The following is a guest post from Norin Salim of ZingoHub, a crowdfunding platform based in India. Salim writes about the startup ecosystem, and crowdfunding in India.
Every day, 3 to 4 startups are founded in India. It is of little surprise that the NASSCOM Startup Ecosystem Report 2015 talks of India as the youngest (and steadily growing) start-up nation in the world. The developing nation has over $5 billion dollar worth investments.
What’s more, India ranks third in technology driven product start-ups right after US and UK respectively.
The ecosystem for the growth of startups is 55% conducive and merely 2% negative. This response collected by the Economic Times Barometer also depicted twice the growth since 2014. This boom has generated employment for more than 85,000 people. The start-ups are spread mainly over technological hubs of Delhi and Bangalore, accounting for 28% and 24% of activity, respectively.
The startup explosion comes from several factors, like the rise of the middle class — it’s expected to grow from 50m Indians in 2007 to 583m by 2025 — and education excellence, especially in the IT sector.
Funding Startups in India
The Government of India has set out to encourage investments and provide a nurturing environment for the growth of entrepreneurs. The key to this is stable financial input for entrepreneurs to enter the market.
When it comes to approaching private lenders, most startups fail to secure credit with traditional financial institutions, and meet the narrow and stringent lending norms. Alternative lending startups such as Rubique and Capital Float have set out to revolutionize the way consumer loans are handed out.
Angel investment in India in FY16 stood at $18m across 69 deals, a rise of about 62% in deal value and 47% in deal volume from the previous financial year. In FY15, about $11m was invested across 47 deals. However, 46% startups which raised angel funding do not get follow on funding, and 32% have secured only one round of funding in the last fiscal year.
Crowdfunding as a Solution?
The Securities and Exchange Board of India (SEBI) has exerted restrictions on equity crowdfunding in India. Digital equity crowdfunding platforms (ECP) have been issued as unauthorised, unregulated, and illegal. According to industry estimates, close to 200 companies have raised $525,350-$675,450 on these platforms over the past 18 months. SEBI has declared that the “electronic platforms open to all investors registered with the platform, amount to a contravention Securities Contract Act and the Companies Act”. Most startups that has been relying on equity crowdfunding have hit rock bottom owing to the regulation.
Despite the problems around equity-based crowdfunding, other kinds of crowdfunding are growing quickly in India, especially when it comes to charitable funding, micro-lending, or political contributions. The amount raised for reward based crowdfunding is $960,000-$1,120,000. With projects raising $3,002-4,503, crowdfunding is predicted grow 3x in the next two years.
The direct benefits for crowdfunding include getting market traction, accessing early adopters, social proof, press coverage, potential investor interest, pre-selling, access to capital, risk hedging, etc. It also helps generate user feedback allowing for enhancements or sourcing new ideas.
“The power of the crowd is massive”, observes Haider Aly-Raeza, co-founder of ZingoHub, a crowdfunding platform for creators and innovators. “Crowdfunding gives your idea a chance to become a reality. The average lifespan of a project to achieve its goal is about 30-40 days. Some of our campaigns have raised funds such as $1650 in just 48 hours.” The funds were raised through reward based crowdfunding. In this model, the backers get tangible and exclusive rewards from the project owners.
With rising competition for resources and investment, crowdfunding can become the go-to method for startups that need to raise funds.
Though the startup market has matured over the years, India still needs a fostered growth culture for entrepreneurs. Hurdles such as faulty infrastructure, bureaucratic interference still persists. Despite these, the startups have continued to sprout in the Indian environment. With the crowdfunding industry predicted to surpass the venture capital this year, India envisions a boom owing to the positive responses to crowdfunding campaigns. Surely, crowdfunding will act as a catalyst to the promising startup industry in India.
Norin Salim is the Creative Content Writer for ZingoHub. A blogger, journalist and an aspiring director, she shares her versatile insight on Edge and Infinite. When she’s not lost in a daydream, the mass media professional pursues her interests in sociology, international relations, and behavioral economics.