The Indian startup ecosystem did exceptionally well in 2021. The growing investor confidence in Indian startups is overwhelming, and is seen gaining momentum across different stages of growth in a startup journey, including seed stage funding. Early-stage investments in potential startups are propelling the entrepreneurial ecosystem in a big way and are being viewed as promising investment options across diverse investor communities, including high net worth individuals (HNIs) and ultra-high net worth individuals (UHNIs). There are three definitive reasons behind this emerging trend of early-stage startup investment becoming an asset class with high returns.
Availability of a large talent pool seeking to be entrepreneurs: India has recognized the need to develop innovation and incubation centres for its large student community to foster innovation and entrepreneurial mindset through academic institutions. The IIMs and IITs, R&D institutes, non-profit organizations etc., are seen driving this agenda with the help of state governments. A rising number of incubators and a steady inclination of young executives towards starting their own ventures is also propelling the entrepreneurship and early-stage startup ecosystem in India. A study by Tracxn on tech startups of 2021 revealed that a sizeable number of edtech founders are young graduates from IITs and premier engineering colleges or those who worked for global consulting firms. This availability of young talent with the right blend of passion, expertise and mindset of Indian entrepreneurs definitely puts India’s early-stage startup ecosystem at an advantage ready to cash on the opportunities of a booming market.
Favourable regulatory environment: The Indian government has been playing a crucial role in facilitating the growth of early-stage startups through the implementation of progressive policies and creating relevant infrastructure. Under the Startup India Initiative launched in 2016, the government has endeavoured to simplify complex legal, financial and knowledge requirements in an effort to encourage participation of early-stage potential startups. Reforms such as opening up sectors like space-tech for private participation, tax holidays for startups fulfilling certain eligibility criteria such as annual turnover and year of incorporation to tide over working capital requirements, and creation of state-run incubators, among many, are lowering the odds of establishing successful startups and helping them grow. Strategic interventions of such kind are being picked up by aspiring entrepreneurs and the results are seen in a boom in the number of early-stage startups, which is only expected to increase exponentially.
Startup ecosystems built by corporations: Established corporates who lack innovation capacity and agility, and nimble early-stage startups who lack cash for growth and networks for market access and product/service launches, provide a unique and scalable platform for a marriage for multiplied wealth creation. Various corporate-startup partnership programmes have been driving innovation and accelerating the growth of early startups in India, across manufacturing and service sectors. Large corporations like TCS, Accenture, Reliance, Microsoft and Tata Motors have implemented such partnerships extensively with good success. For example, Microsoft India has accelerated more than 4,000 startups, while Tata Motors is engaged with half a dozen startups and exploring partnerships with 20 more, and L’Oréal through its Open Innovation Program partners with tech startups and early-stage companies focused on digital beauty services and incubators and has accelerated more than 30 startups. Currently, India is witnessing rapid growth in the number of startups. The incidences of the next round of funding by the startups have been on the rise, signalling the dawn of a matured investment phase in the Indian startup ecosystem. Some of the notable deals this year that had the next round of funding included BrowserStack ($200 million in Series B), Apna ($70 million in Series B), Purplle ($ 45 million in Series D) and AdOnMo ($14.9 million in Series A).
With the availability of innovative talent, promising markets marked with favourable government policies and capital infusion by established corporates, this early-stage cycle of investment in the startup ecosystem has become a lucrative prospect for the domestic and global investors alike. Rising investor interest in India’s startups ecosystem is in turn fuelling the influx of new ideas and vice versa, raising the bar of excellence, growth, return as well as the risks on investment.
Nandini Mansinghka, co-founder & CEO of Mumbai Angels.
