The Indian Startup Ecosystem: Definition, Growth, and Government Initiatives
A Startup is a high-growth fueled business in its early stages, typically characterised by high uncertainty and risk. According to the provided draft, startups are companies or ventures that are focused on a single product or service that the founder wants to bring to the market. These companies differentiate itself from traditional firms by its innovation, creativity and agile approach to growth. The term Startup refers to a company in the first stage of operations, founded by one or more entrepreneurs who want to develop a product or service for which they believe there is demand.
Understanding the Concept and Indian Definition of a Start-up
To understand the Indian definition and scope of start-up, we must look at the specific criteria for recognition. An entity shall be considered as a Startup if it meets the following conditions:
- The Startup should be incorporated as a private limited company or registered as a partnership firm or a limited liability company.
- Turnover should be less than 100 Crore rupee in any of the previous financial years.
- An entity shall be considered as a Startup up to 10 years from the date of its incorporation.
- The Startup should be working towards innovation/improvement of existing product, services and process and should have the potential to generate employment/ create wealth.
It is crucial to note that an entity formed by splitting up or reconstruction of an existing business shall not be considered a Startup. Because these companies typically lack adequate capital to move onto the next phase of business, most of the companies are initially funded by their founders.
The Rapid Growth of the Indian Ecosystem
India’s Start-Up Ecosystem Sees Exponential Growth Over the Last Decade. Currently, India has more than 90,674 DPIIT recognized Startups, making it the world’s third-largest Startup ecosystem in the world after the US and China. This ecosystem involves various stakeholders: venture capitalist, evangelist, mentors and advisors, and co-working spaces. Furthermore, the role of Incubator and accelerators, along with grants as mode of initial funding for start-ups, are essential components of this growth.
Government Recognized Startups (2016-2022)
The following data summarizes the number of government recognized startups from financial year 2016 to 2022:
- 2022: 19,500 startups
- 2021: 20,160 startups
- 2020: 14,596 startups
- 2019: 11,417 startups
- 2018: 8,775 startups
- 2017: 5,233 startups
- 2016: 471 startups
Valuation Categories: Cheetah, Gazelle & Unicorn
The draft identifies specific trends along with their valuation by defining three categories of high-growth companies:
- A Cheetah is a startup that could be unicorn in four years. Valuation of cheetah ranges between $200 million to $500 million.
- A Gazelle is a startup that could be a unicorn in two years. Gazelles have an estimated valuation ranging from $500 million to $1billion.
- Unicorn companies are those that reach a valuation of $1 billion without being listed on the stock market.
Government Support: The Startup India Scheme
In August 2015, Prime Minister, Shri Narendra Modi, announced the launch of the National Flagship Initiative- Startup India, with a mandate to promote and encourage young entrepreneurs of our country. Startup India scheme launched on 16th january,2016. The action plan of this initiative is based on the following three pillars:
- 1. Simplification and Handholding
- 2. Funding Support and Incentives
- 3. Industry Academia Partnership
By launching the Startup India scheme, the government’s aim is to transform India into a Startup Nation, “A country of job creators instead of job seekers”. The initiative aims to fill gaps in the investment ecosystem in India.
Challenges and Reasons for Failure
Despite the positive trends, a study, “Entrepreneurial India” by the IBM Institute found that 90% of Startups fail with in the first five years. The top challenges and most common reasons for failure are identified as:
- Lack of planning and execution
- Lack of Innovation
- Funding and lack of mentorship
- Human resource issues
