Since Prime Minister Narendra Modi challenged young India with the clarion call, “Stand Up India, Start Up India” on August 15, 2015, all eyes have been trained on the Indian Startups. While activity had been building up over the last two to three years, startups have suddenly taken centerstage in the media, the boardroom discussions, government policy, at conferences and numerous other forums. As the startup “sector” is evolving in India, an ecosystem of sorts is also beginning to emerge, catapulting the country to be counted amongst frontrunners.
A Global Phenomenon
While India has very quickly assumed the position of the third largest start up nation in the world, it is the direction that the world has been moving in for some time now. With Silicon Valley having been home to numerous startups, some of which are today mega corporations, US is no stranger to the startup phenomenon. It is no surprise then that globally, US leads the way with a well evolved ecosystem and UK is close on the heels. Not one to be left behind, India is making a concerted effort to build an enabling ecosystem.
The rise of the micro-multinationals has led to creative destruction gathering steam. Well-established industries/ ways of doing business/business models are being disrupted at a rapid pace and competitive dynamics are in an overdrive. Source media is fast replacing the traditional sources of news and Facebook has become ubiquitous in more ways than one. Uber, the popular on-demand transportation company, stands valued at USD 40 billion thanks to a new funding round totaling USD1.2 billion. This startup of yesterday is today more valuable than 359 of the 469 publicly-traded companies on the Fortune 500 list, or about 77% of them including well known names such as Kraft Foods, Delta Airlines and Macy’s.
How India is Shaping Up
India has the fastest growing base of startups in the world, ahead of China and Israel. The numbers are telling—from 3,100 startups in 2014 to 4,400 in 2015 and a projection of more than 11,500 by 2020. Together they employ over 80,000 and have an average valuation of USD 2.5 mn. This is certainly not a passing trend, it’s a revolution! And it’s going to change the way the markets are working today, not only in India, but Currently 90% of the Indian startups are technology startups or O2O or are operating as aggregators. Those in the field of agriculture, retail, manufacturing, biotech and pharma are still to come up. Many of them have entered the industry either unearthing an entirely new market or through gaps in existing markets or product lines.
Till about six years ago only one or two angel investments would take place in a year. Over the last five years however, Indian startups have done well and between 2010 and 2014, the infusion of VCs and PEs increased from USD13 million to USD 1,818 million. Angel investment too has multiplied almost 8 times from USD 4.2 million to USD 32.2 million. In 2015 alone, about USD 730 million were invested in over 880 deals. India surely seems to be making an attractive investment.
Why is it that suddenly startups are springing up everywhere? Why were Google and Yahoo or Infosys and HCL not able to inspire the young Indians then as have Flipkart and Snapdeal today? Why are management and engineering students giving up lucrative offers to take the entrepreneurial plunge? I believe that apart from the phenomenal success of our very own startups in a short period of time, it is also the presence of enablers in the ecosystem that have given it the push.
For starters, when the present Government took office in 2014, they unleashed a slew of initiatives to improve the ease of doing business. Over the last twenty months these initiatives have borne fruit and India has already moved up four notches on the World Bank Ease of Doing Business Index.
Improved accessibility to venture capital has reduced the costs and risks of launching startups. Investments from large hedge, mutual funds and private equity funds into Indian start-ups surged in 2015. Infact even Chinese tech giants such as Alibaba and Tencent made strategic investments in companies like Snapdeal and Practo. Exit options for investors, which had not been very encouraging in the past, also opened up with acquisitions of mature startups, such as TaxiForSure. Acqui-hires, a deal where a company is bought out for the skills of the employees, have become quite popular with larger funded start-ups, thus providing investors a profitable exit option. Another very big enabler is cloud computing. Startups typically have to spend huge amounts on computer hardware, software, and data storage space. With cloud computing and services almost reaching an explosion stage, it has become a game changer for the startups.
With stalwarts of the Indian industry, such as Ratan Tata, Azim Premji, Kris Gopalakrishanan and TVS Mohandas Pai, funding and mentoring, the future of startups looks bright. Taking a cue from their efforts, the founders of some of India’s Unicorns, such as Sachin and Binny Bansal, have also stepped forward to do their bit.
The Goldilocks Moment Has Arrived
Recently there has been some choppiness in the startups sector which has led to much debate – questions are being asked if the startup phenomenon will see a dip well before it matures, much like what happened in the IT sector. While the IT bubble did burst, it wasn’t before it gave the world the infrastructure and many successes, which drastically brought down the operating costs. Today, the reduction in the number of pitches being made is not a precursor to rough times ahead; it is more an indicator of the maturing of the young entrepreneurs and a correction in the valuation expectations.
In all this euphoria and in the midst of the many success stories, we must not forget that not every startup will be a success. Accepting shut downs, layoffs and failures as a part of the startups process is key to encouraging entrepreneurship. The fact that Silicon Valley lives by the mantra “fail fast, fail often” and that 90% of the Silicon Valley startups fail and yet it is where the world’s biggest Unicorns were germinated, stands testimony to this thinking. Even though the “walking dead” abound in Silicon Valley, it celebrates its failures or the pivots, as they prefer to call them. Apart from everything else that India is doing to encourage its startups, it is this mindset that will propel the nation into becoming the hotbed for startups.
India is a nation with a deep rooted entrepreneurial spirit which can become the foundation of our next leap of growth. The time is undoubtedly ripe for the Indian entrepreneurial spirit to be unleashed and a lot is going right for it to achieve the pinnacle. Activity is gathering pace and powering ahead, with a few speed breakers on the way. There can be no better time than today to dream and develop, experiment and establish, flounder and flourish. The Goldilocks moment for the Indian Startups is here!