Markdowns reflect sentiment, vital to see if firm is on right path: IAN’s Srivastava

Saurabh Srivastava

Saurabh Srivastava

Dozens of startups have shut shop in 2016 while many others have struggled with a funding crunch and valuation markdowns. But serial entrepreneur and investor Saurabh Srivastava is not too perturbed. The chairman and co-founder of the Indian Angel Network (IAN), one of the largest and oldest angel groups in the country, says it is okay for entrepreneurs to fail as it indicates people have the confidence to take the plunge.

Srivastava knows what he is talking about – he has invested in over 100 startups and has mentored dozens of entrepreneurs. He founded the country’s first private sector venture capital investment fund—Infinity, which backed companies such as India Games and Avendus Capital. In an interview with Techcircle, Srivastava talks about the startup ecosystem, shutdowns and markdowns. Edited excerpts:

Are the chances of survival for startups relatively higher now than in a decade ago?

The ecosystem has developed tremendously, and by ecosystem what you mean is the number of entrepreneurs. The depth, breadth and variety of ideas, the experience and the competence of entrepreneurs and the number of people who are willing to chuck their jobs to do this—that number is substantial.

The ecosystem has developed also because the government has taken a lot of measures to make it easier to form companies and reduced the burden of compliances. So, that helps the ecosystem.

The third ecosystem is of funding. The amount of angel investments and the number of angel investors has gone up dramatically, which is needed. The number of incubators has gone up. And now there’s more domestic VC money available because of the various incentives that the government is offering and the kind of funds that the government has created. So, in all ways, the ecosystem is much more robust.

Also, the media is now celebrating entrepreneurship. It’s now fashionable to be an entrepreneur. It’s okay to fail. You know parents are not blocking their kids from becoming entrepreneurs. So, more and more good people are coming in. Overall, it’s very good. What does that mean? It means more entrepreneurs are now starting up. That means, even if the failure rate remained same, we will now have many more successful ventures. Because if there were a thousand people becoming entrepreneurs five years ago, today there are a hundred thousand people doing that. Even if the success rate goes like 25%, then the number of entrepreneurs who are successful would have gone up.

Is there too much noise about a handful of entrepreneurs in India?

That’s always true everywhere. There will always be some entrepreneur who gets more (attention) because they’ve big cheques and because the media likes things which have big numbers, which have sex appeal… it’s okay. Globally, that’s the case.

What kind of growth are you seeing when it comes to angel investors?

Generally, people who become angels want to get involved and help the companies. These people typically have business experience, operating experience and domain expertise. In the case of the IAN, because membership is by invitation, we don’t make somebody a member unless he has some expertise.

We are seeing a valuation markdown by investors, particularly in e-commerce. Does that bother you?

The valuations get marked up or down based on how companies will do and how the market is perceived. It’s happened outside of e-commerce also, but the market sentiment was high for e-commerce, they were valued high. If the market sentiment is down, they’re valued down. When a company is what it is, it is more important to see whether the company is on the right trajectory.

This year has seen a funding crunch and several shutdowns. Will there be more shutdowns in 2017?

Globally, the startup success rate is low. That is the nature of the business. A vast majority of startups do shut down. You never have a situation where 100% startups succeed. So, it’s like saying I’ll throw 100 seeds on the ground to see 100 plants. That doesn’t happen. In the IAN, 10% of our startups have failed. I am very surprised that it’s only 10%, because I would have thought that half should fail.