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India - The 3rd Startup Nation

India - The 3rd Startup Nation

Since the beginning of the current decade, India’s technology startups have demonstrated impressive growth that has already brought the country to third place in the world only behind the acknowledged industry leaders: the US and Israel.

In today’s India, there are more than 4,200 startups from various fields, including digital (social networks, mobile technologies, analytics, cloud computing), hi-tech (augmented reality, Internet of Things, robotics), and ‘verticals’ where blank spots are identified and solutions are developed for specific areas (education, medicine, finance, advertising).

The startup ecosystem in India is young, innovative, aspirant, and futuristic, and since the beginning of the decade, it has virtually exploded. To put things in perspective, India had only 480 tech startups in 2010. Tech startups by definition include any business in the domain of technology incepted within the last five years, is headquartered in India, or has founding team with Indian origins along with product development largely in India.

Here are some key highlights of the Indian startup industry – and its emerging hotbeds of innovation:


1,200-plus new startups added in 2015;

80,000-85,000 jobs created by startups; greater than 10% growth in last year;

India is the youngest start-up nation in the world – 72% of the founders are less than 35 years old;

~ 50% rise in share of female entrepreneurs in 2015 over 2014, driven by 4.5 times the growth in funding to women-driven startups;

most of these founders, with a strong consumer-centric approach, have come up with some of the best-in-class B2C startups. Women entrepreneurs have also started to leverage the innovation economy;

funding increased by 125%, from $2.2 billion in 2014 to $4.9 billion in 2015; this is much higher compared to the cumulative funding of ~$3.2 billion over the 2010-14 period;

~2.2 times the increase in the number of startups funded in 2015. More than 390 startups have received funding, compared to 179 startups in 2014;
while overall VC/PE funding has grown by 2.2 times over 2014, seed stage VC funding has grown by an incredible 6.5 times;

the total number of active investors has grown by 2.3 times, from 220 in 2014 to 490 in 2015;

the B2C segment dominates, led by e-commerce, health care and aggregators; B2B funding evolves as e-commerce enablers, IoT, and analytics emerge as focus areas;

more than 65% of startups are located in Bangalore, NCR, and Mumbai;

2.3 times the growth in number of active investors; global investors and corporates are betting high on the India market. Tiger Global, Sequoia Capital, Softbank, Warburg Pincus, and Alibaba are among the top investors, participating mostly in high-value deals worth more than $500 million;

startups are creating a new world of talent; executives from national and international conglomerates are joining top positions at start-up ventures or starting their own ventures.


Driving the Dream


So what is really driving this dream? Increasingly, the number of investors, including global ones, who are parking funds here; a growing digital user base; mobile-first population; and a supportive government that recognizes the role of startups, are clearly some of the top of mind drivers.

This maturing startup ecosystem is contributing to the Indian economy in multiple ways. In addition to enhancing the lifestyle of citizens, startups are creating innovative technology solutions that address key problems that India as a country faces, and are empowering SMBs by enhancing their customer reach and overall business productivity.

The meteoric rise of tech startups and their contribution is unparalleled. This has much to do with the fact that young entrepreneurs are able to think big, and view India’s challenges as billion-dollar opportunities. Power shortage in India lead to an annual loss of $68 billion); impact of infrastructure congestion is estimated at $10 billion; India only has one doctor for 1700 patients; over 120 million rural households do not have access to bank accounts; agricultural productivity is abysmal in India (48% of agricultural yield compared to other Asian countries); and impact of technology will imply a huge skilling challenge in India, with 500 million people required to be skilled in the next five years. A vision that has captured popular mindshare of the startup community is that these challenges, if addressed, can transform the nation beyond recognition.

It is encouraging to see global investors interested in large deals, upward of $500 million. In the B2C segment, hyperlocal e-commerce and aggregators presently command a lion’s share of the pie. But in the B2B segment, especially those in niche segments and providing solutions to the former, are close on the heels. Robotics, 3D printing, and machine learning are the other emerging whitespaces for the future.

The ecosystem is not just cognizant but supportive of this change in equal measure. This is evidenced by the fact that incubators, accelerators, and the like are mushrooming. The triad – academic institutions, the government, and corporate houses – provides support to this part of the value chain admirably, be it physical space or knowledge dissemination. Often, both.


Exits: instilling positivity and confidence


The period from 2014-15 has seen some large exits, instilling positivity and confidence in the investor community. Over 65 acquisitions this year signal a maturing startup ecosystem in India. An improving environment for doing business – these are the main reasons for a rush of venture capital into India over the last two years. Now, there’s another pull factor growing stronger: exits.

Exits, mergers, and acquisitions are important for investors as they help them to reinvest into new startup ventures. Their risk appetite goes up, too, as exits mitigate worries over getting caught up in a valuation bubble. And it is not just the number of exits that matter, but their size, too.

With over 65 M&A deals already in 2015 – worth close to $800 million (which excludes several deals with undisclosed value), – India has shown the signs of positivity and confidence in the global market. More importantly, some of these have been big-ticket exits instilling investor confidence in the Indian startup ecosystem.

Thanks to active government support and the building of the necessary infrastructure, in particular as part of the Start-Up India program, the country’s startup industry is growing at an impressive pace. By 2020, more than 11,500 tech startups would get established in India, generating employment opportunities for over 250,000 people.

Key indicators, such as opportunities existing in the domestic market, access to capital/mentors, increased M&A and consolidation activities, and the increasing digitalization of India clearly point toward the further evolution of the ecosystem.

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