Developing Breeding Grounds for Startups in India

By Frank-Jürgen Richter

June 30, 2022

The global startup economy was worth over US$3.8 trillion in ecosystem value in 2021 as stated by the Startup Genome report GSER2021. Notwithstanding the impacts of the pandemic, the number of startups rose significantly—by 43%—between October 2020 to June 2021.

These are promising signs which are pointing to a shifting preference among consumers to try new and innovative products that provide the maximum value for money. And India is on a roll. As of August 2021, the country had produced 24 unicorns, including 6 in just four days in April 2021. Collectively, Indian startups raised a total funding of US$12.1 billion in the first half of 2021. 

The Indian government is also bringing about several initiatives to push its “Make in India” policy, focusing on developing foreign markets for Indian goods. Necessary steps are required to encourage the growth of innovation and funding in the Indian startup ecosystem.

This is one of the topics being covered in our upcoming Horasis India Meeting, which will be held between 25 to 26 September, 2022 in Vietnam. The meeting will bring together 300 of the most senior members of Horasis to inspire India’s next big leap.

The Startup Landscape

India is home to a population of 1.4 billion people with a median age of 28 years. A comparatively young population, making it a lucrative destination with a young and educated workforce for businesses from other regions and countries. The outsourcing industry, for instance, contributes close to a tenth of the national GDP and the BPO sector is estimated to be around US$250 billion annually.

The Bangalore-Karnataka startup ecosystem is the largest in India. The ecosystem value of the southern state is worth US$53 billion. Karnataka is also home to a number of successful tech unicorns like Byjus, CRED, Meesho, Groww, Dailyhunt, Digit Insurance, InMobi, Mu-Sigma, Razorpay, Udaan, ShareChat, BlackBuck and Unacademy. The total early funding in the Bangalore-Karnataka startup ecosystem is worth US$1.4 billion, more than double the global average of US$548 million.

On May 2021, Tata group finalized a deal with BigBasket valued at about US$1.2 billion, pushing the online grocery’s market valuation to US$2 billion.

Growth Post-COVID

The impact of the pandemic was devastating for economies globally. No demand and disrupted supply chains, was further complicated by less funding activity and border closures. The worst hit were startups that relied heavily on VC funding for their next growth stage.

A nationwide survey found that close to 70% of the startups in India were adversely impacted by the pandemic, with 12% closing down operations since the outbreak. Startups in India account for the creation of a large number of jobs. They are also vital for development and innovation in new products and services that have positive impacts for the society.

Notwithstanding the lull due to the pandemic, between 2018 to 2021, creation of jobs by Indian startups have steadily grown from 93,527 jobs in 2018 to over 190,000 jobs in 2021 alone.

To ensure the startup ecosystem flourishes, India must ensure that policies surrounding the startup ecosystem is transparent and user-friendly for the entry and incorporation of promising startups.

VC’s play a vital role and their contribution should be further nurtured to grow the ecosystem. An interested VC does not only invest in the idea of the startup, but also acts as a reliable mentor, as most of these VCs have years of experience in expanding to international markets. Additionally, startups can also leverage a VCs network, helping them to close on further deals in the future. The VC funding space is also getting much attention, thanks to the recent airing of the Indian franchise of the American show Shark Tank.

Moving Ahead

The pandemic has brought a shift in VC funding. Investors will be more interested in startups that have the ability to retain cash for long, with resilience to face downturns such as this pandemic. Investors will also be attracted towards startups that are building solutions using AI, ML and deep learning. Going ahead, sectors such as telemedicine, edtech and fintech will flourish.

So, it is paramount for the government and the startup community to collaborate in making platforms to encourage the growth and development of promising startups in the field of deep technologies.

The Indian government has developed several initiatives to encourage startups and entrepreneurs in India. One of them is the SAMRIDH Scheme which will support 300 startups by providing them with investor and market connect. The scheme commits an investment of up to INR40 lakhs (US$51,492) per startup, with a matching investment from accelerator/investor.

Startups not only help drive economic growth and job creation, but are often a catalyst for radical innovation. And in days to come we can expect more such initiatives and accelerator programs to take place in India, further boosting innovation and funding levels in the Indian startup ecosystem.

Photo Caption: Indian startups play a key role in the country’s economy. Photo by Annie Spratt on Unsplash.