A startup is a company that’s in the initial stages of its operations. Built by one or more entrepreneurs, startups aim to create a product or service that meets a perceived demand. In their nascent stages, startups often grapple with high costs and limited revenue; hence, they typically seek capital from sources like venture capitalists.
On the other hand, a unicorn is a privately held firm that is valued over USD 1 billion. It’s a term used to denote businesses that focus on creating innovative solutions and pioneering business models. These companies span various sectors, including fintech, edtech, and B2B businesses.
India’s Emergence as a Startup Nation
Today, India finds itself in the third position globally in its thriving startup ecosystem, trailing behind only the US and China. The country houses approximately 75,000 startups, nearly half of which are based in tier-2 and tier-3 cities. Moreover, out of its 105 unicorns, 44 joined the exclusive club in 2021, followed by 19 more in 2022. Fields such as IT, agriculture, aviation, education, energy, health, and space have also seen an uptick in fresh startups.
Besides this impressive tally, India’s Global Innovation Index (GII) ranking has steadily progressed, moving up from the 81st spot in 2015 to 46th in 2021 among 130 economies. Moreover, it holds 2nd place among 34 lower middle-income economies, and proudly takes the top spot among 10 Central and Southern Asian economies.
Factors Catalyzing Startups’ Growth & Challenges on the Horizon
India’s growing number of startups owe their success to several factors: Government support has been crucial in this endeavor. The country’s Gross Expenditure on R&D (GERD) has tripled over the past few years, and women’s involvement in extramural R&D has doubled. The adoption of digital services, online services, work from home culture, and the growth of digital payments have also paved the way for the rise of startups.
However, challenges persist. High investment amounts don’t necessarily guarantee a startup’s success. Furthermore, despite the industry’s growth, India holds less than a 2% share in the global space sector, largely due to a lack of independent private participation and a clear regulatory framework. Additionally, Indian investors often hesitate to take risks, causing foreign entities like Japan’s SoftBank, China’s Alibaba, and Sequoia from the US to drive investments.
Governance Initiatives Boosting Startup Ecosystem
The Indian government has launched several initiatives to stimulate the startup ecosystem. These include the National Initiative for Developing and Harnessing Innovations (NIDHI), Startup India Action Plan (SIAP), Ranking of States on Support to Startup Ecosystems (RSSSE), and the Startup India Seed Fund Scheme (SISFS). SISFS aims to offer financial aid to startups to help them develop their products or services, enter markets, and commence commercialization.
Additionally, the National Startup Awards have been instituted to acknowledge and reward outstanding startups contributing to economic dynamism through innovation and competition. The first-ever Shanghai Cooperation Organisation (SCO) Startup Forum was unveiled in October 2020 to collectively foster startup ecosystems. Lastly, the ‘Prarambh’ Summit offers a global platform for startups and innovators to share new ideas and inventions.
Moving Forward
Venture capitals and angel investors play crucial roles in funding the growth of the startup ecosystem. Corporate sector should foster entrepreneurship, create synergies to devise impactful technology solutions, leading to sustainable and resource-efficient growth. With recent events causing capital distrust in China, global attention is now focusing more on the opportunities in India. Decisive policy measures along with initiatives like Digital India are needed to capitalize on these prospects.
Lastly, understanding venture capital is crucial for any budding entrepreneur. Venture capital is a type of funding for new or growing businesses. It generally comes from firms that specialize in building high-risk financial portfolios. In exchange for funding, these venture capitalists receive equity in the startup. This form of investment, also referred to as risk capital or patient risk capital, carries the risk of losing money if the venture fails. It typically materializes into profits over a medium to long-term period.