India & its Start-Up Ecosystem
9th Sep, 2022
The average annual growth rate of Indian unicorns is more than that of the U.S., the U.K., and many other countries.
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.