The rise in failures and fall in funding for startups in India this year

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New data confirms the funding squeeze in India, after the irrational exuberance of 2015. This has in turn led to a rise in failures of startups as well as forced exits and consolidation this year.

On the positive side, new startups continue to emerge at a healthy rate, despite the correction in the funding scene. So there’s no real let-up in enthusiasm for entrepreneurship yet.

Software industry body Nasscom’s startup report for 2016, released this week, notes a 20-30 percent decline in funding volume, from US$4.9 billion last year to a projected US$3.8-4 billion in 2016. Startups registered or incorporated in 2011 and beyond were taken into account for this report.

Gone with the wind

The squeeze has come mainly in big-ticket deals from major VCs. Even marquee startups have failed to raise anything like the billion-dollar funding round Flipkart had last year. The average ticket size came down to US$6 million this year from US$8 million in 2015.

Lower-rung startups have also struggled to raise follow-up funding. This has contributed to nearly 1,000 startups shutting down. About 550 were founded in 2013 and 2014.

B2C startups have failed at higher rates than B2B startups, which have better unit economics and depend less on funding. The reckless burning of cash to scale up, which many B2C startups embarked upon last year, proved their undoing in 2016. This was most starkly evident in food startups, which saw the steepest decline in funding.

Silver lining