Amity Research Journal of Tourism, Aviation and Hospitality

Vol. 01, issue 02, July-Dec 2016

India the world’s fastest growing startup ecosystem: A Study

Dr Suniti Chandiok
Associate Professor, BCIPS, Dwarka
Suniti@bcips.ac.in

Abstract

In recent years, the Indian startup ecosystem has really taken off and come into its own
driven by factors such as massive funding, consolidation activities, evolving technology and
an burgeoning domestic market. The numbers are telling from 3,100 startups in 2014 to a
projection of more than 11,500 by 2020, this is certainly not a passing trend. It’s a revolution.
And it’s going to change the way the markets are working today in India.The strategies of the
Central Government takes into account the collective aspirations and enterprise of the risk
taking Indian. The success of the Silicon Valley startups has many indomitable and resolute
Indians in the heart of it. India aspires to contribute to 15-20 percent global GDP. It happens
when Startup movement attains critical mass. Startup India looks beyond the argument that it
is a better packaging of existing institutional support. The complexities of managing the
diversity of thoughts, processes and people of India are very well known. The plan of Startup
Indians is to flourish under an ocean of changes in mindset and thinking. It is giving feather
to wings of the unstoppable Indian. The world is struggling to avoid another meltdown.
Startup India is all about challenging conventions and spurs a revolution of unique and
emphatic business models developed by new . It is the precursor to India taking Centre stage
in the new world order. The study concluded that making capital more accessible and
cheaper, easier patent filing, giving research and development credits, and easier entry for the
success of Startup India as a growing economy.

Keywords: Make India Plan ,Startup India, Entrepreneur development, Innovation, Managing
Change ,e-commerce.

I. INTRODUCTION

Indian Institutes of Technology (IITs) have been ranked the world's fourth largest producer of
billion-dollar startups, according to a study by UK-based accounting company Sage. IIT
alumnus accounts for 12 billion-dollar startups including Flipkart, Snapdeal, ShopClues,
Zomato and Ola. Stanford University topped the list with 51, followed by Harvard University
and The University of California(26 jan 2017).Startup is defined as “an entrepreneurial venture
or a new business in the form of a Company, a partnership or temporary organization designed and
search of a repeatable and scalable business model.”Startup India brings excitement and immense
possibilities for the future. India acknowledged the stark reality of modern business and its
complexity. The Central government tried to address the problems faced by the young,

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entrepreneurial Indian, whose risk taking ability is unparalleled across the globe. Policy paralysis and
lack of transparency were just few of the bottlenecks faced by the entrepreneur. Technology has a
predefined role to play in Startups. The Internet-led industry contributes $30 billion today, which is a
fraction of the $250 billion by 2020. USA internet business could grow from $240 trillion today to
$3.5 trillion and China from $700 billion to 1.5 trillion during the same period. The sheer size of
change that Startups can choose to bring is mammoth and exponential.

Startups have been the flavour of the season over the last few years for the Indian markets. This has
resulted into the emergence of a number of home grown unicorns across the country. One of the
major contributors leading to this development has been the mega funding that has been ploughed
into most of these unicorns between the period 2007 and 2017. This has been in line with the global
trend dominating the space. Even the aspiring unicorns have had a decent run during this period,
where managing to find investors is usually considered a tough task. The trends of investments
suggest that investors want to enter as an early investor, even before the start of the firm. From an
overall viewing, India comes across as a thriving under-penetrated consumer driven market with a
scope for exponential growth. Internet penetration and its increasing importance will drive most of
the businesses. On account of the consumer demographics, with China being out of bounds, India
offers the largest pie of investment opportunity that the world is eyeing. This is despite the multitude
of operational, regulatory and taxation issues that surround the business running environment in
India.

However, 2015 has turned out to be a year offering a bit of a reality check to one and all and
redefined the dynamics to a great extent. The year also set the tone for the next stage in the evolution
of the startup ecosystem. The maturity in decision making that should ideally come in at this stage
would be a step in the right direction taking the startup space in India towards greater heights, as it
deserves.

The larger problems plaguing the businesses, such as the unorganised and fragmented Indian market,
lack of clear and transparent policy initiatives, lack of infrastructure, lack of knowledge and
exposure, complications in doing business, etc. are at least now being identified as issues that need to
be addressed. The framework and course of regulations need to be updated and adopted as per the
times. The right policy matter announcements by lawmakers can be a push. In times like these, pro-
reforms announcements are required to provide the much needed impetus to the general business
environment in the country in the startup space.

To create awareness and building an entrepreneurial environment, a lot of emphasis should now be
given to creating infrastructure for mentoring startups. Various stakeholders such as the government,
corporates, educational institutions and others are and should join hands to build a better ecosystem
for young people. We understand that the Commerce Ministry is planning to build an online portal
for information sharing among various stakeholders including incubators/accelerators, angel
investors, VC funds and government departments. We also understand that other such initiatives are
in the pipeline and are expected to be rolled out in due course.Startups do not wish to be chained and

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caged by existing laws. They like to flourish in an atmosphere of trust and transparency, hope and
freedom. What the current dispensation in India has done, is to articulate their thoughts. The Silicon
Valley entrepreneurs have made their work speak. The indomitable spirit of the young Indian, full of
verve and energy, is seeing an inspiring transformation unfold in their own country. The document
rolled out to young entrepreneurs is exhaustive and has an eye for detail.

II. LITERATURE REVIEW

Startup India has been promised an initial capital of 10K crore over a period of four years from the
government. This seed capital is capable of attracting tenfold investment by 2022. Credit guarantee
for startup lending is another booster. Startup plan unfolded on January 16, 2016 in front of domestic
and international entrepreneurs. Internet-based businesses from food to fashion, health to education,
and travel to payment platforms- all have taken Centre stage recently. Industry expectation from the
Government is reciprocal. Few industry leaders who are championing Startup India want high
bandwidth, tax breaks on budget smartphones supporting vernacular languages, simpler KYC
norms, and improved access to electricity and credits. They are interacting with policy makers to
weed out regulations which act as a brake to investments. Crisp documentation is a pipedream for
the young, technology savvy, smart entrepreneur. The developed countries have worked hard to
make startup operations simple. It is this backdrop which makes policy making challenging and
interesting enough for the government of the day. The Prime Minister unveiled a 19-point agenda to
take forward the startup culture. The action plan included tax sops, ease-of-doing business,
innovation to help entrepreneurs to startup and grow their business (Forbes India, Startup India,
January 18,2016).

International Money entering India

Foreign investor interest in India can be attributed to various factors but the biggest one is the
consumer growth backed by the mobile revolution. Also, the India focus of New York based
Tiger Global Management (TGM) has given confidence to other global private equity and
hedge funds to come to India. Making big bets on Indian innovation has become a global
point of interest. The following are a few examples of foreign investors investing in Indian
startups:

 TGM is currently the top investor in startups in India during the first four months of 2015.
Indian startups have featured in 18 of its 26 funding rounds globally in 2015 so far. It has
started to make early-stage investments in India now.
 Tiger was among the top investors in India at $422 million in 2014, despite a lean start. After
April, with massive fund infusion into Flipkart, which raised a total of almost $2 billion in
2014.
 It was followed by Russian investor Yuri Milner-led DST Global, which invested $352
million.
 Japanese telecom giant Softbank invested $282 million in Indian startups in 2014.

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 During the same period last year, VC firm Nexus Venture Partners was the largest VC player
in the country with $73 million in funding, followed by Kalaari Capital with $45 million in
six deals.
 VC firm Sequoia Capital has made investment worth $208 million in the first four months of
2015 across 14 deals.
 Accel Partners, one of the early investors in the scene have made multi-stage investments in
internet technology companies between $0.5-50 million in its portfolio of companies which
include BabyOye, BookMyShow, Myntra, CommonFloor, Zansaar, Probe, and Flipkart.
 Other foreign investors that have shaped the Indian funding landscape since 2009 are 500
Startups (by Dave Mclure and Pankaj Jain), and Inventus Capital Partners among many
others.

III. OBJECTIVES OF THE STUDY:

1. To understand the initiative and life cycle of Startup.

2. To study the awareness about Startups in the light of recent changes in Industry.

IV. RESEARCH METHODOLOGY:

1. Tools: Qualitative & quantitative data.
2. Sample Size: 145 respondents
3. Sampling Method: Random Sampling
4. Respondent Profile: Young and educated males and females.
5. Sampling Place: Delhi & NCR (Indian market) .

V. DATA ANALYSIS & Active Investors in the Indian startup landscape:

The data was analyzed from 145 respondent who are in delhi& NCR (Indian market).We
collect data from primary and secondary sources based on data published by YourStory,
Planning commission, Assochametc in 2014-16. There are many top investorsHelionVenture
Partners was top of the investors list going by the total number of deals made, followed by
Sequoia Capital, Blume Ventures, Kalaari Capital, and
AccelPartners,MatrixPartners,TigerGlobal,IDGventurs and Softbank etc.

So we can discuss the startup financial life cycle:( Figure No-1)

1.Funding by Angel investors/ 2. Venture capital 3. Public markets

Seed funds • Used to scale the • Late stage startups can feel
• Early stage startups rely on angel company’s business model the need to expand more
investors and seed funding • Comes from larger aggressively or actively
• Invest solely into the Institutional funds innovate the product
entrepreneur with an idea • Focus is on building the • Private equity funds together
• Does not encumber the sales force and establishing a with public markets
entrepreneur with any global presence providelarge amounts of
corporate governance formalities liquidity to
late stage startups
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Indian startup industry composition (figure no-2) :Total startups 10,000 (approx):

Startups % Share in market 43% New startups annually

4300/5700 /57% 800/N.A

Sector concentration: % Share

 Technology Based Startupsare :E-commerce-33%, B2B-24%,Consumer

internet -12%,Mobile apps-10%,SaaS-8%, Others-13%.
 Non-Technology Based Startups are: Engineering-17%,Construction-
13%,Agri products-11%
 Textile-8%,Printing& packaging-8%,Transport & Logistics-
6%,Outsourcing & support-5% Others-32% .

The market has witnessed a bit of a shakeup with Tiger Global taking the top spot in 2015
with cumulative investments of $269 million (Ventura Intelligence) in 11 deals, followed by
Sequoia Capital with $208 million invested in 14 deals, and Steadview Capital with $107
million with two deals.When it comes to the cities where the startups that got funded were
based, Bangalore led with $2.43 billion, followed by New Delhi at $1.43 billion, and Mumbai
stood in the third position with $610 million.And if we break it down by sectors, e-commerce
unsurprisingly took the biggest piece of the pie with $3.23 billion, followed by the closely
related sectors of consumer Internet and mobile apps.With the process of investment and exit
becoming smoother due to a combination of factors, the scenario looks promising.According
to a KPMG Survey Report for 2015, such strategic opportunities provide fertile grounds for
increased acquisition momentum in the near future.

Recent M&A Activity in India

Traxcn, a startup tracking deal-making involving startups, provides some perspective here. In
2014, 43 startups were acquired so far this year the number has been 41, with startups
themselves being the most acquisitive of the lot. Of the 41, merely two deals were struck by
large corporate, with Godrej and Mahindra & Mahindra as the buyers.This frenzied deal-
making does not revolve around just money. By such acquisitions, the young startup brigade
is proving to be gutsy, and ambitious with Housing.com being recently in the news for
acquiring Realty BI, let’s look at some other M&A deals of this year till now.

 Livspace acquired Dwll.in (a curated online network of interior designers) in its second
acquisition deal this year
 Asia’s largest doctor search engine, Practo, acquired Fitho (digital fitness solution)

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 MakeMyTrip Limited announced the acquisition of the intuitive travel planner Mygola in
April
 Snapdeal acquired FreeCharge to build the most impactful digital commerce ecosystem in
India

To broaden the timeline, here is an infographic showing M&A activity over the last 3-4
years:

Sudden Rise:Let’s look at some strategic opportunities that motivate buyers:

 Acquisitions are opportunistic and buyers plan to act as soon as the right target
became available
 To expand their geographical reach
 For expanding their customer base
 To enter into a new line of business
 Sometimes the buyer is looking for profitable operations and/or gain on exit
 For enhanced intellectual property
 To defend against competition
 To invest in another function in the supply chain

A buyer in India has one or a combination of these reasons as their focus when they go ahead
and acquire another venture.

International M&A: Real Meaning and Undesstanding:

Like the best way to understand the future is to understand the past. Similarly an acquisition,
whether it is for product extension, service offering or patents, can speak volumes about the
company’s future strategy.In early 2015, Twitter acquired ZipDial–a mobile marketing and
analytics firm based out of Bangalore. ZipDial is a “missed call marketing” platform with an
impressive client list including Unilever, Disney, Gillette, Amazon, Facebook, and of course,
Twitter.

In a country like India where internet penetration is still very low compared to western
counterparts, Twitter is planning to deliver content to a large number of non-internet users
through SMS.In January 2014, Facebook had acquired Bangalore-based Little Eye Labs–a startup
that made a software tool for analyzing the performance of Android apps. The deal was said to be
worth somewhere in the range of $10-15 million. This deal was clearly aimed at taking
Facebook’s mobile development to the next level. Little Eye Lab’s ability to improve Facebook’s
mobile application has an opportunity to make an impact on more than one billion people who
use Facebook.In an acquisition deal rumored to be around INR 50 Crores, Yahoo bought
Bookpad last year, a Bangalore based startup that has built an end to end document handling
technology for the cloud. This makes sense for Yahoo not only because it is thinking of moving
into the document collaboration space to better compete with companies like Microsoft, Google,

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Box and Dropbox, but it also makes for a good acqui-hire, given the skill set of Bookpad’s
engineers.

Indian Startup Ecosystem Enablers are:

Startups in India have given rise to more startups. Enablers, accelerators, and incubators are firms
providing startups with growth advice and decision-making tools. From advising on government
policies to act as market catalysts, they grow the maturity of young ventures.Enablers like
NASSCOM and iSpirt bring together key stakeholders of the ecosystem including startup incubators,
accelerators, angel investors, venture capitalists, support groups, mentors, and technology
corporations.Their main aim is simply to provide funding and support for startups. Here are some
examples with a brief history of the work that they have been doing:

NASSCOM 10,000 Startups: NASSCOM has come up with an ambitious initiative called “10,000
Startups”, aiming to scale up the startup ecosystem in India by 10x. The program is supported by
Microsoft, Google, Intel, Verisign, and Kotak.10,000 Startups aims to enable incubation, funding and
support for 10,000 startups in India over the next ten years. The program has been able to
successfully impact 150+ technology startups, aiding in the raising of funds, acceptance into
acceleration programs, found customers, and on-boarded members through the initiative.

iSPIRT: iSpirt is a think tank dedicated to promote existing Indian software product companies. It is
different from NASSCOM, which is a trade body and an industry association. They are now looking
at replicating the success of Silicon Valley here in India and is being lead by pioneers.

India comparison with other Countries: (Table N0-1)

India China Israel Singapore Japan US

no. ofstartups (~) 10,000 10,000 4,750 N.A N.A 83,000

Tech-basedstartups 4,300 3,400 4,000 N.A N.A 48,000

Non-tech basedstartups 5,700 6,600 750 N.A N.A 34,000

Set up a newbusiness (Days) 30 – 60 30 13 2 10 4

Corporate taxrate 34% 25% 26% 17% (100% 34% 39%
taxExemption
forstartups)
No. of Taxpayments by 33 9 TBD TBD TBD 11

businesses (p.a.)
Bank lending rate 10.3% 5.6% 3.9% 5.4% 1.2% 3.3%
R&D spending% of GDP 0.85% 1.90% 4.20% n/a 3.40 2.80%
(Est.2014)

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*Source:WorldBank,Newsarticle’s,Gov sites.

Stages of the Startup lifecycle : (Figure no-3)

There are three stages of startup life cycle pre-startup in that discovery and validation are two
important steps after that start-up in that efficiency and scale are two steps then third step is
growth in which maintenance and sale or renewal be the important part for development of life
cycle of start-up.

PRE-STARTUP STARTUP GROWTH

Efficiency: The entrepreneur Maintenance: Maximizing
Discovery: Identify a potential begins to define his/her
benefits and facing
scalable product/services idea business model and looks for
problems derived from the
for a big enough target market. ways to increase customer
base global dimension that the
Validation: The service or business has achieved
product discovered hits the Scale: Pushing the growth of Sale or Renewal: The
market looking for the first the business aggressively decision to sell the startup
clients ready to pay for it while increasing its capacity
to a giant or acquire huge
to grow in a sustainable
manner. resources that the brand will
Start-up Ecosystem: need tocontinue growing

Startup ecosystem talk about the a startup business in an organization engages in development,
production or distribution of new product, processes or services. They are new and existence for not
more than five years and revenue of upto INR 25cr, employing 50 people or less. So these startup
grow and develop with support of big companies and universities, and get funds from funding
organisation like angel investor, venture capital, public markets. Their main focus areas are service
industry so we define all in figure no-4 and Indian startups industry composition in figure no-2,
current state of Indian startups in figure no-2.

Support Funding
Big Companies Universities
Organisation Organisations

Service Providers

•Ideas, invention and research

Research
•Startup at various stages
organization
•Entrepreneurs
•Startup team members
•Investors
•Mentors
•Advisors
•Other entrepreneurial people Startup Ecosystem
•People from related organisation

*Source: Startup India overview(Govt article 2016) Figure No-4

Closing Thoughts

Coming out of their difficult ruts, investors in India as well as abroad are becoming experimental,
yet extremely well-informed decision makers. But funding activities still are the biggest driving
factors in any startup ecosystem.

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 The average valuation of an Indian startup is $2.3 million as compared to $4.2 million of
an American one.
 43 percent of product/digital organizations are focusing on the global market and 28
percent continue to be technology hotspots.
 With a 59 percent of B2C, 37 percent of B2B, and 4 percent of B2C/ B2B startups, this
ecosystem has a lot of ground to cover in terms of securing funding.

Indian Ecosystem Are best in few points:

 Acqui-Hiring, technology acquisition, market consolidation, and customer

acquisition are the main drivers for increase in M&A of Indian startups.
 With increase of momentum in M&A in India, investors are getting more exit
opportunities.
 Startups are adopting innovative approaches to attract and retain top talent.

Negative Points in Indian Startup:

 Indian startups are often alleged to be copying foreign startups.

 Often don’t have a proper scaling plan.
 There is a need for directional efforts to help increase supportive government policies
(ease of doing business, tax incentives, participation in Government contracts, availability
of risk capital, etc.).
 Other Ecosystems Can Learn:
o Startups consolidating and buying other startups.
o Successful entrepreneurs coming forward to support other emerging startups by
mentoring them through various channels.
o Young entrepreneurs dominating the startup landscape with over 73 percent of
founders in the age bracket of less than 36 years.
o Women entrepreneurs starting to become more prominent in the innovation
economy.

Listing is touted to be the next big frontier. Several companies are preparing for initial share
sales, but these will most likely happen overseas and not in India. Predictions made for startups
are more in number than the startups themselves. But the interest these few companies are
generating cannot be undermined.Majority of the respondents felt that setting up of 10,000 crore
startup fund is the best initiative of the government to encourage the flagship program. The respondents
felt that an exemption from capital gain tax and a three year tax holiday are the two key responsibilities of
the Government.

Respondents felt that tax exemption on incubation and seed funding is critical for Startup India. It is one
of the key concerns of entrepreneurs, which the Government is keen to address. Easier exit clause for
Startups is critical to the success of the initiative. It provides protection to the risk taking businessperson,
who is very concerned about what happens when the business fails.

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An overwhelming number of respondents felt that the role of the family and society are of key
importance in the new startup regime. There has to be ease of patent filing to encourage those who chose
a higher risk path of venturing into startup. Respondents placed high importance of protecting startup
ventures. Majority felt the need to get access to bank finance and easy term of credit. It was felt that
deprived sections of society and underprivileged should be protected against any possible discrimination.
One view emerged that banks and other financial institutions should encourage economically
disadvantaged sections to participate in the mainstream.

VI. CONCLUSION

The success of Startup India campaign hinges on initiatives like faster and easier registration of
Companies, self-certification for many legal requirements, zero inspection for three years, funding for
patents, and speed of patent protection. It is important to add provisions which aid the closure of dead
companies within 90 days. Indian lawmakers could do this under the new bankruptcy bill. The central
theme is that ease of starting and ending is critical in the context high rate of startup mortality. This
research paper found that respondents supported the idea of funding for incubation centers. The
Government proposal do so, across Universities, innovation movements, research parks and industry
parks is on similar lines. The promise of an initial capital of ten thousand crores over a period of four
years from the government is capable of attracting tenfold investment by 2022. Credit guarantee for
startup lending is the booster dose required to galvanize Indian industry.

Incentives in the form of tax holiday for three years are a benefit worth considering. It is also apt to
considerequating capital gains with the regime in the listed market. Most importantly, foreign exchange
regulations are to be in tune with investor needs, so that the best do not register outside India.But in
global market lots of challenges on sustainability, technology, regulatory and financial etc.

REFERENCES

 Evaluation of e-commerce in India ASSOCHAM Indian,PWC(2014)

 Government of India, “Fostering Entrepreneur” ,http://business.gov.in/enterprise/fostering.php.
 Govindrajan, Vijay & Trimble, Chris
 Indian Planning commission report,http:// www.planningcommision .nic.in/reports/ genrep/rep_
eco2708.pdf.
 Knowledge Faber“ software standup scenario india”,http://knowledgefaber.com/software-start-up-
scenario-in-ndia
 Kotler, Philip, Marketing Management, Pearson Publication, 14 Edition.
 Forbes India,September 14,2010,“ Is the Dotcom creza Back”
http://forbesindia.com/printcountent/17242.
 Forbes India, Article on Startup India, January 18, 2016.
 http://www.grantthornton.in/globalassets/1.-member-firms/india/assets/pdfs/grant_thornton-
startups_report.pdf.
 http://www.iisermohali.ac.in/StartupIndia_ActionPlan_16January2016.pdf
 KPMG Survey Report for 2015
 www.yourstory.com

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