Indian Start-up Ecosystem: Drivers and Boosters

India added 18 unicorns to its tech ecosystem in 2018 alone. This list is expected to add another 10 unicorns by 2020. Udaan, a B2B marketplace, is the fastest start-up in India to become a unicorn – 26 months since inception. NASSCOM (National Association of Software and Services Companies) estimates that India incepted close to 7700 technology startups between 2013 and 2018, with 1200 companies added in 2018 alone. Renewed interest in India resulted in an increase of 108% in start-up funding, reaching US$4.2Bn in 2018.

So, what are main drivers of Indian innovation and entrepreneurship? Who is encouraging the Indian start-up community to face challenges head on? The answer is a lot of things. Though, below are three key aspects of how India’s strengthening presence on the international technology stage is helping it’s start-up ecosystem.

Access to Capital

In the past, innovation largely emerged from the main metropolitan cities but there has been a significant rise of homegrown early stage funds that are building a strong start-up foundation across the country. Combined with improving infrastructure and access to talent as well as the experience with grassroots problems, investor interest in tier 2 and tier 3 cities across India has increased over the past few years.

These localized solutions are backed by the funding from angel networks, driving innovation across the country. According to Inc42, there are over 30 such angel networks in India – 19 of which invested in 81 deals in 2018. There are also currently over 400 early stage funds operating in India, working in parallel with angel networks, HNIs and corporate investors.

On the other hand, seed stage funding dropped by 18% in 2018. While potentially driven by founders willing to bootstrap their venture to raise valuations, this trend could have a significant impact on the spread of innovation through India. What would you do? Raise funds or bootstrap a venture?

Interestingly, the sale of Flipkart to Walmart resulted in the creation of multiple dollar millionaires overnight – who are now fueling the injection of fresh capital into the Indian start-up network. Binny Bansal of Flipkart has invested in 26 companies, while Anupam Mittal from the People Group has invested in 30.

Incubators and Accelerators

360-degree support to new entrepreneurs prepares teams to drive capital-led growth, crucial to overcome the challenges of early stage start-ups. There are currently over 200 incubators in India operating with varying investment models, with 38% of them based in tier 2 and tier 3 cities. How do you choose an accelerator that’s right for you?

A few big-name accelerators and incubators include Surge by Sequoia Capital, ICICI Labs, WeWork Labs, CISCO, Khosla Labs, NetApp and Microsoft. There should also be a special mention of Upekkha, a SaaS incubator in Bengaluru, which does not take any equity in start-ups unless a pre-determined milestone in revenue is met.

Coworking spaces across India are also driving a professional environment with free and easy access to ideas and knowledge. Coworking operators have raised close to US$400Mn in 2018 and are slated to add an estimated 13 million seats by 2020.

Government Initiatives

Private players aside, there are also a host of government programs, designed to drive innovation in technology. The India Aspiration Fund has access to INR 100 billion, to be dispensed to various academic institutions to nurture the next generation of Indian entrepreneurs by 2025.

There has been significant adaption of the government, at national and state levels, to encourage and foster the growth of the Indian start-up ecosystem. These initiatives include providing funding support, promotion of entrepreneurship as well as create a business environment that stimulates student founders.

States have also partnered with corporate accelerators while launching funds specifically for women entrepreneurs, while providing mentor-ship and guidance ranging from incubation to idea implementation.

A diverse mix of founders with varying experiences, education and visions are providing solutions for India-first problems. India’s business environment is currently gearing up to drive sustainable and profitable growth for entrepreneurs across the country. However, the broad spectrum of industries operating in India will eventually need to filter down to specific areas of focus. This will not only enable entrepreneurs to create industry specific capabilities but also enhance the value proposition of the Indian start-up ecosystem.