The available funding options for new startups are relatively better than it was a few years ago, says serial investor Prateek Toshniwal.
Chartered Accountant, Investor, Networker, Financial Advisor and Mentor Prateek Toshniwal is on a mission to mentor and build scalable and sustainable businesses primarily in India, the Middle East, and Africa. He has been pursuing the evolution of startups in India since 2018 and has assisted multiple startups.
Toshniwal, who holds the degrees of B.Com and B.Com Honors from Narsee Monjee Institute, Mumbai, had the privilege of working for KPMG for two years after his graduation.
“I believe failure is not the opposite of success; it’s a journey towards your success.” Toshniwal says.
BizNewsConnect editor B N KUMAR conducted an email interview with Toshniwal. Excerpts:
BizNewsConnect: How and when did you start investing in startups and what prompted you to get into this business? Please explain the investment path.
PRATEEK TOSHNIWAL: I come from an entrepreneurship background, but my journey as an investor began in 2018, and ever since then, I have been actively involved in the start-up ecosystem. I also worked at KPMG for three years but soon returned to Surat to help my father with his Chartered Accountant firm. The experiences helped me understand my passion lies in investing, advising, mentoring, networking, and helping build viable businesses. This personal insight prompted me to use my skills to help new and aspiring entrepreneurs and support them in their entrepreneurial journey. So far, I have parked money into 34 companies and jointly invested in more than 100+ enterprises. In this investment journey, I have syndicated investments amounting to $12 million in over 70 startup enterprises and have had five successful exits. Currently, I am a co-founder at IVY Growth Associates, Surat’s fastest-growing angel network. I am also on the advisory boards of Toshniwal Ventures Pvt. and Funding Possibilities and an active partner at Dubai-based comprehensive Financial service firm MI CAPITAL Service. I believe that my entrepreneurial roots and experience as a Chartered Accountant have helped me develop a unique perspective towards investments. It has also helped me guide enterprises and help them scale their growth and expansion goals.
BNC: Which was the first company that you invested in and how it has grown?
One of my first investments was in a Proptech company called CHPL. The company has witnessed multifold growth since 2018 and achieved its initial business goals. CHPL has smartly utilized VC funds to scale its growth objectives by expanding its operations and improving its products and services. It is one of the best examples to display how timely access to funds and proper mentorship can help startups create a presence in the market.
BNC: Please briefly state your journey of successful funding?
PT: As an investor, I have had the opportunity to fund more than 100 companies, out of which three have achieved a valuation exceeding $ 1 billion. So far, I have invested in diverse companies in India, and currently, my focus is on building a thriving startup environment in the UAE. For instance, my micro investment firm Ivy Growth Associates has invested in more than 70 start-up ventures, including the likes of – Zypp Electric, Navitas Alpha, BluSmart, Bummer, Emotorad, Regrip, Bebeburp, GrowIt, and Evify Logistics. My associates and I have planned a $30 Million global fund based in DIFC, Dubai, and Saudi by the year 2026. With the help of the fund, we aim to provide capital to international startup owners and help them grow. We also have plans to collaborate with other funds in the US, the UK, the Middle East, Japan, and Singapore. My ultimate goal is to foster a supportive startup space in India, UAE, and beyond, and aim to add to the growth and success of the global business landscape.
BNC: Which categories of businesses that you fund and what do you look for in a startup while deciding on supporting it?
PT: I have a track record of funding startups with promising growth potential and robust business models across multiple domains. I particularly seek lucrative startup entities operating in domains like Agritech, healthcare, web 3.0, deep tech, and Artificial Intelligence, with a key focus on sustainability. Typically, when deciding which startups are more deserving to secure a fund, my team looks for those with promising revenue and reliable market traction. These metrics help us determine whether the enterprises can scale growth and expansion goals with our support and expertise. I intend to help deserving enterprises access capital to make a substantial contribution towards the growth of the third-largest startup ecosystem in the world. I believe that through our joint efforts, we can make significant contributions to meet India’s goal of having 250,000 startup enterprises and 400 unicorns by the end of this decade.
BNC: At which stage do you exit? And what is your business model?
PT: Typically, micro Venture Capitalists exit in the growth stage. However, large Venture Capitalists often stick around till the final stages or until the startup launches an IPO. As an angel investor and a part of a thriving micro VC firm, I regularly invest in multiple categories of businesses that are not necessarily limited to healthcare, technology, and consumer goods. As for the business model, I typically exit in the growth stage of an enterprise’s lifecycle. I usually do not commit to follow-on rounds and exit when I feel a startup enterprise has reached a desired growth and profitability level. However, the approach might differ based on the company’s market size, potential to scale projected growth, and competition. So far, my transparent approach enabled me to support several startups with capital and resources in the initial stages.
BNC: Typically, what kind of hurdles does a startup face when it comes to fundraising? And do you in any way advise them on overcoming these?
PT: Startups, in general, are often faced with multiple challenges while fundraising, including valuation discrepancies, especially when it comes to finding the right balance between the founder’s expectation and the investor’s appraisal. In addition, concerns over losing control over the company due to excessive equity dilution and hurdles in compliance with regulations tend to trouble startup owners. To overcome these challenges, I recommend finding the best-suited mentors and partners to avail proper guidance and support to navigate the challenges of launching a new venture. In addition, leveraging legal consultation can help ensure the company is compliant with the latest regulations and policy changes that could hamper fundraising. I also recommend cultivating a well-connected network within the industry to enhance the chances of securing funding.
BNC: Venture Intelligence’s ‘Series A Landscape Report’ shows of the 2,500 start-ups that had raised seed funding between 2015 and 2022, only 734 firms managed to secure a Series A round. What could be the reasons?
PT: The reason most startups fail to secure a Series A funding round is often rooted in their inability to gain traction in their target market. Similarly, I have seen a shaky record of user adoption, slow or negligible revenue growth, or weak customer engagement hampering fundraising efforts. Besides these, factors like marketplace saturation, not having a scalable business model, and inconsistent funding needs continue to deter many startup owners’ ability to secure a Series A round. However, once startups secure a Series A round, their success rate in raising subsequent rounds of capital increases significantly. However, I must admit that despite the prevalent slowdown, the available funding options for new startups are relatively better than it was a few years ago.
BNC: Can you please give a couple of examples of successful and failed entities so that they could be learning for others?
PT: If I have to name one successful entity in the startup ecosystem, it would be boAt. This leading supplier of wireless speakers and earphones was once a bootstrapped venture that began with a mere capital of Rs. 30 lakhs in 2014. The company has managed to clock in net sales of nearly Rs. 4000 crores in FY23. Interestingly, the company founder had to deal with 6 failed businesses before it found success with boAt. With this venture, the cofounders struck gold by understanding the virtue of new products, innovations, and strong market presence. On the other hand, Lido Learning is a good example of what not to do to survive in the initial startup stages. Despite having a solid product and three successful funding rounds amounting to $30 million, the company struggled with pre- and post-sales. The Edtech startup’s overt reliance on the next funding round to sustain affected its growth and prompted it to file for bankruptcy within three years of its inception. Lido Learning’s journey underscores the importance of customer experience and the need to focus on every aspect of a venture for retention.
BNC: What is your assessment of the startups in India as compared to China and the US? How many of them survive and emerge as successful businesses?
PT: In the last couple of years, the Indian startup ecosystem has witnessed massive growth, with an increasing venture capital inflow and the number of unicorns. Today, India is the world’s third-largest startup ecosystem, behind the US and China. In my experience, the relatively lower cost of establishing a startup in India has significantly accelerated the growth. A NASSCOM report shared that the Indian startup sector witnessed a 12% growth in funding in 2020, reaching $9.3 billion. However, it is still less than what the US and China have managed to do.
In 2020, the US startup ecosystem raised nearly $156 billion in funding, and by 2022, it had 661 unicorns. The sector’s growth was driven by its domestic market, a supportive business ecosystem, and available funding opportunities. On the other hand, China raised $67 billion in startup funding in 2020 and recorded 312 unicorns in 2022. Today, China boasts a larger market size and startup landscape thanks to its competitive and thriving business ecosystem, access to developed infrastructure, and continuous government support. These give the US and Chinese startups an upper hand over the Indian startup ecosystem, making their well-planned startups more likely to succeed at present. India’s regulatory hurdles, restraint in funding, and limitations in infrastructure are the major factors that deter the sector from reaching its full potential. To overcome this and emerge as a profitable startup landscape, we need to cover more ground in terms of funding and market size.
BNC: Do you see any consolidation and amalgamation happening among startups?
PT: Yes, I have noticed an increasing trend of consolidation and amalgamation in the Indian startup space in the past few years. With the Indian startup space evolving, larger enterprises are acquiring smaller entities to enter new markets, expand existing product lines, and gain more market traction. In the period 2014-2023, more than 1200 M&As took place, with over 110 unicorns leading more than 400 acquisitions. The health and fitness unicorn company, Cure. Fit has acquired nearly 28 startup companies since its inception in 2016, while Mensa Brands has single-handedly made 21 acquisitions. Even Flipkart and Zomato have completed around 19 and 16 acquisitions, respectively. These M&As have shown how consolidation and amalgamation can benefit both parties. For instance, the strategic move helped big names expand their market presence, increase their offerings, and acquire talent, while smaller startups have successfully gained access to funding and resources. I am confident this trend will continue as more startups seek to innovate and adapt to the evolving market conditions.
BNC: Your views on the Government’s Startup India initiative?
PT: Undoubtedly, the government’s Startup India initiative has been remarkable in promoting entrepreneurship in the country and paving the way for new startups. So far, the initiative has helped create a conducive environment for startups by extending benefits like tax exemptions and pro-startup regulations and ensuring easy access to funding. These benefits have helped Indian startup owners turn their ideas into tangible ventures. Since its launch in 2016, the government has recognized over 92,683 startups by February 2023. Indeed, this initiative has helped transform our country’s ecosystem landscape and turned India into a land of job creators. However, I think more awareness about the perks of the initiative and how to become a beneficiary can help more startups.
BNC: Is the Govt doing enough or you want it to do more?
PT: The Indian government has already taken several steps to promote the startup space in the country. However, I believe that there is always ample room for improvement. To begin with, the government and industry leaders can create more pro-startup measures to support the growth and development of new and aspiring startup owners. The new year could be more conducive for new-age and homegrown startup ventures, and I think a little push in the funding and subsidy segment can help aspiring entrepreneurs take the leap and start their ventures.
BNC: Finally, let us discuss Unicorns. There are reports the Unicorns in India are on the decline. What’s your view?
PT: While some reports suggest a decline in the number of Unicorns, it is crucial to note that the startup ecosystem in India is still in its growth stage. A 2022 State of Indian Startup Ecosystem Report stated that India abounds in raw talent, a young workforce, and resources that can help the country record over 250 unicorns by 2025. Our country already hosts three-fifths of the world’s Unicorns, and I believe that more government-led efforts can help revive the startup ecosystem and accelerate its growth. As an entrepreneur and investor, I plan to support deserving startups with the required resources and help them grow their revenue by multi-folds. To support this vision, my associates and I have planned a global fund that might help create profitable unicorns in the next 5 years.