese funds
- 42% of respondents targeting Chinese/ Japanese funds (compared to 55% in 2019)
Growth / Profitability
- 79% of start-ups have bias for Growth over profitability.
- All late stage start-ups & 91% growth stage startups aiming to become profitable in the next 4 years
- 82% of Consumer brands & 53% of Fintech claim to be profitable/expect profitability in 1-2 years
- 42% of founders believe that IPO is the most likely path to provide exit to investors
- 54% of growth /late stage start-ups expect an exit within 5 years, with 62% choosing IPO as a likely exit.
- 60% of Ecommerce start-ups believe secondary as the most likely exit path (most chose IPO last year)
- 64% of the Consumer Brand start-ups feel M&A is the most likely mode of exit.
- 53% of Fintech start-ups feel IPO is the most likely mode of exit.
Talent and hiring
- 75% of start-ups expect to hire more in 2020 v/s 2019
- Enterprise tech & Fintech startups are the most bullish on hiring in 2020
- Media/Content & Ecommerce close 2nd
- 50% start-ups had less than 10% women in leadership positions.
Business Priorities and Challenges
- Fund raising & Leadership/talent are top 2 priorities
- Better product market fit #1 priority – Enterprise Tech
- Focus on profitability top priority for Logistics & Consumer brands
- Early stage start-ups, chose achieving a better product market-fit as a key priority
- Top 2 challenges for start-ups were hiring good talent & meeting high growth aspirations
- 37% of Enterprise Tech start-ups rated customer retention as key business challenge
- 60% of Ecommerce & 50% of Healthcare start-ups identified Fund Raising as a Key challenge
- Only 35% of the respondents rated government efforts to improve the start-up ecosystem as Excellent or Good
- Stable & Predictable regulatory environment is perceived as a key concern by start-ups
- 82% of Fintech start-ups & 66% of Media/Content startups identified need for a Stable & predictable regulatory environment as most important.
Over and under hyped sectors
- Consumer Brands rated as most under hyped sector. AgriTech was rated the most UnderHyped sector in 2019 and 2018
- Fintech, AI rated as most over hyped sector. Blockchain and AR.VR was rated the most over-Hyped sector in 2019.
Professional CEO running business in the future
- 81% of the founders open to a professional CEO running their business, while 19% believe that the founder should always remain in charge.
- 36% of growth/ late stage start-ups open to a professional CEO running business in next 2-3 years.