Is the hoopla around student-entrepreneurs passe? Business school graduates are moving away from entrepreneurship. Spiraling concerns over the risks related to launching one’s own venture, tough questions from investors and increasing entry barriers in the market are probably holding back students from trying their entrepreneurial skills.
Data from the leading business schools, including the Indian Institutes of Management (IIM), the Indian School of Business (ISB), IMT Ghaziabad and IMT Dubai show the number of students picking entrepreneurship has declined in last two years. Colleges including Xavier School of Management (XLRI) and IIM Bangalore denied sharing the data.
At IIM Ahmadabad, in 2013, only five students from the batch of 373 opted for entrepreneurship. This increased phenomenally to 13 students from the batch of 388 in 2014. Last year, it fell marginally to 11 students out of 377 opting for entrepreneurship. This year, however, the number plunged to eight from the batch of 383 students.
Similarly, at ISB Hyderabad, 33 students out of 767 opted for entrepreneurship in 2013. The number fell to 15 last year and further to seven this year in the batch of 812 students.
Other business schools show a similar trend. Colleges did not offer insights on the trend. The IIM-A said its spokesperson is traveling and unavailable for comments, and ISB sited similar reasons.
However, the colleges explained that students opting for entrepreneurship depends largely on their business idea materialising.
“It is generally observed that if the entire business plan pans out well and the business is able to garner funding to launch its products, students opt out of the campus placement process to start their own businesses. But if the business plan needs more planning or research (like availability of funds, shape of the idea), students generally opt for campus placements only to defer launching their entrepreneurial venture,” said Vishal Goyal, group head, IMT Ghaziabad and Dubai.
The dearth of funding avenues might push students to sit for placements rather than to opt for their own ventures. A research by India Ratings and Research (Ind-Ra) says startups, specifically e-tailers, have had les luck this year, with muted deals during January to April.
After the brouhaha, investors are now looking for companies with a robust and proven unit economics which might prevent new entrepreneurs from entering the market easily. “Capitalists are now asking tough questions on spending and valuations. Investors want details of every penny the firm spends. Deals will take longer to close because of the increased scrutiny now, and probably half of them will get cancelled. This will definitely make the aspiring entrepreneurs shy,” said Vinod Murali, managing director of Innoven Capital.
The Ind-Ra report cited above estimated that funding by private equity firms has slowed down, which would result in higher entry barriers. “Established players will enjoy the first-mover advantage as they have limited operating expenses compared to the large capital expenditure that new entrants in the e-commerce space will need.”
Moreover, headhunters said the dip is also because several start-up failures have made headlines in the last one year. About 18 start-ups have shut shop in the first half of this year. These include several familiar names such as Tiny Owl, Fashionara, PepperTap, Intelligent Interfaces and Delivree King.
“It started with a hoopla, but the saturation point has come after the stories of failed start-ups made headlines in the last two years. The high-risk-high-gain image of start-ups has been dented and now it is more about just high risk, as we haven’t seen new unicorns like Ola and Flipkart coming up in the last two years,” said Kamal Karanth, MD at US-based staffing firm Kelly Services.
The year 2015 saw the launch of three to four start-ups a day, which helped India secure the third position in the world in the number of startups with more than 4,200. This year, India’s largest e-commerce company, Flipkart, took another devaluation blow, its fifth in a series of investor write-downs, and the second by Morgan Stanley.
The only exception to the trend of fewer students opting for entrepreneurship was the Delhi-based Faculty of Management Studies, whose data showed a rise in students turning entrepreneurship.