Indian Startup Ecosystem

• 30 Jun 2023

For Prelims: Indian Startup Ecosystem, Unicorns, Gazelles, Cheetahs .

For Mains: Indian Startup Ecosystem.

Why in News?

According to “slowdown in India's startup ecosystem" report, new additions in the coveted unicorn list declined sharply in 2023, indicating a slowdown in the Indian startup ecosystem.

• India added only three unicorns' startups having a valuation of over USD 1 billion in 2023 against 24 in the year-ago period, as per the ASK Private Wealth Hurun Indian Future Unicorn Index 2023.

What is the Scenario of the Startup Ecosystem in India?

• India has emerged as the 3^rd largest ecosystem for startups globally as of 31st May 2023. India ranks 2^nd in innovation quality with top positions in the quality of scientific publications and the quality of its universities among middle-income economies.
• Indian Startup Ecosystem has seen exponential growth in past few years (2015-2022):
  • 15X increase in the total funding of startups
  • 9X increase in the number of investors
  • 7X increase in the number of incubators
• As of May 2023, India is home to 108 Unicorns with a total valuation of USD 340.80 Bn.
  • Out of the total number of unicorns, 44 unicorns were born in 2021 and 21 unicorns were born in 2022.

What are the Terms Related to Startups?

• Decacorn: a current valuation of over USD 10 billion.
• Unicorns: Start-ups founded after the year 2000 with a valuation of USD 1 billion.
• Gazelles: Start-ups that are most likely to go Unicorn in the next three years.
• Cheetahs: Start-ups that could go Unicorn in the next five years.

What are the Challenges Faced by Indian Startups?

• Funding Challenges:
  • Indian startups encounter difficulties in securing adequate funding for their ventures. Limited access to capital inhibits their growth potential and hampers innovation. Startups face challenges in attracting investors and obtaining venture capital due to various factors such as risk aversion, uncertain market conditions, and lack of investor confidence.
• Revenue Generation Struggles:
  • Many startups face challenges in generating sustainable revenues. They often struggle to find viable business models, monetize their products or services, and achieve profitability. Limited market reach, competition from established players, and insufficient customer acquisition pose additional hurdles.
• Lack of Supportive Infrastructure:
  • The absence of a robust infrastructure ecosystem can impede the growth of startups.
  • Challenges include inadequate physical infrastructure, limited access to technological resources, and a dearth of incubation centers, mentorship programs, and networking opportunities. Startups require supportive environments to thrive and access necessary resources, expertise, and guidance.
• Regulatory Environment and Tax Structures:
  • Startups in India face regulatory hurdles and complex tax structures.
  • Cumbersome compliance processes, bureaucratic red tape, and ambiguous regulations create obstacles for startups. Taxation complexities can add to the administrative burden and impact profitability.

What are Indian Government’s Initiatives for Startups?

• National Initiative for Developing and Harnessing Innovations (NIDHI)
• Startup India Action Plan (SIAP)
• Ranking of States on Support to Startup Ecosystems (RSSSE)
• Startup India Seed Fund Scheme (SISFS): It aims to provide financial assistance to startups for proof of concept, prototype development, product trials, market entry and commercialization.
• National Startup Awards: It seeks to recognize and reward outstanding startups and ecosystem enablers that are contributing to economic dynamism by spurring innovation and injecting competition.
• SCO Startup Forum: The first-ever Shanghai Cooperation Organisation (SCO) Startup Forum was launched in October 2020 to develop and improve startup ecosystems collectively.
• Prarambh: The ‘Prarambh’ Summit aims to provide a platform to startups and young minds from around the world to come up with new ideas, innovation and invention.

Way Forward

• To circumvent the challenges faced by the Indian Startups, they set up bases overseas, especially in countries with favourable legal environments and taxation policies.
  • The process of transferring the entire ownership of an Indian company to an overseas entity, including the transfer of all Intellectual Property and data owned by the Indian company, is called ‘flipping’.
• Typically, flipping happens at the early stage of the startup. However, this trend can be reversed with active collaboration with the government-related regulatory bodies and other stakeholders.

Source: IE