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:
- 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.
- 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.