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September 19, 2016

Startup Success & Failure: Does the City Play a Role?

As reports of Startup Shutdowns & "Acqui-Hires" began to flood the media in 2016, Venture Intelligence did quick study of companies that had raised angel investments in the 2010-2014 period across Bangalore, Chennai, Mumbai and National Capital Region to check if there is a city flavour to these companies. On the flip side, there were obviously also companies that managed to raise successful follow-on financing or even deliver quick exits to their investors.

Mumbai based companies had the highest "success" rate - 40% - in terms of raising a follow-on round / providing an exit. Mumbai startups showed a healthy mix of sectors being funded - be it B2C, B2B, Enterprise Software, Fintech, etc. Mumbai companies which raised follow-on funding include Ola (taxi aggregator), Goqii (wearables), Mswipe (payments) and PrettySecrets (Innerwear). Companies which shut down include Purple Squirrel, Fetise (Apparels) and LocalBanya (Hyperlocal). Being from the financial capital of the country, Mumbai startups are clearly favored by the access to a large pool of local investors - VC, Strategic and Family Offices.

Chennai based startups recorded negligible shut down rates - a phenomenon that seems attributable to the predominantly B2B flavour of their businesses (the city being India's de facto SaaS Capital) and the relatively later stage at which entrepreneurs here choose to seek external capital. (Stayzilla and Ticketgoose for instance raised their angel rounds after seven years of incorporation, while companies like Freshdesk chose to skip the angel round completely). On the flip side, its relatively low success rate seems attributable to the low access to local capital. Chennai-based companies which raised follow on funding during the period studied include Stayzilla (hotel aggregator), Uniphore Software Systems (speech analytics), Ather Energy (e-vehicles), etc. (Both Stayzilla and Ather moved their headquarters to Bangalore after raising venture capital.)

NCR & Bangalore based companies registered the highest shut down rates - >6%. Most of their casualties were in the food tech (like Spoonjoy, Dazo etc.) and hyperlocal space - which the two cities supplied to investors in plentiful numbers during the hyper-active funding environment in 2014-15. Naturally, these cities (with their large volumes of "early adopters" among young and tech-savvy IT & ITES employees) also account for some of the biggest startup successes in the B2C E-Commerce space.

View ET Now Startup Central's coverage of the study:

Business Standard has dived deeper into the Chennai angle:

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