India is currently home to the third largest startup ecosystem globally. From just a handful of fledgling startups in the early 2000s, India today boasts of over 60,000 recognized startups spread across tier-1, tier-2 and tier-3 cities. Valued at $168 billion, the Indian startup space has attracted $98 billion in funding since 2016 along with 12 start-up ‘unicorns’ worth over $1 billion each.
This article traces the evolution of India’s startup culture, key drivers, the impact created so far and growth projections for the next 5 years.
The Early Days
While entrepreneurship has always been innate to India, startups as we know them today trace their origins to the liberalization of the Indian economy in the 1990s. With reduced red tape and easier capital availability, iconic companies like Infosys, Wipro and TCS emerged and built the foundations for India’s globally recognized IT services industry.
The internet revolution of the 2000s sparked a new wave of startups. Pioneers like Flipkart, Ola, Zomato, MakeMyTrip and Paytm leveraged technology to create innovative online business models for e-commerce, cab aggregators, food tech, travel bookings and digital payments. Risk-taking entrepreneurs were now aspiring to build for India and the world.
Venture capital funding also began flowing into Indian startups from the mid-2000s, reaching $9 billion in 2015. The entrepreneurial bug had well and truly bitten India!
Key Drivers of India’s Startup Boom
Several interconnected factors have driven the exponential growth of startups in India over the past decade:
- Government support: Government initiatives like Startup India, Digital India and Make in India have encouraged entrepreneurship through tax incentives, simpler compliance, incubator schemes and easier public procurement.
- Funding growth: Increased appetite of VCs and investors to fund Indian startups across all stages – angel, seed to Series A – along with opportunities to get listed via IPOs have improved capital access significantly.
- Spread of STEM education: Expansion of engineering and management colleges has created a large talent pool with the skills to innovate for digital markets.
- Global exposure: Young Indians studying and working overseas are bringing back global outlook and experience of starting up.
- Tech advancement: Rapid rise of cloud computing, AI/ML and falling data costs has enabled startups to develop scalable tech solutions for India.
- Supporting ecosystem: Organizations like NASSCOM, TiE, IAN, NEN and GOVTbodies like SEBI and RBI have created frameworks, mentoring and networking platforms to foster startups.
- Large domestic market: India’s demography offers a huge and diverse market. Startups are innovating with unique solutions for Indian conditions.
- Unmet needs: Gaps in access to healthcare, education, financial services, infrastructure etc. allow startups to create impact via inclusive products.
- Culture of collaboration: The presence of global tech companies provides opportunities for partnerships. Corporates are partnering with startups for fresh innovations.
- Successes and role models: High-profile startup founders like Bhavish Aggarwal (Ola), Vijay Shekhar Sharma (Paytm) etc. have become youth icons inspiring more entrepreneurship.
Key Achievements So Far
Indian startups have made stellar progress across multiple dimensions:
- 12 start-up unicorns each valued over $1 billion with another 50 potential unicorns in the wings.
- Companies like Zerodha and Razorpay have revolutionized online investing and payments
- Over 60,000 recognized tech startups as of 2022 along with numerous other unrecognized micro-startups
- 38 startups selected for the prestigious Y Combinator accelerator
- Startups raised $63 billion funding between 2019-2021 across 1,088 deals
- India ranks #3 globally in unicorn population after US and China
- Bengaluru, Mumbai and Delhi feature among top 30 global startup ecosystem rankings
- 6 lakh direct jobs created in 2021, projected to touch 10-12 lakh by 2025
- Digital payments by FinTech startups crossed $940 billion by volume in 2021
- Startups like 1Mg, PharmEasy and Practo expanding health access through e-pharmacies and telemedicine
- AgriTech startups like Ninjacart using IoT, AI and ML to link farmers to markets, reduce waste
- EdTech firms like Byju’s, Unacademy and Vedantu making education interactive and personalized
- Mobility startups like Ola and Ola Electric leading India’s electric vehicle revolution
- E-commerce startups have expanded to Tier 2 and 3 cities delivering income opportunities
Government Initiatives to Catalyze Startups
Both the central and state governments have taken proactive policy measures to turbo-charge India’s startup ecosystem:
- Startup India initiative: Simplified registration, tax exemptions, easing public procurement, faster patent applications, funding incentives and eased exit norms.
- Fund of Funds: Government-backed Rs. 10,000 crore corpus to provide consistent capital flow to startups via VCs.
- Credit guarantee scheme: Collateral-free loans up to Rs. 5 crore with credit guarantee for startups.
- Atal Innovation Mission: Initiative under NITI Aayog providing grants upto Rs. 10 crore to incubators and startups.
- State startup policies: States like Karnataka, Kerala, Maharashtra also have investor-friendly startup policies along with incubation infrastructure.
- Innovation zones like IIT Madras Research Park provide dedicated workspaces for startups to interact and flourish.
- Government is also driving adoption of emerging technologies like AI, blockchain, IoT via mechanisms like regulatory sandboxes.
- Tax sops like exemption on capital gains invested in startups encourage investment.
Challenges Faced by Indian Startups
However, there are systemic challenges faced by startups that need addressal:
- Compliance burden: Meeting regulatory and tax compliance requirements can be challenging for early-stage startups. Opening a startup still involves multiple clearances.
- Difficulty raising capital: Only 2% of startups get formal funding. Investors prefer late stage firms. More institutional capital needed at angel and seed stage.
- Scaling constraints: Many startups struggle to scale up due to lack of managerial experience, HR and distribution networks. They find acquiring customers across India challenging.
- Low penetration beyond metros: A skew exists with 55% of recognized startups coming from just Bengaluru, Mumbai and NCR. Other cities lag behind in entrepreneurial activity.
- Lack of patient capital: Indian investors usually seek exit within 5-7 years which is not suited to capital-intensive sectors like manufacturing where longer gestation periods are required.
- Failure stigma: The stigma around failure means entrepreneurs who close startups struggle to get further opportunities. Developing a tolerant startup culture will take time.
- Gender gap: Only around 9-10% of startup founders are women. Social barriers, safety issues and biases exist towards women entrepreneurs.
Positive Outlook for Next 5 Years
Notwithstanding the challenges, the future looks promising for Indian startups over the next 5 years:
- Number of unicorns expected to cross 100 by 2027 with addition of 12-15 new unicorns yearly
- India will have the 3rd largest ecosystem value globally after US and China. Valuation of startups projected to exceed $500 billion.
- Tier 2 cities like Jaipur, Ahmedabad, Pune, Coimbatore and Lucknow will gain momentum as new startup hubs.
- Growth in impact startups solving grassroot social and environmental issues using technology and innovation.
- Improved gender diversity with more women-led startups across consumer tech, fintech, healthtech and edtech.
- Increased adoption of emerging tech like AI, IoT, cloud computing by startups to build smart solutions for agriculture, cities, factories etc.
- Evolution of global Indian startups with greater presence across international markets in Southeast Asia, Middle East, Europe and North America.
- Large corporates will accelerate startup partnerships and acquisitions for synergistic growth.
- Government support via targeted incubation, regulatory sandboxes and procurement quotas to continue catalyzing innovation.
Conclusion
The Indian startup ecosystem has made impressive progress due to conducive government policy, improving funding avenues and a hungry talent pool. While challenges around compliance, scaling up and raising capital remain, the fundamental prospects appear bright. India is poised to see over $500 billion of startup value creation along with 100 unicorns by 2027 on the back of innovative business models and emerging technologies. Startups will drive economic growth, generate millions of jobs and enable India to achieve its Digital India vision. With thriving entrepreneurship and innovation, India will continue inspiring the next generation of startups.
