"Funding in Start–ups is Starting to Mature and Get More Diverse" Efforts are being taken by all stakeholders of the ecosystem to make the process of starting up easier and more streamlined.

India is among the fastest growing economies in the world and also the third largest economy, globally. So, when our start-up ecosystem also emerges to be the third largest start-up base, it does not come as a big surprise. We're young and are growing – that is what is expected. What has happened is that start-ups are not operating on their own now. There is an ecosystem being built for them. Efforts are being taken by all stakeholders of the ecosystem to make the process of starting up easier and more streamlined.

More Opportunities, Diversified Risks

The other thing that has happened in the past couple of years, the results of which were felt in 2016, is that the competition has intensified. Compared to the initial stage, when there were few players and select sectors, the scene is very different today, especially for investors. Now, when one wants to invest in a start-up, they have a wide range of sectors to choose from including finance, artificial intelligence, education, healthcare, technology, e-commerce, food, entertainment, enterprise technology, media, analytics, fashion, travel, etc.

More importantly, they have a set of companies to choose from. This has completely changed the game – both for the entrepreneurs and the investors. Instead of banking on the one trending sector or that one start-up, investors are exercising the choice that is being offered to them and are diversifying their investments. To gain maximum returns on their investments, they are looking at a variety of companies from different sectors before making a final decision. The available funds are being broken into smaller chunks and are being invested in different companies across sectors.

Slowdown for Good

This growing up and the opening up of the ecosystem made 2016 look difficult for the start-ups and they became serious business which is always the case when an industry matures Rajat Tandon, President, Indian Private Equity and Venture Capital Association and grows. So, technically, 2016 was a year of growth for both start-ups and investors. While 2016 may have been low in terms of the value of deals, there were more number of deals during the year, (according to reports, there's an increase of almost 18%), which in itself is a sign that the funding is not drying up.

It is simply a case of investors becoming more selective and conscious of how and where they are spending their money. We not only continued to support our favorite sector - e-commerce, but also gave an opportunity to new and upcoming industries like drone manufacturing. This diversity in deals made is also evident in the Annual Indian Start-up Funding Report 2016, which highlights that 32 per cent of the start-ups that received funding belonged to the "others" category.

Apart from e-commerce which claimed approximately 30 per cent of the total funds, fintech, deeptech, and edtech also emerged as favorites with a volume of 92, 88, and 74 deals respectively and the value ranging between $8-5 million.

Value over Volume

It is more than likely that going forth this trend of intelligent funding is going to become the norm rather than the exception. While on the onset it might seem as if the funds are not coming forth or that the sector is growing slowly, it is a sign that the main stakeholders of the ecosystem are actually diverting funds towards industries and companies that hold a certain value proposition for all the participants in the ecosystem and are not simply a "me-too" business with no-added value or return on investment.

In this scenario, start-ups that do not have a proper business plan or are under performing or have anything new to offer are the ones that will lose investors' interest. The sectors that are delivering and are offering a solution to real consumer-problems will get the attention and the help they require to set-up and scale their businesses.

(This article was first published in the March issue of Entrepreneur Magazine. To subscribe, click here)