ABSTRACT
Start-ups are a powerful tool in creating employment opportunities and contributing to the economy. In the recent years, the Government of India has increasingly promoted the significance of Start-ups in the country by introducing various schemes like Make in India, Start-Up India, Digital India etc. The major objectives of the paper are: to analyse and review the available literature on start-ups in India and to analyse the start-up revolution. All the data pertaining to the topic was sourced through secondary sources. The results of the study revealed that the start-up revolution has started in India with start-ups and entrepreneurs establishing their presence in the country, however their proven success and sustainability is yet to be proven.
INTRODUCTION
What is a Start-up?
A start-up is a small venture started by an individual or a group of people, which meets the need, want or solve a problem of the target market by offering an innovative/unique product, process or service.
According to Wikipedia, (DIPP)
“A startup or start-up is an entrepreneurial venture which is a newly emerged business venture that aims to meet a marketplace need, want or problem by developing a viable business model around products, services, processes or platforms. A startup is a new business venture designed to effectively develop and validate a scalable business model”.
In some sources, a start-up is defined considering various parameters pertaining to any business such as funding, revenue, lifecycle, operations, etc.
Definitions of start-ups:
- A startup is a young company that is beginning to develop and grow, is in the first stages of operation, and is usually financed by an individual or small group of individuals.
- A startup is a young company which could be an entrepreneurial venture or a new business, a partnership or temporary venture or a new business organisation designed to search for a repeatable and scalable business model.
- A startup is a young company that searches for an unknown business model in order to disrupt existing markets or create new ones.
- A startup is a young, dynamic company built on technology and innovation wherein the founders attempt to capitalize on developing a product or service for which they believe there is a demand.
(Source: NASSCOM Startup India Report 2015)
History of Start-ups
It is difficult to trace back the history of Startups. Many businesses had adopted the start up business model. However, the term became internationally widespread during the dot-com bubble in the late 1990s, when a great number of Internet-based companies were found.
Dot–com bubble
Dot Com bubble was a historic economic bubble and a period of excessive speculation that occurred roughly from 1995 to 2000, a period of extreme growth in the usage and adaptation of the Internet.
(Wikipedia)
Start-ups in India
Entrepreneurship is not new to India. In fact to quote from the Indian Industrial Commission Report (1916-1918) – “At a time when the West of Europe, the birth place of modern industrial system, was inhabited by uncivilized tribes, India was famous for the wealth of her rulers and for high artistic skill of her craftsmen. And even at a much later period, when the merchant adventures from the West made their first appearance in India, the industrial development of this country was, at any rate, not inferior to that of the more advanced European nations”.
The history of entrepreneurship in India starts in the era of Indus Valley Civilization.
Has the Start-up revolution really started?
To know whether the start-up revolution has really started in India or not, we need to first know what a revolution is.
A revolution in context of our subject is a successful attempt by a large number of people to adapt a change or to change something, which is existing.
A Start-up revolution may be indicated by the year on year growth of start-ups in the country in terms of numbers along with its penetration into the different sectors. Moreover, on top of assessing the growth of start-ups, they also have to assessed on the basis of their success and sustainability and the support of the government in its effectiveness and efficiency in implementing the schemes introduced to provide support to entrepreneurs and the start-up community. The combination of these factors would ensure that the start-up revolution has started in the Indian context.
A Start-up revolution may mean a large number of businessmen coming up with start-up business model rather than traditional business model, and benefitting the society at large. Their motive is to bring something new to the market to gain competitive advantage and at the same time provide value to the people.
Through this research, our motive is to know whether the people of India are coming up with more and more start-ups and what factors are encouraging them to start a start-up, and the sector concentration of these start-ups.
OBJECTIVES
The main objective of the research is to find out whether the start-up revolution has started in India. To meet the objective of the research, the following areas must be addressed:
- To build an understanding of start-up, its context, history and current status.
- Determine whether start up has reached the stage of revolution in India in 2018.
- Identifying the enabling factors and environment that exist and/or need to be created that would accelerate the start-up revolution
ANALYSIS AND KEY FINDINGS
I. Evolution of Start-ups / Entrepreneurship in India
Pre Colonial Era
Entrepreneurship is not new to India. In fact to quote from the Indian Industrial Commission Report (1916-1918)–”At a time when the West of Europe, the birth place of modern industrial system, was inhabited by uncivilized tribes, India was famous for the wealth of her rulers and for high artistic skill of her craftsmen. And even at a much later period, when the merchant adventures from the West made their first appearance in India, the industrial development of this country was, at any rate,not inferior to that of the more advanced European nations.”
Indian products have successfully made their way to various markets abroad since ancient times. An Indian product called Muslin was used by the Pharaohs for Egyptian Mummies.
In the pre-colonial times, the Indian trade and business played a very significant role. Kanishka Empire in the 1st century started encouraging Indian entrepreneurs and traders.
In the pre-colonial period, India had a stable economy. The Indian economy majorly depended upon agriculture, trade and handicraft industry, which were self-sufficient and flourishing.
India enjoyed extensive trade domestically as well as internationally with different countries of Asia and Europe. A balance of trade was maintained. The items imported into India were pearls, wool, coffee, gold, drugs, honey, tea, sugar, silk, copper, iron, lead, paper, etc.
The main items exported from India were cotton textile, which was internationally well known as well as raw silk, indigo, opium, rice, wheat, sugar, pepper and other spices, precious stones and drugs.
Pre Independence Period
Towards the end of the 18th century, India was one of the main centres of world trade and industry. This status of India was destroyed under colonial times. India’s artisans and weavers were forced out of production.
During the British Colonial rule, the laws were unfavourable, political parties were unsupportive, political system was instable and tax policies were stringent, which led to the downfall of entrepreneurship in India. The education system lacked and did not do any good to the Indian Startup Ecosystem.
India accounted for 25% of the global GDP up until the mid-18th century, before the colonial rule.
However, colonization kept us from Industrial Revolution, hence reducing our share to global GDP to 2% in 1900. (Wikipedia)
In spite of these limitations, the East India Company played a role in the development of Indian entrepreneurship. The popular Swadeshi Movement, the motive of which was to boycott British made goods and revive the domestic products led to the development of the Indian textile industry, the iron and steel industry, publishing of vernacular newspapers, educational institutions, financial institutions, etc.
Post Independence (Paraphrase left)
Historically, India had been a land of entrepreneurs. Whole communities, many of whom form a significant portion of the Indian diaspora, have entrepreneurship in their blood. However, some initial missteps post-Independence (1947) stifled a lot of the entrepreneurial spark. The government chose to take control of the so-called ‘commanding heights’ of the economy and the private sector was excluded from these strategic industries. Indeed, private enterprise began to be viewed with suspicion. Over a period of time, ‘profit’ became a bad word. The laws relating to business began getting increasingly opaque, open to interpretation, and difficult to comply with. This resulted in a license and inspector raj (rule). The relationship between those doing business and those regulating business became adversarial. Over the years, this took deep root and became a part of the DNA of the nation. The only entrepreneurs who benefited were those who knew how to manipulate the system.
Undoing the outcomes of decades of such misplaced enthusiasm and pressing the reset button was not going to be easy. It needed an act of God to destroy this complex web and provide a clean slate once again. This act of God came in the form of a crisis in 1991, when the government was on the verge of bankruptcy. It forced a rethink of the government’s role in economic activity, following which the government began gradually giving up the ‘commanding heights’ of the economy and initiated disinvestment.
In India, entrepreneurship can prove as one stop solution for addressing the major problems like unemployment and poverty. Considering these benefits, various initiatives have been taken by the government from time to time for entrepreneurship development in the country such as Industrial Policies and Five Year Plans specifically focusing on the growth of small scale sector, setting up of Special Economic Zones (SEZs), setting up of Entrepreneurship Institutions, organizing Entrepreneurship Development Programmes (EDPs) and various Government Programmes and Schemes for the promotion of entrepreneurship like Pradhan Mantri Employment Generation Programme, Credit Guarantee Scheme, Credit Linked Capital Subsidy Scheme for Technology Up-gradation, National Manufacturing Competitiveness Programme, Micro and Small Enterprises Cluster Development Programme, Technology Centre Systems Programme, Rajiv Gandhi Udyami Mitra Yojana, Khadi Reform Development Programme, Market Development Assistance Scheme etc.
In spite of several initiatives taken by the government, entrepreneurs still face certain problems like lack of availability of finance, technical knowledge, managerial skills, availability of resources and infrastructure, awareness about entrepreneurship schemes and regulatory framework, market linkage etc. which obstruct the growth and development of entrepreneurship in the country. According to the research study conducted by NCAER(1993), lack of training and finance are the major problemsfaced by Small Scale Industries (SSIs) besides procedural hassles, administrative hurdles, lack of infrastructure andcounseling. Vasper also found that there are manybarriers affecting entrepreneurship and identified lack ofseed capital as one of the major barriers. According to World Bank, India ranked 142nd among 189 nations in terms of ease of doing business. According to EY G20 Entrepreneurship Barometer, although India’s rank is 11th while China ranked 3rd in terms of access to funding; India ranked last as far as education and training is concerned.
To meet these challenges, a need was felt by government to initiate a new set of policy reforms in India which has led to a remarkable improvement in recent years. India has evolved to become the 3rd largest base of technology startups in the world. Within one year, the number of start-ups in India has grown by 40 percent, creating 80000-85000 jobs in 2015. As of January 2016, there are 19400 technology enabled start-ups in India, of which 5000 had been started in 2015 alone. Therefore, the main objective is to study the implications of the recent policy reforms of entrepreneurship in India which has made India a hotspot destination for start-ups.
(Source: Yourstory research, “POLICIES” report)
RECENT POLICY REFORMS FOR ENTREPRENEURSHIP DEVELOPMENT
A. Ministry of Skill Development and Entrepreneurship (MSDE)
It came into existence as Department of Skill Development and Entrepreneurship on 31st July 2014 and later was created as Ministry on 10th November 2014. It is responsible for co-ordination of all skill development efforts across the country, removal of disconnect between demand and supply of skilled manpower, building the vocational and technical training framework, skill upgradation, building of new skills and innovative thinking. It is aided by following functional arms:
- National Skill Development Agency (NSDA):is anautonomous body which coordinates and harmonizes the skill development efforts of the Government and the private sector to achieve the skilling targets of the 12th Plan and beyond, and attempts to bridge the social, regional, gender and economic divide. It acts as a nodal agency for State Skill Development Missions. The main functions of NSDA is to evaluate existing skill development schemes, create and maintain a national data base related to skill, ensure that the skilling needs of the disadvantaged and the marginalized groups are taken care of etc.
- National Skill Development Corporation (NSDC): is a one of its kind, Public Private Partnership in India which acts as a catalyst in skill development by providing funding to enterprises, companies and organisations that provide skill training. NSDC with 160 training partners and 1722 training centres has so far trained around 35 lakh persons across India NSDC has taken few initiatives such as ‘Innovations for Skills Marketplace’ and ‘Innovations for Skills Challenge’. ‘Udaan’ a special industry initiative for Jammu & Kashmir implemented by NSDC which aims to provide skills training and enhance the employability of unemployed youth of J&K.
- National Skill Development Fund (NSDF): was set up for raising funds both from Government and Non Government sectors for skill development in the country. The fund is contributed by various Government sources, and other donors/ contributors to enhance, stimulate and develop the skills of Indian youth by various sector specific programs. Till 31st March 2015, NSDF has released Rs. 2333 crore to NSDC towards skill development programmes.
- Sector Skill Councils (SSCs): are industry led bodies which are responsible for defining the skilling needs, concept, processes, certification, and accreditation of their respective industry sectors. The SSCs shall prescribe the National Occupational Standards (NOSs) and Qualification Packs (QPs) for the job roles relevant to their industry, and shall work with the NSDA to ensure that these are in accordance with the National Skill Qualification Framework (NSQF).
B. National Policy on Skill Development and Entrepreneurship 2015:
It aims to provide an umbrella framework to all skilling activities being carried out within the country, to align them to common standards and link the skilling with demand centres. This policy links the skills development to improved employability and productivity.
C. National Skill Development Mission:
It was launched on 15th July 2015 on the occasion of World Youth Skills Day. The Mission has been developed to create convergence across sectors and States in terms of skill training activities to achieve the vision of ‘Skilled India’.
D. Entrepreneurship Development Scheme:
It is currently being developed by MSDE. The scheme is being designed around various elements like entrepreneurship education curriculum, web and mobile based networking platform, entrepreneurship hubs (ehubs) network, international linkages, national entrepreneurship day, promotion of entrepreneurship among women and minority sections, social entrepreneurship etc.
E. Pradhan Mantri Kaushal Vikas Yojana (PMKVY):
It is the flagship outcome-based skill training scheme of the MSDE that aims to offer 24 lakh Indian youth meaningful, industry relevant, skill based training. The objective of this skill certification and reward scheme is to enable and mobilize a large number of Indian youth to take up outcome based skill training and become employable and earn their livelihood. As on 3rd March 2016, 1599895 people have been enrolled, 956871 completed trainings and 290002 got certified under PMKVY. The skill card will also be given to those certified under PMKVY which will act as authenticate skill certification.
F. Make in India:
It is an initiative of the Government of India launched on 25th September 2014 to encourage multi-national, as well as domestic, companies to manufacture their products in India. The major objective behind the initiative is to focus on job creation and skill enhancement in 25 sectors of the economy. The initiative also aims at high quality standards and minimising the impact on the environment. The initiative hopes to attract capital and technological investment in India.
G. ‘Start-Up India’ Initiative:
It aims to encourage entrepreneurship among the youth of India. The ‘Start-up India: Stand up India’ promotes bank financing for start-ups and offer incentives to enhance entrepreneurship and job creation. Prime Minister, Narendra Modi said that, “Each of the 1.25 lakh bank branches should encourage at least one Dalit or Adivasi entrepreneur and at least one woman entrepreneur”. This initiative will provide a new dimension to entrepreneurship and help in setting up of a network of start-ups in the country.
H. MUDRA Bank:
Micro Units Development Refinance Agency (MUDRA) Bank has been set up on 8th April 2015 for development of micro units to encourage entrepreneurship in India and provide the funding to the non corporate small business sector. MUDRA Bank provides refinance to Banks, MFIs, NBFCs etc. for loans to micro units having loan requirement from Rs 50000 to Rs. 10 lakh. Under MUDRA Yojana, MUDRA Bank has launched three products named Shishu, Kishor and Tarun to signify the stage of growth and funding needs of entrepreneurs. Rs. 20000 crore has been allotted to MUDRA Bank for the SME sector which will enhance credit facility to boost the growth of small businesses and manufacturing units.
I. ATAL Innovation Mission (AIM):
It also called as AIM Platform was established through 2015 budget within National Institution for Transforming India (NITI) to provide innovation promotion platform involving academicians, and drawing upon national and international experiences to foster a culture of innovation, research and development. The 2015 budget has earmarked Rs.150 crores for the AIM Platform.
J. Self Employment and Talent Utilization (SETU):
It is a Techno-Financial, Incubation and Facilitation Programme to support all aspects of start-up businesses, and other self-employment activities, particularly in technology-driven areas. An amount of Rs.1000 crore is being set up initially in NITI Aayog for SETU. It also aims to create around 100,000 jobs through start-ups.
II. Stage of Revolution
Startups are redefining the Indian economy. With its favorable demography, open economic environment and culture of entrepreneurialism, India is highly conducive to entrepreneurial activity
Entrepreneurship in India has grown significantly, and startups are beginning to dramatically impact the economy. Enabled by strong demographics and an open, commercial culture, new company registration has grown from 15,000 in the 1980s to almost 100,000 in the 2010s.2 With an average age of 28, India’s entrepreneurs rank among the youngest in the world.Formalization of India’s startup economy is also increasing, with funding for startup companies more than doubling between 2014 and 2015.
Source: Yourstory research
$33.62 billion
That’s how much investors have poured into the Indian startup ecosystem since 2014. And almost half that amount was invested in 2017 ($13.7 billion) and the first quarter of 2018 ($2.26 billion).
The fund flow into startups has only increased annually, since 2014, barring the dip in 2016,
when the euphoria settled to realistic levels. The subsequently rising fund flow is an illustration of the confidence investors—many of them global—have in Indian startups.
Source: Yourstory research
No. Of companies registered?
As per the data available with Startup India, a total of 8,625 Start-ups have been recognised as on 30 March, 2018. 2711 start-ups where incorporated in 2017-18. Department of Industrial Policy and Promotion (DIPP) has issued detailed norms to assess the performance of States in promoting Startups on 6th February this year.
Around 180 start-ups have shut shop so far in 2017, compared with 500-odd in 2016, according to the Tracxn Deadpool list
The reasons for the slowdown in closures and shutdowns are pretty clear, according to several entrepreneurs and investors Mint spoke to: firstly, the slowdown in entrepreneurial activity has led to fewer early-stage ventures being launched, which, in turn, has led to fewer casualties.
While a decline in the number of closures is technically good news for the broader ecosystem, it is symptomatic of some large issues—firstly, it signifies that entrepreneurs have become more averse to risk.
“If you look at the volume (of start-ups launching and subsequently shutting down) and compare it to what we saw back in 2015, it has definitely come down. In 2015, those volumes had hit a peak. What’s happened is pretty obvious—there was a lot of easy funding that was available back in 2014-15, and it encouraged a lot of entrepreneurs to start up and launch their own ventures. But now that funding has dried up relatively, a lot of those entrepreneurs—especially the ones who were thinking short-term and looking at quick, big-bang exits within a year or two of launch—have been forced to reconsider whether to start up or not,” said Rahul Chowdhri, a partner at Stellaris Venture Partners, a venture capital (VC) firm.
“And that’s not a bad thing—what has happened, now that the quality of entrepreneurs and start-ups has improved a lot, (is that) you see founders being more mature about their approach and investors are also only backing ventures with solid business models,” added Chowdhri.
Hurdles for entrepreneurs
Seventy-seven percent of venture capitalists report that many Indian startups lack pioneering innovation based on new technologies or unique business models. Rather, they are prone to emulate already successful ideas from elsewhere. While such mimicry can create value by fine-tuning already successful concepts to local markets, generally it precludes sustainable expansion beyond India’s borders and keeps barriers to competition – from home or abroad – low. Consequently, despite the country’s large market size and robust startup activity, Indian startups comprise only 4 percent of globally recognized unicorns (startup businesses valued at USD 1 billion or more).10
Seventy percent of venture capitalists say that startups fail because they are unable to obtain employees with the right skills. Recent evidence suggests that tertiary education in India does not necessarily prepare students for employability, with one study reporting that as many as 80 percent of engineering graduates were deemed unemployable.11
Sixty-five percent of venture capitalists say that Indian startups are unable to source necessary funding. Indeed, of 997 Indian startups reported to have failed in 2014 and 2015, 97 percent were unable to obtain any external funding.12 In addition, between 2010 and 2013, the value of India’s M&A activity in the technology startup area was only 14 percent of Israel’s, which has an economy less than one fifth the size of India’s, and it was less than 1 percent of M&A value in the United States over the same period.13
Sixty-four percent of venture capitalists, believe that India’s startups struggle to succeed because their executives do not receive adequate mentoring from experienced leaders of established companies, incubators, investors and the like. Although numerous startup accelerators have been formed in India as part of public-private partnerships, mentoring typically remains informal and voluntary.14
Sixty-four percent of venture capitalists also believe that many startups are not successful due to poor business ethics. Misreporting of financial and other data, misrepresentation of financial plans or achievements, and ignorance of regulatory requirements can have a serious impact on the willingness of prospective partners to fund or collaborate with new startup businesses.
Forty-five percent of Indian venture capitalists assert that the presence of proven leaders is an essential ingredient in their willingness to invest in startups, and 42 percent say that an ability to bounce back from failure is critical. However, 53 percent of venture capitalists indicate that inexperienced leadership is a key reason for startup failures in India. Economic implications of this mismatch can be significant, with venture capitalists often passing up investment opportunities due to a lack of credible management.