Why investors in India are only focusing on startups at the cost of SMEs?

In recent years, there’s been huge investing pouring in for startups in India, predominantly in the technology domain whether its mobile apps based services or online retail.  However, recent media reports have suggested that venture capital funding and deals in early stage startups has fallen considerably during 2016.

In fact, according to Chennai based data and research firm Venture Intelligence, the  early-stage venture capital investment has gone down to a two-year low in the July-September quarter last year.

As per Venture Intelligence, during the first nine months of 2016, the number of early-stage VC investments slumped 24% from a year ago to 290 deals and the total money invested shrunk to one third to $1billion.

Among the many reasons for this fall in investments in startups include increasing number of failed startups, unconvincing business models, lack of long term sustainability and growth prospects, and investors are also watching and taking longer time to make investments.

However, amidst this scenario, the core element that investors have being missing out is the huge base of small and medium scale businesses or enterprises (SMBs/SMEs) that are present across the country including remote corners and not restricted to metros or semi-metro locations like in the case of startups.

In fact, according to Ministry of Micro, Small and Medium Enterprises (MSME) published report this year, the sector consists 36 million units, as of today, provides employment to over 80 million persons.

The sector through more than 6,000 products contributes about 8% to GDP besides 45% to the total manufacturing output and 40% to the exports from the country. The MSME sector has the potential to spread industrial growth across the country and can be a major partner in the process of inclusive growth, the report stated. Given the potential of the sector and strong support by Indian government, it’s really high time that the investor community change their mindsets and back SMBs/SMEs in the country.

Unlike most startups in India which are guilty of constantly boasting of mobile app downloads, registered users, web traffic or gross merchandise volume (GMV) in case of online sales, the MSME sector has actually more to offer to their business credibility. The fact of matter is most of SMEs/SMBs are based in rural and semi-rural areas across the country and importantly they are playing huge role in supporting large enterprises and businesses across industries.

They form the crucial part of ancillary industry and without them many of those large industries would find difficulty to support their businesses. Henceforth, investors should give up their unidirectional focus on only startups and expand their horizon. They need to invest in the MSME sector more than they are doing in startups because they already are out in the market serving large industries in a big way, which still remains unnoticed to the large investors in India.

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