India’s startup ecosystem is robust and promising, full of opportunities and prosperity for those able to conquer it. India’s startup economy has been booming. The last decade has seen significant activity on multiple fronts including the founding of new startups, amount of funding and number of investment rounds, the influx of global investors and startups, development of regulatory infrastructure, global mergers and acquisitions, and internationalization.
Just with the beginning of Quarter 2, the number of unicorns in India in 2021 has risen to 10, just one shy from the number as compared to the previous year. With 6 new unicorns in just 4 days, the total number of Indian unicorns have grown by around 15% in a span of 4 days, with CRED, PharmEasy, Meesho, Infra Market, Groww being the latest entrants
Indian Startup scenario before Independence
Indian Entrepreneurship has a rich history. While the current entrepreneur mindset may differ from what it was in the pre-independence era, the period did see a surge of startups, of course, at a much slower rate than the present.
The colonial-era saw entrepreneurship to be confined by the boundaries of social, cultural, and religious rigidities. Further, the colonial rule brought in an array of political and economic factors that were non-conducive for entrepreneurship. The volatile political environment, lack of favorable laws, harsh tax policies restricted the surge of entrepreneurship. The education system did nothing to encourage the emergence of startups during this period. Slowly, the social reforms, rising nationalism, and betterment of education brought a steady change in the scenario.
In spite of these drawbacks, the East India Company, deliberately or accidentally, seems to have played a vital role in the emergence of Indian entrepreneurs. The popularity of the swadeshi campaign, a campaign focussed on the use of indigenous goods by locals, is also believed to have played a significant role in the growth of startups in the country.
The period between the world wars was marked by the visible growth of entrepreneurship in India. The emergence of the Managing Agency System played a significant role in the growth of entrepreneurship during this period. The following decades brought many opportunities for business that was effectively capitalized by entrepreneurs. This coupled with the society's attitude broadened the vision for the Indian business class. This remained to be the backdrop for the growth of Indian entrepreneurship after Independence.
Growth of Entrepreneurship after Independence
Independence was marked by a significant shift in the entrepreneurial sector. With the newfound freedom, entrepreneurs gained the confidence and belief to pursue their entrepreneurial dreams. The need for employment and regional development paved way for startups. However, during this period policies were not formulated with any special emphasis on entrepreneurship. The development of industries on large scale was still the focus. The next few decades witnessed significant growth in the entrepreneurial ventures across economic and social sectors. With the changing environment, entrepreneurship gained importance. The last decade has seen noteworthy improvement in the quality of startups in India. Institutions have started to take business and academic interest in startups. In the last few years, they have exhibited potential and proficiency, which has made global investors venture into the Indian startup ecosystem.
The dotcom era in India saw the day of light in 1995. This was when VSNL started its first commercial Internet service. It was this time when Indians (though in small numbers) were exposed to phenomena called the ‘World Wide Web’. Then Zoho entered in 1996, started under the name of AdventNet as a Network Management company and it boosted the IT economy that was operating at a grass-root level. It stayed true to being a lean startup and consistent even after 20 years since its inception.
Post liberalisation in 1991, India enjoyed growth rates in the high single digits for several years. The high point came when India earned the tag of the world’s fastest-growing large economy in 2016. Demonetisation in November 2016 temporarily displaced India from its pole position, but the fact remained that it was the new land of opportunities. It was this sudden realization, along with the lost opportunities in China, that had global VC firms making a beeline for India and kicking off a frenzy of entrepreneurial and VC activity
Come 2007–2008 and India witnessed two of its biggest ventures rising up. Flipkart marked its entry in 2007 as a first eCommerce startup and later in 2008, Zomato and Quikr came into the picture. These startups are now over a decade old but still sailing on their first-mover advantage. The economy was not ready to back then, but the novelty of the idea fetched them high revenues as they progressed.
The accelerated funding coupled with the innovative and incrementally competent growth of startups like Zomato, Flipkart, Snapdeal, etc., and their potential to grow as world-class companies have set benchmarks and hope for many aspiring entrepreneurs. The foundation for a sustainable startup ecosystem has already been laid. What remains to be seen is how they capitalize and develop on it while fighting the logistics, market, and funding challenges that come along.
The startup ecosystem in India witnessed a surge in 2015 with over 600 companies acquired funding; fetching over US$ 2bn from PE and VC funds. Few of the big deals include Warburg Pincus’ which invested in Ecom Express, while Rocket Internet AG and Goldman Sacs drove big investments in Foodpanda. The Tiger Global and SAIF Partners’ investment in Little Internet can’t be neglected as well.
Barring the US$ 2bn start-up space deals, the tech space also experienced big funding in 2015 that saw US$ 700mn in Flipkart by Sequoia Capital & Steadview Capital, US$ 500mn in Snapdeal by Alibaba, Softbank & others, and over US$ 1100mn in Olacabs by a group of investors including Tiger Global, Softbank, DST Global, etc.
Another fairly huge investment took place with Quikr, Grofers, Jabong, Shopclue, Pepperfry, and Oyorooms. The cumulative funding for all cross the US$ 100mn mark. Investment momentum took off after 2012 in startups, witnessing an increase in investment values at a CAGR of more than 75% between 2011 and 2015 while investment volumes have increased at a CAGR of over 80% in the same period.
In 2020 itself, India added 11 unicorns, higher than China, 2nd only to the US globally, with Cars24, Zenoti, DailyHunt, and Glance being the latest to enter the league.
Rollback to 2013 where the National Association of Software and Services Companies (NASSCOM) kicked off its ‘10,000 Startups’ initiative. The aim was to aid the growth of 10,000 startups in the country over the next 10 years. The objective was to foster the startup ecosystem, build entrepreneurial capabilities, and bring in considerable value and change in the tech startup ecosystem. All this was made under the F.A.M.E. model: Funding, Acceleration, Mentoring, and Enterprise connect.
Key Differentiating Factors
The most drastic difference between earlier and now would be the fact that there now exists a robust ecosystem for startups. Back in the 1990s, every startup owner was out there on their own. They essentially had to compete with the mindset of traditional businesses in order to succeed.
But now, quite differently, there’s a clear demarcation between startups and traditional businesses — say you run a conventional garment business, the kind of product, business model, the experience you provide would be drastically different from that of a startup. This is one dramatic difference that should definitely get highlighted.
A key difference would be that right now, not every startup is trying to blindly ape the West. Starting from 1998 till almost 2013, there was a prolonged phase, where every startup was heavily influenced by the Western business model. They would all try to become a copy of what’s working in the west, without realizing that the Indian market is different.
This changed post the VC boom in the early 2010s when a lot of startups failed. People now realize that what works in the West doesn’t always work in India. Having said that, it’s not that the trend of aping the west has disappeared. Rather, right now there exists a twin school of thought — one group which is trying to keep a Western modeled startup ecosystem and then those who are trying to build a uniquely local domestic model.
The next one that stands out would be the fact that there’s quite a lot of room being made in the startup space for non-pedigreed individuals. The early startups between the late 1990s till early 2010s were all about pedigree, where it was very difficult for someone not belonging to the elite academic institutions to have access to investors. While that still remains a big factor when it comes to forming networks, we can see things slowly changing in this area, both in a global and Indian context.
The Road Ahead
From a trading dominated nation to a co-working space full of ideas and executions by millennials, there is a long for Indian startups to go. Though the arena has evolved and transformed drastically since its inception and startups expanding the horizon with an innovative approach, the suitability is still an issue. A quick look at the study of “Entrepreneurial India” by the IBM Institute for Business Value and Oxford Economics will get you to the ground reality. It is observed that 90% of Indian startups fail within the first five years. Tracing the reason revealed that the lack of innovation and new technologies contribute to the failure. But with time, this too shall evolve to an extent wherein the new startups entering the battlefield shall change the face of the Indian startup ecosystem to leverage numerous benefits and eventually attain impeccable benchmarks.
Comments