India & its Start-Up Ecosystem

Published: 8th Sep, 2022

Context

The average annual growth rate of Indian unicorns is more than that of the U.S., the U.K., and many other countries.

Analysis

What is a Start-up?

The term start-up refers to a company in the first stages of operations.
Start-ups are founded by one or more entrepreneurs who want to develop a product or service for which they believe there is demand.

Why is India seeing the rise of start-ups?

Benficial demographic dividend:India’s demographic dividend has blessed it with a population of such an age group that has either not entered the job market or is willing to leave the existing job and start a business.
Government initiatives such as start-up India, and stand-up India are focused on providing finance, training, market access, tax breaks, etc. to entrepreneurs.
Availability of investors, both foreign and domestic, whose purpose of financing start-ups is to gain multi-bagger returns.
Increasing demand for products and services that can cater to the needs of India’s expanding middle class.
Telecom and the IT revolution in India have made getting access to new products and services fairly easy and therefore generating a customer base through a website or an app is not that difficult for start-ups.

Fact/terms related to startups:

‘Fintech’startups work in the field of emerging financial services technologies.
A ‘unicorn’ is a startup that reached a valuation of at least $1 billion.
Venture Capitalist is a private equity investor that provides capital to companies with high growth potential in exchange for an equity stake.
Angel capital investors are typically high-net-worth individuals from traditional business backgrounds, who seek to diversify their portfolios.
‘Incubators’ accept startups without a prior fixed-time horizon and raise funds by taking rent.
Accelerator: Acenter where startups are “incubated” through mentorship, space, and sometimes money.
Bootstrapping:Use of money that is taken from friends and family, existing resources, or personal savings as the initial investment to start a business.
Valuation: Planning to approach investors, make sure you know this startup term. Valuation means what your company is being valued at.
Seed Round:Initial financial rounds of funding, where the main aim is to raise capital for the starting of a business.
StartupBubble:a time when the investors are willing to invest a high amount of money in startups, which makes their valuation extremely high.
Crowdfunding: raising funds from a large number of people to start a new business.

How can Startups help the Indian Economy?

Opportunity: Start-ups are providing an opportunity to the entrepreneurial youth of India an opportunity to express their idea and grow their finances exponentially.
Wealth creation has therefore become synonymous with start-ups.
Employment: The establishment of a start-up brings with it growth in employment opportunities.
Catering to the needy section:
The creation of products or services can cater to the needs of a section of the Indian population and make them economically more potent. For example, the availability of online e-commerce platforms to traditional artisans who can now more easily reach their customers.

Why start-ups are not a complete panacea to India’s economic woes?

Short-term:Statistically, a large number of start-ups do not make it big and are shut down.
Economic issues:Closure of start-ups leads to
- loss of the capital invested in them
- loss of employment
- sets a demotivating example for those willing to take chance by establishing a business entity
Disparities in salary and working conditions are also known to exist in the start-up ecosystem to a large extent.
Unregulated:The start-up sector being less regulated has also led to no or minimum labour laws being applied to it.
Exploitation: Most labourers working for the start-ups are not entitled to worker’s welfare legislation and therefore face exploitation.

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