Despite the start-ups in the country being increasingly seen as hot acquisition targets among global giants like Facebook and Google, Indian start-ups typically face a gap in early-stage funding of Rs 10-20 lakh as angels look for operational ventures and seed funds or venture capitalists (VCs) mostly focus on large investments.
It is extremely difficult to get a Rs 10-lakh funding, while it is easy to raise Rs 1 crore. Compared to the US, in India, we don't have so many investors in the low-funding stage, said Rajat Tandon, senior director, 10,000 Start-ups, Nasscom. At present, the pitching session of the second phase is on with 197 shortlisted ventures from across the country speaking to incubators, accelerators and angel investors. Over the last few years these players have been striving to get business ideas to an investment-ready stage. The Nasscom programme is also looking at bridging this viability gap.
Ridingo.com, which gives fuel points to vehicle owners for car pooling that can be retrieved at fuel stations, is currently part of the Nasscom Warehouse, a joint venture between the IT industry lobby and the Karnataka government, for a nominal fee of Rs 3,500 per seat for a month. Sixteen startups from the phase one of the programme are being given a co-working space in the Bangalore Warehouse.
In India, it is not ideas but revenues that sell. Otherwise you need to be financially sound or must have an education from the IIT or Havard, said Srivatsan Mohan, co-founder of Ridingo. Mohan, who has worked in Hewlett Packard for six years and holds four patents, struggled to raise funds for his idea. He plans to go operational in a week.
So far, in the Nasscom 10,000 Start-ups phase one programme, 29 companies have been funded and are now being accelerated by various organisations like Kyron Accelerators or Microsoft Accelerators. Others are in the process of being evaluated by several angels and accelerators. Among the shortlisted ventures, around 41% of these companies are in idea stage and 28% are prototypes. While just 28% are operational and around 9% earn revenue. Hence many of these companies are in dire need of funds ranging between Rs 10-20 lakh.
Unfortunately there are not many angels who are willing to invest at concept stage in India. They can wait and pick and choose and hence pick the less riskier ones. It is also a case of them not willing to do the extra effort to mentor a startup after putting in capital, said Srinivas Kollipara, COO of the IIIT-H Foundation, an incubator in Hyderabad that also provides seed fund for startups amounting to Rs 10-20 lakh for a 5-8% stake.
Experts point out that typically small funds are used for paying the food, rent and internet bills of founders and not for expansion of operations.
Creating an app is easy and there are far too many products chasing capital. And there has been few exits and there are instances of angels sitting on six or seven investments and have not had a chance to exit. Hence, people don't want to deploy more money as a CSR or charity activity even if the products are promising, said Mukund Mohan, director, Microsoft Ventures.