Updated on 11 September, 2019
Startups in India:
Reason for Delhi’s emergence as a choice of preference
- Surpassing Bengaluru and Mumbai, Delhi-NCR has become the newest hotspot for startups and unicorns in India.
- The region that comprises the national capital and adjoining cities of Gurugram and Noida now count more startups and unicorns than Bengaluru and Mumbai.
- Delhi-NCR is home to 10 unicorns, or those with a valuation of at least $1 billion, with at least one added each year since 2013, compared with the nine and two unicorns that Bengaluru and Mumbai had added, respectively, in the first half of 2019.
- The infrastructure that Delhi provides for startups is better than in other cities.
- All the important locations in Bangalore are far away from its biggest hub of transportation, which is the airport.
- Delhi's average speed on roads is around 23 km per hour which is far higher than Bangalore's 15.5 km per hour.
- Delhi also has nine times the operational network of metro (373 km) versus Bangalore (42 km).
The Startup scenario in India
- A startup venture could be defined as a new business that is in the initial stages of operation, beginning to grow and is typically financed by an individual or small group of individuals.
- Startups are nothing but an idea that manifests into a commercial undertaking.
- Department of Industrial Policy and Promotion (DIPP) define a startup as an entity incorporated or registered in India with the following parameters:
- Established not prior to seven years, (for Biotechnology Startups not prior to ten years)
- With annual turnover not exceeding INR 25Cr in any preceding financial year, and
- Working towards innovation, development or improvement of products or processes or services,
- It is a scalable business model with a high potential for employment generation or wealth creation.
Issues and Challenges faced by Startups
- It is to be noted that every year more than 800 technology startups are being set up in India.
- By 2020, it is estimated that around 11,500 tech-startups are going to be established with the employment potential of around 250,000 technical people.
- India is the third-largest startup ecosystem globally, in terms of the number of startups.
- Financial Resources: Availability of finance is critical for startups and is always a problem to get sufficient amounts. Scaling of business requires a timely infusion of capital. A recent report paints a gloomy picture with 85% of new companies reportedly underfunded indicating potential failure.
- Revenue Generation: Several startups fail due to poor revenue generation as the business As the operations increase, expenses grow with reduced revenues forcing startups to concentrate on the funding aspect, thus, diluting the focus on the fundamentals of business. The challenge is not to generate enough capital but also to expand and sustain growth.
- Team Members: 23 percent of startups fail because members do not work as a team. To find and hire the right kind of talent for the business with skills to match growing customer expectations are one of the biggest challenges.
- Supporting Infrastructure: There are a number of support mechanisms that play a significant role in the life cycle of startups which include incubators, science and technology parks, business development centers etc. Lack of access to such support mechanisms increases the risk of failure.
- Creating Awareness in Markets: Startups fail due to lack of attention to limitations in the markets. The environment for a startup is usually more difficult than for an established firm due to the uniqueness of the
- Exceed Customer Expectations: The next most important challenge is gauging the market need for the product, existing trends, etc. Due to new technologies that are emerging, the challenge to provide over and above an earlier innovation is pertinent.
- Regulations: Although there is a perceptible change, it is still a challenge to register a company. Regulations pertaining to labor laws, intellectual property rights, dispute resolution etc. are rigorous in India which takes about 30 days to comply compared to just 9 days in OECD countries. Also, as per the World Bank report, “World Bank Ease of Doing Business”, India ranks 142 out of 189 economies.
- Lack of Mentorship: Lack of proper guidance and mentorship is one of the biggest problems that exist in the Indian startup ecosystem. Most the startups have brilliant ideas and/or products, but have little or no industry, business, and market experience to get the products to the
- Replicating Silicon Valley: Indian startups get influenced by Silicon Valley models which may not succeed in the Indian scenario.
- The Indian government is serious in promoting entrepreneurship at the startup level and has taken a number of initiatives to ensure appropriate support.
- In this aspect, it is relevant to mention ‘Make in India’ campaign introduced in September’14 to attract foreign investments and encourage domestic companies to participate in the manufacturing
- The government increased the foreign direct investment (FDI) limits for most of the sectors and strengthened intellectual property rights (IPRs) protection to instill confidence in the startups.
- In order to make the country as number one destination for startups, Government of India (GoI) has introduced a new campaign called ‘Standup India’ in 2015 aimed at promoting entrepreneurship among women and to help startups with bank funding.
- Another commendable and far-reaching initiative is ‘Digital India’ introduced in 2015 to ensure government services are made available to every citizen through an online platform that aims to connect rural areas by developing their digital infrastructure which translates into a huge business opportunity for startups.
- In the Union Budget 2019 following announcements related to Start-ups were made-
- Exclusive TV Program: The 2019-20 Union Budget announced a new TV program on the state-owned group of DD channels, exclusively for the startups. This program will serve as a medium for encouraging startups to discuss various business aspects like growth, mapping with venture capitalists, tax planning, and funding.
- Ease of Doing Business: India’s ranking in ease of doing business under the category of ‘paying taxes’ was 172 in the year 2017. It has improved massively to currently rank at 121. The Finance Minister has proposed a series of measures that leverage technology to make being tax-compliant easier.
- Incubators: 80 new livelihood and 20 technology incubators are announced. These incubators are designed with the intent to help aspiring entrepreneurs to come up with their own start-ups.
- Tax Exemptions: Section 54GB of the Income Tax Act, 1961 offers an exemption of tax on capital gains made by selling a residential property or a piece of land and investing the sum in equity shares of a start-up company. This exemption was available for investments made only till 31 March 2019. As per the latest amendment, the exemption is now extended until 31 March 2021.
Read More: Economic Survey 2018-2019 Analysis | Economic Growth And Development
- Taking time for understanding what you are selling: Many times the startups fail in understanding the response that customers would give for their products. Some of the products need to be refined according to the needs of customers. Some other start-ups probably hit the chord of customers but fail to realize the demand for their product. When the demand increases, they find unable to handle it and fail to the expectations of the customers.
- Understand your caliber and hire resources accordingly: Many start-ups which started hiring people at a rapid scale as soon as they got the funding. The success of a start-up can only be expected only if it follows a lean model.
- Make proper planning with timelines: Many start-ups fail in the first three years due to lack of proper planning. In the beginning, when a start-up begins its operations, the cost of running is often less and as it grows, it is supposed to increase the cost of running as well. The strategy of heavy discounting can be assumed to be a parasite that can make the whole business hollow from within.