Why Some Startups Win -- And Most Fail

Ever since the Modi government came to power the startups in the country have got a big boost. The Modi government launched “Startup India” in 2016 to foster startup culture, build a strong and inclusive ecosystem for innovation and entrepreneurship in India. The idea was to transform India into a country of job creators instead of being mere job seekers.

The initiative seems to have its desired impact. Consider this: From a few thousand startups before 2014 (read during UPA regime), there are around 1.5-1.8 lakh startups in India as of 2025.  And, if you look at the combined investment data of angel investors, venture capitalists (VCs), private equity (PE) players -- it indicates they have collectively invested $180-200 bn between 2019-25.

Little wonder that, India, despite being a late entrant ranks third after the U.S. and China in the global startup ecosystem. Today India boasts of 100-plus unicorns. A unicorn is a startup with a valuation of over $1 bn but not listed on the stock markets.

Startup seems to be the flavor-of-the-season and everybody – from GenZ to seasoned professionals -- are trying their hand in business. Some 30-40 years ago it would have been considered taboo.  A government or bank job was considered the safest option. It was also the demand of the marriage market.

But, in the new India things are changing at a furious pace. Coincidentally, the source of funds has also widened; besides traditional bankers, we now have angel investors, VCs and PE players. Even entertainment channels, sensing business opportunities, are now hosting shows to woo startups.

Shark Tank – a franchise of an American television shows -- is a business reality show that airs on Sony LIV and Sony Entertainment Television. Here, the entrepreneurs seeking investment make a pitch to a panel of investors who then decide whether to invest in their company. This show seems to gain popularity – viewed from participants and the TRP angle – and is now into Season 4. Competitor Zee TV too entered the fray with Ideabaaz in October 2025.

More. Kishore Biyani of the Big Bazaar fame and Nikhil Kamath, co-founder of Zerodha have joined hands to launch The Foundery, a startup launchpad which promises seed funding of up to Rs 4 crore for potential business propositions. The unique part of The Foundery is it will offer entrepreneurs residential courses which are part school, part accelerator and part venture studio, compressing the early-stage startup journey into a 90-day immersive programme.

Against this backdrop the whole startup ecosystem seems glamorized with the media also playing its role by reporting on success stories. A case in point is edtech giant Byju’s that was founded in 2011. It commanded a crazy valuation of $22 bn in 2022. But by 2023 it crashed to $200 mn...and the free fall continues. 

Like Byju’s there were many success stories which became both inspirational and aspirational. Everybody thought doing business was as easy as peeling an orange. “Money was not an issue at all…if you have some great ideas” was the general impression that abounded.

And therein lies the rub. 

From my own experience I can say raising money is not exactly a cake walk. Startups generally pitch to angel investors or VCs and PE players enter the scene only after a business attains certain size.

Just talking about your idea or making power-point presentation is not good enough. There is a detailed questionnaire which you need to fill and upload it on angel/VCs websites along with your PPT. 

Only after all the checkboxes are ticked will your phone ring. A great idea can be turned down, if you don’t pass the tick boxes stage. Generally, nobody funds at the pre-revenue stage. And, if you are a senior citizen or a sole proprietor then you are out. Here I am reminded of Colonel Harland David Sanders who started KFC when he was 63.

Personally, I feel startups like Byju’s and its ilk got an unfair share of the money resulting in good ones getting elbowed out.

The fundamental problem is that Indian bankers are risk averse for fear of NPAs which in some cases lead to CBI investigations. The bankers cannot be faulted. Historically, they have always been made the scapegoat. It has been happening since India’s Independence. A recent example is that of the Punjab National Bank scam (PNB) where diamantaires Nirav Modi and his uncle Mehul Choksi defrauded PNB to the tune of Rs 12,000 crore and fled the country following which some bankers were arrested.

With the dice mostly loaded against them, bankers feel it’s safer not investing in startups but lend money to Triple A rated companies today where returns maybe lower but the bank’s money remains safe. At least they will not lose out on their retirement benefits and face jail terms. This is why even though “officially” loans up to Rs 1 crore need no collaterals, bankers, to cover their backs, insist on some collaterals atleast.

You may ask how then startups are thriving in China? That’s because the communist regime decides upon a policy and everybody toes the line. For instance, when the ruling regime decided to encourage manufacturing startups, the local banks were asked to lend at a lower rate. They readily obliged even though the returns were low as there was no fear of NPAs as it was a state-backed risk.

Cheaper money helped Chinese entrepreneurs. Besides, the state ensured that land and power were also cheaply made available. Also, manufacturing clusters were set up close to the ports. Basically, China offered plug-and-play industrial parks. In India too such things are happening but in fits and starts. 

So, if a startup is unable to get early-stage funding from angel investors, VCs or banks one has little option than borrowing from families, friends or even pawning off the family jewels or leveraging one’s house as collaterals.

Money has actually become the bane. Statistics show that out of every 100 startups launched, 80-90 fail within the first five years, 10-15 survive while only 2-3 turn into runaway hits. 

As for runaway hits, the name that instantly comes to my mind is that of Bharti Tele-Ventures. PE player Warburg Pincus made a killing. Between 1999 and 2001 Warburg invested $292 mn to acquire over 18.5 % stake in the Sunil Mittal promoted company. They exited in 2004-05 cashing $ 1.83 bn approximately earning 5.5x. Bharti continues to thrive.

On the flipside many like Byju’s have gone bust. Dunzo, a hyperlocal delivery player got shuttered owing to high cash burn. Reliance Retail its largest investor wrote off $200 mn. Housing.com which commanded a valuation of $2.5 bn collapsed over founder fallouts and high cash burn. Here even VCs/PE players lose.

Over-leveraged and cash burn are the two big reasons startups have been going down the tube. I feel even VCs/PE players must share the blame; in some instances, they overindulge certain companies. With excess funds coming their way promoters are bound to turn rogue. 

In the final analysis, unlike the dotcom boom of 2000s, startups are here to stay. Currently, for every success story, we hear of a thousand sob stories. Even as the Indian startups market matures more and more, one will get to see less and less of cowboy entrepreneurs…more and more of success stories.