It is essential to grasp this sector because it can help you in deciding the growth possibilities. Many companies are owned by families and this failed to bring out capable entrepreneurs. But this has changed in the past two decades
At present more and more young people are beginning to establish their own companies. This tendency is obvious in youngsters born after 1998, known as the Y Generation. Due to this, we must bear in mind that the start-up sector of India continues to attract a lot of youth. So, it is extremely important to come to terms with the challenges and opportunities of this unique sector. This will enable us to understand the possibilities for growth in this sector.
In the initial nine months of 2021, PE-VC or private equity venture capital began to develop, reaching a record high of $49 billion. This is 52% higher than whatever was contributed over a nine-month time frame last year and surpassing the entire year 2020 figure of $39.5 billion. The number of deals from January/September 2021 numbered 840 in contrast to the 651 arrangements of January-September 2020. This count rejects Private Equity interests in hand. Some prominent VC financing deals during January-July 2021 are $3.6 billion raised by Flipchart, $502 million raised by Mohall Tech (Share Chat), Tomato’s capital by around $500 million, and $460 million Byju’s. This shows the increasing acknowledgment of the capacity of Indians to do well as business people. Besides, a significant variable pointed out by many is any smart idea that is commercially feasible and deals with a space where increasing demand will stay funded. Financing a smart idea or a promising start-up is certainly won’t be a challenge. The other main consideration is that a large portion of these ideas needs only light assets making them appealing to investors.
Most, however, point out that there is still a “perception challenge” which many people who want to start a venture face. And that challenge is: understanding the creditworthiness of start-ups. Many point out that banks and other funding entities look at start-ups from a very traditional business point of view. Start-ups are evaluated from the variables of debt-to-equity ratio, profits, and other profit and loss and balance sheet items. The point they miss is unlike traditional businesses where the bank takes risks like equity contribution risk, project risk, operational risk, and market risk most of the start-ups already have achieved a reasonable scale and have large equity financing upfront before they reach out to traditional lenders. . But venture capitalists and other strategic investors such as private equity firm look at the scalability of a business. They look at what a start-up intends to address. If a start-up intends to address demand, then its success is sealed. If not funding from banks, some investors are looking for interesting ideas. Analysts and economists note that globally there is liquidity that is chasing good ideas.
Most, however, point out that there is still a “perception challenge” which many people who want to start a venture face. And that challenge is: understanding the creditworthiness of start-ups. Many point out that banks and other funding entities look at start-ups from a very traditional business point of view. Start-ups are evaluated from the variables of debt-to-equity ratio, profits, and other profit and loss and balance sheet items. The point they miss is unlike traditional businesses where the bank takes risks like equity contribution risk, project risk, operational risk, and market risk most of the start-ups already have achieved a reasonable scale and have large equity financing upfront before they reach out to traditional lenders.
But most indicate that there remains a perception challenge that a lot of start-ups face. Here the challenge is to understand the financial soundness of the new businesses. Many point out that, banks see new companies from an extremely conservative business perspective. New companies are assessed by factors like the ratio of debt to equity, profits, and items like profit/loss, balance sheet, etc., The point they overlook is that, unlike conventional organizations where the lending institutions come across risks such as contribution and project risks, operational and market risks, a lot of new companies have already gained a prudent scale and come with rather large financing of equity value upfront before they seek out conventional banks.
But venture entrepreneurs and other investors such as private equity firms look at the scalability of a business. They look at what a start-up intends to address. If a start-up intends to address demand, then its success is sealed. If no funding from banks is available, some investors look for interesting ideas. Analysts and economists note that globally there is liquidity that is chasing good ideas. But venture entrepreneurs and investors like equity firms look for the financial prospects of businesses that they want to lend to. They are interested in finding out what a start-up proposes to address. If on the contrary, they do have the intention to address a demand, then their success is assured. Besides banks, there are many investors ready to help start-up with exciting ideas. Economists and business analysts find that universally there is enough liquidity that to pursue smart ideas.
Supporters of start-up firms opine that in terms of customary limitations to measure a business, lenders should look at visible revenues, profits, and total margins of any start-up. It is found that start-ups established on a workable idea take anything between three and five years in order to break even in their businesses. Once this is achieved, such start-ups continue like any professionally managed firm with important professional supervision. Further, start-ups remain contemporary business ideas that address problems or demands of the new age. If start-ups with a feasible idea suffer losses, it is mainly because of problems in marketing, employee/technology expenses. In fact, such losses are unrelated to a poor reaction to their business model. So, funding entities should see start-ups from fresh perspectives.
Moreover, the inability to identify business models for startups can become a huge barrier to their funding. Frequently, a business might take time to get the required results. The making of habits takes time for consumers. To this end, it is important to attract them and persuade them to buy products by providing them with superior and cost-effective services. When they become used to buying a product, they tend to do them more often. Many old-funding and traditional businesses do not know this method. But, watching the amazing response to start-up IPOs recently, a lot of investors observe a good measure of value in these businesses.
Further, as a lot of start-ups lack peers or predecessors in the industries, they are part of, they are robbed of prospective funding. This is why banks as well as other lending institutions fail to fund start-ups. But an argument against this is why a start-up needs a peer? Really, a start-up came out of a pioneering idea. In fact, an innovative idea means the exploration of a virgin field. Because of this, any start-up need not have a predecessor or peer. Lastly, conventional funding entities in general demand collaterals before lending to manufacturing firms. Such entities pursue a similar approach while funding start-ups. But this anticipation of security or collateral remains contrary to the very idea of entrepreneurship. Their brand power is the collateral of start-ups in general. Although this is an intangible asset, it remains an asset, nevertheless. The astounding response to many recently listed start-ups listed recently is proof enough to prove that big investors are coming forward to pay generously for brands that were established recently times.
Shortly, an increasing number of people will come forward to start their own ventures because in a developing economy demand tends to be either stable or growing. A service that meets the expectations of consumers is rewarded well by consumers. Two good examples are the success of both Amazon Prime Video and Amazon. But the only way a start-up will receive acceptance of traditional funding entities is when they not only address a real demand which is sustainable but also delivers on their services and financials in the long run. A start-up founded on a well-researched premise which addresses a real absence of a service and provides it is likely to score well not only financially but also in terms of quality of services. This is because only by achieving these goals start-up businesses can be taken seriously by markets.