Inside story: Why investors avoid seed-stage startups

“The Indian startup ecosystem is buzzing like never before. A total of 1,200 new tech startups were added in 2018 till September, including eight unicorns – the highest number in a calendar year in Indian startup history – [source: NASSCOM]”

There is a good amount of job creation with startups. For instance Indian Startups have been able to create an estimated 40,000 new jobs over the year, taking the total jobs in the start-up ecosystem to 1.6-1.7 lakh. Along with China and U.S.A, India has become a bigger startup hub in the world, as it is brimming with innovation and new ideas.

With an impressive GDP growth of 7.2% (MOSPI Q4, 2018–19) India has been an attractive country destination for foreign investments and big corporates to expand and more importantly setup services for backend and support work as India has been the skill capital of the world.

However, Even after the huge growth in the startup ecosystem, seed-stage startups (under $1 million) funding fell 21% in 2018, after a 53% drop in the previous year.

Major Reasons for skipping seed-stage startups were;

  • Angel tax
  • No Network and lack of training under a mentor
  • Poor execution by entrepreneurs(Semi/Half-baked product)
  • Up scaling seed funding amount (almost doubled)
  • Lack of traction
  • Not able to validate business model
  • Lack of indigenous experience
  • Ignoring customers and running for external funding source
  • Lack of passion and resiliency
  • Instructional pedagogy in public education system
  • Poor development and promotion of entrepreneurship education in academia

To summarize, seed-stage startups need to connect the dots backwards, possess business skills and entrepreneurial skills. Today India has hundreds of good incubation centers and early entrepreneurship education companies that are vital for founders and team members to hone and grow exponentially.

Also I have mentioned in my last article the importance of having a mentor (someone who has travelled your startup journey before) for transforming your startups

(link to mentor article)

The solution must be applied from the grass roots. Level 1, what the experts believe is spreading awareness in public education system. We all are a yield of schools and universities where entrepreneurial education / Innovation / Creativity was barely taught. But today, there has been some progress (introducing creative and innovative content) in public education system. Innovation and Entrepreneurship Development Centre (IEDC), Entrepreneurial education companies and Incubation centers should send their representatives to the institutions to work along and suggest the needed content and the development of entrepreneurial skills among the students to habituate and inculcate the entrepreneurial mindset. The objective is to focus on value creation, the most essential step before venture creation.

As per KYC report, entrepreneurship flourishes as a result of a combined input of some triggers such as:

1. Favorable Business Environment

2. Access to Early Stage Finance

3. Entrepreneurial and Business Education

4. Individual Motivation

5. Socio-Cultural Factors

Thus, in order to achieve the accelerated economic growth, the HR with Entrepreneurship qualities and skills are needed. To achieve these we should not neglect the role of Government, education institutions, favorable policies, support of stakeholders, industry-academic linkages, tie-up’s with entrepreneurial education company and Innovation and Entrepreneurship Development Centre (IEDC).

We are what we repeatedly do. Excellence therefore, is not an act but a habit. ~Aristotle

This article is written by Shaik Waseem

Shaik Waseem is Entrepreneurial Educator and start-up influencer. He is on a mission to promote academia to be ICE(Innovative Creative Entrepreneurial). He has been co-founder and managing partner for multiple companies that are run under investment group members listed by Forbes middle east as top 100 Indian leaders in U.A.E. 

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