Start-up Ecosystem In India

Unicorn boom in India

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Unicorns

Mains level : Startups boost in India

Prime Minister has praised India’s startup ecosystem as he highlighted that the country has reached a landmark figure of 100 unicorns with a valuation of more than $300 billion.

What is a Unicorn Startup?

  • Unicorns are privately held, venture-capital-backed startups that have reached a value of $1 billion.
  • The valuation of unicorns is not expressly linked to their current financial performance.
  • This is largely based on their growth potential as perceived by investors and venture capitalists who have taken part in various funding rounds.

Some of the successful Indian unicorns:

  • Lenskart
  • Cred
  • Meesho
  • PharmEasy
  • Licious
  • Grofers etc.

When was the term first used?

  • American venture capitalist Aileen Lee is credited with coining the term in 2013.
  • It was used to emphasize the rarity of the emergence of such startups.

Unicorn boost in India

  • The growth of Unicorns in India has been phenomenal in the past two years.
  • From 17 Unicorns in 2018 the number went up to 38 in 2020 and it’s 71 and counting in 2021.
  • Many of these unicorns, which have cumulatively raised more than 9 billion dollars till date, have also seen a surge in valuations.

Features of a unicorn Start-up

To be a unicorn is no cakewalk and each unicorn today has its own story with a list of features that worked in its favour.

The few pointers that are commonly seen across all the unicorns is as under:

  • Disruptive innovation: Mostly, all the unicorns have brought a disruption in the field they belong to. Uber, for example, changed the way people commuted.
  • ‘Firsts’: It is seen that unicorns are mostly the starters in their industry. They change the way people do things and gradually create a necessity for themselves.
  • High on tech: Another common trend across unicorns is that their business model runs on tech. Uber got their model accepted by crafting a friendly app.
  • Consumer-focused: Often, theirgoal is to simplify and make things easy for consumers and be a part of their day-to-day life.
  • Affordability: Keeping things affordable is another key highlight of these startups. Spotify, for example, made listening to music easier to the world.
  • Privately owned: Most of the unicorns are privately owned which gets their valuation bigger when an established company invests in it.
  • *Mostly software based: A recent report suggests that 87% of the unicorns’ products are software, 7% are hardware and the rest 6% are other products & services.

Entrepreneurship today is ‘survival-driven’ self-employment, formed out of necessity, as well as opportunity motivated, largely because poverty and lack of formal employment opportunities rear their ugly head in striving economies.

Reasons for sudden success

  • COVID pandemic: The pandemic accelerated adoption of digital services by consumers helping start-ups and new-age ventures that typically build tech-focused businesses delivering an array of offerings to customers.
  • Boost in online services: Many Indians who had traditionally been subscribers of brick-and-mortar businesses moved online and explored a host of services ranging from food delivery and edu-tech to e-grocery.
  • Work-from-home culture: This added significant numbers to start-ups’ user base and expedited their business expansion plans and attracting investors.

Inherent challenges to Start-ups in India

  • Financial scarcity: Availability of finance is critical for the startups and is always a problem to get sufficient amounts.
  • Lack of Infrastructure: There is a lack of support mechanisms that play a significant role in the lifecycle of startups which include incubators, science and technology parks etc.
  • Regulatory bottlenecks: Starting and exiting a business requires a number of permissions from government agencies. Although there is a perceptible change, it is still a challenge.
  • Compliance hurdles: For example, earlier Angel tax, which stands removed no, falls under corruption and bureaucratic inefficiencies.
  • Low success rate: Several startups fail due to shifting away the focus on the fundamentals of business grows.
  • Lack of an Innovative Business Model: To be successful a start-up must be innovative. Unfortunately, Indian startups are less innovative than startups elsewhere.
  • Non-competitive Indian Markets: Too many startups serving too few consumers are saturating the Indian market.  Most startups serve the fraction of Indians who live in urban India.
  • Digital divide: The majority of Indians who live in rural areas and small towns remain untouched by most startups.

Various initiatives by the Govt.

There are numerous government initiatives to assist start-ups:

  • MUDRA Scheme: Through this scheme, start-ups get loans from the banks to set up, grow and stabilize their businesses.
  • SETU (Self-Employment and Talent Utilization) Fund: Government has allotted Rs 1,000 Cr in order to create opportunities for self-employment and new jobs mainly in technology-driven domains.
  • E-Biz Portal: It is India’s first government-to-business portal that integrates 14 regulatory permissions and licenses at one source.
  • Credit Guarantee Fund: launched by the GoI to make available collateral-free credit to the micro and small enterprise sector.
  • Fund of Funds for Start-ups (FFS): 10,000 Rs corpus fund established in line with the Start-up India action plan under SIDBI for extending support to Start-ups.
  • Tax Sops: Tax exemption on Capital gain tax, Removal of Angel tax, Tax exemption for 3 years and Tax exemption in investment above Fair Market Value.

Roadmap for the future success of start-ups

Start-ups can judiciously take cues from unicorns in understanding the ecosystem and building a business model that adds value while being sustainable.

  • New-age startups should devise a customer-centric business model.
  • Through proper branding and strategy, they should make sure that this value proposition reaches the end-user.
  • What brings startups closer to success is the execution and customer acquisition strategy, where all the action occurs.
  • Notably, technology (rather deep-technology) has played a key role in the making of pioneer business models.

Attracting venture capitalists

  • VCs are actively looking for investment opportunities in early-stage startups.
  • They possess the selection ability to effectively screen startups having a higher potential to succeed.
  • VCs primarily look for a mindset alignment with promoters and companies where they, as investors, can add value by leveraging their industry experience, expertise, network and reputation.

Conclusion

  • The current economic scenario in India is in expansion mode.  Indian Startups are now spread across the length and breadth of the entire country.
  • The word ‘unicorn’ has come a long way from just being a mythological creature to a regular feature in business and finance discussions.
  • Innovation and economic growth depend on being able to produce excellent individuals with the right skills and attitudes to be entrepreneurial in their professional lives.
  • The Indian government’s policies like Make in India, Digital India, Atmanirbhar etc. shows the enthusiasm to arrest this talent.

 

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