When it comes to business innovations, it is increasingly more profitable to look at Bangalore instead of Shanghai. India is steadily enhancing its startup footprint with some of its ventures competing with global multinational corporations. A report by ASSOCHAM, a trade group, ruled that India stands 3rd fastest growing startup markets in the world, closely following United States and United Kingdom. Estimates suggest that by 2020 the number of startups in India will quadruple to over 11000.
The startup culture in India is acting as a catalyst in the growth of the economy. If it continues to grow at the same pace, it is expected to generate over 2.5 lakh jobs in the next 5 years. Government run programs such as StartupIndia, Atal Innovation Mission (AIM), Self-Employment and Talent Utilization (SETU) are serving as incubation centers and accelerators.
In the policy space, startups are often riddled with all sorts of jargon. It is important to first understand what each of these terms means:
Startup Incubators (aka Accelerators) – Startup incubators are institutions that help entrepreneurs develop their business, especially in the initial stages. Incubation is usually accomplished by institutions with experience in business and technology world. Incubator support includes providing technological facilities and advice, initial growth funds, network and linkages, co-working spaces, lab facilities, mentoring and advisory support. As early stage mentors, incubators are an important part of the startup ecosystem. Overall, there around 250 recognized incubators in the country (including the 56 under the startup policy) and several among them are sponsored by esteemed educational institutions like IIMs and IITs.
Angel Investors – Angel Investor is an individual or a group of individuals who invest in small startups. The capital they provide is a one-time investment to help business propel as they help startups take their first step. Some of the prominent Indian angel investors include Anupam Gopal Mittal (OLA cabs) and Sanjay Mehta (OYO Rooms).
Venture Capitalist - A venture capitalist is an individual investor, working in a venture capital firm. These usually choose to invest in particular firms or business area alone.
With employment generation as its main agenda, the government of Prime Minister Narendra Modi launched a series of schemes to boost startups. ‘Start Up India’ campaign aims to proliferate self-employment opportunities in all districts, blocks and panchayats (small rural administrative units) around the country. Atal Innovation Mission (AIM) and the Self-Employment and Talent Utilization (SETU) serve as a platform for promotion of world-class Innovation hubs, start-up businesses and other self-employment activities, particularly in technology driven areas. These are bringing together academicians, entrepreneurs and researchers to collaborate on concepts that could potentially drive economic growth and encourage more people to become entrepreneurs.
Atal Incubation Centers, part of AIM aid growing businesses with capital, equipment, facilities and experts for mentors. Business and technology related entities, including higher educational institutions, R&D institutes, Alternative Investment Funds registered with SEBI (India's Securities Regulator), business accelerators, individual groups, and even individuals are eligible to apply to AICs.
In addition to state run schemes, the new firms are also being encouraged by a large educated workforce with access to foreign markets and ideas. India is only second to China in the number of students who leave the country to study abroad. While a large number of them would look for jobs abroad earlier, a trend is beginning to shape up where foreign educated youngsters return to start their own businesses. The proliferation of Internet across the country is adding to the boom.
Nevertheless, challenges persist. They become more evident when compared with the culture in markets such as the United States. Among these, the most important challenge is the absence of a push start mechanism that is readily available in America or the UK. Indian investors are often averse to funding ideas or concepts without a working business in existence. The lack of this ‘push start’ mechanism, prevents those without self-funding capabilities from taking the plunge. For a country where wealth inequality is inextricably woven into social inequities, the absence of seed funding to ideas can keep entire communities from participating in economic development – leading to social resentment as well as lost innovation.
Another peculiarity in the Indian startup space is the excessively managerial culture of operations. Many in the west prefer a startup over an established brand primarily because of collegial and relatively relaxed work environment. Western startups are known to invest more in employee motivation and creating a work environment that provides freedom from the hierarchies of established firms – that appeals to many fresh out of college graduates and experienced employees looking for a more creatively stimulating environment than the skyscrapers of New York. India on the other hand has swapped this experience for fat paychecks that are usually lucrative enough to attract employees, but not enough to retain them over time. A study by Teamlease, a hiring agency, recently pointed out that the attrition rate among India’s startups was as high as 25%. Such a large turnover rate means that the country spends an inordinate amount of time training and re-training new employees and loses productive hours along the way.
Nonetheless, many see a vibrant future ahead in the Indian startup space. Despite roadblocks, success stories abound. Flipkart, Ola, Snapdeal, Housing.com are some of the country’s flagship startup firms with valuations running into billions of dollars. Flipkart, an e-commerce behemoth fiercely competes with Amazon across India. It recently concluded a merger with Walmart that will provide a foothold to the American retailing giant in India – something its extensive lobbying failed to achieve. Ola, a ride-hailing app is giving Uber India a run for its money. Unlike China, where American firms often find themselves against entrenched government backed upstarts, the competition in India’s relatively liberal markets is proving to be beneficial for innovation as well as consumers. Resources for Indian startups are expanding, rapid internet proliferation is connecting millions and incubation centers are fostering a new age of entrepreneurship in the country. With injections of funds, government support and a culture of entrepreneurship, the Indian startup space is heating up like never before.
About the Author
Sarthak Agarwal is a student of Management Studies at the Shaheed Sukhdev College of Business Studies, Delhi University. He has won several national and international level business and strategy competitions, and also runs a blog where he decodes and explains articles published in The Economist Magazine.