Startup Ecosystem in India

What is the Startup Ecosystem in India?

• India has the 3rd largest startup ecosystem in the world; expected to witness YoY growth of consistent annual growth of 12-15%
• India has about 50,000 startups in India in 2018; around 8,900 – 9,300 of these are technology-led startups 1300 new tech startups were born in 2019 alone implying there are 2-3 tech startups born every day.

Definition of Startup Expanded

An entity shall be considered as a Startup:

• Upto a period of ten years from the date of incorporation/ registration, if it is incorporated as a private limited company (as defined in the Companies Act, 2013) or registered as a partnership firm (registered under section 59 of the Partnership Act, 1932) or a limited liability partnership (under the Limited Liability Partnership Act, 2008) In India.
• Turnover of the entity for any of the financial years since incorporation/ registration has not exceeded Rs 100 Crore.
• The entity is working towards innovation, development or improvement of products or processes or services, or if it’s a scalable business model with a high potential of employment generation or wealth creation.
• Provided that an entity formed by splitting up or reconstruction of an existing business shall not be considered A ‘Startup’.

Indicators of Growth in the Start-up Ecosystem in India

• The pace of growth in the start-up ecosystem has increased to 15% year-on-year in 2018, while the growth of the number of incubators and accelerators has grown to 11%
• Significantly, the number of women entrepreneurs stood at 14%, up from 10% and 11% in the previous two years.
• Startups in the country have been able to create an estimated 40,000 new jobs over the year, taking the total jobs in the start-up ecosystem to 1.6-1.7 lakh
• Bangalore has been listed within the world’s 20 leading startup cities in the 2019 Startup Genome Project ranking. It is also ranked as one of the world’s five fastest growing startup cities

Funding raised by Indian Startups in 2019

• The Indian startups have gone on to raise sizeable ticket sizes from various global and domestic funds. The top 15 deals constituted about 40% of total deal value, demonstrating that most funds are valuing deal quality more than quantity.
• Private equity deal volume in India rose for the second straight year, and while the average deal size declined slightly from the prior year, the total value of $26.3 billion in 2018 was the second-highest of the last decade. The num­ber of deals greater than $50 million increased from the previous year.

Drivers of Startups Ecosystem

Corporate Connect

Enterprises are realizing the disruptive potential of start-ups and are thus, partnering/investing in them.

Examples of corporate support:

• Facebook in partnership with Startup India disbursed cash grants of $50,000 each to the top 5 selected startups
• 10000 Women program by Goldman Sachs is providing women entrepreneurs all around the world with a business and management education, mentoring and networking and access to capital.
• Microsoft Ventures Accelerator Program in India has recently picked up 16 startups.

Government Support

The government of India is understanding the value of working with disruptive innovators across the value chain and using their innovations to improve public service delivery.

• Department of Animal Husbandary and Dairying has conducted a grand challenge in association with Startup India to award top startups in 5 categories 10 lakhs 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
• Over 26 states in the country have Startup policies.
• The start up India scheme envisaged

1. A common platform for stakeholders to interact, facilitation for funding support, and partnership With academia and private sector entities.

2. An 80% rebate in patent registration fees as well as a 50% rebate in trademark filing. Startups could also benefit from

3. Faster exit norms and free-of-cost assistance provided by patent and trademark facilitators in filing for Intellectual Property Rights (IPRs).

• Fund of Funds was set up in 2016 with a total corpus of Rs 10,000 Crores, it does not invest directly in startups but rather participates in the capital of Securities and Exchange Board of India (SEBI)-registered Category-1 and Category-2 Alternate Investment Funds (AIFs). The tenure of the AIF supported under FFS be initially up to 12 years. The FFS is managed by the Small Industries Development Bank of India (SIDBI).
• Ministry of Agriculture in partnership with Startup India launched the Agriculture Grand Challenge, wherein 12 pre-identified problem statements were noted for seeking solutions from the startup.

National Startup Advisory Council

• It was constituted by the Department for Promotion of Industry and Internal Trade.
• The main objective of the council is to advise the Government of India on measures needed to build a strong ecosystem to nurture innovation and startups in the country. This is to drive sustainable economic growth in the country and also to generate large scale employment opportunities
• The council is constituted of both Ex-officio and non-official members. These members are nominated by the Government of India. They include members from the central ministries and also founders of successful startups.

Quick Facts

• Unicorn is a privately held startup company valued at over $1 billion. The term was coined in 2013 by venture capitalist Aileen Lee, choosing the mythical animal to represent the statistical rarity of such successful ventures.
• 13 Indian Startups That Entered The Unicorn Club In 2021. There are 12 eCommerce unicorns, namely Flipkart, Snapdeal, FirstCry and others. The fintech sector has 12 startups on the list with Paytm, PhonePe, Zerodha, Razorpay, etc
• One Person Company (OPC) is a company incorporated by a single person. Before the enforcement of the Companies Act, 2013, a single person could not establish a company.

The legal status of OPC: The OPC receives a separate legal entity status from the member. The separate legal entity of the OPC gives protection to the single individual who has incorporated it. The liability of the member is limited to his/her shares, and he/she is not personally liable for the loss of the company. Thus, the creditors can sue the OPC and not the member or director.

Recent measures post COVID.

• DPIIT had launched the United Against COVID-19- Innovation Challenge to identify innovative solutions to combat COVID-19
• SIDBI has launched the Covid-19 Startup Assistance Scheme (CSAS) for startups which aim to aid innovative startups that have demonstrated the ability to adapt to economic impact from Covid-19 and ensured its employee's safety and financial stability
• SIDBI Make in India Soft Loan Fund for Micro Small and Medium Enterprises (SMILE) for financing the healthcare sector including hospitals, nursing home, clinics.