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Funding to growing startups

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Research Journal of Social Sciences
2017. 10(2): 22-31
ISSN: 1815-9125
EISSN: 2309-9631
Journal home page: http://www.aensiweb.com/RJSS/

RSEARCH ARTICLE

Funding to growing start-ups

Anirudh Garg and Abhishek Krishna Shivam

Birla institute of technology and sciences, Pilani India.

Address For Correspondence:

Anirudh Garg, Birla institute of technology and sciences, Pilani,India Gandhi Bhawan Room-3152

Received 12 June 2016; Accepted 25 September 2017; Published Online 10 October 2017

ABSTRACT

Background: This study deals with the important questions posed by the emerging small scale industries also known as start-ups.
We have addressed the problems they face while managing their initial funding to give them the jumpstart required. An analysis has also
been done keeping in mind the growing culture of entrepreneurship and its manifestations on the society. Government policies have also
been scrutinized and a conclusion has been reached as to how they affect such enterprises. Funding is crucial for any start-up or a business
venture and it is really difficult for any start-up to pitch the investors its ideas and convince them to invest in it. Also, certain stereotypes
still exist in the society regarding the start-ups especially when compared to the pre-existing giants in the field. Also, some amount of
hesitation is observed when consumers are made to choose a product that is manufactured by a new company or a start-up over something
that they already have been using for a long time. We have made an effort to answer these questions and break the stereotypes. An effort
has also been made in the study to clear the gap between a start-up and other companies in terms of vulnerability, employment
opportunities etc. Surveys have been conducted as an effort to conduct quantitative data and many CEOs, CFOs and people in positions of
power have been interviewed to justify the qualitative part of the study. We have used various tools and instruments to collect data in our
study. We have prepared a semi-structured interview consisting of ten open ended questions that we think are relevant to our study and
help us achieving our objectives. Objective: This paper focuses on 1]Evaluating different types of funding used by the start-ups.
2]Studying attitude of government towards encouraging and funding start-ups. 3]Examine the reasons for failure of start-ups in managing
initial funding. 4]Study the changing trends from the conventional jobs to start. 5]To answer the question- Is Start-up like a bubble that is
about to burst? Results: Majority of the entrepreneurs prefer VC round over any other round as it is the only chance of finding so many
people willing to invest in your idea. It is observed that the survival rate of the start-ups once they are exposed to the outside world is really
low. They somehow manage to accumulate their initial funding but are unable to execute their plans due to lack of planning. Start-ups are
crucial to any country‘s economy and the relationship between the start-ups, investors and the government is vital for any start-up to
survive the outside world. It is obvious for any start-up to face some sort of hindrance from the pre-existing companies in the field. After
talking to a lot of investors and experts in the field, the main reasons for failure of startups were choosing the wrong market, lack of proper
team, Wrong market sizing and operating in crowded space. Conclusion: Our study aimed to bring forward the different types of funding
used by the start-ups, attitude of government towards growing start-ups and reasons for failure of growing start-ups. Through our study we
also tried to find out if Start-ups are a bubble about to burst In today's world people can no longer expect large enterprises to guarantee
them jobs for life. Individuals are increasingly expected to seek out their own opportunities, actively create value and behave ethically,
rather than faithfully follow rules and routines set by others. This leads to the generation of numerous self-employment opportunities. The
major chunk of funding market is formed by Venture capital, Angel investment, Government loans and Seed Funding. Crowd funding
being new to India still remains a thing of the west. Government is also supporting emerging start-ups in several ways such as through
loans like the MUDRA loan and policies like the start-up India [Pet initiative of Narendra Modi] Lack of proper team, not budgeting for
their own salary, miscalculating the break-even point, mispricing products or services and Underestimating start-up costs are the
main reasons for the failure of start-ups in India.
Considering all the issues and recalling all the results we come to a conclusion that start-up industry is a rapidly expanding industry but due
to a sudden boom in the field Startup culture seems to be a bubble which is about to get burst.

Key words: Funding, Startups, venture capitalists, crowd funding, vulnerability

Open Access Journal

Published BY AENSI Publication
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This work is licensed under the Creative Commons Attribution International License (CC BY).
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ToCite ThisArticle: Anirudh Garg and Abhishek Krishna Shivam., Funding to growing start-ups. Research Journal of
Social Sciences, 10(2): 22-31, 2017
23 Iman Nazerian et al, 2017/Research Journal of Social Sciences 10(2), July, Pages: 22-31

INTRODUCTION

―Even if you don‘t have the perfect idea to begin with, you can likely adapt.‖Victoria R. [16]. A start-up is a
youthful organization that is simply starting to create. New companies are normally little and at first financed
and worked by a modest bunch of organizers or one person. These organizations offer an item or administration
that is not right now being offered somewhere else in the market, or that the authors accept is being offered in a
second rate way. In the early stages, new businesses' costs have a tendency to surpass their incomes as they
work on creating, testing and advertising their thought. ‖We must learn what customers really want, not what
they say they want or what we think they should want.‖ Ries, E. [17] this is a mantra for success that most
aspiring entrepreneurs miss upon. All things considered, they regularly require financing and a dedicated team.
―An entrepreneur without funding is a musician without an instrument.‖Robert A. Rice Jr. [18] new companies
might be financed by customary independent venture advances from banks or credit unions, by government-
supported Small Business Administration advances from nearby banks, or by stipends from not-for-profit
associations and state governments. Hatcheries can furnish new companies with both capital and counsel, while
loved ones may likewise give advances or blessings. A start-up that can demonstrate its potential might have the
capacity to pull in investment financing in return for surrendering some control and a rate of organization
proprietorship. ―Bad things can happen. They always do in a start-up. The odds of getting from launch to
liquidity without some kind of disaster happening are one in a thousand. So don‘t get demoralized.‖ was said by
Paul Graham, the statement proves that opening a start-up and running a successful start-up are two different
things. Start-ups are vulnerable to fail in the start so one needs to be confident enough to be able to pull it off.
According to Forbes,‖90% of the start-ups fail, all we need to know about is what is different with the other
10%.‖ In our study we will also try and evaluate the different reasons for failure of several start-ups. Start-ups
are brimming with guarantee and energy, however the other side is, they're likewise loaded with hazard and
instability. Out there, there are a lot of good ideas that are still struggle for the initial boost but on the other
hand, we have seen cases in some mediocre ideas have turned to successful business options. The key here is
proper planning and financing. Jayson Demers, founder of Audience Bloom has laid down ten major factors that
he thinks are important for any start-up to become successful. These are- the capital, the idea, the team, the
execution, the leader, the plan, the timing, the crisis response, the marketing and the growth. Of these factors,
our study would be centered around the ‗capital‘ involved in start-ups. Now a start-up normally fails when it
runs out of capital or the execution process comes to a standstill due to several demographic and bureaucratic
reasons and the work cannot be continued. Some start-ups fail because they run out of resources and option;
while others fail to meet their target. For all the above stated reasons, we observe that it is the funding that plays
an important role. Hence it becomes important to evaluate the underlying causes behind them and make changes
in the strategies to avoid such mistakes when entrepreneurs plan other business ventures. In a TED talk,
entrepreneur Bill Gross shed some light on this topic. Both inside and outside his association, he's saw handfuls,
if not hundreds, of various organizations develop from only a clue of a thought to undeniable ventures standing
and creating all alone. He's seen various distinctive triumphs amid his residency, and he's seen a great deal of
disappointments, and as you would envision, a few thoughts he believed were flawless ended up being lemon
and some he thought would be failures ended up being very fruitful. Driven by interest, Gross analyzed many
distinctive organizations, assessing them on a point scale in each of five unique classes he felt were at any rate
mostly in charge of deciding a start-up's prosperity. They incorporated the quality of the thought behind the
organization, the arrangement on how the thought would be executed, the measure of capital the business was
infused with, the general population who were running the show, and whether the thought propelled when
groups of onlookers were both prepared for it and inspired by it. On the off chance that you saw the feature of
this piece, you won't be astonished to discover that timing and the right investors ended up being the element in
charge of the best number of accomplishments among Gross' determination test. A lot of entrepreneurs have
stated financing to be a crucial stage of building up a business. This fact gives a new dimension to our research
and tells us that the study we conduct will obtain results as the main topic has been backed by many famous
names in the field. Now what does funding refer to and why is it so important. Every little idea you plan to
execute needs financial back up. A business without a funding source will crumble under the weight of its own
loans. Funding is the foundation on which every start-up thrives. One can escort to different ways and methods
to attain funding, and more than one option can always be used. The option taken by the start-ups are influenced
by a variety of parameters like the amount of debt it is in, the type and scale of expansion it has planned in near
future, the current revenue generation and also on the size of the founding team. The chosen funding will
depend on the business' desire to be in debt, how solvent the business owners are at the time the business is
founded and the amount of money a business will need to launch and maintain itself through a variety of events.
So after funding is arranged, all a start-up wants to do is maximize its profit. Capitalizing on this, Gasca, P. [15]
claims,‖ Buy low; sell high‖, to be the mantra that these young start-ups must follow to reach the pinnacle of
success. To quotes him on investors‘ attitude towards start-ups,‖ Ultimately, what investors want to see and
what you need to consider is the amount of money needed to achieve two goals :
24 Iman Nazerian et al, 2017/Research Journal of Social Sciences 10(2), July, Pages: 22-31

1. Getting your idea to market.

2. Growing your customer base as quickly as possible.
Because capital is scarce, start-up capital that goes to anything else will be considered wasteful.‖
He later also advised that customer acquisition cost is the key to impress the investors. Investors do no
generally line up huge amounts of start-up capital into your pockets unless you are quite popular in the field. So,
he suggests that one should hang in there and ―sweat it out to please the investors‖. A lot of Social Science
research have conducted experiment and studies on start-up and have reached similar results. It emphasizes the
importance of funding for any start-up. He tells us that start-ups don‘t start as revenue generating machines from
the start itself. They first start as small business models. The real key to success lies in carefully nurturing them
with the right amount of investment and proper planning. Talking about different kinds of investors, he says,‖ In
theory, your start-up could be worth $1 billion just like a lottery ticket. Your skills to sell your vision and defend
your plan are what is really at issue and you might find someone else can do that better than you. Some
investors will always want you to grow on the cheap, while more sophisticated ones will not only review your
business plans many times but offer suggestions and introduce other investors.‖ Hence funding becomes so
important. Now the prime source of funding comes from family and friends in the initial stages and after that
they struggle to secure their capital for future plans and their execution comes to a halt. In this research study we
will explore other fields of securing funding as well as examine the existing trends among start-ups. Now what
characterizes different types of funding- In this study we will cover all the fields where one can secure capital
for his start-up. Different forms of funding are Venture Capital Angel Investment, Government loans,
Incubators, etc. We will also design a strategy to evaluate the popularities of various modes in comparison to
others. These parameters have been designed to cover all aspects of our research and provide them in an
organized manner. Following are the parameters used:

1. Funding of start-ups:
Raising funding for your start-up is the most important step that follows once your start-up plan is set.
Several important and famous methods to raise funds for your project are Boot strapping your start-up business,
Crowd funding, Angel Investment, Venture Capital, Raising Money Through Bank Loans, Raising Funds By
Winning Contests, Getting Business Loans From Microfinance Providers or NBFCs and applying for
government Programs That Offer Start-up Capital.

2.Vulnerability of start-ups:
Vulnerability means the state of being exposed to outside attacks. Vulnerability of start-ups mainly deals
with its long terms prospects and how likely it is to get itself shut down due to reasons like lack of planning,
lack of execution, stiff competitions faced by other pre-existing companies, lack of resources etc. It is often said
that start-ups are a delicate piece of work and if not nurtured and mentored in the right way, they will succumb
to the pressure of the outside world. Often young CEOs make the mistake of underestimating their competition
and flawed analysis of the market and its demands. Hence when they actually get to face the real world after
gathering their initial capital, they cannot handle so much pressure. Previous studies have also indicated that the
failure rates among the start-ups are also on a rise ,Therefore it is often said that start-ups are like a bubble that
is about to burst.

3.Relationship between start-ups, investors and the government:

Every time you get funding, you give up a piece of your company. The more funding you get, the more
company you give up. That ‗piece of company‘ is ‗equity.‘ Every person you share it with becomes a co-owner
of the company. The government of India has taken a positive front towards start-ups. Promoting the emerging
start-ups and launching different government schemes so as to help those emerging start-ups stabilize. Start-up
India was launched with the underlying objective to increase the opportunities of self-employment in India.
According to an article in the Times of India, ―The intention of the Modi government is that of successful
business and development in India indeed but nurturing start-ups is no piece of cake, especially in India where
business runs from the point of view of profit generating and no risking. What actually makes start-ups lag
behind in the beginning is lack of funds. They begin with low investment due to which production slows down
to minimal. Now that the government has announced a fund of Rs. 10,000 crore with an initial corpus of Rs.
2,500 crore, it should be good news for start-ups to expand their venture towards productivity and reasonable
investments in their respective fields. Manufacturing, agriculture, health and education sectors are going to
benefit hugely from this. The government will also pick ten incubators based on their worth and grant them Rs.
10 crore each as financial help to further develop their infrastructure.‖

4.Competition faced by the start-ups:

The battle between MNCs and start-ups to attract the best talent is heating up. Sandeep Moorthy, manager
of talent and rewards at Zinnov, said, "With the influx of start-ups, MNCs have realized they are losing ground
25 Iman Nazerian et al, 2017/Research Journal of Social Sciences 10(2), July, Pages: 22-31

to start-ups in attracting talent and have started giving matching compensation. The large amounts of funding
that many start-ups have received are enabling them to significantly raise compensation. MNCs being older still
capture the major chunk of the market. They still are considered to be more reliable and stable source for
investment.

Literature Review:
Funding of start-ups can be crucial for the economy of any country it thrives in. So we have referred to a
few journals to conduct an exhaustive literature review that meets our objective. We have organized the
literature review into the following categories:

A] Vulnerability of start-ups:
A study by Jackson, P. [1] concluded that Start-ups are an exciting but risky thought, and for many
entrepreneurs navigating the competitive landscape and securing the funding needed to survive is a significant
hurdle that isn‘t easy to overcome. The truth is, there is a limited amount of funding available to start-up
founders and innumerable new ventures are born every day that will be competing for it. Investors simply can‘t
open their wallets for every good idea that walks through their door they need to be sure and confident enough
for the business model before they fund them. The ones that do secure funding are the ones that have
demonstrated how that good idea will actually come to fruition. Experienced investors know there are few
legitimate overnight successes and that realistically they will be lucky to see a return on their investment in the
next decade. Many newbie entrepreneurs, eager to prove the merits of their great idea, make the mistake of
entering the discussion with an unrealistic value of their company. Not being realistic about the financial
situation of your start-up from the beginning shows a lack of understanding and maturity. Ideally, an investor is
looking for a company with a clear and scalable business model they can get behind and help grow. Great
leaders aren‘t successful solely on their own. They surround themselves with people that add value to their
business, and you need to do the same. Investors need to feel confident that your team is the right one to take
your company from a small, great idea and turn it into a high-yielding investment for them. The goal here is to
convince an investor that your team is prepared to face all the challenges and criticisms that come with running
a business. It‘s important to prep your team before an investor meeting and asks them about their past
experiences and failures. Learning from their experiences is important. Entrepreneurs just starting out often
make the mistake of not understanding where their idea fits in the current marketplace. Having a clear go-to
market strategy that demonstrates the potential for your company‘s sustainable competitive advantage is of the
utmost importance to an investor. If you failed to secure funding after an initial round of investor meetings,
consider revaluating where your idea fits or the marketplace all together. Perhaps the original market is too
small or too crowded, but with a slight adjustment, your product could work in a different market. The
competition for start-up funding is likely to only get more intense as we see more and more of these billion-
dollar exits and high-profile IPOs in the news.

B] Funding of start-ups:
Staniewski, M.W. [4] in his journal explained the various parameters associated with the process of setting
up a business of our own. He also stated various ways or methods to get investors to secure one‘s capital. In this
research, the paper focuses on the importance of start-ups and other small scale industries. Small and medium-
sized enterprises are the backbone of the whole economy. An analysis was done based on the data collected
during the interdisciplinary research in 2008–2012 on a sample of 345 entrepreneurs operating in Poland shows
that a statistically significant correlation exists between the recitals that take up economic activities and the
choice of the source of the initial capital. People who indicate financial motives often take up economic
activities using their own funding resources, or loans, credits—the funds that they had originally earned or they
will have to earn to pay in the future. The analysis shows that those showing non-financial motives have used
non-refundable EU funds. The multidimensional scaling analysis of funding sources shows that people who
indicate financial motives diverge slightly different from groups of financial sources than those that indicate
non-financial motives. People who undertake business activity to generate greater earnings/accumulate wealth
are more likely to use their own capital or repayable funds. The results of the present study should be helpful in
re-considering the European Union procedures for granting a financial non-refundable aid for people.
Entrepreneurship, especially the emerging start-ups play a prominent role in the development of the economy
and society. Entrepreneurship gives sustained superior performance to enterprises. This culture of self-
employment is a remedy against unemployment, which improves the life conditions in a country. This study
assumes that diversity among the motives for starting a business and a diversity of sources for its funding exist.
People who undertake business activity for financial reasons, such as the possibility of generating higher income
and increasing their wealth, use their own funds more often. The present study has made the assumption that the
people who start a business because of financial motives, such as for obtaining higher income have better
preparation to conduct business activity than those who have ―hard to measure‖ motives like exploring new
26 Iman Nazerian et al, 2017/Research Journal of Social Sciences 10(2), July, Pages: 22-31

markets. This study concludes that people planning to start their own business under the inspiration of motives
―difficult to measure,‖ such as the need for self-realization or a test of their abilities, are less prone to take risks
and are thus not willing to use their own funds. They use non-repayable funds more frequently. Whereas the
people who want to maximize their profits and use start-ups to maximize their wealth are known to take risks
and use their own source of income to give the initial boost.

C] Relationship between the start-ups, the investors and the Government:

An article was published in the columns of the Economic Times in the wake of the recent changes made in
the government policies towards nurturing start-ups. The government of India has taken a positive front towards
start-ups. As we saw in the case of Cabme, the government is offering various types of loans like the Mudra
loan to the promising and emerging start-ups. According to the study, the government is considering policy
changes to broaden and energize one of PM Narendra Modi's pet initiatives, Start-up India, to include a bigger
number of start-ups under the 'medium industry' category that would be eligible for public procurement
incentive and preferential benefits. Start-up India was launched with the underlying objective to increase the
opportunities of self-employment in India. Under the public procurement policy, central government department
and ministries and its central PSUs have to procure at least 20% of their purchases from micro and small
enterprises beginning April 1, 2015. This means that slightly bigger start-ups may miss out on this benefit that
could be their initial survival. According to a government official, the governing policy in the matter includes
only small and micro enterprises and does not mention medium industry. We are trying to figure ways to make
it part of the policy without breaking the legal framework. A medium enterprise as defined in the Micro Small
and Medium Enterprises (MSME) Act is the one with not less than Rs.5 crore and not exceeding Rs.10 crore in
equipment if it operates in manufacturing space. In services sector this limit ranges from Rs.2 crore to Rs.5
crore. This will mean most start-ups will miss this cut off. Department of Industrial Policy and Promotion is
talking to the department of expenditure and MSME ministry officials for a solution so that the benefits
announced in the Start-up India action plan can be extended to such medium industry as well. As mentioned in
the study, a start-up is defined as one having a turnover of more than Rs.25 crore and not be older than five
years from incorporation date. In March this year, after Prime Minister Narendra Modi launched the Start-up
India initiative, the MSME ministry has passed an order to all ministries and central public sector units to relax
conditions related to prior experience and turnover for start-ups in all public procurements. However, the order
only mentions the small and micro enterprises covered by the Public Procurement Policy for MSE order 2012.
The main objective of this issue was to provide an equal platform to all the start-ups and to eliminate any
hindrance provided by the pre-existing giants in the field. It also enables the start-ups to avail all the government
tenders and other schemes due to the relaxed flexibility conditions. Wonglimpiyarat, J. [8 ]undertook a study to
invigilate how China supported its emerging start-ups. This study examines the investment policies to support
the various tech based start-ups that are popping up in China. The paper reviews the theoretical framework on
the banks, financial institutions and their role in innovation. It also goes through the role of venture capital (VC)
financing to support start-up development. Later it goes on to describe the research design and methods
implemented by the Chinese Government. It also analyses of findings while focusing focus on the bank
financing policies to support SME development in China. The paper tells about drawing lessons and insights
that can be used as policy guidelines to improve the competitiveness of SMEs or the tech based start-ups in this
case. China is a major hub when it comes to the major technology related innovations and it is obvious that a lot
of start-ups will bloom in such an atmosphere that also happens to have an abundant reserve of energy,
resources and manpower. The paper tells us that the investment policies to support the small enterprises and
technology-based start-ups have suddenly come under the limelight. The Chinese government has also laid
emphasis on innovation in this field mainly after the WTO entry. The recent Five Year Plan of the government
is aimed at influencing the banks‘ lending policy to the emerging start-ups. Through this study the researchers
have aimed at providing an insight to the Chinese policies for strengthening their innovation system. This paper
is talks about the bank financing policies to support SME or the small enterprises development in China. The
Chinese government has introduced many policy initiatives [government intervention policies] after the country
joined the World Trade Organization (WTO) to support such economic activities. The research paper has shown
that despite the introduction of the 12th Five-Year National Economic and Social Development Plan, China still
needs to improve regulatory policies in support of innovative businesses which would help its transition to an
innovation-driven economy. It needs to take down the barriers in has placed on the inflow of money. The study
provides lessons and policy guidelines to improve the competitiveness of tech start-ups in China. The data
collected from this study can also be applied to other developing and emerging economies in an attempt to
understand the role of financing mechanisms in building an innovative economy with the help of such self-
employment opportunities.
27 Iman Nazerian et al, 2017/Research Journal of Social Sciences 10(2), July, Pages: 22-31

D] Hindrances faced by the start-ups:

Martin, S. [3], explained the problems and issues related with the vulnerability of the recent emerging start-
ups. We define a bubble when a business/sector is expanding rapidly with not a very attractive and lasting
revenue model which promises a sustainable and long term return on the investment which is going in there or
the promises which it is making to the stakeholders. In absence of a strong model to support it, a bubble like this
will sooner or later burst and all that has been promised to stakeholder will not be fulfilled. Day by day the
process of getting funding for growing start-ups is easing out hence attracting more and more people to join this
field. People with a weak homework and plan are also trying out their luck in this start-up business and finally
end of failing miserably. The US housing bubble was a real one; we saw banks in the US giving away loans
with negligible background check and verification and when people defaulted everything came crashing down.
Now the Indian start-up scene is not all that mature that start-up creators are being given support and money
unceremoniously. There is rush towards start-ups but we are at a very initial stage. We have got a few start-ups
pulling big bucks from PE and VCs but in the context of total economy size they don‘t form a big chunk. In
such a case, if we are to assume that whole start up scene for some reasons go crashing down tomorrow it will
not really hit the money market in a major way. Individuals have very little money invested in these start-ups
and VCs have their money well diversified. There is a lot of competition to get funding, a lot of business models
are very well designed and are likely to sail through even if they go crashing down once or twice in the process
but rest of them are predicted to fail. Thus, in the present scenario calling Indian Start-ups a bubble would be
right. Same might be said about the E-Commerce websites opening now and then. But that sector also is
assumed to grow stable, though a couple of mistakes at this stage can throw it on any path.

E] Changing trends of people’s perceptions towards start-ups:

To wrap it up, Munjal, A. [5] published a paper where he weighed down the pros and cons of choosing a
start-up over some mainstream giant. This paper deals with the changing trends with the people‘s perception
towards the conventional jobs and how they welcome the emerging start-ups. People engaged in the
conventional jobs are often observed to deviate from their jobs and join the start-up venture. The main reason is
told to be their share in the total work that is being done as well as the job satisfaction it offers. Start-ups are
now doubt a risk when seen in terms of job security but even then people are favoring the emerging start-ups to
get a real taste of the outside world and explore the markets, especially the fresh graduates. The research paper
compares the difference in responsibilities and scopes of the start-ups when compared to the MNCs. In start-ups,
the amount of responsibility is very high. Every work counts here and there is very little room for any error. The
recognition is also high in case of such enterprises. As A. Munjal has rightly said that the start-ups are riskier
but they are worth a try. Higher the risk higher the returns is a phrase he used. A survey was done among the
youth in capital city Mumbai. It was observed that 59% of the fresh college graduates were willing to choose
start-ups over the other conventional mainstream giants. 82% of them had already worked for several start-ups
before graduating in the posts of interns as well as in administrative positions. Such a high ratio is also found to
be consistent with the study that we have conducted in our university i.e. BITS Pilani. It just goes on to prove
that these days, more and more people have started favoring start-ups over conventional job opportunities.

RESULTS AND DISCUSSIONS

Analysis Of The Questions:

Based on the survey conducted and the analysis of one on one sessions with various CEOs and CFOs, the
results can be categorized into the following sections:
A) Funding of start-ups
B) Vulnerability of start-ups
C) Relationship between the start-ups, the investors and the government
D) Competition faced by the emerging start-ups

A.] Funding of start-ups:

This section deals with the issues related to the funding of start-ups and also the different types of funding
that these start-ups use. We have tried to answer the following questions under this section.1)How did you
manage your initial investment? 2)Once a start-up has managed the initial investment, what are the types of
funding it requires?
28 Iman Nazerian et al, 2017/Research Journal of Social Sciences 10(2), July, Pages: 22-31

The above graph illustrates the different ways used by the start-ups to gather their initial funding, which is
one of the most crucial step for any enterprise. We observe that the VC round remains to be the most popular
round for pitching in the investors. A lot of start-ups have also used crowd funding and contests as a way of
generating revenue. But in India crowd funding is not that popular when compared to the West. The primary
reason for this is mostly the attitude of general public regarding the culture of emerging start-ups. Majority of
the entrepreneurs prefer VC round over any other round as it is the only chance of finding so many people
willing to invest in your idea. They can appeal to all the investors together rather than approaching them
individually. Also the success rate of pitching in an investor is observed to be 23.6% higher compared to any
other mode. For e.g. if we compare crowd funding with VC rounds, crowd funding leads to a very low amount
of revenue generation and the work involved in these errands is very tiresome. Similarly Angel investors and
Incubators do offer funding but it is very difficult to meet their criteria and hence is difficult to pitch them your
idea. The VC rounds have investors of various mind sets. So even if you fail to impress one, there is always
another who might be interested in your idea and believe in it. A study done by Thomas Hellman and Puri, M.
[10] supports our findings that VC round is one of the most popular methods of gaining capital funds. In their
study, they examined the impact of VC on the development of such funds. They conducted a study on IT based
start-ups and concluded that more than half of them chose VC as their primary choice.

B.] Vulnerability of start-ups:

It is observed that the survival rate of the start-ups once they are exposed to the outside world is really low.
They somehow manage to accumulate their initial funding but are unable to execute their plans due to lack of
planning. Here we have attached the following graph to represent our result. Here we have answered the
following questions: 1)Why do you think India lags behind the West when it comes to start-ups? 2)How
difficult it is to gather a continuous source of funding for your start-ups? 3)It is often said that start-up industry
in the country is like a bubble that can burst? Is this attitude detrimental for the growth of such enterprises?
When it comes to competing with the west, start-up culture in India is new and hence not that popular. As Simha
Reddy(Founder of Cabme) had said in case of crowd funding, ‖In our case, we had to use the more mainstream
options rather than using crowd funding as this is not a popular method and the general public is not that willing
into investing its money into a start-up‖. This tells us that certain differences or gap still persist when our start-
up culture is compared to the West and hence the lag.
A study done by Giacomin, O., & Janssen, F., & Pruett, M. [11]. proves our theory. In their study, they
evaluated the start-up culture and its implications on nations like the US, European countries and other Asian
countries. They found out that US was the most developed nation in terms of emerging start-ups while the Asian
countries were still developing in this context. Their condition can be related to the fact that the start-up culture
flourished first in the West and then made it way to the other nations.
29 Iman Nazerian et al, 2017/Research Journal of Social Sciences 10(2), July, Pages: 22-31

Maximum start-ups are able to hold them up after the initial funding is managed, a big portion of the start-
up community fails to do so. The most obvious reason behind this disappointing trend is the lack of proper
execution. CEOs of such ventures fail to see the long term prospects of their idea. They also misinterpret the
market and the opportunities that it provides. This leads to their eventual downfall. After talking to the
successful start-ups we came to know that the real difference lies in the proper estimation of the market. Most of
the start-ups are baffled when they face the real market problems and here their prototype based solutions cannot
be applied. Hence they crumble under the pressure. A more detailed description about the detailed is given in
the analysis. The story done by Hogg, S. [14] also tells us why a large number of start-ups never reach the
second round of their funding. He stated the reasons for the following trend to be wrong estimation of the
market and their fellow competitors. So after securing their initial funds, they fail to impress or convince the
investors the second time because they are not able to deliver their promise and hence fail to survive.

C] Relationship between the start-ups, the investors and the government:

Start-ups are crucial to any country‘s economy and the relationship between the start-ups, investors and the
government is vital for any start-up to survive the outside world. Investors are the main source of funding for the
start-ups and the government policies are responsible for the total inflow of cash. This has become even more
important especially after the launch of Start-up India. The various pro-start-up policies framed by the
government have led to a surge in the number of emerging start-ups this season. Accordingly, we have tried and
examined the following questions and sought proper explanations to reason them out.
1. The investors who are interested in initial investment, do they look for a long term relationship with the
start up?
2. Do you think there is a need for more options to secure funding other than the VC round that is the
main option now for start-up-investor interaction?
3. Are the investors willing to take the risk when it comes to investing in emerging start-up.

We had also spoken to a few investors like the ones who invested behind the idea of Cabme and the famous
start-up Doormint. A trend was observed in their strategies. Maximum investors we talked to were interested in
short term prospects that the start-ups offered. The main reason for this can be the recent boost in the number of
emerging start-ups in the market. Obtaining a start-up as a mode of investment is no longer a worry. The
investors now want to try new markets explored by the start-ups and hence are concerned only in their
immediate developments. One more reason which can hold true in this case is the idea and implementation of
the idea behind these start-ups. People think that funding is the only important step in the process of nurturing a
start-up. This is where they fail to develop long term strategies and are not able to continue their new venture.
30 Iman Nazerian et al, 2017/Research Journal of Social Sciences 10(2), July, Pages: 22-31

After the change of governments this season, a lot of start-up friendly schemes have been launched by the
government to promote the culture of entrepreneurship in the country. As we can see from the above pie chart
that a lot of start-ups have started availing these services at an optimal cost. However, this still constitutes a
minority when compared with the start-ups that have not yet thought about enrolling themselves with various
government schemes. The main reasons for this can be the lack of access, existing monopoly of the private
sector and bureaucracy. Even though the government has started implementing various schemes to help the
emerging start-ups manage their initial funding, the offers made by the private investors still remains to be much
more attractive. Also, access is limited for these schemes and not all start-ups can avail this facility. The
tiresome government procedures and bureaucracy involved makes it hard on the start-ups. Hence they resort to
the private sector. According to a study by Lautin, A. [13], we came to know that Investors and the Government
policies often wield tremendous influence over a start-up—and that can backfire if the relationship between such
institutions turns bitter. Investors are usually apprehensive about long term association with emerging start-ups
as these start-ups are immature and lack stability and experience. Usually investors prefer investing in small
amounts for a short period of time and according to the results slowly and steadily increase their funding. This
study hence appears to coincide with our findings and graphs discussed above.

D.] Competition faced by the emerging start-ups

It is obvious for any start-up to face some sort of hindrance from the pre-existing companies in the field.
After talking to a lot of investors and experts in the field, the main reason was choosing the right market. If your
targeted market has the right amount of opportunities, you may get away without any such competition. But if
one aims at a narrow market with fewer opportunities, he/she is sure to face stiff competition from other giants
in the field. It is necessary to tap into unused resources rather than competing with others.
In this section we have addressed the following question:
1.] Are the giants in the start-up industry favored over others?
In the case of Cabme, Kumar Simha Reddy denied any such competition. According to him,‖ Only 1% of
the total market is being used now and I have the other 99% to myself‖. A study done by Thomas Keil and
Aviad Pe‘er[12] evaluated the various types of competitions faced by start-ups and talked about the pros and
cons of being situated in geographic clusters. Apart from the reasons that we have stated, the study has
evaluated if being situated in clusters is another factor hindering the growth of start-up.
In the following graph, of the 17 start-ups, we evaluate how every start-up was affected by such
competition.
 31 Iman Nazerian et al, 2017/Research Journal of Social Sciences 10(2), July, Pages: 22-31

We see that majority of the start-ups had made the right choice of market (11 out of 17). However, 2 of
them committed the mistake of competing with the bigger companies head on and had to shut themselves down
eventually due to lack of availability of resources and funds.

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