Chapter 1: Introduction

 Entrepreneurship Development in India

 Concept of Start-ups
 An Overview of Indian Start-ups
 Start-up India Initiative
* Indian Start-up Ecosystem
 Uttarakhand State and its Entrepreneurship Development
 Research Problem
 Summary
 CHAPTER- 1 INTRODUCTION

1.1 Entrepreneurship Development in India

Entrepreneurship development is the process of improving individuals' entrepreneurial
capabilities and potentials by enabling them to tap the available resources and other
facilities. The economic development of any nation or region is possible through
purposeful human activity (Cole, 1946). Small businesses play a significant role in
improving the living standard of the community, generating employment and
contributing to the economy's growth. The government has launched various initiatives
to promote sustainable entrepreneurship development in the past few years. These
initiatives have been floated to encourage MSMEs, SMEs, start-ups and research
institutes designed to promote entrepreneurial culture in the country. The Indian
government has a vision to handhold the entrepreneurs; therefore, an entrepreneur of
this era can get several benefits in the form of incentives and other facilities from
various schemes launched over time. Along with financial support to the entrepreneurs,
the government has focussed on developing young companies with a wide array of
favourable schemes. Some schemes offered by the government to support sectors like
education, agriculture, healthcare & life sciences, renewable energy, IT Services,
analytics, enterprise software, technology hardware and artificial intelligence include-
Promoting Innovations in Individuals, Start-ups and MSMEs (PRISM); Atal Tinkering
Laboratories; SIDBI Make in India Soft Loan Fund for Micro Small and Medium
Enterprises (SMILE); Stand Up India; Venture Capital Assistance Scheme; Scheme of
Fund for Regeneration of Traditional Industries (SFRUTI); NewGen Innovation and
Entrepreneurship Development Centre (NewGen IEDC); Coir Udyami Yojana (CUY);
Support for International Patent Protection in Electronics & Information Technology
(SIP-EIT); Scheme for Scale-up Support to Establishing Incubation Centres and
COVID-19 Start-up Assistance Scheme (CSAS).

An entrepreneur is a person who starts a business based on an innovative product or

service with considerable initiative and risk (Casil, 2019). Entrepreneurs contribute
enormously to employment generation by bringing business innovation. Before 1991,
the entrepreneurship culture in India was underdeveloped as the risk capacity of people

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was low, and the focus was more on employment stability. In recent years, the
government’s efforts to spread awareness about the benefits of entrepreneurship have
resulted in the development of micro, small and medium enterprises. MSMEs play an
essential role in the expansion of entrepreneurship, therefore considered the growth
engines of the Indian economy. These enterprises are primarily engaged in
manufacturing, processing and production of goods and other commodities. This sector
is highly vulnerable to socio-economic changes; only a few enterprises can sustain
beyond six to ten years (Baldwin, 2001). This sector faces many challenges, such as
low capital base, unavailability of high-quality raw materials, low-level R & D and lack
of proper market information (Jain & Jain, 2012). As per Ministry of MSME, India has
approximately 63 million registered MSMEs as of November 2021. Digitalization has
been a growth driver for Indian MSMEs; as a result about 72 per cent of them are now
adopting digital payments (Kaushal, 2021).

1.2 Concept of Start-ups

Start-up is a term that originated in the US in late 70s and became popular in the late
90s. Since then, this term has gained a lot of popularity. The meaning of a start-up is
quite comprehensive, so there is no precise definition (Santisteban et al., 2021). A start-
up is typically a company such as a small business, a partnership or an organization
designed to rapidly develop a scalable business model that ensures better and faster
product and service availability (Narayan et al., 2019). It is an organisation designed to
search for a repeatable and scalable business model (Blank, 2010). They bring new
ideas and innovative business models to stir creativity and encourage healthy
competition. Start-ups are not simply the smaller version of large companies; instead,
it’s a different concept. Like any other company, they don’t have a known business
model, but they search for an unknown business model to bring a positive change in
society. It is like an experiment done by its founders through working under conditions
of extreme uncertainty. A start-up founder understands the market dynamics and brings
an innovative model where the solution is unclear. The start-ups suffer a structural lack
of tangible and intangible resources as they are small ventures (Wymer & Regan, 2005).
It is an entrepreneurial team that brings innovations with minimum wasted resources to
the market. They work on an idea that nobody ever thought of or redesign the already

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existing one. They segment the market and make an end-user profile of the customers
to perform well. Most likely, a start-up starts with an idea addressing the need of a large
audience, and after winning customers' trust, it starts getting traction and gradually
succeeds. For example, Byju’s provides online education, and OYO facilitates people
by providing online room booking services.

The Department for Promotion of Industry and Internal Trade (DPIIT) has clearly
defined a start-up that can be recognised under the start-up India initiative to avail the
host of benefits. As per DPIIT, a start-up is an early-stage company working towards
innovation, development or improvement of products or services with a scalable
business model where its turnover for any financial year since
registration/incorporation has not exceeded ₹100 crores.

Classification of Start-ups

A start-up is a young company which works in a dynamic environment where readiness

to adapt to adversities can be seen. According to Blank (2010) & Cody (2014), start-
ups are of six types:

 Lifestyle start-ups- These include people who are passionate about their work and
want to satisfy their needs by doing the activities they like. The entrepreneurs doing
the business of something they are passionate about may be listed under this type
of start-up, for example, free lancers, web designers, fashion designers etc.

 Small and medium enterprise start-ups- The founders follow proven business
models to create wealth for themselves and solve their personal needs, such as
hairdressing salons, bakeries, etc.

 Scalable start-ups- Entrepreneurs believe in inventing something innovative to

bring a change in the world. The aim is to find a scalable model that can catch the
attention of various investors to boost their business, for example, Facebook,
Twitter, Uber, Google, Amazon etc.

 Buyable start-ups- The businesses that are born with the intention of being merged
or sold to large companies after getting traction and validation in the market. The
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 purchase of Instagram by Facebook can be an appropriate example of a buyable
start-up.

 Large company start-ups- These companies have large capital and presence in
various markets. To be profitable and generate more revenue, large companies have
to innovate business models to create an impact. They start with a product and reach
international markets to become globally recognised start-ups, for example, Ola
cabs, Swiggy, Byju’s etc.

 Social start-ups- Some entrepreneurs want to make a considerable change in society

to make a better world. They create a non-profit organization where the motive is
not to gain profit but to contribute effectively to the community, for example,
charitable institutions.

Start-up Lifecycle

All businesses grow in phases. Making predictions about the growth of a new business
in future is never easy, as many factors have an impact on the development of a start-
up. Specifically, there are six start-up stages, and the time spent in each stage for every
growing company can be different.

Concept & Research/ Ideation Stage: The ideation of a simple product with the
minimum features, also called a minimum viable product (MVP), to satisfy the demand
of customers is what the ideation stage is all about. Having a clear idea of the problem
the start-up is trying to solve is one of the biggest hurdles to overcome at this stage. A
founder must carefully research the target audience and the offering’s product market
fit. Are you solving a relevant problem for customers? Is your idea an innovative one?
These questions reveal many things before you start and help in setting goals for
development over the coming years.

Development/ Commitment Stage: In this stage, things start getting serious and the
company move from the research to the practice phase where a prototype/ MVP is
created to test the hypothesis in the real world. The companies develop a process,
manage funds, build a team and refine the business model. They spend a lot of time and
resources to bring their idea to life. In this stage, they seek funds from their friends or
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family to meet expenses in testing and iterating their prototype with the target audience.
Finally, they reach a point where things work and meet a real need.

Early Traction & Validation: The customers only accept the product if it is truly viable.
In this stage, the company starts getting its first customers. Most entrepreneurs mistake
traction for growth in this phase. Traction and growth are two different stages of a start-
up’s lifecycle. The start-up company focuses on growing its customer base and attaining
the potential market fit as they researched in the ideation stage.

Scaling: As the customers accept the product and the business model proves fit, the
company starts growing its customer base and offerings. They optimize their marketing
strategies to pull in more customers. The start-up founder gathers the required
information regarding scaling the business, as it is necessary when all the channels start
hitting the targets. They bring in experts and mentors as they seek more funding
(pitching to VCs/ Angels).

Maturity: When the company have got an established foothold in the market, has a
reasonable customer retention rate, scaling or scaling back channels and turns a profit
is categorised as a matured company. The company’s growth is considerable at this
stage. At this point, a company might exit through acquisition or list itself on the public
market for further growth. It is crucial to understand which stage of the start-up’s
lifecycle can be valuable, as it helps an entrepreneur to stay motivated and focused
during tough times.

Stages of Start-up Funding

The foundation of a start-up company is its innovative idea and unique business model.
To validate a business model in the real market is a significant challenge that demands
huge funds consistently. So, to get finance in the right amount and at the right time is
what a start-up founder longs for. In a world full of opportunities, ample finance sources
are available for budding entrepreneurs. Today, various investors, including venture
capitalists and angel investors, provide financial assistance to the founders to grow and
expand their start-ups. These investors trust their business ideas and offer them

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mentorship when required. Generally, start-up companies acquire funds from different
investors at different stages, as discussed in detail below.

Stage 1 Self-funding: The founders generally start a venture from their own pockets,
i.e., self-funding or bootstrapping. Self-funding is the first stage, where entrepreneurs
assess all the savings kept in multiple accounts and approach their friends and family.
In this stage, there are fewer complexities and documentation; also, funds from friends
and family are acquired at a cheaper rate as compared to the market rate. In the
beginning phase of the company, bootstrapping is apt when small investments are
required.

Stage 2 Seed-capital: Seed funding is the first official equity funding stage where funds
are raised officially for the first time. In the seed-capital stage, investment is made at
the preliminary phase of a start-up. Some start-up companies never raise funds beyond
this stage into various funding rounds. The company uses seed funds to establish a
direction for its start-up and analyse the market dynamics, including the priorities of
customers, to formulate a product or service accordingly. Source of finance in this stage
includes friends, family, incubators, mentors and others. Also, loans can be taken in
exchange for common stock.

Stage 3 Series A: Once a start-up company has built a track record, such as an
established user base, consistent profit figures and other performance indicators, it may
look for funds through Series A funding. Venture capital funding comes into the picture
when the company’s final product or service reaches the market. Angels/ VCs provide
funding assistance to start-up companies in multiple rounds. The fund acquired in this
round is used to optimize its user base and product offerings. Having a plan for
developing a business model that has the potential to generate long-term profits is an
essential pillar in this round.

Stage 4 Series B: This round takes start-up businesses to the next level, where investors
fund them to expand their market reach. In this stage, well-established start-ups that
have already developed substantial user bases acquire funds from investors to grow
their companies. This round appears the same as the first round, but the Series B round
is an addition to a new wave of other VC firms specialising in later-stage investing.
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Stage 5 Series C: Already successful start-up companies make it to the Series C funding
stage. As the operations get less risky, various investors such as private equity firms,
investment banks, hedge funds and large secondary market groups come forward as the
funding source. These investors provide funds to help them develop new products,
expand into new markets, or acquire other companies. Investors in this round inject
capital and expect to receive back more than double that amount. Some companies
utilize these funds to boost their valuation in anticipation of an initial public offering.

Stage 6 Initial Public Offering (IPO): An IPO is related to going public, which means
the general public (including individuals and institutional investors) now invests in the
company by buying shares. It has its own merits and demerits. The company needs to
submit all the information related to financial statements, the reason for fundraising
etc., to the Stock Exchange Board of India (SEBI) for an IPO. The funds through an
IPO are used to grow and diversify the business.

Risk Level Friends & Relatives

(High) Angel Investors

Venture Capitalists

Non-Financial Corporations

(Low) Bank Loans

Figure 1.1: Financing Sources for Start-ups at Different Development Phases

Source: Vasilescu- Giurca (2009)

As discussed earlier, there are different stages of start-up funding, people such as
venture capitalists, angel investors/ high net worth individuals etc., provide funds to

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start-ups as per their capacity to take the risk. Friends and relatives take a considerable
risk by providing early funds to start-up companies to develop a MVP/ prototype. Also,
angel investors are the high-risk takers that invest funds in start-ups having the potential
to grow rapidly. In contrast, venture capitalists take less risk than the angels and invest
their money after the company’s product/service is validated in the market. The least
risk takers are the commercial banks that offer mortgaged loans at a later stage to these
start-ups.

1.3 An Overview of Indian Start-ups

A start-up is a human institution designed to create a new product or service under
conditions of extreme uncertainty. ~Eric Ries

In this era of start-ups, every economy worldwide strives to become an economic

power. The nation's economic development depends upon industrial development and
is based on the entrepreneurial skills and competencies of the individuals. In the present
scenario, entrepreneurship is an epoch-making input toward the country's economic
development as it is the source of invention, growth and employment generation. In a
world where money is the new ideology, it's an entrepreneur who leads the country into
an era of success & growth. The most recent evolution in entrepreneurship after the IT
revolution has been that of ‘innovation’, of which start-ups are an extension. As per
MCA, a ‘start-up’ is a private company incorporated under the Companies Act 2013
and recognised in accordance with the notification issued by the Department of
Promotion of Industry & Internal Trade (DPIIT).

The start-up founders begin market validation through problem interviews, solution
interviews, and building a minimum viable product (MVP), i.e. a prototype, to develop
and validate their business models. Countries like China and the USA have the most
valuable start-ups and the highest unicorns (start-up valuation of over one billion
dollars), followed by India, having the third largest start-up ecosystem worldwide. The
Indian start-up scenario has come a long way with the growth in information
technology, and the entry of accelerators and incubators has played a crucial role in
shaping the path of these start-ups (Kumar, 2015).

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Business, trade and entrepreneurship are not new in India, and the idea of owning a
‘business’ runs in the blood of Indians. Entrepreneurship, post-independence, started to
transform into a new shape through the reduction of hindrances in the way of
entrepreneurship development through political support, liberal policies, research
initiatives and favourable laws. During the mid-80s, the ‘Liberalization of Computer
Industry’ followed by the commencement of NASSCOM in 1988 opened all possible
routes for developing the Indian entrepreneurial ecosystem. The next few decades
witnessed an increasing trend in entrepreneurial ventures across the economic, cultural
and social sectors. The dynamic political and economic environment drove momentum
towards entrepreneurship and noteworthy improvement in the quality of start-ups in
India. Gradually various Institutions, cells and NGOs started taking business and
academic interest in start-ups. The present economic scenario in the country is not only
providing access to multiple sources of finance to budding entrepreneurs but also easing
facilities such as access to material, production and human resources, which has paved
the way for the elevation of entrepreneurs' spirit among Indians.

In the last few years, Indian start-ups have exhibited significant potential and
proficiency, which has made global investors collaborate with them. Technology, such
as the internet and application software plays a crucial role in the success stories of
start-ups as most of them rely on these technologies to better serve people's needs. The
start-ups face precariousness and high rates of failure. Griffith (2014) discussed that
90% of start-ups ultimately fail by surveying 101 unsuccessful start-ups, the top five
factors in failure were lack of consumer interest in the product or service (42%);
funding or cash problems (29%); personnel or staffing problems (23%); competition
from rival companies (19%); and problems with the pricing of the product or service
(18%).

The start-up process can take a long time, so sustaining effort is required. Sustaining
effort over the long term is incredibly challenging because of the prospect of failure
and uncertain outcomes. Since the generation of innovative ideas has accelerated, the
rate of obsolescence of technology has also climbed. Consequently, the mortality rate
of start-up companies has also gone up. The start-up ecosystem plays a crucial role in
the development and sustainability of start-ups by providing a conducive

9
entrepreneurial environment. It is a nexus between the entrepreneurs & key support
organizations necessary for the survival of young companies.

There are several significant implications relevant to the success of a start-up; out of
them, one of the most impactful is the regulatory norms which bind the whole
ecosystem together. Lobbying with the regulators is going in for a better ecosystem so
new and innovative start-ups can flourish to achieve economic prosperity. The
stakeholders of the start-up ecosystem, including incubators/ accelerators, investors and
mentors, take high risks as they are involved in resolving the financial needs of early-
stage companies. Government initiatives fostering entrepreneurship mitigate the
financial risks faced by entrepreneurs by positively affecting bank lending, which has
a potent effect on access to bank finance (Berger & Udell, 2006; Hanley & Girma,
2006; Cummings et al., 2018).

In the techno-savvy world environment, start-ups based on technology are having more
success. They play a significant role in the growth, industrialization and development
of any economy. According to a report by NASSCOM (2017), more than 5,000 Indian
start-ups got registered in the technology sector alone. The report's figures include start-
ups covering sectors like Healthcare, Education Inclusion, Financial Inclusion, Clean
Energy and Agriculture – where technology made a more significant impact. The
sustained efforts of the Indian government have resulted in substantial growth in
recognised start-ups from 700+ in FY 2016-17 to 60000+ in FY 2021-22 (Kaur, 2022).
The state-wise list of recognised in India for the last five years has been depicted in
Table 1.1 which shows a considerable increase in growth of start-ups in various
states/UTs.

Table 1.1: State-wise List of Recognised Start-ups in India for the Last five years
(Data as on March 2022)

2016- 2017- 2018- 2019- 2020- 2021-

State/ UTs Total
17 18 19 20 21 22
Maharashtra 136 1,534 1,526 2,420 2,918 3,799 12,333
Karnataka 96 1,189 1,187 1,790 1,797 2,184 8,243
Delhi 116 1,035 1,112 1,554 1,913 2,184 7,914
Uttar Pradesh 41 616 735 1,039 1,587 1,946 5,964
Gujarat 40 426 398 701 1,149 1,664 4,378
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 Haryana 38 379 480 772 896 1,068 3,633
Tamil Nadu 69 393 413 672 835 1,184 3,566
Telangana 29 457 461 707 848 1,028 3,530
Kerala 41 225 427 618 788 938 3,037
Rajasthan 19 209 227 390 545 674 2,064
West Bengal 13 253 240 338 462 736 2,042
Madhya Pradesh 12 192 257 380 456 574 1,871
Odisha 5 155 155 215 308 391 1,229
Bihar 4 87 127 176 321 404 1,119
Andhra Pradesh 6 146 145 200 238 299 1,034
Chhattisgarh 15 79 120 164 154 184 716
Punjab 8 56 54 109 180 237 644
Jharkhand 3 63 76 105 174 204 625
Assam 13 52 66 70 145 191 537
Uttarakhand 6 61 71 99 130 166 533
Jammu and
2 29 44 36 92 134 337
Kashmir
Goa 3 25 44 48 71 92 283
Chandigarh 10 26 33 40 62 65 236
Himachal Pradesh 0 12 20 35 42 67 176
Manipur 0 5 8 8 21 30 72
Puducherry 0 6 14 10 13 21 64
Tripura 0 2 2 7 22 19 52
Andaman &
0 2 3 7 5 16 33
Nicobar Islands
Dadra & Nagar
Haveli and Daman 0 4 2 4 4 14 28
& Diu
Nagaland 1 5 1 3 7 4 21
Meghalaya 0 0 4 3 3 9 19
Arunachal Pradesh 0 2 1 1 0 5 9
Sikkim 0 1 1 1 1 4 8
Mizoram 0 1 1 2 0 3 7
Lakshadweep 0 0 0 1 0 0 1
Ladakh 0 0 0 0 1 0 1
726 7,727 8,455 12,725 16,188 20,538 66,359

Source: DPIIT, 2022 https://dpiit.gov.in/sites/default/files/ru2589.pdf

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Indian Start-ups and Covid-19

The COVID-19 pandemic has badly impacted the entire economy, and the start-up
ecosystem is no exception. Start-ups across India had witnessed a steep cash crunch
due to a countrywide lockdown. “For those start-ups that are not making a profit, it was
the challenging time to ensure that they have enough liquidity to survive till the next
quarter" (Dalal & Hameeth, 2020). In every aspect of their business, like fundraising,
customer trust, employee retention, suppliers and sustainability, start-ups, like other
companies, started making all possible efforts to fight against the negative impact of
the Coronavirus. In addition, the Chinese investors who have been among the most
prolific backers of Indian start-ups in recent years had put off deals across the board.
Domestic venture capitalists (VCs) and angels were delaying investments as they
cancelled/postponed their schedules, like travel and meetings, due to the COVID hustle.

The challenges faced by start-ups due to the COVID outbreak include difficulty in
raising funds, liquidity/Cash crisis, increased burn rate, difficulty in getting customers,
declining revenues, compromise in the market price of the product, stabilizing supply
chain etc. (Engidaw, 2022; Kuckertz et al., 2020; Meahjohn & Persad 2020). Start-ups
were already facing problems in raising funds from VCs, angel investors and
government schemes, but now due to high volatility in the economy, investors were not
ready for investments in the start-ups (Gautheir & Morelix, 2020). They were delaying
investments and waiting for stability in the market. Karpe (2021) conducted a survey
of 76 investors that revealed around three per cent of them were neutral about early-
stage investing in 2020, seven per cent of investors stated that they were not ready to
invest at all, while 90 per cent of them opined that they would delay investments in
start-ups due to high uncertainties.

During this worse phase, the venture's survival but not the profits were the biggest
question for small entrepreneurs. Many sectors struggled to survive during the COVID
period and even dropped down to a negative revenue curve, such as air and travel, oil
and gas, insurance carriers, commercial aerospace, and automotive (McKinsey &
Company, 2020). To combat the crisis, start-up founders were seeking government
support, loans from banks/NBFCs and funding from existing and new investors to
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neutralise the adverse impact on their growth and survival. To ensure the sustainability
of start-ups, the founders started to communicate efficiently with their teams; so that
their teams stop assuming the worst and increase their productivity. The government
took measures to save the interest of Indian start-ups by launching favourable schemes
like the Covid-19 Start-up Assistance Scheme (CSAS) and the NIDHI seed fund. The
Small Industries Development Bank of India (SIDBI) recognized the financial
challenges faced by start-ups and provided financial assistance through Covid-19 Start-
up Assistance Scheme (CSAS). This scheme was introduced to assist innovative start-
ups that have demonstrated an ability to adapt to the economic impact of Covid-19 and
ensure their employees’ safety and financial stability.

1.4 Start-up India Initiative

Start-up India is a campaign launched by Prime Minister Mr Narendra Modi on the 16th
of January 2016 to boost entrepreneurship, nurture the Indian start-up ecosystem and
give momentum to job creation. It is a flagship initiative of the government of India,
intended to build a robust ecosystem for nurturing innovation & start-ups in the country
that will drive sustainable economic growth and generate large-scale employment
opportunities for the youth. The initiative also aims to promote entrepreneurship among
women to enable them to participate in the nation's economic growth. Driven by a 19-
point Action Plan spanning across areas such as “Simplification and handholding”,
“Funding support and incentives”, and “Industry-academia partnership and
incubation”, it lays down the roadmap for the growth of start-ups in India through
financial, monitory and strategic assistance (DPIIT, 2016; DPIIT, 2020). A monitoring
committee has been formed comprising a representative from DPIIT, NITI Aayog, the
Department of Revenue (Ministry of Finance), the Ministry of MSME, the Department
of Science and Technology, the Department of Bio-Technology Ministry of Electronics
and Information Technology, the Department of Higher Education and Small Industries
Development Board of India to review the progress of this initiative regularly. The
notification issued by the DPIIT (2019) considered an entity as a start-up if it is
incorporated as a private limited company, a registered partnership firm or a limited
liability partnership firm in India; up to ten years from the date of its
registration/incorporation; if its turnover for any financial years since
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registration/incorporation has not exceeded ₹100 crores; if it is working towards
innovation, development or improvement of products or processes or services, or if it
is a scalable business model with a high potential of employment generation or wealth
creation; if it is not formed by splitting up or reconstructing a business already in
existence.

The Indian government has taken various measures to address the need for
entrepreneurship and has motivated people to start their ventures. Start-up India
initiative has achieved a landmark by recognising a considerable number of start-ups.
Since its implementation, this initiative has helped many young entrepreneurs to start
their ventures, and finally as an outcome, the success stories of several entrepreneurs
have been scripted. The government also announced several concessions for budding
entrepreneurs, including tax exemption, rebates, funding support, etc. The government
reduced the regulatory burden by lowering the compliance cost so that start-ups could
better focus on their core business. The initiative positively impacted youths by
changing their perception of start-ups. A start-up seeks funds at different stages for
various purposes; first-stage/seed-stage funding is fuel to support their idea and R&D
for product development, middle-stage funding for managerial support and finally, in
the later stage for growth and expansion. The government declared a ₹10,000 crore
Fund of Funds (FFS) for start-ups that is provided to the eligible recognised start-ups
through SEBI and AIFs (Alternative Investment Funds). This fund is created to provide
financial aid to start-up companies over the next four years.

As the revenues of start-ups are low and burn rates are high in their initial phases,
provisions have been made to exempt the tax on profits and capital gains. Under the
initiative, DPIIT-recognised start-ups can apply for tax exemption for three consecutive
years, as stated in section 80-IAC of the Income Tax Act. However, a certificate from
the inter-ministerial board for the purposes of section 80-IAC needs to be obtained by
the start-up company after fulfilling certain conditions. The inter-ministerial board
(IMB) comprises a Joint Secretary, DPIIT as a convener and two members, namely the
department of biotechnology and science & technology. As a result of this initiative,
there is a 15% increase in start-ups every year, with more than 60,000 start-ups in India

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as of March 2021 and 44% of the recognised start-ups have women directors (Soni,
2021).

The initiative aims to promote digital or technology orientation in a wide array of

sectors like agriculture, manufacturing, waste management, healthcare, education and
the social sector. The initiative also aims to focus on tier 2 and tier 3 cities, including
semi-urban and rural areas, because the majority population of the country resides there.
Hence, development cannot be focused on only one sector or big city as growth means
the combined development of the whole nation and all employment sectors. The
recognised start-ups can now get listed as sellers on India’s largest e-procurement
portal- Government e-Marketplace (GeM). To encourage the participation of start-ups
in tenders, the requirement of prior turnover and experience has been relaxed. In
addition, they have also been exempted from the provision of earnest money deposits.
As of January 2021, 53,226 orders from public entities have been placed to start-ups
with orders worth ₹ 2,279 crores (DPIIT, 2021).

In line with the other supporting initiatives for start-ups, the DPIIT organised a two-
day “Prabandh Start-up India international summit” on 15 & 16 January 2021, on the
completion of 5 successful years of start-up India initiative. The summit brought
together top policy makers, industry, academia, start-ups, investors and all stakeholders
across the globe. At this summit, the government declared a ₹ 1,000 crores start-up
India seed fund to further support early-stage start-ups. This fund is aimed at assisting
start-ups with the initial capital for growth and operations. The initiative has triggered
not only innovation but also entrepreneurship; as a result, 29 states and UTs have their
own start-up policies.

Benefits for Start-ups under the Initiative

There are various benefits provided to the start-ups under the initiative. An entity must
be recognised by the DPIIT to access the below-listed benefits.

 Single window clearance, even with the help of a mobile application.

 ₹10,000 crore SIDBI fund of funds (FFS) managed by SIDBI, which is intended
to provide equity funding support for the development of start-ups.

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  Reduction in patent registration fees, i.e. up to 80% in filing patents.
 Reduction in trademark fees, i.e. up to 50% in the filing of trademarks.
 Modified and friendly bankruptcy code to ensure a 90-day exit window under
the Insolvency and Bankruptcy Code, 2016. An insolvency professional is
appointed to liquidate the assets and pay creditors.
 Freedom from mystifying inspections for three years.
 Freedom from tax in profits for three consecutive years out of 10 years
beginning from the year of incorporation under section 80-IAC. The profits are
exempt from income tax after being granted an inter-ministerial board
certificate.
 Relaxation from capital gains tax for three years not exceeding ₹ 50 lakh in a
financial year.
 Self-certification compliance under three environmental and six labour laws.
Start-ups are allowed to self-certify compliance for five years from the date of
incorporation of the entity.
 Starting with 5 lakh schools to target 10 lakh children for an innovation
programme.
 New schemes to provide Intellectual property rights (IPR) protection to start-
ups and new firms.

Fund of Funds for Start-ups (FFS)

The Indian government has set up a fund of funds for start-ups (FFS) with a corpus of
₹10,000 crores under the start-up India initiative, 2016. The FFS aims to provide
funding support to innovative start-up firms for their growth and survival. This fund is
disbursed in a channel where DPIIT is the monitoring agency, and the Small Industries
Development Bank of India (SIDBI) is the operating agency. The funds are not invested
directly in start-ups but are contributed to the capital of SEBI-registered (AIFs)
alternate investment funds (IBEF, 2016). AIF are a privately pooled investment vehicle
which invests in start-ups for the benefit of investors. These AIFs include venture
capital funds, social venture funds, and small & medium enterprises funds. The AIFs
fall under three categories: category I AIF, category II AIF and category III AIF, as per
SEBI (Alternative Investment Funds) Regulations (n.d). The AIFs supported under the
16
fund of funds for start-ups have to invest at least twice the amount contributed from the
FFS in the eligible start-ups as stated under the start-up India initiative in an amended
gazette notification, 2019. As per start-up India, the entire FFS corpus has been
embarked to get allocated across two finance commission cycles- 2015-20 and 2021-
25. The fundraising by the AIFs from the FFS involves two stages:

1. The eligible SEBI-registered AIFs must make a formal presentation to the venture
capital investment committee (VCIC) that SIDBI appoints. The VCIC does a
preliminary screening.

2. If VCIC recommends the application of the AIFs, these are further submitted to
SIDBI and referred to the executive committee of the board of SIDBI for sanction.

Upon sanction, a letter of intent is issued with an agreement of contribution signed by

both parties.

The funds under the start-up India initiative get disbursed in a chain, i.e., DPIIT to
SIDBI, SIDBI to Venture capitalists or Alternative investment funds (AIFs) and
ultimately from AIFs to the selected and eligible start-ups.

Department for Promotion of Industry and Internal Trade (DPIIT)

Small Industries Development Bank of India (SIDBI)

Alternate Investment Funds (AIFs) or Venture Capital Funds

Eligible and Selected Start-ups

Figure 1.2: Channel for Disbursement of Funds under FFS

Source: Author’s Own

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The status of FFS is updated on SIDBI’s website (SIDBI Fund of Funds) from time to
time. The details of FFS as of March 31, 2021 are depicted in Table 1.2. As per data
available on the SIDBI’s website, 62 AIFs are recognised, and 388 start-ups have been
supported under FFS. The commitment of ₹ 4376.95 Crores has been made, whereas ₹
4682.28 Crores has been invested so far in the eligible start-ups through AIFs.

Table 1.2: Fund of Funds Status as of 31st March 2021

Commitment made ₹ 4376.95 Crores

Invested in Start-ups by AIFs under FFS ₹ 4682.28 Crores

Number of AIFs 62

Start-ups supported under FFS 388

Source: SIDBI Fund of Funds Status as of 31st March 2021

https://www.sidbivcf.in/en/funds/ffs

1.4.1 Indian Start-up Ecosystem

The start-up ecosystem is formed by the collaboration of people, start-ups in their

various stages and different types of organizations in a location (physical or virtual),
interacting as a system to create and scale new start-ups. Besides the entrepreneurs
themselves, the start-up ecosystem comprises various stakeholders, including
incubators and accelerators, investors, service providers, educational institutions,
research institutions, and big companies. The star-up India initiative is a platform for
all stakeholders in the start-up ecosystem to interact, form partnerships, and exchange
knowledge. This initiative created a start-up bridge which enables start-ups to access
the global market and exchange knowledge through bilateral government tie-ups with
countries like- Russia, Korea, Portugal, Japan, Netherlands, Sweden, Finland, Israel
and Singapore (Ministry of Commerce & Industry, 2022). India has the 3rd largest start-
up ecosystem in the world; expected to witness year-over-year growth of 12-15%, i.e.,
around 15,000 new start-ups in India (Khurana, 2022).

As per start-up India portal, one thousand four hundred new tech start-ups were born in
2016 alone, implying that 3-4 tech start-ups are born every day. Government initiatives
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have enriched the Indian start-up ecosystem and raised the launch rate of new
businesses. It also has a pronounced impact on increasing India’s rank in the Global
Innovation Index and Ease of Doing Business. The Global Innovation Index is
published annually by the World Intellectual Property Organisation (WIPO), which
captures the performance of 132 economies based on their innovative ecosystem. As
per GII report (2021), India has consistently climbed up with remarkable resilience and
ranked 46th despite the coronavirus's massive adverse impact on innovative entities'
sustainability (WIPO, 2021). In India, cities like Bangalore, Delhi NCR, Mumbai,
Hyderabad, Chennai and Pune are the top start-up destinations, with over 65% of the
total Indian start-ups (Mundhra, 2022). Bangalore has also been listed among the
world’s 20 leading start-up cities (Start-up Genome, 2015) and ranked as one of the
world’s five fastest-growing start-up cities. With such significant growth of Indian
start-ups, angel investments are on the rise, with a 20% increase in active investors.
Global investors such as Alibaba Group, Soft bank, Sequoia and Foxconn have
extensively started to invest in the Indian start-up ecosystem.

A start-up finds it hard to attract and hire skilled employees, especially when the private
sector is booming with flourishing corporations providing numerous opportunities to
the right talent. Also, cultural issues with risk dealing and failures have interdict people
from being flexible enough to work in a start-up. The greater risk and insecurity
compared to the large companies makes it more difficult to sustain such a venture
steadily. The challenges faced by entrepreneurs in setting up start-up ideas into reality
include competition, network building, compliances, technology design, regulatory
framework etc. The financial constraints remain a pertinent concern as they require
funds from time to time for their effective operations. Many internet-based start-ups put
efforts into raising investments than generating revenues because their survival is
strenuous at an early stage once the funding halts. Over the past few decades, investors
have been putting billion of rupees into hundreds of start-ups based on their innovative
idea and unique business model. Funding from government schemes and private
investors is available for trusted start-ups having customers and good turnover figures.
To access such funds, start-up mentors guide reaping effective results as they help them
to discover potential ways to grow beyond the setup stage. Also, well-established
enterprises are realizing the disruptive potential of start-ups and partnering with them
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by assisting in many ways. As per KPMG CEO Survey (2016), 37% of surveyed CEOs
deem their organisations to be highly capable of connecting beneficially with start-ups.
Examples of corporate support- Wipro has set up a $100 million (around ₹ 600 Crore)
VC fund to invest in early to middle-stage start-ups, and IBM is partnering with 100
Indian big data and Internet of things (IoT) start-ups (Agarwal, 2017; Abrar, 2014).

The government of India has taken manifold steps and has provided a conducive and
congenial environment to boost entrepreneurship. It has taken several measures to
support and nurture the start-up ecosystem. The government is putting all possible
efforts into holding the hands of innovative entrepreneurs that are not only developing
the economy but are creating jobs for others. The Small Industries Development Bank
of India (SIDBI) has been complementing the government’s efforts through its
assistance in channelizing and monitoring various schemes and policies. Some
commercial banks and the Stock Exchange Board of India (SEBI) are playing a
mediating role between the government and start-ups. Also, various educational
institutions are coming up with government initiatives to support innovation and
entrepreneurship in the form of providing tinkering labs, incubation facilities,
mentorship, funding etc.

The Indian government is actively putting down measures to help the entrepreneurs by
proving them humungous opportunities across the diverse fields. Government schemes
to promote and develop the start-up ecosystem are- Atal Incubation Centres (AIC),
Aspire - A Scheme for Promotion of Innovation, Rural Industries and Entrepreneurship;
Stand Up India, SIDBI Startup Mitra, SIDBI Venture Fund, MUDRA Yojana,
Multiplier Grant Scheme (MGS), SIDBI Make in India Soft Loan Fund for Micro Small
and Medium Enterprises (SMILE), Pradhan Mantri Yuva Udyamita Vikas Abhiyan
(YUVA Yojana), India Aspiration Fund (IAF), Start-up India Seed fund scheme
(SISFS), Scale-up Support to Establishing Incubation Centres, Sustainable Finance
Scheme, Samridh Scheme, New Gen Innovation and Entrepreneurship Development
Centre, Zero Defect Zero Effect (ZED) Scheme, Atal Incubation Centres, Ashwini
Vaishnaw, Single-Point Registration Scheme, etc. Some of them have been discussed
as follows:

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 Table 1.3: Government Schemes to Promote Start-up Ecosystem

S. Name of the Scheme Key Area Fiscal Incentive

No
1. Promoting Innovations Scientific and Category-I: Proof of Concept/
in Individuals, Start-ups Industrial Units Prototypes/ Models
and MSMEs (PRISM) Maximum ₹ 2 lakh or 90% of
the total project cost, whichever
is lower.

PRISM- Phase-II (Enterprise

Incubation)
Maximum ₹ 50 lakh limited to
50% of the total project cost.

2. Atal Tinkering Education Sector ₹ 10 lakh one-time

Laboratories establishment cost to be used to
procure equipment for
the ATL and ₹ 2 lakh for
operational and maintenance
expenses.

3. Stand Up India Greenfield Loan between ₹ 10 lakh to 1

Enterprise crore for women and ST/SC
communities.
4. Venture Capital Banking (Loan) An interest-free loan that will
Assistance Scheme depend on the project
cost and will be the lowest of
the following: 26% of the
promoter’s equity and ₹ 50
lakh for projects located in the
North-Eastern Region, Hilly
States (Uttarakhand, Himachal
Pradesh, Jammu & Kashmir)

21
 and in all cases in any part
of the country where the project
is promoted by a registered
farmer producers organisation,
the quantum of venture capital
will be the lowest of the
following: 40% of the
promoter’s equity and ₹ 50
lakh.
5. COVID-19 Start-up Technical Loan not more than two crores
Assistance Scheme Services per start-up
(CSAS)

6. Scheme for Scale-up Incubation Grant-in-aid support of ten

Support to Establishing Centres crores provided for two years in
Incubation Centres two or more annual instalments
to established incubation
centres in India

7. SIDBI Make in India MSME The minimum loan size is ₹ 10

Soft Loan Fund for lakh for equipment financing
Micro Small and and ₹ 25 lakh for other
Medium Enterprises purposes with a ten-year
(SMILE) repayment period.
8. Support for IT Services, Up to ₹ 15 Lakhs for each
International Patent Analytics, creation or half of the aggregate
Protection in Electronics Enterprise costs brought about in
& Information Software, documenting and handling the
Technology (SIP-EIT) Technology patent application up to give,
Hardware, whichever is lesser.
Internet of Things

Source: Startup India website

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1.5 Uttarakhand State and its Entrepreneurship Development
Capello & Lenzi (2016) emphasized that the growth of a region is associated with its
entrepreneurial development and innovative environment. Uttarakhand state is one of
the Indian Himalayan regions formed on 9th November 2000 and is spread across over
thirteen districts. The state is divided into Garhwal and Kumaon divisions consisting of
three plain and ten hill districts. It is primarily a state covered with hills, rivers and
forests. Therefore, the livelihood of communities depends heavily on natural resources.
Nature has bestowed the state with a lot of resources that can be used to enable
livelihood, skill people to use these resources and help the economy grow. The major
portion of Uttarakhand state is covered with forest areas consisting of species of rare
plants and animals, the destination for adventurous sports activities with a broad
network of rivers.

The state has numerous entrepreneurial opportunities in sectors like agriculture,

tourism, food processing, education, biotechnology, healthcare, waste management and
organic farming. The state has huge tourism and hotel industries with a lot of scope for
homestays. Besides this, agriculture, pharmaceutical & aromatic plants, logistics,
floriculture, horticulture, hydropower, manufacturing and many other industries are
coming up in a big way in Uttarakhand. In the state, “the pharmaceutical & healthcare
sector is likely to witness an over 20 per cent growth in generating jobs” (India Skills
Report, 2016).

For the development of entrepreneurship, the state government has come up with many
steps to develop and transform entrepreneurship, including a skill development mission,
industrial parks (Aroma Park, Plastic Park and Logistics Park), the state’s start-up
policy and many more. The state has enormous growth opportunities for entrepreneurs
with the availability of resources at a low cost. Owing to the development of supportive
infrastructure, many state-based entrepreneurs have started working at national and
international levels. Various people from the hilly regions of the state, like Almora,
Pauri, Bagheshwar and Chamoli, have also turned into entrepreneurs of small-scale
enterprises. In the hilly region of the state, women are actively involved in
entrepreneurial activities such as handicrafts, fruit & vegetable processing, knitting of
mattresses etc. Marketing local varieties of food products, such as honey, seasonal
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fruits, pulses, herbs, etc., helps small farmers boost their earnings. Recently, the state
has been awarded a geographical indication (GI) tag for seven indigenous products,
including Kumaon’s chyura oil, Munsyari rajma, Bhotia dann (rug made by Bhotias),
aipan (a traditional art made by people on special occasions), ringal crafts (making of
items by knitting bamboo strands), thulma (blankets spun from locally-sourced fabrics)
and copper products (Singh, 2021). Tejpatta was the first product to receive the GI tag
in the state.

As the state is relatively new, various entrepreneurial challenges exist, such as

inadequate infrastructure, lack of technical expertise, migration from hills, etc.
Migration from hill areas is a major issue in the state where people, especially youths,
migrate to cities due to the unavailability of employment, infrastructure, education, and
medical facilities. As a result, more than 3000 villages of Uttarakhand turned into ghost
villages where no people or less than 100 people were living (Upadhyay, 2021). The
main challenges faced by entrepreneurs in the hill districts are inadequate socio-
economic infrastructure, fragile land, migration, lack of market, lack of financial
assistance and geographical inaccessibility. The COVID-19 pandemic also impacted
the state’s economy adversely as there is over-dependence on the tourism sector, which
covers half of the state’s revenue.

The government's focus is more on industrial development in plains areas (Dehradun,

Haridwar, Nainital and Udham Singh Nagar) of the state; the entrepreneurial growth in
the hilly regions is still undeveloped because of the little scope for the establishment of
large and medium scale enterprises. The basic infrastructure, such as roads, irrigation,
healthcare and telecommunication are less developed in hill regions, leading to a rise
in the disparity in earnings and employment between hills and the plains. There is a
requirement for some transformational steps for sustainable entrepreneurial
development in these areas where the resources for setting up small enterprises like fruit
processing units, dairy cooperatives, mineral-based enterprises, bamboo industries,
floriculture & horticulture etc., are substantially available.

The growth of micro, small and medium-scale enterprises in a region indicate the
overall development of innovation & entrepreneurship. Government support and
policies influence the growth and performance of small-scale businesses that have been
24
investigated by various researchers (Okrah, Nepp & Agbozo, 2018; Muramalla & Al-
Hazza, 2019). In Uttarakhand, the MSME sector is employment intensive and growing
swiftly due to favourable schemes/ initiatives launched by the government in recent
years. But the growth rate of small and medium-scale enterprises in the state is low
compared to other states with a well-developed entrepreneurial ecosystem. The year-
wise data of MSMEs registered in the state, along with investments and employment
generated by them, have been presented in Table 1.4. It shows an increasing trend in
the number of registered MSME units, investments in MSMEs and employment
generated by them over the years.

Table 1.4: Year-wise Status of Uttarakhand-based MSME Units

Number of Employment
Investment
Years MSMEs generated by
in millions
registered MSMEs
Before Creating Uttarakhand 14163 7003 38509
2000-2001 1119 71 2336
2001-2002 2183 221.6 4864
2002-2003 2544 233.3 5287
2003-2004 2470 317.1 5735
2004-2005 2815 579.8 6868
2005-2006 2955 908.9 9031
2006-2007 2989 3294.9 12058
2007- 2008 1500 8442 16032
2008-2009 1346 11916.5 18195
2009-2010 1871 15568.8 23865
2010-2011 1973 14248 19673
2011-2012 2121 9317.8 15162
2012-2013 2291 11677.7 18389
2013-2014 2469 6227.5 12842
2014-2015 2669 5335 12034

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 2015-2016 2929 7348.9 17471
2016-2017 3080 9499.6 22065
2017-2018 3339 7289.35 19547
2018-2019 2360 4722.03 12070
2019-2020 2669 5063.48 17310
2020-2021 2039 3133.46 17010
Grand Total 63894 132419.6 326353

Source: DOI (The Directorate of Industries)

https://www.doiuk.org/easeofdoingbusiness.php

Along with the establishment of MSMEs, the entrepreneurs in Uttarakhand are trying
their hands in the start-up world. With government support and handholding, the state
is a host of hundreds of innovative start-ups that disrupt the existing market with new
ideas. The state government has also made various provisions for financial support in
the form of seed funds to support state-based start-ups; still, the survival of start-ups is
challenging. The study has focussed on unravelling this issue as the empirical shreds of
evidence on the actual status of the start-up ecosystem of Uttarakhand are unavailable.

1.6 Research Problem

The skill-set required to be successful entrepreneurs includes entrepreneurship skills,
technical skills, personal maturity skills and managerial skills (Kutzhanova et al.,
2009). The growth of Indian start-ups in terms of generation of income, turnover and
market share is way more complex than any other developed nation. There is the
existence of substantial qualitative differences in how businesses achieve growth;
hence, it is difficult to analyse the growth and performance of small companies
(McKelvie & Wiklund, 2010). As the importance of start-ups in economic growth is
increasing, the factors that influence the start-up’s performance become a pertinent
research area. Therefore, keeping all these parameters in mind, this study was framed
to uncover the factors that directly or indirectly affect the growth and sustainability of
start-ups.

26
When any new scheme/policy is launched to benefit the industrial and business sectors,
awareness and advertisement programs are required heavily so that the targeted people
can benefit from such initiatives. Despite all the government's efforts to nourish the
start-up ecosystem, Indian start-ups are facing several challenges especially in the
initial stages of their life cycle. The study aimed to assess the impact of the start-up
India initiative on the development of innovative start-ups. Political factors always
impact the growth and sustainability of small businesses (Minniti, 2008; Hansen, Rand
& Trap, 2009); hence, the after-effects of schemes and policies of both central and state
governments are demanded to be analysed. The study also identified the constraints
experienced by the beneficiaries/eligible start-ups under the start-up India initiative.
Many constraints are being faced by the start-up founders in availing benefits from the
government schemes, which include- complexities in registration, heavy compliances,
securing funding in the form of grants or loans, connecting with mentors & investors
and strict regulations etc. (Thippeswami & Poojitha, 2020; Sharma & Puthiry, 2020).
Since the rate of generation of innovative ideas has accelerated, the rate of obsolescence
of technology and mortality of start-up companies have also gone up. Hence, the
research is relevant in this field to unravel the actual status of Uttarakhand-based start-
ups, as the sustainability of any venture is a more pertinent question than its existence.

Summary
This chapter provides an overview of entrepreneurship development in India and
concept of start-ups. This chapter also sheds light on the relevance of the start-up India
initiative and Indian start-up ecosystem. The entrepreneurial development in
Uttarakhand state and research problem have also been highlighted in this chapter. As
a result of favourable government initiatives, thousands of innovative start-ups are
registered in Uttarakhand where the maximum number of recognised start-ups are based
in the Dehradun district. There are a set of benefits for setting up small companies in
Uttarakhand, such as good connectivity from different regions of the state to metro
cities, technology and education hubs, low cost of operations, training programmes,
investors connect programmes and many more. Still, the sustainability of small
enterprises is a significant challenge in the state.

27