This article has been written by Nagesh H. Karale, pursuing a Diploma in US Intellectual Property Law and Paralegal Studies from LawSikho and edited by Shashwat Kaushik.

It has been published by Rachit Garg.

Introduction 

A startup is an entrepreneurial venture in the early stages of operations with limited resources, generally created to solve real-life problems.

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An entity shall be considered a startup if it satisfies the following conditions:

  • It is incorporated/registered as any of the following: a private limited company, a partnership firm, a limited liability partnership, or a one person company.
  • The entity is not formed by splitting up or reconstructing an existing business.
  • It has not completed ten years since incorporation/registration.
  • Its turnover for any financial year has not exceeded INR 100 crore.
  • It satisfies any of the following conditions:
  1. Working towards innovation of new products/processes/services or development of existing ones.
  2. Working towards improvement of existing products/processes/services.
  3. It has a scalable business model with high potential for employment generation or wealth creation.

Rise of Indian start-ups

Startup India is a flagship initiative programme of the Government of India. The main objective of this programme is to promote   startup culture and build a strong and inclusive ecosystem for innovation and entrepreneurship in India. It was launched on January 16, 2016, to build a strong ecosystem for nurturing innovation and startups in the country. In the future, it will lead to sustainable economic growth and generate large scale employment opportunities.

India has observed a significant start-up boom in recent years and seeks attention from around the world. The Indian startup ecosystem has seen an increase in the number of startups, from 452 in 2016 to 84,012 in 2022, according to the Indian Economic Survey Report 2022-23.

Impact of Indian startups on the nation’s economy

India’s start-up ecosystem is considered the third largest in the world (as per the Economic Survey 2021-22) after the US and China. Presently, startups are contributing about 3% to the overall GDP and that is likely to become 10% in the next decade. By 2025, we expect Indian startups to contribute at least 4-5% of the country’s GDP, employing ~3-4 million people.

By 2025, India is expected to have 62,000 startups, according to a report by TiE-Delhi and Zinnov cited by Mint. And the combined valuation of India’s startups is expected to reach $1 trillion in 2025, according to 3one4 Capital, cited by Mint.

The startups have created more than 9 lac direct jobs, according to the report presented by the Department for Promotion of Industry and Internal Trade (DPIIT). The country has observed a 64 percent increase in new jobs in 2022 relative to the last three years. Tier 2 and Tier 3 cities are emerging as hotspots, as they are home to about 48 percent of startups.

India has some 1,000 agritech startups and more than 500 startups are working in the millet value chains when the year 2023 is declared the International Year of Millets.

The Unified Payment Interface (UPI) has encouraged startups and e-commerce players in the country to provide innovative solutions for customers. Between the financial years 2019-2022, UPI-based transactions grew in value by 121 percent and volume by 115 percent, the report stated.

Government initiatives and support

To strengthen the startup Ecosystem, Indian government had announced an action plan to accelerate growth from the digital/technology sector to many important sectors like agriculture, manufacturing, social sector, healthcare, education, etc. The Startup India Action Plan was announced on January 16, 2016. It consisted of 19 action items spanning across three key areas of ‘simplification and handholding’, ‘funding support and incentives’, and ‘industry-academia partnerships and incubation’. Some other key benefits that the Action Plan included were entitlement to an 80% rebate in patent registration fees as well as a 50% rebate in trademark filing. Startups also benefit from faster exit norms and free of cost assistance provided by patent and trademark facilitators in filing for intellectual property rights (IPRs).

Salient features of the action plan

Salient features of the action plan are:

  1. Regulatory formalities requiring compliance are based on Self-Certification to reduce the regulatory burden on startups, thereby allowing them to focus on their core business and keep compliance costs low.
  2. Startup India Hub to create a single point of contact for the entire startup ecosystem and enable knowledge exchange and access to funding.
  3. Rolling-out of an App and Portal to serve as a single platform for startups to interact with Government and Regulatory Institutions for all business needs and exchange information among various stakeholders
  4. Legal support is needed to promote awareness and adoption of IPRs by startups and facilitate their protection and commercialization by providing access to high quality intellectual property services and resources, including fast-track examination of patent applications and rebates in fees.
  5. Relaxed norms to provide an equal platform to startups (in the manufacturing sector) vis-à-vis experienced entrepreneurs/ companies in public procurement.
  6. Faster exit for startups to make it easier for startups to wind up operations within a period of 90 days from making an application for winding up.
  7. Providing funding support through a fund of funds with a corpus of INR 10,000 crore to provide funding support for the development and growth of innovation driven enterprises.
  8. The Credit Guarantee Fund for Startups aims to catalyse entrepreneurship by providing credit to innovators across all sections of society.
  9. Tax exemption on capital gains to promote investments in startups by mobilising the capital gains arising from the sale of capital assets.
  10. Tax exemption on investments above fair market value to encourage seed-capital investment in startups.
  11. Organising startup fests to showcase innovation and provide a collaboration platform to galvanise the startup ecosystem and provide national and international visibility to the startup ecosystem in India.
  12. Harnessing private sector expertise for incubator setup to ensure professional management of government sponsored / funded incubators, the government will create a policy and framework for setting-up of incubators across the country in public private partnership.
  13. Building innovation centres at national institutes to propel successful innovation through augmentation of incubation and R&D efforts.
  14. The setting up of seven new research parks, modelled on the Research Park Setup at IIT Madras, will propel successful innovation through incubation and joint R&D efforts between academia and industry.
  15. Promoting startups in the biotechnology sector to foster and facilitate bio-entrepreneurship.
  16. Launching of innovation focused programmes for students to foster a culture of innovation in the field of science and technology amongst students.
  17. The annual incubator grand challenge is to support the creation of successful world class incubators in India.

10 startup accelerators and incubators in India

  1. ‘500 Global’ is primarily a global venture capital firm that began in 2010 and has Indian headquarters situated in Bangalore. It is primarily interested in startups from the tech industry.
  2. TLabs is a startup accelerator that was founded in 2011 in Bangalore. Apart from the mentors, TLabs provides weekly catch-ups across the different verticals of the business from an in-house team in the 16-week programme.
  3. CISCO Launchpad is a corporate accelerator programme that specialises in helping deep-tech startups that work in disruptive technologies. The Cisco Launchpad programme accepts 2 batches of 6-8 startups a year, which are mentored by over 100 industry experts.
  4. Indian Angel Network is an accelerator/incubator programme, but it provides not only connections with investors and successful entrepreneurs but also their mentoring, investment and advice in the long run.
  5. DevX Accel’s 90 programme focuses on startups that solve problems using a combination of artificial intelligence and the Internet of Things.
  6. ICreate (the International Centre for Entrepreneurship and Technology) is situated on the outskirts of Ahmedabad. The Icreate startup accelerator looks for startups in the fields of information technology, electronics, biotechnology, nanotechnology, robotics, non-conventional green energy generation, food processing, Bio-Medical Equipment and devices.
  7. Prime Venture Partners, formerly known as Angel Prime, is an early-stage venture capital firm that helps entrepreneurs and operators grow in their chosen vertical.
  8. CIIE- IIM Ahmedabad Startup Incubator programme provides training and mentoring programmes, along with connecting startups with like-minded collaborators and partners, investment opportunities, and learning resources and insights for entrepreneurs.
  9. DLabs’s pre-incubation program is supported by the Department of Science and Technology.
  10. GSF Accelerator provides a personalised accelerator programme and intensive mentoring in a 13-week long programme. It is located in Gurgaon.

India’s startup hubs and success stories

Bangalore has been raised as the Silicon Valley of India and the IT capital of India, which is the centre of India’s tech industry. In the 2019 report, Bangalore had the third-highest number of tech startups in the world. Delhi and Hyderabad are also racing alongside Bengaluru to become hubs of innovation. Alphabet, the parent company of Google, announced a $36 million investment in Bengaluru-based space startup Pixxel.

Following are the few startups that have survived incredibly over the years and are looking to expand their reach further:

  1. PharmEasy is an online pharmacy and medical store founded in 2015 in Mumbai, India, that specialises in OTC products, diagnostic tests, and medical instruments. This health tech startup has raised a massive $350 million, becoming the first E-pharmacy unicorn in India.
  2. Meesho is the ecosystem that was founded by IIT-Delhi graduates and enables small businesses to perform on the online platform. Meesho connects sellers with customers in an online marketplace and offers management of logistics, orders, and payments to the sellers.
  3. Swiggy is the largest food delivery platform, headquartered in Bangalore, India, and serving 27 cities. It has partnered with more than 40,000 restaurants.
  4. Delhivery is a supply chain management firm that specialises in transportation, warehousing, freight, and order fulfilment.
  5. PhonePe is a popular digital payments and financial services platform in India, founded in 2016. It allows users to transfer money, pay bills, recharge mobile phones, buy insurance, and invest in mutual funds, among other financial services.
  6. Licious is a food tech company founded in 2015 that operates an online meat and seafood delivery platform in India.
  7. Policybazaar is an Indian online insurance aggregator and financial technology company that was founded in 2008. It provides a digital platform to compare and purchase insurance policies across various categories, including health, life, motor, travel, and home insurance.
  8. Paytm is an Indian financial technology company that provides a wide range of digital payment and financial services to its customers. It was founded in 2010. It offers services like mobile recharges, bill payments, ticket booking, money transfer, and online shopping through its platform.
  9. BigBasket began as a tech startup company, founded in October 2011. Today, it is a large online grocery headquartered in Bangalore, India, and currently owned by Tata Group.
  10. Ola is the first Indian cab aggregator company, launched in December 2010.

Challenges and opportunities

According to the report prepared by a market data intelligence platform, Tracxn noted that in Q1 2023, Indian startups have raised a total of $2.8 billion in funds to date, which is 75% lower compared to the same period in the previous year ($11.9 billion). The drop in funding can be attributed to rising inflation and interest rates impacting investments significantly. FinTech, retail, and enterprise applications were the top-performing sectors in Q1 2023. There were no new unicorns created in Q1 of 2023, compared with 14 unicorns in Q1 of 2022. Bangalore is leading in the total funds raised, followed by Delhi and Mumbai.

India, the second-most funded country after the US in Q1 2023, witnessed a 63% decline in the number of funding deals in the first quarter of 2023 compared to 2022. Inflation and the war in Ukraine are blamed for the slowdown in funding.

According to Tracxn’s research, more than 80 percent of the top ten investors in seed-stage rounds are from India. But the top ten investors in early and late-stage rounds are dominated mainly by US investors.

In the past, the availability of capital and skilled professionals contributed to the growth of entrepreneurship in India.

Following are the main challenges for Indian startups:

  • Many Indian startup founders have a technical background and lack business knowledge like hiring and managing a team, dealing with customers, and developing a marketing strategy.
  • At the early stages, many startups are bootstrapped or self-funded through the founders’ savings or capital from friends and family. But in the later stages of expansion, they face difficulty finding the right investor to raise funds.
  • Building up a pan-Indian startup is difficult due to the diversity of cultures, languages, ethnicities and religions, which creates problems in understanding customers in other regions.
  • Most of the startup founders are well-educated and belong to urban metropolises, so due to different living environments, startups often have an insufficient understanding of rural customers and their needs.
  • Indian markets appear difficult to penetrate due to competition from the presence of similar products.
  • Startups are less capable of dealing with bureaucratic regulations. The government prefers to sign contracts with established companies to purchase products.
  • Communication with and retention of customers for innovative products/services or new market segments is difficult and time consuming.
  • Due to the price sensitive nature of Indian customers, they expect discounts or buy cheaper versions from China. So many businesses are volume driven, with marginal returns and compromised quality. For those startups that do not charge customers through digital payment, collecting and ensuring timely payment can be another issue.
  • higher. Indian startups face difficulty attracting international talent due to higher payments, bureaucracy, and visa requirements.
  • The present regulatory framework in which startups operate is widely seen as difficult, inefficient, and unpredictable.
  • The legal incorporation and registration of a startup, as well as the closing of a business, are lengthy and costly.
  • The Technology Incubation and Development of Entrepreneurs (TIDE 2.0) Scheme will promote tech entrepreneurship through financial and technical support to incubators engaged in supporting 4000 ICT startups primarily engaged in using emerging technologies such as IoT, AI, Block-chain, robotics, etc. in pre-identified areas of societal relevance. The scheme will be implemented by empowering 51 incubators in India and handholding close to 2000 tech start-ups over a period of 5 years. 

Conclusion

India’s startup revolution has witnessed significant growth and success, contributing to the country’s economy and employment opportunities. The government’s initiatives and support, along with the presence of startup hubs and success stories, have fueled innovation and entrepreneurship. However, challenges such as funding, market penetration, and regulatory hurdles need to be addressed for sustained growth. The TIDE 2.0 Scheme aims to further promote tech entrepreneurship and support emerging technology startups.

References

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