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Financial Risk Faced by Start-ups in India

Financial Risk Faced by Start-ups in India

Dr. Apoorwa Mishra, Ms. Shreya Agrawal

Dr Apoorwa Mishra – Assistant Professor, Amity Business School, Amity University, Chhattisgarh

Ms. Shreya Agrawal, Student, Amity Business School, Amity University Chhattisgarh

ABSTRACT

The Indian startup ecosystem has seen exponential growth over the last decade, becoming the third-largest startup hub in the world. With over 90,000 startups registered as of 2024, including more than 100 unicorns, India is home to a vibrant and innovative entrepreneurial community. However, despite this growth, the survival rate of startups remains low. A significant proportion of startups fail within their first five years of operation, with financial risks being among the primary causes. This research aims to identify and analyze the financial risks faced by startups in India, offering insights into how these risks can be mitigated for sustained growth and success.

Financial risks for startups in India are multi-dimensional. The foremost is the risk of inadequate funding, particularly during the seed and early growth stages. While venture capital and angel investments have increased, the concentration of these funds in specific sectors and regions leaves many startups underserved. Revenue generation risk is another major concern, especially in price-sensitive Indian markets where customer acquisition and retention are challenging and expensive. Cash flow mismanagement, due to poor financial planning, delayed receivables, and unplanned expenditures, often pushes startups into insolvency.

Moreover, regulatory and compliance risks pose additional financial burdens. Startups may face difficulties in complying with tax codes, labor laws, and financial regulations, especially without access to professional financial advisory. Macroeconomic factors such as inflation, interest rate fluctuations, and global economic trends further exacerbate financial instability.

This study adopts a mixed-methods approach, incorporating both qualitative and quantitative data, including literature review, case studies, and founder interviews. Findings indicate that startups with limited access to financial planning resources are more vulnerable to failure. Moreover, the lack of financial literacy among founders, over-reliance on external capital, and absence of risk mitigation strategies amplify financial exposure.

Key recommendations include improving access to financial education, promoting government-backed funding schemes, encouraging financial discipline, and integrating financial risk assessment into startup business models. Policymakers and incubators should focus on offering mentorship and training programs to enhance financial resilience.

This study contributes to the understanding of financial risk in the Indian startup context and serves as a guide for entrepreneurs, investors, and policymakers. Addressing financial risk effectively is essential not only for individual startup survival but also for maintaining the momentum of innovation and economic growth in India.