Funding woes to crowded market, why it's tough being a start-up in 2019

Funding has dried up, government initiatives are riddled with problems and the days of copycat ideas are over

Being a digital commerce firm with no backers can be tough. if the bigger players such as ShopClues are trying to merge with players such as Snapdeal to survive. Things are worse for the ones that are bootstrapped.

A tough road ahead for start-ups

Not just private investors or PE funds that have come up short, even the government’s initiative to promote start-ups has not done much to help out budding entrepreneurs.

Ask Abhishek Verma, he has a few battle scars to prove it. He is the founder of Quikmile, a tech-enabled logistics ecosystem. The firm has built a vehicle tracking and transport management system for logistics companies and fleet owners via which they can track and manage their assets in real time.    

Incorporated in June last year, the company working out of a three-bedroom flat-cum-office in Delhi NCR is at present being funded by Verma's own savings, and loans from friends and family.

It is not like the founders have not been looking out for investors, but no great offer has come their way. Sometime back Verma and his teammates hit upon the idea to register themselves under the incumbent government’s flagship Startup India initiative.

They thought a certificate and recognition from the government might open a few closed doors. “See, for us it has been a struggle from Day One. We knew that when we left our jobs to start a company of our own. What we wanted was some help along the way to initially help us survive and may be thrive later. That is why we decided to apply for the start-up certificate. We thought it would help us secure a government loan and also help us raise funds from venture capitalists and angel investors,” said Verma.

Armed with the certificate, Verma and his team restarted the process of raising funds. But nothing seems to have changed. “What we found after having extensive talks is that banks do not provide Mudra loans or loans under Startup India schemes to private limited companies that are less than a year old. On the other hand, VCs and angel investors only give funding to private limited companies,” Verma said.

What does the certificate promise?

According to the official website of the Startup India initiative, the certificate gives a company income tax exemption for a period of three consecutive years and exemption on capital gains and investments above fair market value. It provides easy winding up of a firm within 90 days and helps fast-track up to 80 per cent rebate on filing patents. Other than that it helps facilitate funds for investments into start-ups through alternate investment funds.

Consolidation a way out for bigger players

It has been tough raising funds for even bigger players as now the e-commerce space in India is getting divided between Amazon India and Walmart-owned Flipkart.

Companies such as ShopClues, according to sources, are in talks with e-commerce firms such as Snapdeal for a merger. Snapdeal reportedly is conducting due diligence, a move that may lead to a potential acquisition of ShopClues. According to the sources, the move would benefit both firms as this might generate some investor interest for a fresh infusion of funds in the new entity.

However, discussions are at an early stage and people in the know said it may be too soon to say if the deal would materialise. PwC is involved in the process, and if the deal goes through, it would be an all-stock transaction, sources said.

Snapdeal has been focusing on unbranded goods in Tier-II and Tier-III towns and cities. Co-founders Kunal Bahl and Rohit Bansal put in place a plan called Snapdeal 2.0 in 2017 when talks for a sale to Flipkart fell flat.

The order volume for Snapdeal has risen from about 35,000 daily orders in August 2017 to over 200,000 new orders a day now.

According to reports, the deal is expected to value ShopClues between $200 million and $250 million. ShopClues had an estimated value of $1.1 billion in 2017. Both companies share Nexus Venture Partners as a common investor.

"If this goes through, it will be a win for ShopClues as it does not have any suitor at the moment," said a person familiar with the ongoing discussions.  

Reports of Snapdeal buying out ShopClues, anchored by common investor Nexus, have been doing the rounds for about a year though. ShopClues was also reported to have limited fund reserves.

"There has always been interest in us and these speculations are no exception. We have, in the past, and will continue to in the future, pursue partnerships and commercial relationships with rivals if it helps us serve our consumers better," said a spokeswoman at ShopClues.

Hope of stability ahead

For budding entrepreneurs, hopes are high as they expect renewed investor interest in the next couple of months. The key, they believe, is having a product with a difference.

“A stable government always helps get the investor interest back. Also the government would be bringing out the e-commerce policy soon. Now investors do not want to bet on two or three similar products and see which one survives. So we need to work on a product which is completely different from the competition,” said Arvind Narang, the founder of a start-up focused on making safety products for women and children.