News

Indian startup founders still favour growth over profitability


Mumbai: Over two-thirds of founders who tried to raise capital last year had a favourable experience, although it was lower than in 2019 due to the Covid-19 pandemic, a survey by InnoVen Capital showed.

Most founders (71%) also believe that the fundraising environment will be upbeat in 2021, according to the survey of about 100 startup leaders by the venture debt fund.

“Funding environment is very strong particularly for companies that are addressing large markets and building sustainable businesses through innovation in brand, product and distribution,” said Aman Gupta, co-founder and CMO, boat, the headphones and earphones maker.

The fund, in its Startup Outlook Report 2021 shared exclusively with ET, found that there was a continued bias in favour of growth against profitability, with around 77% of founders ranking growth higher than profitability as a focus area for 2021.

Of the 100 startups that were surveyed, 62% were in the early stage, 28% in the growth stage and around 10% were late-stage companies.

Despite a severe dent caused by the pandemic and the resultant lockdown, there was strong demand recovery after a few months of severe Covid-19 induced disruptions, it showed.

“It may look a bit surprising that founders have higher bias for growth over profitability. But my sense is, most of the learnings and austerity were factored in and acted upon at the start of the pandemic and by the time the festive season picked up, revenues were back to pre-Covid-19 levels and investor sentiment had turned positive and the founders quickly pivoted to focus on growth,” said Ashish Sharma, managing director and CEO of InnoVen Capital India.

READ  Exclusive: Malware broker behind U.S. hacks is now teaching computer skills in China

The fund has backed startups such as Byju’s, Swiggy, Oyo Rooms, Dailyhunt, CureFit, FirstCry, Eruditus, Snapdeal, PharmEasy, boAt, Licious, Myntra, Blackbuck, Rebel Foods, BharatPe, Pepperfry, Infra.Market and Zetwerk.

About two-thirds of companies clocked above pre-Covid-19 revenue run-rate by December 2020. Sectors such as e-commerce, logistics (e-com), B2B platforms, enterprise software, D2C consumer brands saw the strongest recovery. Almost 23% of all respondents surveyed were already Ebitda profitable and around 42% of respondents aim to become profitable over the next two years.

Some analysts, however, said startups cannot afford to take their eyes off profitability.

“While startups continue to bounce back with a stronger focus on growth, the path to profitability is much more in focus now as companies are looking to turn net income profitable in the near term as growth at all costs is no longer a viable model to be funded,” said Ankur Pahwa, national leader-e-commerce and consumer internet at EY India.

The stage of evolution of a company also played a major role in how they performed financially. Around 27% of growth stage companies were Ebitda profitable, up from 23% in 2019. However, only 19% of early-stage companies had achieved Ebitda profitability, the survey showed.

On the back of a higher-than-expected growth in the second half of 2020, around 72% of founders expect the pace of hiring to pick up in 2021.

Companies in sectors such as digital media, e-commerce, logistics and deep tech were most bullish on hiring. For founders, talent management was also one of the highest challenges.

Given the geopolitical issues with China, anti-China sentiment has been on the up.

READ  Which flying camera is for me? The new Mavic Air 2 or Mavic Pro?

As per the survey, the preference for Chinese investors is significantly down to just 3% in 2021 from 29% in 2020. There has also been heightened interest in Japanese investors. Almost 23% of the respondents (as against 13% in the previous year) said they would prefer raising capital from Japan-based funds.

Although there was abundant liquidity to invest in these companies, exits continued to be a critical issue for most founders.

Around 47% of founders said they believed initial public offerings were a realistic exit scenario (up from 42% last year). This was driven by strong capital markets and IPO readiness of some of the mature companies in the ecosystem, with 70% of growth and late-stage founders looking at public market exits.

Respondents from the logistics sector were the most bullish about an IPO in India, whereas those in the retail consumer brand (47%) and travel-hospitality (50%) favoured M&A as the most likely mode of exit.

Fintech was the only sector where the majority of respondents chose a secondary sale as the most likely path to provide an exit to investors, according to the report.





READ SOURCE

Leave a Reply

This website uses cookies. By continuing to use this site, you accept our use of cookies.