India's Startup Ecosystem Scales Up With Widespread Government Initiatives

With 4,200 tech startups, India is the third-largest tech startup hub in the world. But the steady increase in startups and a range of initiatives by the Indian government to spur growth does not mean the challenges for entrepreneurs are any less.

In India, 40% of startups failed since 2014, while in the first five months of this year, over 18 businesses have shut down, according to separate surveys conducted by startup tracker Xeler8 and tech media platform Inc42.

“As many as 997 of 2,281 startups in logistics, e-commerce, food tech and analytics collapsed since June 2014. The average age of these failed ventures is just over 11 months,” says Rishabh Lawania, founder of Xeler8.

Last week, Indian retail mogul Kishore Biyani raised eyebrows among Indian entrepreneurs at the Economist India Summit in New Delhi when he said a majority of the startups lack long-term vision and were created with the aim to sell themselves off to larger companies.

“Ninety percent of startups I have seen had no meaning at all,” said Biyani, chief executive of Future Group. “They are nonsense.” Similarly, IT giant Infosyscofounder Kris Gopalakrishnan said at the 12th India Innovation Summit in June that around 70% of startups will fail and 20% will remain as small enterprises.

Any entrepreneurship is a risky business, but as Lawania points out, the risk is higher in startups — something the entrepreneur has to factor in. Copycat ideas, poor strategy and lack of funding and scalability affect a startup’s bottom line. In India, funding in tech startups in the first half of this year saw a decline of nearly 40% from the funding secured last year.

“A lot of startups try to replicate Western business models that don’t have a market in this country. Also, for an early stage startup, access to capital is limited and getting an investment without a working product is difficult,” says Lawania. “Many startups that raise funds struggle to keep the cash burn rate and the funds dry up sooner than anticipated, resulting in failure.”

Failures notwithstanding, India is in full throttle to scale up the startup ecosystem, creating new ways for wealth and job creation. Since it launched the Startup India program in January, the country has been ramping up its efforts to realize the target of over 12,000 startups by 2020. The initiatives range from setting up research parks and providing grants to asking top companies to fund incubators as part of their corporate social responsibility.

Last week, the Ministry of Science and Technology announced it will be investing $749,500 over the next few years, which is a 450% increase in allocation. Under a new program, Promoting and Accelerating Young and Aspiring Innovators & Startups (PRAYAS), the Ministry will be providing grants of up to $149,900 to each startup to encourage innovators. Apart from various departments and ministries of the government, academic institutions, and financial institutions, PRAYAS is collaborating with Intel, Lockheed Martin and Boeing to establish research parks and startup centers. The Ministry has also started a new fellowship program for entrepreneurs.

Meanwhile, the Indian government has set up the Electropreneur Park at the Delhi University to incubate 50 early stage startups and create at least five global companies in the electronic systems design and manufacturing (ESDM) sector over the next five years.

Earlier in July, the Ministry of Commerce and Industry asked all the states to set up startup hubs and incubators to help budding entrepreneurs. The Ministry of Finance also laid out measures to boost the burgeoning ecosystem, including tax exemption on profits, one-day registration of companies, exemption of capital gains tax on startup investments and setting up a fund to raise over $475 million annually for four years to finance startups.

According to the Economic Survey 2015-16, e-commerce growth is expected at 21.4%, to reach $17 billion. “Although e-commerce remains the most sought after industry, Fintech and SaaS [Software as a Service] are also safe bets for the investors followed by health-tech and analytics,” says Lawania. Artificial Intelligence, AR and VR startups have seen many failures lately but are still getting a lot of eyeballs among early stage investors, he adds.

For the moment, in the high-risk, high-rewards startup culture, the focus is on capital-efficient entrepreneurs who are able to create sustainable value creation, battle the odds and prove the best.