The Indian startup scene has experienced a notable slowdown, as per the report titled “Slowdown in India’s Startup Ecosystem”. According to this analysis, the growth of unicorns (startups valued over USD 1 billion) plummeted significantly in 2023. While 24 new unicorns emerged in 2022, only three were added to the list in 2023. The information was revealed by the ASK Private Wealth Hurun Indian Future Unicorn Index 2023.
Despite this slowdown, India maintains its position as the world’s third largest startup ecosystem, with high rankings for innovation quality and scientific publications. The period from 2015 to 2022 saw exponential growth, with a 15-time increase in total funding, 9-time increase in investors, and 7-time increase in incubators. As of May 2023, India is home to 108 Unicorns, collectively valued at USD 340.80 Bn.
Understanding Key Startup Terms
The startup environment uses specific terms to distinguish distinct types of startups. A decacorn is a startup currently valued over USD 10 billion. The term unicorn refers to startups founded after the year 2000 with a valuation of USD 1 billion. Gazelles are startups likely to achieve a unicorn status within three years, while cheetahs could reach this status within five years.
Challenges Confronted by Indian Startups
Indian startups face several roadblocks that limit their growth potential. Among these challenges are difficulties in securing adequate funding due to factors such as risk aversion, uncertain market conditions, and lack of investor confidence.
Revenues generation is another significant obstacle. Many startups struggle to develop viable business models, monetize their products or services, and achieve profitability. The competition with established corporations, limited market reach, and difficulties attracting customers further compound this problem.
A lack of supportive infrastructure is another significant hurdle for startups. This includes inadequate physical infrastructure, limited access to technology, and a shortage of incubation centers, mentorship programs, and networking opportunities.
On top of these barriers, startups face a complex regulatory environment and taxing structures. Burdensome compliance processes, bureaucratic red tape, and ambiguous regulations create additional obstacles for startups. Complex taxation systems further increase their administrative burden and negatively impact profitability.
Government Initiatives Supporting Startups
The Indian government has launched various initiatives to nurture the startup ecosystem. Among these are the National Initiative for Developing and Harnessing Innovations (NIDHI), Startup India Action Plan (SIAP), and the Ranking of States on Support to Startup Ecosystems (RSSSE).
The government has also established the Startup India Seed Fund Scheme (SISFS) to provide financial assistance for proof of concept, prototype development, product trials, market entry, and commercialization. Additionally, the National Startup Awards recognize and reward outstanding startups contributing to economic dynamism.
International cooperation is also supported through initiatives like the Shanghai Cooperation Organisation (SCO) Startup Forum initiated in October 2020. Moreover, the Prarambh Summit seeks to offer a platform for startups and young innovators worldwide to foster new ideas, innovation, and invention.
Overcoming Startup Challenges
To overcome these challenges, numerous Indian startups establish bases overseas. They target countries with favourable legal environments and tax policies, a process often called ‘flipping’. Typically, this happens during the early stages of the startup and involves transferring the entire ownership, Intellectual Property, and data owned by the Indian company to an overseas entity.
However, through enhanced collaboration with regulatory bodies and other stakeholders, it’s possible to reverse this trend and promote the growth and success of Indian startups.