NATIONAL INSTITUTE OF TECHNOLOGY KARNATAKA

Analysis Of Growth Of Startups In India

by-
Riya Shukla-221MN043
Niharika Rathore-221ME237
Divyanshu Ratnakar-221CH018

Abstract
Startups aim to solve existing problems in various sectors through innovative business models.
They're like seeds planted by entrepreneurs, hoping to blossom into successful ventures. With
innovation and determination, startups navigate challenges, seek investment, and strive to
make a mark in the business world. They're the seeds of tomorrow's better future.
This paper is mainly focused on the role and growth of startups in the transformation of the
Indian economy and impact of Covid-19 on startups.It also elaborates their ecosystem and the
various government initiatives undertaken to promote startups in India.

Introduction

To define a startup, a number of things must be considered, but innovation is one of the most
important aspects of a startup. According to this particular passage from Van de Ven,
innovation is described as follows: “An innovation is a new concept, which may be a
recombination of existing ideas, a plan that challenges the status quo, a formula, or a particular
technique that is viewed as novel by those involved” (Van de Ven, 1986; Zaltman et al., 1973;
Rogers, 1983). Thus, a startup is defined as “A firm that has been founded less than ten years
ago, which has to some extent a technological base, and approaches innovation according to
the logic”. A healthy startup ecosystem leads to progress in any country, and there is a global
drive to trigger the growth of nations through innovations and creativity. The startup ecosystem
in India contributes enormously to economic prosperity and growth. The role of startups is not
only limited to job creation and capital formation, they also contribute towards a better standard
of living by providing quality products and services.

Objectives of the study

The main objectives of the study are:

1) To analyze the history of startups in India and their ecosystem.
2) To highlight the role played by startups in the development of Indian economy.
3) To analyze the impact of Covid-19 on the Indian Startup ecosystem.
4) To elaborate the various government initiatives for the growth of startups in India.

Methodology

The study is based on secondary data sources. For the purpose of this study, various research
papers, reports, government websites, startup India portal, newspaper articles etc. are analyzed
in detail.

Key Terms in the Startup Ecosystem

Entrepreneurship: The art of creating and managing a business venture, marked by

innovation, risk-taking, and the pursuit of opportunity.

Founder: The individual or group of individuals who conceive, establish, and lead a startup,
taking on roles such as CEO, CTO, or COO.

Disruption: The phenomenon whereby startups challenge traditional industries, business

models, and market paradigms through innovation and unconventional approaches.

Angel Investor: High-net-worth individuals who provide early-stage funding and mentorship
to startups in exchange for equity ownership.

Venture Capital (VC): Institutional investors or firms that invest capital in startups with high
growth potential in exchange for equity stakes, typically at later stages of development.

Seed Funding: Initial capital raised by startups to validate their concept, develop prototypes,
and conduct early market testing.

Pitch Deck: A presentation summarizing a startup's business model, value proposition,

market opportunity, team, and financial projections, used to attract investors and
stakeholders.

Minimum Viable Product (MVP): The most basic version of a product or service that allows
startups to test their concept, gather feedback, and iterate based on user validation.

Scale-Up: The phase of growth in which startups expand their operations, customer base,
and revenue streams, often requiring additional funding and strategic partnerships.

Exit Strategy: A plan outlining how founders and investors intend to realize returns on their
investment, typically through an acquisition, initial public offering (IPO), or merger.

Life Cycle of Startups

A startup is a small innovative idea that requires several stages to grow into a successful
business. A startup's lifecycle can be divided into three stages: early, transition, and growth.
Figure-1 illustrates the lifecycle of startup.

Source: The Online Journal of Distance Education and e-Learning, April 2023 Vol 11 Issue 2

Startups thrive in a supportive ecosystem that nurtures ideas from inception to maturity. These include
academic and industrial institutions, incubation centers, research institutions, service providers, funding
agencies, and government support systems. Figure 2 illustrates a favorable startup ecosystem.
Source: The Online Journal of Distance Education and e-Learning, April 2023 Vol 11 Issue 2

HISTORY OF STARTUPS IN INDIA

● 2005-2010: This period marked the emergence of tech startups in India, albeit on a
smaller scale compared to later years. Companies like RedBus (founded in 2006),
JustDial (founded in 2007), and Snapdeal (founded in 2010) laid the foundation for what
would become a booming startup ecosystem.

● 2011: The launch of the Startup India Standup India campaign by the government aimed
to foster entrepreneurship and innovation across the country. This initiative provided a
significant boost to the startup ecosystem by promoting a conducive environment for
startups to thrive.

● 2012-2015: This period witnessed explosive growth in the Indian startup ecosystem.
The number of startups surged from around 800 to over 5,000 during these years.
Notable successes during this time included e-commerce giants like Flipkart, ride-hailing
service Ola, and hospitality chain Oyo, which attracted substantial funding and achieved
unicorn status.
 ● 2016: The Indian startup ecosystem reached a significant milestone in terms of funding,
crossing $10 billion with over 1,400 deals. Startups like Flipkart and Oyo commanded
multi-billion dollar valuations, signaling the maturity and potential of the ecosystem.

● 2017 onward: Following the peak in 2016, the ecosystem entered a consolidation
phase characterized by fluctuations in funding activity. However, there was still a steady
increase in the number of active startups, which grew from 7,000-8,000 in 2016 to over
50,000 by 2020. Additionally, Tier 2 and Tier 3 cities began to emerge as significant
startup hubs, contributing to the ecosystem's diversification and expansion.

● 2020: Despite the challenges posed by the COVID-19 pandemic, Indian startups
demonstrated resilience and adaptability. The year 2021 witnessed a remarkable
achievement with India producing 44 unicorns, surpassing the previous annual record.
This surge in unicorn creation underscored the robustness and dynamism of the Indian
startup ecosystem.
● 2022: India retained its position as the third-largest startup ecosystem globally, trailing
only behind the United States and China. Projections indicated that the country could
reach 100 unicorns by 2025, reflecting the continued growth and potential of the
ecosystem. Additionally, there was a notable shift from B2C (Business-to-Consumer)
startups to B2B (Business-to-Business) and SaaS (Software as a Service) startups,
indicating evolving trends and market demands.

Role of Startups in the Growth of Indian Economy

Startups have an economic impact both forward and backward. Startups create jobs, reduce
income inequality, and drive digital and technological innovation. Recognising the actual
contribution of startups to the nation's economic development, January 16th has been declared
National Startup Day. Startups are flourishing, increasing productivity and efficiency in almost
every sector of the Indian economy.

Enterprisetech, E-Commerce, Fintech, Consumer Services, Healthtech, Edtech, Media and

Entertainment, Deeptech, Transport Tech, Logistics, and Agritech are the most valued and
funded sectors. The top startups in these sectors include Zoho, Flipkart, Paytm, Zomato, Practo,
Byju's, Games 24-7, Polygon, Ola, Delhivery, and Dehaat. India's major startup hubs include
Bengaluru, Delhi NCR, Mumbai, Chennai, Pune, Hyderabad, Jaipur, Ahmedabad, and
Kolkata.41,317 startups have been recognized by DPIIT(Department of Industrial Policy &
Promotion)between the time period of Jan 2016 to Dec 2020. More than 39,000 startups have
provided employment to 4.7 lakh people (Evolution of startup india, 2021).

Source: State of Indian Startup Ecosystem Report, 2021

Government Initiatives
The government plays a crucial role in fostering the rise of startups by creating an enabling environment
through supportive policies, initiatives, and regulatory frameworks. Here's how the government
contributes to the growth of startups:

● *Startup India Initiative**: Launched in 2016, the Startup India initiative aims to catalyze
startup growth and boost entrepreneurship across the country. It offers various benefits to
startups, including tax exemptions, easier compliance procedures, access to funding, and
mentorship programs. The initiative also facilitates networking opportunities and provides
a platform for startups to showcase their innovations.

● A ‘Fund of Funds’ for startups (FFS) with a corpus of Rs. 10,000 crores, monitored by
DPIIT and managed by SIDBI through investing in Alternative Investment Fund (AIF) has
been provided by the government for a period up to 2026. This fund meets the capital
needs of startups at different growth stages.

● The Startup India Seed Fund Scheme (SISFS) has been launched with a corpus of Rs.
945 crores for a four-year period beginning 2021-2022. It aims to meet the early stage
capital requirements of startups for proof of concept, prototype development, product
trials, market entry, and commercialization.

● Incubation and Acceleration Programs: The government supports the establishment of

incubators and accelerators across the country to nurture and mentor startups. These
programs provide infrastructure, mentorship, networking opportunities, and access to
funding for early-stage startups, helping them scale and grow.

● Skill Development and Education: The government focuses on skill development and
entrepreneurship education to empower aspiring entrepreneurs with the knowledge and
skills required to start and run successful businesses. Initiatives like the Atal Innovation
Mission (AIM) and Skill India aim to foster innovation and entrepreneurship among youth.

● Research and Development Support: The government encourages research and

innovation through funding support, grants, and incentives for R&D activities. Programs
like the Technology Business Incubator (TBI) scheme and grants from agencies like the
Department of Science and Technology (DST) promote collaboration between startups,
academia, and industry to drive innovation.

● The Indian startup ecosystem is connected to the global ecosystem through partnerships,
events, and international forums. India's government has established startup ties with 13
countries, including Brazil, Russia, Sweden, Singapore, the United Kingdom, Portugal,
Finland, Israel, the Netherlands, Japan, Canada, South Korea, and Croatia, to foster
cross-border collaboration.

Overall, the government's proactive role in supporting startups through policy interventions, funding
initiatives, skill development programs, and regulatory reforms has been instrumental in driving the growth
of the startup ecosystem in India. By fostering innovation and entrepreneurship, the government
contributes to job creation, economic growth, and the country's global competitiveness.

Growth of Unicorns
Ms. Aileen Lee, a Venture Capitalist, coined the term "unicorns" in her research article "Welcome
to The Unicorn Club: Learning from Billion-Dollar Startups". In her paper, she analyzed software
companies founded in 2000 and concluded that only 0.07% of those startups achieved $1 billion
market capitalization, and those that did were as rare as seeing the mythical unicorn.

Make My Trip, founded in 2000, became India's first unicorn in 2010. As of January 2023, India
has 124 unicorns worth over $ 350 billion, making it the world's third largest startup ecosystem
after the US and China. According to studies, one of every thirteen unicorns in the world is born
in India, and many unicorns, including Nykaa and Paytm, have had successful public offerings.
Bengaluru is home to 43 unicorns, making it India's Unicorn Capital.

The Indian economy experienced a 66% year-on-year increase in the number and value of
unicorns from 2017-18, compared to the previous trend of one per year until 2016-17. The year
2021 could be dubbed 'The Year of Unicorns' due to the emergence of 44 new startup unicorns,
compared to a total of 33 unicorns between 2011 and 2020.

Source:Self compiled

COVID 19
The advent of covid 19 everything has changed not only in India but all over the world.The pandemic has
changed the political as well as economic system of the country. Despite downturn in some areas of our
economy, there is also growth in some areas.Due to the small size of startups, these businesses are
more vulnerable to both internal and external shocks, such as financial difficulties, the loss of key
employees, troubles in entering a new market, financial crisis, or a pandemic like COVID-19.

Challenges affecting Business Process & Finances during Covid-19

Financial Challenges

Since the impact of COVID-19 was felt in almost all the sectors of the economy, startups found it
difficult to recover payments from their customers. Customers were now asking for other payment
arrangements, such as reductions or payments that differed from what had been originally agreed
upon. All of this led to the short-term cash flow problems that companies experienced. Since COVID-
19, it was discovered that 92% of tech startups are experiencing revenue declines (NASSCOM,
2020).

Supply-Chain, Mobility and Logistical Interruptions

For the startups that were high-tech software-based businesses, supply chain disruptions were not a
problem. But these comprised only a fraction of the entire startup industry. These challenges were
extensively reported in startups that dealt with tangible products and also e-commerce. The Indian
e-commerce sector came to standstill for a time when lockdowns restricted all mobility, no one could
deliver products from one region to another. Companies halted operations and many were woundup
as well.

Reduced and Restricted Scalability

Lockdowns caused a decline in sales for businesses, and Businesses that couldn't cut back on
operating costs saw their cash flow fall. Innovation was also endangered and stagnated by the
epidemic since it made it challenging for new businesses to obtain financing and funding.

Sector wise analysis of start-up growth during coved 19

Startup India in Numbers (Jan 2016–Dec 2022)

 Fig: Year-wise startups recognised during the COVID-19 period (2020-2022)

Source: Startup India - 8 Year Factbook

How startups grew during adversity of covid 19

The government started the "Startup India" campaign on January 16, 2016, with the
goal of creating a strong environment for fostering innovation and businesses in the state that would
promote large-scale employment opportunities and engage in sustainable economic growth.

This campaign laid the basis for the growth of tinkering with potential business ideas and the sector soon
picked up the pace of development. the Startup India programme took numerous strategic
measures to create a robust, supportive, and growth-oriented environment for entrepreneurs and so help
the country create thousands of job opportunities.

Also, customers' changing requirements and behavior gave companies in India new chances. Startups
adapted their business models to meet the evolving requirements and behavior of their customers, they
have tapped into new market segments, and this crisis gave us the chance to focus on creating more
resilient organizations going forward.

The Covid pandemic put E-commerce on the vanguard of retail sector, with the segment of groceries
delivery in the lead. As per a report by the Forrester Research, “ecommerce segment was anticipated to
grow by 6%, amounting to $35.5 Billion in 2020. In this, the grocery segment was expected to take the
lead with about $3 Billion in sales, representing an enormous 76% hike compared to $1.7 Billion recorded
in 2019.”
This growth is praiseworthy and is projected to continue even after the pandemic ends as logistics,
hospitality and solutions startups become increasingly popular every day in the country. But the
progress would not have been imaginable if several of these startup players had not grabbed the
opportunity to mend the broken supply chain during the time of crisis
SUMMARY AND CONCLUSION

In today’s dynamic and ever growing world, where things are changing everyday and new
developments are happening in each and every sector of the world economy, startups have
become the engine of economic growth and development. Especially, in countries like India that
are still on their journey in changing their status from a developing to a developed nation, the
sole means to boost economic growth is via entrepreneurship.

India is the world's fifth largest economy and has emerged as a force to be reckoned within the
international economy.The country has built strong business infrastructures, strengthened
security, expanded digital payments, and formed strategic partnerships with other countries to
promote nation-building.The country has risen to 46th on the Global Innovation Index for ease of
doing business in 2022. India's startup ecosystem will thrive in both traditional and
non-traditional sectors, creating valuable unicorns that benefit both the country and its investors
as it strives to achieve its Sustainable Development Goals.
Unicorns must position themselves strongly to attract the right investor fit. To achieve growth,
companies must use credible valuation models and stock market outcomes. Exit strategies must
be carefully developed while keeping all stakeholders in mind.
In India startups are rapidly progressing but the spread is not equal over all the regions and
sectors. Startups are mainly progressing in IT services, Professional and Commercial Services,
Education, Food and Beverages, Construction and Financial Technology sectors. The significant
growth in just a few states, and metropolitans.The Indian government is also providing a
conducive environment for these emerging businesses through its various policies and
programmes. It will help to achieve the desired levels of economic growth and development.
This startup revolution is poised to dramatically transform the Indian economy.