Category: Startups

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Indian startups have been at the forefront of innovation and disruption in various industries, showcasing impressive growth potential and entrepreneurial spirit. From fintech giants like Paytm to social media platforms like ShareChat, Indian startups are addressing local needs and capturing a global audience. However, scaling these ventures from fledgling concepts to established businesses presents a unique set of challenges. From fierce market competition and funding constraints to talent acquisition hurdles and regulatory complexities, Indian startups face multiple challenges as they strive to scale their operations and carve a niche for themselves in the market.

We all have heard or read about the startups that had a great product or service and were well funded but could not scale as per projections; such startups are likely to be seen by the business world as failures despite other business parameters being in green. On the other hand, there are well known cases of startups scaling exponentially for some time disregarding critical business parameters & compliances; inevitably their bad actions come home to roost with business and founders getting discredited eventually. Thus, effective scaling involves understanding specific challenges to scaling relevant to your startup, identifying solutions that may deviate from traditional business wisdom  and adopting it after being sure about its sustainability in the long run.

Scaling challenges for Indian startups are diverse and multifaceted, representing “hurdles” that startups often encounter as they strive to grow their businesses exponentially.

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Market Penetration & Successful Competition:

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Every startup strives to build a unique product that addresses a hitherto unmet need of customers. However, the market dynamics is such that no product or service is significantly unique. Also the competition can arise from new players who were never considered competitors in the past. Scaling business can become quite intense with heavy market spends, technological innovation requiring huge investments in differentiating product features and customer acquisition costs skyrocketing due to discounted prices.

Example: Swiggy and Zomato, two leading food delivery startups in India, have been engaged in intense competition to dominate the market. Both companies have had to invest heavily in marketing, technology, and customer acquisition to stay ahead of the competition.

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Talent Acquisition and Retention:

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Finding the right talent is a universal challenge, but in India’s booming startup ecosystem, it’s an intensified battle. The dearth of professionals with specific skillsets, coupled with fierce competition from established corporations offering lucrative packages, makes talent acquisition a herculean task. For instance, a recent report by Nasscom (National Association of Software and Service Companies) highlighted a deficit of over 4.5 million skilled professionals in the Indian IT industry alone.

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Funding Constraints:

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A well documented challenge of startups revolves around timely funding from investors. Access to capital is the lifeblood of any scaling business. While the Indian startup ecosystem has witnessed a surge in funding in recent years, securing funds, especially beyond the initial rounds (seed funding and Series A), remains a significant hurdle for many ventures. Startups need to demonstrate a clear path to profitability, a strong team with a proven track record, and a market opportunity with significant potential to attract investors. Startups need to pursue multiple avenues –  bootstrapping, angel investors, Venture Capitalists and crowdfunding.

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Maintaining Quality at Scale:

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As a startup scales its user base, ensuring product or service quality becomes increasingly complex. The initial, tightly-knit development process can struggle to handle the demands of a growing user base. This can lead to bugs, glitches, and a decline in customer satisfaction. Implementing robust quality control measures, adopting agile development methodologies, and continuously gathering user feedback are critical for maintaining quality during scaling.

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Building a Scalable Structure:

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Transitioning from a close-knit startup team to a well-oiled machine with defined roles and hierarchies requires balancing contradictory requirements. Establishing clear reporting lines, fostering effective communication, and empowering team members are crucial for efficient scaling. However, striking a balance between structure and the agility that contributed to the startup’s initial success is vital.

Scaling a startup is comparable to tightrope walking. While growth is important, it should be pursued strategically and sustainably. Investors expectations have changed from scaling at all costs to sustainable scaling with profitability. By prioritizing quality, building a strong foundation, and focusing on long-term value creation, companies can solve their specific scaling challenges and achieve lasting success.

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In India, MSME (Micro, Small & Medium Enterprises) constitute 29% of GDP and 44% of exports. The sector employs 12.3 Crore of labour force as per latest statistics available. The MSME sector in India has sustained its share in the growth of economy over the years and has protected the economy from global adversities and shocks. The sector is a critical stakeholder to the large companies and industries, providing them with necessary parts and components. The MSME sector has been instrumental in promoting economic activities in rural and less developed areas. As India gears upto move from the current level of GDP of $ 3.6 Trillion to $ 5 Trillion by 2027-28, MSME are expected to increase their share of GDP to 40%. Despite its critical importance to the economy and society, MSME sector in India faces similar problems like its global counterparts – access to finance.

As per an ET article, the decade of 2020’s started with an estimated shortfall of INR 16 lakh Crores lending to MSME. Credit deficit has been a key reason for the slow growth of the MSME sector in the country.

In addition to the quantum of finance availability, there are other challenges faced by MSME sector when it comes to availing existing finance facilities. Financial institutions need to navigate well known challenges such as lack of credit history, inadequate collateral, lack of awareness about government schemes, and high interest rates when they deal with MSME. Over 90% of the sector consists of micro enterprises where credit assessment and provision present multiple challenges. These deep-rooted factors have made it difficult for MSME to secure financing; this has hindered the sector’s growth and development. As per TransUnion Cibil Report, only 250 K units out of India’s 630 K units have obtained credit from the formal financial sector. MSME sector remains underserved by the formal finance sector.

India is gearing up for another significant year of economic growth in FY 25. It is expected that the Government policies and schemes that are already in place will be further boosted by large budget allocations & new initiatives will be announced as we move into the budget season.

Key trends in MSME financing in 2024 and even beyond are enumerated here:

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Sanctions and disbursals by the formal sector has increased significantly in the last few years and will continue to increase in the foreseeable future

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• Commercial credit portfolio grew at 15% year-over-year (YOY) and credit exposure stood at INR 27.7 Lakh Crores in FY 23-Q4. The government guidelines require banks to achieve a 20% YoY growth in credit to micro and small enterprises. There has been a notable increase in credit operations within India’s banking sector, occurring against the backdrop of a dynamic global landscape. The surge in credit activities is evident in various forms within the Indian banking sector.
• Loan disbursements have seen a significant uptick, spanning various sectors such as retail (including mortgages and personal loans) and corporate loans for infrastructure and manufacturing. Banks are currently extending credit at unprecedented levels. Compared to FY 20-Q4, commercial loans disbursement saw 1.7X growth as of March 2023.
• The credit portfolio is experiencing expansion, with a broader range of loan types catering to a diverse spectrum of borrowers and their needs. This strategy not only mitigates risk but also fosters a more inclusive financial development.
• The ascent of new technologies is noteworthy, as banks leverage innovations to streamline credit processes, improve risk assessment, and extend their services to populations previously excluded from banking. This technological integration is a major contributor to the expansion of credit operations

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New-to-credit (NTC) entities will define the next phase of MSME credit growth

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• Significant amount of credit growth within MSME sector has been driven by “New To Credit” Micro enterprises. In FY 23-Q4, NTC borrowers accounted for 56% of new loan origination in the MSME lending space as per August 2023 edition of MSME Pulse Magazine. The number of MSME in the country is expected to go up from 630 L to 750 L by 2024 and a staggering 500 L of these units ( most of them micro) are expected to be “New to Credit”.

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Micro sector (loans below INR 1 Cr) will continue to grow handsomely

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• Indian MSME have depended on a mix of formal and informal institutions financing & significant portion of both formal and informal financing have gone to micro enterprises with smaller ticket size of the loans.

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MSME credit performance has improved in the last few years

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• After the challenges brought on by the pandemic, there was an initial surge in delinquency rates. However, over subsequent quarters, there has been a gradual decline as Micro, Small, and Medium Enterprises (MSME) consistently met their credit obligations. The decrease in delinquency rates is observed across all three categories of lenders, with private banks recording the lowest rate at 1.4%.

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Government policy and push will enable the formal banking sector to reach out to the underserved parts of the economy

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The Indian government has launched several initiatives to promote MSME financing. Some of these initiatives include:

• Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE):The CGTMSE scheme provides collateral-free credit to MSME. The scheme guarantees up to 85% of the loan amount, which reduces the risk for lenders and makes it easier for MSME to secure financing.
• Pradhan Mantri Mudra Yojana (PMMY): The PMMY scheme provides loans up to Rs. 10 lakhs to MSME. The scheme has three categories of loans: Shishu (up to Rs. 50,000), Kishore (up to Rs. 5 lakhs), and Tarun (up to Rs. 10 lakhs). The loans do not require collateral and are available to both new and existing MSME.
• Stand-Up India: The Stand-Up India scheme provides loans up to Rs. 1 crore to SC/ST and women entrepreneurs for setting up new ventures in the manufacturing, services, or trading sectors. The scheme aims to promote entrepreneurship among these communities and provides support through the entire loan process.

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MSME increasingly embrace ESG practices supported by institutional financing and other assistances

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• As more retail and corporate customers of MSME adopt ESG practices, MSME will feel the need to adopt ESG practices in the coming years to retain customers. Further, investors will increasingly look for ESG compliance as a business continuity need in the investee companies. SIDBI is providing financing under multiple schemes towards sustainability projects, solar power and innovative projects. There are avenues such as Green Bonds under various private sector financing options. Off-take by MSME is expected to significantly increase  as awareness about and conducive environment for sustainable economic development goes up across layers of Indian economy.

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Fintech sector will play a critical role in reaching out to the Micro and small sector

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The years ahead will showcase the fintech players penetrating MSME sector using digital approach to solve some of the challenges to MSME lending.

• Data Analytics: Gaining a deeper understanding of the borrower’s profile is essential for avoiding Non-Performing Assets (NPAs). Fintech startups leverage machine learning methods to analyze and assess the creditworthiness of small businesses, facilitating informed lending decisions.
• Digital Payments: The introduction of a unified payments interface (UPI) and mobile wallets has revolutionized the speed and security of business transactions. Fintech platforms for payment services not only enable swift payments but also offer additional financial services like investments and short-term loans within a single, easily accessible platform. These platforms can be conveniently accessed through smartphone apps, allowing MSME to conduct transactions and apply for loans using affordable mobile internet.
• Automated Loan Application: Many MSME face challenges navigating financial processes and find traditional loan application paperwork cumbersome. Fintech platforms streamline the loan application process by employing AI-assisted applications, making it more intuitive and user-friendly. These applications are often customized to meet the specific needs of each customer, eliminating the need for all businesses to undergo the same verification stages. This automation enables fintech services to disburse short-term loans promptly, while also reducing operating costs. The cost savings, in turn, allow fintech companies to offer loans at lower interest rates.

While the macro trends in the economy are largely favorable in the year ahead, parts of MSME sector are facing severe challenges that threaten their existence; To name a few, let us consider limited market reach, lack of innovation, huge gaps in human capital & outdated technology. There needs to be a concerted effort to build organizational capabilities and resilience in MSME sector. It is imperative that the funds flowing into MSME sector are deployed in productive ways by MSME to create long term value.

The capability building exercise, which needs to complement MSME lending, requires several stakeholders to act in co-ordination. Government Departments and institutions as well as several new age institutions assist, incubate & accelerate innovation, technology acquisition, organization strengthening and building world class processes in MSME. We noted earlier that a relatively small section of MSME access finance; the ground reality is that even fewer MSME access capability building assistance and networking opportunities. Creating awareness amongst MSME needs to move from the current incremental approach to an emergency response approach.

The CA community is uniquely placed to contribute significantly to the MSME sector performance.  We need to join the efforts by ICAI  & other institutions in creating awareness of the financing avenues, in building innovative fin tech solutions that enable micro and small enterprises to avail credit and equally important, in assisting MSME in becoming credit-worthy. This concerted approach will lead to MSME sector benefiting significantly from the aforesaid positive trends in MSME lending environment.

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Entrepreneurs enter the business world to make a profit as a reward. They build their product/service portfolios, work hard on acquiring and retaining customers, and build an organization to sustain profit-generating activities. Either a business proactively identifies and analyzes probable or likely risks to their bottom line, or a disaster, a likely investor, or a regulatory change may force the company to assess all risks comprehensively. When running a business, risk comes from both internal and external sources. Successful business people anticipate, accept, and incorporate these elements into their primary business strategy. The risk management process begins with risk assessment.

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What is a business risk assessment?

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A business risk assessment identifies, analyzes, and evaluates potential risks that may jeopardize the company’s financial, operational, and public relations disciplines. Market risks, financial risks, legal risks, operational risks, and, finally, strategic risks must all be assessed.

Due to this risk assessment, companies are better positioned to identify potential threats, their likelihood, and their impact on their business. Based on these findings, plans are developed to avoid, mitigate, and transfer the risks. This assessment is not a one-time event but an ongoing process that must be reviewed and updated regularly to reflect new risks and challenges.

All security frameworks, for the following reasons, require risk assessment:

• Understand your critical assets and the potential threats to them.
• Allows you to evaluate your security controls and determine whether their protective mechanism is adequate.
• What are the consequences of those risks?
• Implement preventative rather than reactive procedures.

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Looking for

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Finance Advisory, Managed HR Services

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Reach Us!

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What are the typical business risks that get flagged?

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A glance at the typical business risks for founders to protect their companies from:

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Financial Risks

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Financial risk is the cash flow in the business when there is an unexpected financial loss. If the company cannot manage its debt payments, it will face financial difficulties. Firms with a higher level of debt face financial risk if they cannot make timely payments to their creditors.

Financial risk can be classified as follows:

• Credit risk occurs when a company extends a credit line to a customer and the customer fails to make payments. Similarly, creditors provide business credit, and the company defaults on the payment.
• Currency risk or exchange risk, occurs when the prices of the trading countries’ currencies fluctuate.
• Liquidity risk arises when a company cannot convert its assets into cash. This risk arises when a company requires a specific amount of cash to meet its short-term debt obligations.

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Market Risks

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Market risks are the potential losses that the company may face as a result of changes in market conditions. This assessment is important in risk management because it helps both investors and businesses identify potential threats to their financial stability and implement corrective measures to mitigate them.

The various types of market risks are mentioned below:

• Geopolitical risk arises as a result of changes in the political situations of the countries with which the company does business. It could be political unrest, unprecedented events, or natural disasters in the region. For example, the war in Ukraine causes imported goods to take longer to reach other locations, increasing their cost.
• Innovation risk arises as a result of technological changes. Customers are looking for alternatives as the market for the current item shrinks. Then, businesses must invest resources in constant research to introduce innovation to their products. For example, Nokia did not anticipate the emergence of smartphones and thus lost a large portion of the market to the iPhone.
• Competitors risk arises when businesses fail to analyze their competitors’ strengths and make changes to meet the needs and preferences of the time. For example, many American airlines are losing customers because they cannot compete with Middle Eastern airlines such as Emirates and Qatar Airways.
• Government policies risk arises when there are new policies related to the business are introduced and made mandatory for the denizens to adhere to. The policy change happens when a new government is formed or the present regime during the election year for getting a popularity boost. For E.g. the Sales tax replaced GST in India in 2017 made a huge impact on all businesses and citizens across the board.

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What is the difference between cash runway and burn rate?

[/fusion_text][fusion_button target=”_self” color=”default” linear_angle=”180″ stretch=”default” icon_position=”left” icon_divider=”no” hover_transition=”none” animation_direction=”left” animation_speed=”0.3″ animation_delay=”0″ hide_on_mobile=”small-visibility,medium-visibility,large-visibility” sticky_display=”normal,sticky” title=”explore our blog” margin_left=”10px” link=”http://localhost/astraviseservices/insights/startup/what-is-the-difference-between-cash-runway-and-burn-rate/” size=”medium”]Explore Our Blog[/fusion_button][/fusion_builder_column_inner][/fusion_builder_row_inner][/fusion_builder_column][/fusion_builder_row][/fusion_builder_container][fusion_builder_container type=”flex” hundred_percent=”no” hundred_percent_height=”no” hundred_percent_height_scroll=”no” align_content=”stretch” flex_align_items=”flex-start” flex_justify_content=”flex-start” flex_wrap=”wrap” hundred_percent_height_center_content=”yes” equal_height_columns=”no” container_tag=”div” hide_on_mobile=”small-visibility,medium-visibility,large-visibility” status=”published” border_style=”solid” box_shadow=”no” box_shadow_blur=”0″ box_shadow_spread=”0″ gradient_start_position=”0″ gradient_end_position=”100″ gradient_type=”linear” radial_direction=”center center” linear_angle=”180″ background_position=”center center” background_repeat=”no-repeat” fade=”no” background_parallax=”none” enable_mobile=”no” parallax_speed=”0.3″ background_blend_mode=”none” video_aspect_ratio=”16:9″ video_loop=”yes” video_mute=”yes” pattern_bg=”none” pattern_bg_style=”default” pattern_bg_opacity=”100″ pattern_bg_blend_mode=”normal” mask_bg=”none” mask_bg_style=”default” mask_bg_opacity=”100″ mask_bg_transform=”left” mask_bg_blend_mode=”normal” absolute=”off” absolute_devices=”small,medium,large” sticky=”off” sticky_devices=”small-visibility,medium-visibility,large-visibility” sticky_transition_offset=”0″ scroll_offset=”0″ animation_direction=”left” animation_speed=”0.3″ animation_delay=”0″ filter_hue=”0″ filter_saturation=”100″ filter_brightness=”100″ filter_contrast=”100″ filter_invert=”0″ filter_sepia=”0″ filter_opacity=”100″ filter_blur=”0″ filter_hue_hover=”0″ filter_saturation_hover=”100″ filter_brightness_hover=”100″ filter_contrast_hover=”100″ filter_invert_hover=”0″ filter_sepia_hover=”0″ filter_opacity_hover=”100″ filter_blur_hover=”0″][fusion_builder_row][fusion_builder_column type=”1_1″ type=”1_1″ layout=”1_1″ align_self=”auto” content_layout=”column” align_content=”flex-start” valign_content=”flex-start” content_wrap=”wrap” center_content=”no” column_tag=”div” target=”_self” hide_on_mobile=”small-visibility,medium-visibility,large-visibility” sticky_display=”normal,sticky” order_medium=”0″ order_small=”0″ hover_type=”none” border_style=”solid” box_shadow=”no” box_shadow_blur=”0″ box_shadow_spread=”0″ background_type=”single” gradient_start_position=”0″ gradient_end_position=”100″ gradient_type=”linear” radial_direction=”center center” linear_angle=”180″ lazy_load=”none” background_position=”left top” background_repeat=”no-repeat” background_blend_mode=”none” sticky=”off” sticky_devices=”small-visibility,medium-visibility,large-visibility” absolute=”off” filter_type=”regular” filter_hover_element=”self” filter_hue=”0″ filter_saturation=”100″ filter_brightness=”100″ filter_contrast=”100″ filter_invert=”0″ filter_sepia=”0″ filter_opacity=”100″ filter_blur=”0″ filter_hue_hover=”0″ filter_saturation_hover=”100″ filter_brightness_hover=”100″ filter_contrast_hover=”100″ filter_invert_hover=”0″ filter_sepia_hover=”0″ filter_opacity_hover=”100″ filter_blur_hover=”0″ transform_type=”regular” transform_hover_element=”self” transform_scale_x=”1″ transform_scale_y=”1″ transform_translate_x=”0″ transform_translate_y=”0″ transform_rotate=”0″ transform_skew_x=”0″ transform_skew_y=”0″ transform_scale_x_hover=”1″ transform_scale_y_hover=”1″ transform_translate_x_hover=”0″ transform_translate_y_hover=”0″ transform_rotate_hover=”0″ transform_skew_x_hover=”0″ transform_skew_y_hover=”0″ transition_duration=”300″ transition_easing=”ease” scroll_motion_devices=”small-visibility,medium-visibility,large-visibility” animation_direction=”left” animation_speed=”0.3″ animation_delay=”0″ last=”true” border_position=”all” first=”true” min_height=”” link=””][fusion_title title_type=”text” rotation_effect=”bounceIn” display_time=”1200″ highlight_effect=”circle” loop_animation=”off” highlight_width=”9″ highlight_top_margin=”0″ title_link=”off” link_target=”_self” content_align=”left” size=”3″ text_shadow=”no” text_shadow_blur=”0″ gradient_font=”no” gradient_start_position=”0″ gradient_end_position=”100″ gradient_type=”linear” radial_direction=”center center” linear_angle=”180″ style_type=”none” animation_direction=”left” animation_speed=”0.3″ hide_on_mobile=”small-visibility,medium-visibility,large-visibility” sticky_display=”normal,sticky” font_size=”28″]

Cybersecurity Risks

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There are hardly any industrial sectors where digitalization is not happening. With the rapid growth of online activities and payments, sensitive customer data is at risk. Customers expect that their data will be safe from any form of cyber theft. It has become mandatory for businesses to secure their cyberspace against any security breach or fraudulent activity.

When these incidents occur, consumer confidence and trust in companies can suffer. Not only do security breaches jeopardize a company’s reputation, but they can also leave the company financially liable for damages. E.g. Mydoom malware caused estimated damage of $38 billion in 2004.

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Compliance and legal Risks

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Companies face legal risks if they violate government regulations like environmental regulations and the discharge of hazardous waste materials.

Employers must follow HSE (Health, Safety, and Environment) standards for their employees. If working in remote areas, they need proper working conditions, safety, and protective gear. Companies violating these laws are subject to various forms of punishment depending upon the type of damage.

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Risk Management

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Some risks are inherent to the nature of businesses. For example, infrastructure companies require large amounts of long-term funds -both debt and equity and timely availability is a significant risk. There can also be risks that are not linked to the nature of business, e.g., over-dependence on one vendor for a critical component in a manufacturing business. Managing the risks depends on this distinction as well as the availability of options to manage the risks. Accordingly, risks may be fully eliminated, their impact may be minimized or substituted, if substitution is possible, or they may have to be managed with appropriate organizational processes. Taking appropriate insurance covers, tweaking business processes to spread risks, having conservative financial policies, reviewing the organizational structure, and defining control processes for risk management, are some of the risk management techniques.

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Role of Astravise

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Companies find it challenging to assess business risks on their own for a variety of reasons. It is always best to delegate this problem to subject matter experts.

Astravise team has decades of experience running finance and operations in organizations of various sizes. We have also conducted risk assessment exercises as part of due diligence for our clients. We bring in external business expertise, where necessary to ensure clients get a comprehensive view of market, financial, legal, regulatory, operational, and cybersecurity risks.

We assist businesses in assessing their financial risks by analyzing financial statements and reviewing internal controls to detect any form of potential risk, such as fraud or accounting errors. Regularly, we analyze the company’s cash flow to identify liquidity risk and develop a strategy to stabilize the cash flow.

Along with financial controls, we thoroughly check our risk management strategy, scenario planning, and compliance monitoring to avoid any gaps in our assessment.

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