Only 22% of India’s VC-funded early-stage startups expect to turn profitable in the next year

By Meghna Rao for techinasia.com

What’s up with India’s startup ecosystem? According to data released in InnoVen Capital’s “India Startup Outlook Report,” only 22 percent of VC-funded early-stage startups expected to turn profitable in the next year, probably because the intention of getting investor money is to trade profitability for growth.

More than twice that number of bootstrapped founders felt that way, and 44 percent of those who had received angel investment. The report surveyed 140 founders of early-stage startups.

State of the union

Despite celebrities and other notable figures coming forward to speak about the intolerance that exists in the country, 65 percent of companies felt that business and political conditions had improved in 2015, with 76 percent expecting the following year to be even better. The best things listed about India were the organic business opportunities that it presented and the availability of new technology.

Not all is rosy, however. Among the challenges that founders faced in the country, two of the three most named problems were taxation and regulations, showing that the country’s government – despite the promotion of its many startup-friendly events – continues to lag in the eyes of the country’s founders.

Photo credit: InnoVen Capital.

Furthermore, the survey revealed that the country’s bureaucratic system remains as maze-like and inscrutable as ever. 74 percent of bootstrapped and angel-funded companies had no idea about “angel tax,” a fee that startups have to pay when raising money from angel investors. Currently, the rate is 33 percent, which means that a startup raising money will have to raise that much extra in funding.

People first

Photo credit: Sandeepachetan.

At least in India, I’ve heard many a VC and founder tell me that the most important factor for a startup to achieve success is its team. A whopping 97 percent of early-stage startups said that they were definitely looking to hire employees in the near future, with only 28 percent of these hirees on the technology side.

Most of these startups are still choosing to be based out of Delhi, with Bangalore and Mumbai following suit as the country’s second and third most popular startup hubs. The survey predicts that over 5,000 jobs will be created by about 130 startups in the next twelve months. Still, over 70 percent of respondents expressed the belief that the Indian education system did not equip employees with the skills that they needed for a job.

As a nice little treat, the survey found that 41 percent of startups that had VC funding had women founders or executives at officer levels. It’s good luck, guys!