India witnesses burgeoning growth of Start-ups

Open, a Bengaluru based neo-banking fintech portal marked India’s 100^th unicorn. India hit this century in style by raising 50 million dollars in a series D funding round from IIFL, Singaporean state holding company Temasek, American Investment firm Tiger Global and another Indian fir 3one4 Capital. The example of Open reiterates the faith that the world has put in the Indian start-up environment. The Economic Survey 2021-22 suggests that India overtook United Kingdom to secure the third position. USA and China continue to hold the first and second positions respectively, having added 487 and 301 unicorns to the eco-system this year.

This growth marks a fundamental shift in the Indian start-up ecosystem. This ecosystem is a double-edged sword which is not only generating employment by creating both blue- and white-collar jobs but also catering to the emerging consumer needs. With the covid-19 pandemic, the world’s ways of living changed completely. It wasn’t possible for the existing system to completely transform its structure to suit the new demands, and requirements. The pre-existing culture of start-ups came to the world’s rescue. This culture gained momentum only during the covid phase, with the prime reason being the lack of any other alternatives to fall back on. Frontline workers, and doctors have no doubt, saved the world from the pandemic. But the entrepreneurs’ contribution was no less. Without the online applications, or OTT platforms, how would have billions of people spent days after days in the four walls of their houses? The world should be eternally thankful to the entrepreneurs for saving the world in ways that haven’t received a lot of acknowledgements so far.

An additional concept that needs to be touched upon is valuation. Valuation helps the entrepreneurs and the investors get some clarity in gauging the status of a business/ business model. For any start-up idea to materialise into a final product, funding is a prerequisite. Besides product development, convincing the investors of your idea by pitching it in the smartest way possible is an equally important task at hand for the start-up creators. Naturally, this start-up valuation emerged as a two-way process where the entrepreneurs received funding that summed up to the number of shares of the very same project that the investors would hold. Start-up valuation is pivotal in determining the worth and feasibility of a start-up but it’s not the only parameter to keep in mind. It shouldn’t be treated as a “vanity metric” but rather, a quality that generates revenue. Executing growth agendas and focusing on building sustainable businesses is all that the portfolio companies need to deliberate on. Focusing on these agendas alone, will help attract global capital. Recent findings suggest that these companies have been diverting considerable resources and energy to achieve a bigger valuation figure. The emphasis should be on value-creation and not valuation. But one cannot deny the pure joy that comes out of achieving a big valuation. Monetary gains best incentivize humans. Every time a company reaches the unicorn milestone, more people start believing that they can do the same. The increased motivation, enthusiasm and desire to get into the unicorn league further accelerates the start-up’s growth process. This is probably why 2022 was a bumper year for the start-ups.

69,000 start-ups have been recognized in the country since the launch of the start-up India Initiative on 16^th January, 2016. Reports published by the Ministry of Commerce and Industry suggest that start-ups are progressing not just in the conventionally known sectors. Recognized start-ups are solving problems in 56 diverse sectors with 13% from IT services, 9% healthcare and life sciences, 7% education, 5% commercial and professional services, 5% agriculture and 5% food and beverages. Up until 2016-17, the growth rate of start-ups was 1 per year but over the last four years, the numbers have grown exponentially. India has seen a 66% Year-on-Year growth in the number of additional unicorns being added every year.

Corporate connections and government support are the drivers of this eco system. Corporate enterprises can see the potential of these ever-powerful start-ups and are thus, willing to invest in them. In this context, Facebook provides a powerful example. It collaborated with Start-Up India to disburse cash grants of 50, 000 dollars each to the top 5 selected start-ups. Goldman Sachs, with its 10000 Women program aims to provide an access to capital, business and management education, and mentoring and networking to women entrepreneurs around the world. 16 start-ups have been picked by Microsoft Ventures Accelerator Program. Government support is providing an additional push. The start-up ecosystem and the government are prospering simultaneously in a symbiotic relationship as the government is using the start-up innovations to improve public service delivery. Department of Animal Husbandry and Dairying has conducted a grand challenge in association with Start-up India to award top start-ups in 5 categories 10 lakh INR. Small Industries Development Bank of India has launched a scheme to provide assistance to existing Small and Medium businesses in need of capital for growth. In addition to this, over 26 states in the country have start-up policies in place.

Before the start-up boom, the number of portfolio companies and even start-up ideas were increasing in some sort of an arithmetic progression. The encouragement from the government, and the global investors’ faith in the Indian ecosystem have created a chain reaction in the Indian economy. The success of one entrepreneurial endeavor triggers many more. The numbers have started to rise in a geometric fashion now. One major reason that can be attributed to this exponential growth is that unicorns build their own sub eco-systems. Consistent business growth leads them to naturally expand into market adjacencies. Thus, the bullish trend gets accentuated by factors like natural progression, more capital, and the growing economy. With India on its path to emerge as one of the economic superpowers, every investor wants to feed off of India’s start-up prowess. The tremendous cooperation from the government is making this homegrown start-up ecosystem flourish like never before. Self-reliance and self-sustainability are some other feathers on India’s start-up achievement cap. The vision of Atmabharat India is also rooted in this very ecosystem. If the economy continues to be strong and resilient like it already has, India will have 250 unicorns by 2025. From producing its first unicorn in the form of Inmobi in 2011 to completing a century of unicorns, it has been an eventful and successful journey for the Indian start-up ecosystem.

References

1.       Sindhu Kashyaap, 4^th May, 2022, India now has 100 unicorns. What does it mean for valuations in the startup ecosystem, https://yourstory.com/2022/05/india-100-unicorns-billion-dollar-valuation-startup-ecosystem/amp

2.     PIB Delhi, 6^th May, 2022, India sees the emergence of the 100^th unicorn, https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1823347

3.      Suprita Anupam, 3^rd May 2022, India to have 250 unicorns by 2025: Next wave from Healthtech, Deeptech and Crypto:Mohandas Pai, https://inc42.com/buzz/india-to-have-250-unicorns-by-2025-next-wave-from-healthtech-deeptech-crypto-mohandas-pai/

Pic Courtsey-Surya Prakash at unsplash.com

(The views expressed are thsoe fo teh author and do nto represent views of CESCUBE.)