Startups in India: Ecosystem, Best Practices, and Global Benchmarks

Nitu Saxena
Associate Professor, Department of Management, Amity Global Business School, Shivaji Nagar, Pune, Maharashtra, India; and is the corresponding author. E-mail: nsaxena@pun.amity.edu

Sweta Siddharth
Assistant Professor, Department of Management, Amity Global Business School, Shivaji Nagar, Pune, Maharashtra, India. E-mail: ssiddharth@pun.amity.edu

Startups are one of the most promising ways to solve problems and implement fairly quick solutions in areas such as payment systems, delivery of services, sharing of information, etc. The Indian market offers huge opportunities for startups to excel, grow and offer innovative solutions. Successful entry, growth, and a value-creating exit for startups require a sustained and coordinated support environment through an effective startup ecosystem. Bringing integration and synergy in various government initiatives is highly important to achieve this objective. The data suggests that startups can raise early-stage capital through the startup ecosystem in India, but the most significant gap in funding is observed at mid-stages of the business cycle when startups enter the growth phase requiring Venture Capital (VC) investments. Lack of a reasonable surety about a planned exit remains a top worry for VCs in the Indian ecosystem, which needs to be addressed. This paper provides a comprehensive overview of the startup ecosystem in India in juxtaposition to global standards. It brings out a 360-degree view of the issues surrounding the startups, presents some success stories, best practices, challenges, and suggests a way forward for a robust growth of startups in India.

Introduction
Startups are one of the most interesting forms of business as they offer unique opportunities for innovation and growth. A strong entrepreneurial spirit lies at the heart of startups. Startups are not about a particular form of organization or processes but these are about a unique culture believing in the importance of failure as an opportunity for learning. Startups in their best form are vehicles for entrepreneurial innovations trying to find solutions for problems (Korreck, 2019). This paper provides an overview of the policy and socioeconomic environment of startups in India, global developments, and documents some good/ innovative practices adopted by successful startups.

Genesis and Need for Startups
Edison General Electric Company (GE) could be thought of as one of the first startups. The growth and difficult path to victory for this company is similar to a typical startup journey of modern days. Many companies like Google, Nokia, Amazon, Facebook, could also be thought of as a startup in their early days. However, none of these companies could be considered a startup in their current state as they are now large corporations. Startups are often associated with the rise of Silicon Valley. The concentration of tech companies around Stanford University in the USA has had a huge impact on the technological development of the world since the 1970s. However, the startup boom in the area did not start until the end of the 1990s when the dot.com boom took over. Even though the dot.com bubble busted, the belief in technology and the Internet did not die out and continues to propel many startups all over the world.¹

Startups are one of the best ways to solve problems and implement solutions fairly quickly. In many cases, startups are the best organizations for solving problems in areas such as payment systems, delivery of services, sharing of information, etc. Moreover, startups can alter the business landscape. For instance, none of the traditional car manufacturers started a major shift towards electric cars before Tesla. The same is true with many food deliveries and taxi-ride applications. Startups have the capacity to not only provide innovative solutions but also expand the scope of primary and secondary employment opportunities. Therefore, startups have immense potential for developing economies. Several studies have focused on startups and made varied observations. A summary of some of the noteworthy contributions, leveraged upon by this study, have been presented in the review of the literature.

Literature Review
Luger (2005) defined startups as companies that come up with innovative business models and require high capital and investment in the initial stage. Usually funded by owners they look for new processes and systems. They initiate their businesses in a confined geographical area initially and then expand it as it finds acceptance.

Kumar (2018) in his paper defined startups as new businesses which have one or more persons or group of people creating a demand for an entirely new set of product or services. He further defines the start-ups from the Department of Industrial Policy and Promotion (DIPP) point of view, which states that start-ups are those organizations which have been set up within the last seven years. He also praises initiatives of the Government of India with schemes like Make in India and Startup India which are bringing new hopes to Indian entrepreneurs.

Dutta (2016) discussed the reasons for the establishment of startups such as the creation of jobs, monetary gains, self-satisfaction, self-actualization, fulfilling dreams, and trying to reign the corporate world, etc. She further gives examples of successful startups in India that have ventured into different territories and have successfully satisfied existing needs and have created new ones.

Sunanda (2017) discussed the initiatives taken by the Indian government such as schemes like Startup India and Make in India. She further discussed that the Indian government has ensured easy availability of loans, self-certification, tax holiday for three years, incubation centers across India to further promote the establishment of new businesses. She elaborated on the various stages of the startup lifecycle and goes on to discuss the managerial aspects of startups to avoid failures. In her paper, she discussed the case of Zomato, an online food delivery app that became 10 cr company within five years of its establishment. She highlighted the successful expansion of Zomato in various countries across the world. In the paper, she listed that Zomato developed a global mobile app that helped in expanding.

Dinesh and Sushil (2019) discussed various strategic innovation factors in Indian startups. They identified innovation factors in terms of products, markets, sales channels, resources, operations, marketing, and research and development, etc. They emphasized on strategic networking and technological innovation. They also accounted for a firm?s infrastructure and team learning. They took on a product-based startup and one service-based startup for their research. They found that all the strategic innovation factors played a crucial role in the success of product-based and found the latest technology to be important in this startup. In the service-based startup, social media and information were found to be playing an important role. Networking gave the required impetus to the startup.

Upadhyay and Rawal (2017) discussed the Indian startup scenario and the patterns that unfold. They talk about various roles that startups play and how India can support its innovative businesses and can become self-reliant. Their paper discussed the investors in Indian startups and also talks about the rise and fall of various startups. The paper elaborates on the number of startups worldwide and India holding the third position worldwide after the US and UK. They also inferred that a majority of the startups are in the area of e-commerce, followed by travel and accommodation. They also concluded that most of the startups have young and dynamic leadership which is open to innovation and change. Babu and Sridevi (2019), in their paper, discussed the innumerable challenges faced by startups in India such as infrastructure and financial resources. Consumer awareness is also sought as a major challenge. They also explore various opportunities available for the startups like demographic dividend, changing consumer behavior, etc. The paper throws light on the scope of new startups and filling the gaps in the service industry.

Gupta and Kataria (2019) elaborated on the role of mentors in the Indian startups. They discussed that Make in India is a very good initiative and will prove beneficial for the startups. They also suggested that Startup India though a good initiative will see proper results after a long gestation period. They showed that investment momentum is in the accelerating mode. They also emphasized that venture capitalists are showing enough enthusiasm for startups.

Objective
The objectives of this paper are:

• To provide a critical evaluation of the policy and socioeconomic environment of startups in India; and
• To illustrate some good and innovative practices adopted by successful startups.

Methodology
The paper focuses on the Indian startups having commenced operations within the last seven years. Besides, it also attempts to capture some of the global best practices, which can be emulated in the Indian startup ecosystem.

The paper follows a descriptive research design and draws upon the secondary data and published sources of information, which were analyzed to evaluate the present situation and assess the future direction of the startups in India. The secondary data was thoroughly analyzed and innovations in startups presented in the form of particular cases.

Global Scenario and Indian Unicorns Today, the startup phenomenon is no longer confined to Silicon Valley or even the US, but it has expanded to all over the world. Even many developing countries have startup centers and active incubators and accelerators, enabling a fertile ground for new kinds of entrepreneurial ideas to grow and prosper. Top 25 global startup ecosystems and emerging ecosystems are presented in Table 1. While the entire startup economy is growing globally, major areas of growth remain in Deep Technology. About 45% of startups being created globally now are in Deep Tech-related sub-sectors. Moreover, the four fastest-growing startup sub-sectors globally are all Deep Tech-related, namely, Advanced Manufacturing & Robotics (107.9%), Blockchain (101.5%), Agri-tech (88.8%), and Artificial Intelligence, Big Data & Analytics (64.5%) as reported in the Global Start-up System Report 2019.

In business parlance, a unicorn is a startup company that is valued at over $1 bn. India has the distinction of being at the fourth spot globally in terms of the number of ?unicorns?, according to the country of their domicile. The US boasts 194 unicorns, while China, the UK and India have 99, 20, and 18 high-value startups² respectively. Paytm, Snapdeal, BYJU, Oyo Rooms, Swiggy, Zomato, Udaan, BillDesk, Delhivery, Shopclues, BigBasket, etc. are some of the top Indian unicorns.

Government/RBI Guidelines and the Ecosystem
In recent years, startups have become a buzzword. In India, the number of startups has expanded and increasingly more support has become available in all dimensions. The legal definition of a startup in India:

As per Government of India guidelines, an entity is considered as a startup³:

• If it is incorporated as a private limited company or registered as a partnership firm or a limited liability partnership in India; and
• Up to a period of seven years from the date of its incorporation/registration; however, in the case of startups in the biotechnology sector, the period shall be up to 10 years from the date of its incorporation/registration; and
• If its turnover for any of the financial years since incorporation/registration has not exceeded 25 cr; and
• If it is working towards innovation, development, or improvement of products or processes or services, or if it is a scalable business model with a high potential of employment generation or wealth creation.

Process of Recognition as a Startup in India
The process of recognition as a ?startup? is through an online application made over the mobile app/portal⁴ set up by the DIPP. Entities are required to submit the online application along with their Certificate of Incorporation/ Registration and other relevant details, including a write-up about the nature of business highlighting how it is proceeding towards innovation, creation or improvement of products or processes or services or its viability in terms of employment generation or wealth creation. Startups in India also receive tax benefits subject to certain conditions.

Present Landscape of Startups in India and Their Impact
Startups in India are spread all over the country but some states have a higher concentration of startups as indicated in Figure 1.

The flagship initiative, ?Startup India? commenced by the Government of India in 2016 was to build a strong ecosystem that is conducive for the growth of startup businesses, provide sustainable economic advancement, and generate extensive employment opportunities. Government measures include a fund of 100 bn, financial support for incubators, the establishment of tinkering labs, tax benefits, and a simplified recognition process for the setting-up of businesses, among others. So far, 30,877 startups have been recognized according to the definition of the DIPP, and 264 startups have been funded and 221 have received tax exemption.

Startup Ecosystem in India
Besides the entrepreneurs themselves, the startup ecosystem consists of various stakeholders, including incubators and accelerators, investors, service providers, educational and research institutions, and big corporates. The Indian startup ecosystem has evolved considerably over the last two decades. Many participants have joined and they provide different forms of support to startups. Thus, the ecosystem has grown significantly and is now in the process of maturing. Incubators and accelerators play a significant role in the ecosystem (Figure 2).

Incubation Centers/Accelerators
Business incubators and accelerators can be understood as organizations, which support the foundation and growth of new businesses through different kinds of resources and services. Typically, incubators take in startups with an open-ended time horizon and fund themselves by taking rent, while accelerators usually accept startups for fixed-term, cohort-based programs, sometimes in exchange for equity. As per the data available on Startup India, presently, there are 565 incubators and 121 accelerators operating in India.

External Commercial Borrowings by Startups
In October 2016, RBI issued guidelines for permitting startup enterprises to access loans under the External Commercial Borrowings (ECB) framework.₅ Accordingly, an entity recognized as a startup by the Central Government as on date of raising ECB has been permitted to raise ECB for a minimum average maturity period of three years from lenders/investors, who shall be residents of a country who is either a member of Financial Action Task Force (FATF) or a member of a FATF-Style Regional Bodies. Overseas branches/subsidiaries of Indian banks and overseas wholly-owned subsidiary/joint venture of an Indian company are not eligible to be considered as recognized lenders under this framework, who can lend in the form of term loans or through non-convertible/convertible preference shares. The borrowing should be denominated in any freely convertible currency or Indian Rupees (INR) or a combination thereof. The borrowing per startup will be limited to $3 mn or equivalent per financial year either in INR or any convertible foreign currency or a combination of both. The funds can be used for any expenditure in connection with the business of the borrower.

Regulatory Sandbox
RBI has permitted, in August 2019₆, startups, banks, and financial institutions to set up a Regulatory Sandbox (RS) for live testing of innovative products in areas like retail payments, digital KYC, and wealth management. In the 'Enabling Framework for Regulatory Sandbox' released on August 13, 2019, the RBI said that the RS fosters ?learning by doing? on all sides and regulators obtain first-hand empirical evidence on the benefits and risks of emerging technologies and their implications. It is commonly understood that RS usually refers to live testing of new products or services in a controlled/test regulatory environment for which regulators may (or may not) permit some relaxations for testing purposes.

The areas that could be considered as innovative products/services for RS, might include retail payments, money transfer services, marketplace lending, digital KYC, financial advisory services, wealth management services, digital identification services, mobile-technology applications, data analytics, Application Programming Interface (APIs) services, applications under blockchain technologies, artificial intelligence and machine learning applications.

Pilot Survey on Indian Startup Sector - Major Findings⁷
A pilot survey conducted by the RBI on the Indian startup sector from November 2018 to April 2019 involved a total of 1,246 startups (public/private limited companies, partnership firms, limited liabilities partnerships, and others) in the survey. Around three-fourths of respondents were from the states of Karnataka, Maharashtra, Telangana, Delhi and Tamil Nadu. The major findings of the survey were as under:

• Startups in six sectors, namely, agriculture, data and analytics, education, health, IT consulting/solution and manufacturing accounted for nearly 50% of the survey respondents.
• Respondents cited market/industry demand and team experience as the major enabling factors for setting up the startups. Startups targeted domestic markets (mainly semi-urban, urban and metropolitan areas in India) as well as foreign markets.
• Almost half of the respondents informed that they were in an early stage of revenue generation while 31% were in a growing stage. Rest of the startups which were yet to generate any revenue was aged below three years and they figured around 86 percentage.
• The annual turnover for over one-fourth of the respondents was up to 10 lakh whereas around 20% of startups did not report any revenue generation. Less than one-fifth of the respondents reported that their turnover exceeded 1 cr.
• Only 14% of startups had more than 10 employees in the first six months of their operation but as the sector matured, the share increased to 40% at the time of conducting the survey.
• Around 36% of the startups availed institutional loans (including from banks) to finance their activities. Regarding capital support for entrepreneurial activities of the participating startups, the survey highlighted the following important aspects:
• Families and friends emerged as the largest source of funding (around 43%), apart from own funds
.
• About 13% of the startups received international funding.
• Over three-fourths of the startups had up to 1 cr of capital investment, whereas around 41% infused capital up to 20 lakh each. Around 5% of startups invested capital above 10 cr each.
• Nearly three-fourths of the startups had working capital requirements of more than 10 lakh for a year.
• Around 36% of the participating startups availed loans from institutions (including banks).
• Only 1.7% of the startups availed ECBs.

Good/Innovative Practices and Success Stories
Best Practices
Following are some of the good practices adopted by successful startups.₈ These range from general business development to several other important areas.
General Business Development

• Adequate attention to 4Ms of enterprise, namely, Manpower, Money, Machinery and Markets. Adequate and continued availability of these four elements is critical for the success of a business.
• Reaching out to early adopters who recommend startup products to others.
• Making it easy for the customer to try out startup products to others.
• Having a business continuity plan in place as startups are risky businesses.
• Securing patents as soon as possible to prevent misuse of innovations.
• Not to blindly chase growth but focus on strengthening core business and Unique Selling Proposition (USP) of the startup journey.
• Trying to develop and take advantage of synergy in the startup ecosystem.

Encouraging an entrepreneurial mindset

• Paying attention to socio-psychological attributes relating to the business.
• Being prepared for setbacks and the ability to quickly change one's original plans and overcome barriers.
• Self-motivation, persistence and strong self-belief are the defining attributes for the success of startups.

The 'Jugaad' Juggernaut⁹

• Jugaad refers to frugal, flexible, and inclusive innovation being done in India and other emerging countries as opposed to R&D departments in Western companies.
• This can act as a differentiator and lead to success in a big way for startups.

Country-Specific Global Best Practices₁₀
In addition to Indian best practices, there are lessons to be drawn from international best practices from the following countries:
United States of America (USA)

• USA promotes entrepreneurship through several mechanisms, including but not limited to partnering with US companies, non-governmental organizations, and investor groups; advocating for free markets and strong intellectual property protections; and creating new initiatives/networks.
• Its global entrepreneurship program works to build direct partnerships that strengthen the overall entrepreneurial eco-system in countries around the world.
• USA's people-to-people exchanges through the Department of State's Bureau of Educational and Cultural Affairs (ECA) connect entrepreneurs from around the world with US entrepreneurs/businesses so they can share best practices.

United Kingdom

• Entrepreneur and investor-friendly government policies and pro-business climate make the UK particularly attractive for entrepreneurs and investors.
• The London startup ecosystem supports a culture of innovation that facilitates new businesses to flourish and provides opportunities for individuals to grow.
• Many universities and research organizations offer support in the form of accelerators and incubators and there is a congenial culture for learning and networking opportunities.

Sweden

• Sweden's impressive startup record can be attributed to some socioeconomic aspects such as social safety net, university education, free health care, as these encourage a culture of risk-taking.
• Sweden has a high degree of "intrapreneurship," when coworkers collaborate on projects outside of their usual assignments. For instance, Ericsson has a division called Ericsson Garage where employees can work on innovative projects.
• The country's startups benefit from supportive culture as Swedes share cultural traits that make them more likely to collaborate-sharing of knowledge between entrepreneurs makes them more productive.

China

• China is only second to the USA regarding Venture Capital (VC) spending, investment in technology, media, and telecommunications sectors.
• China has spent generously on making its universities world-class and to promote high-quality research and development. This strengthens its startup eco-system.
• With its massive population, entrepreneurs in China easily identify unmet needs and use their resources to provide suitable services/tools.

South Korea

• South Korea promotes its startup economy by funding startups and offering tax breaks for big companies that invest in startups.
• Bloomberg Global Innovation Index ranked South Korea first among all by examining factors such as research and development capability, productivity, tech density, and patent activity.

Startup Success Stories
While there is no dearth of successful cases of Startups, the authors present some of the recent success stories₁₁ to highlight the factors which led to their success. One common feature that cuts across all the successful case is the ability of entrepreneurs to identify certain problems and accordingly customize their services and product offerings.

PayKun Payment Gateway Solutions
Based in Bhavnagar, Gujarat, PayKun was launched on August 15, 2018 as a B2B solution making it easier for businesses of all sizes handle their payments-related operations. It was started by five fresh college pass-outs to introduce ease of access to online payments. All large or small businesses can register and get a merchant account activated with PayKun. It can be used as a checkout, a payment button or payment link. Moreover, merchants can avail free integration services for which PayKun supports all the major platforms and has developed integration kits. None of the five directors had even the slightest knowledge of the FinTech world when they started their venture and they took almost two years for the development of the technology of the payment gateway, compliances, security, legal requirements, etc. They did not collaborate with any third-party company and have not taken outside funding. They started with a team of 15 and currently have more than 50 employees (https://paykun.com/).

Incredible Gifts
It is a brand of YV Ingenious Designs (P) Ltd. which provides its customers with higher quality unique gift items at reasonable prices. The gifting industry in India has reoriented and grown at a faster pace over the years. Since there were no investors or seed money, to begin with, Incredible Gifts was started only on the money saved by their two founders. Today, they are one of the leading gifting websites in India. Their USP is the availability of personalized gifts with a wide range and affordable price. When Incredible Gifts was started in 2012, it had barely any results to show. Gradually, it began to make an annual turnover of around 6 lakh rupees but it initially could not generate profits. Today, being one of the unique leading product selling portals in India, now they are making an annual turnover of around 4 cr (https://www.incrediblegifts.in/).

Navus IT Services
Navus IT Services, founded in 2017, is an Amazon empanelled third-party service provider's network which is helping sellers with everything needed to be successful on the Amazon marketplace right from new business leads to execution and final sales. Amazon has helped them at every stage, empowering them to help hundreds of sellers. It started with a team of just four persons and today it has an in-house team of more than 100 Amazon-trained marketplace professionals with direct and round-the-clock communication with the entire Amazon team. It is offering comprehensive and one-stop services to the sellers like advertisement optimization, cataloguing and account management (https://www.navustech.com/).

MyLnk
MyLnk, an innovative URL management platform and link shortener tool were launched in September 2017. The main features of this solution-based tool are to personalize and shorten long URLs and provide a track of clicks vis. a vis. demography with an easy and simple interface. With an expansion in the digital advertising landscape, the number of weblinks is increasing every day and hence, the need for a URL shortening tools has become more of a necessity. MyLnk enables the businesses to shorten the URLs into meaningful and customized links that attract more clicks, are easy to remember and share with others. Besides, every link shortened through MyLnk comes with a unique stats page having the details of incoming traffic on any given day. This tool facilitates to track and measure the traffic in real-time. It helps in analyzing the popular trends and patterns amongst the target audience. Businesses can use it to plan the next marketing strategy effectively and it assists in integrating the efforts to reach and communicate with the potential customer base (https://www.mylnk.in/).

HungerBox
HungerBox was initiated with a dream of revolutionizing the corporate cafeterias and food courts. The vision was to enhance the user experience and bring in more transparency in the operations. Since its inception in 2016, over 50 million transactions have been processed by HungerBox making it India's largest B2B Food-Tech company. The 'asset-light' nature of business model and technology stack enables scalability. The technology offered by the company includes pre-ordering, live order tracking, digital payments, feedback management, cafeteria density tracking and more. HungerBox has empanelled thousands of food vendor partners serving varied cuisines across 11 Indian cities after they complied with HungerBox's ISO certified auditors. It has a patent-pending for its proprietary technology platform. The company is backed by marquee institutional investors like Sabre Capital and a host of High Net-Worth Individuals (HNIs) (https://hungerbox.com).

Technology and the Success of Startups
Technology is a great enabler and differentiators for startups not only in India but all over the world. While tech-based startups have grown rapidly, technology has also indirectly contributed to the growth of other startups. Some of the high growth startup sectors are shown in Figure 3.

Technology startups also enjoy great potential for scalability and exponential growth. Over the last few decades, technological change has reduced the cost of building digital products and has provided access to consumer markets. With improved digital connectivity and expanding digital literacy in India, the market access barriers have been brought down, thereby paving the way for the growth of startups.

Issues and Challenges
The major challenges of startups and issues are presented in the following paragraphs:
Business Challenges
A supportive culture towards entrepreneurship and innovation is key to the success and growth of startups, besides other critical factors such as funding, market and technological support. Following are some of the key issues and way ahead relating to the success of startups in India.

• India currently has several government (central and state) funded platforms for ecosystem stakeholders. Integration and bringing them all on a common platform shall be highly useful as it becomes difficult for a user to be active on multiple platforms.
• There is the duplicity of efforts and resources which can be better utilized to create new capabilities for the startup ecosystem due to several government agencies involved.
• With 520+ active programs for startups, with varying capabilities and value propositions in the country, it is quite challenging for an entrepreneur to identify and apply for a program appropriate to their needs.
• Incubator or accelerator programs need to scale up substantially. Moreover, these can be effective only if they have the right management team equipped with bestin- class processes and frameworks. Lack of quality manpower is a key challenge which needs to be tackled.
• A fundamental challenge to the effectiveness of present incubators and accelerators is the lack of qualified and high-quality talent for operating the program, which can be tackled by active coordination and on-boarding of research organizations and universities in the startup ecosystem.
• Acceptance of a possibility of failure and schemes such as regulatory sand-box shall provide a conducive environment for entrepreneurship and promote the culture of startups.
• Higher education institutions need to inculcate the spirit of entrepreneurship and put in place the necessary infrastructure for incubators and accelerators.

Financing of Startups: Issues and Challenges
Like any other business, startups need funds to finance their operations. While some startups manage with own funds, many seek to raise external funding, especially if they plan to scale up their operations. Incubators and accelerators typically provide little amounts of money and are usually more focused upon infrastructure, mentoring, and networking. Moreover, due to the inherent nature of uncertainties involved in the operations of startups, their requirements are difficult to be fulfilled by traditional bank financing. Accordingly, most significant amounts of capital for startups come from angel and VC investors. Angel investors play a critical role by providing initial funding to enable startups to build a prototype and run some market tests. While deal volume and deal value at the angel/ seed stage have gradually grown allowing startups to raise early-stage capital through the startup ecosystem in India, the most significant gap in funding is observed at mid-stages of the business cycle when startups enter the growth phase requiring VC investments.

In India, VCs can raise funds from either domestic or foreign Limited Partners (LPs). As far as domestic LPs are concerned, there are only a few numbers of HNIs and family-office investors who are comfortable with VCs as an asset class. SIDBI has committed cumulatively more than 5,400 cr through various Fund of Funds (FFS) operations (Figure 4) against an approved corpus of 10,000 cr for contribution to various Alternative Investment Funds (AIFs) registered with SEBI.

AIFs supported under FFS have to invest at least twice the contribution out of FFS in startups. SIDBI's FFS, Ministry of MSME's Aspire Fund, and some other FFS invest as domestic LPs. Besides, there are some FFS by NABARD, certain bank-run FFS, and Electronic Development Fund (EDF) for specified sectors. Some of the International LPs such as IFC and CDC, UK have also contributed to funding for the startups.

As per 'India Venture Capital Report, 2020' by Bain & Company and Indian Private Equity and Venture Capital Association (IVCA), the number of startups has grown by 17% each year between 2012 and 2019, while funded startups have shown a compounded annual growth of 19% during the same period. It was observed that about 25% of funded startups go for subsequent rounds of funding.¹² Therefore, the scenario is optimistic, however, there is a need for further vertical and horizontal expansion in the funding potential.

Following are some of the current issues faced by startups regarding the availability of funding:

• Traditional cash-flow projection based assessment of funding does not work in case of startups, and hence, most of the funding decisions are made based on the trust and experience of the financier. Accelerators can play a role in building trust and networking.
• Seed capital and angel financing must be suitably supported by high quality mentoring and technical guidance so that startups have a reliable and scalable business model which could be trusted by VCs.
• Lack of a reasonable surety about a planned exit remains a top worry for VCs in the Indian ecosystem, which needs to be addressed.
• Large-sized startups, especially tech startups tend to garner a major chunk of funding and hence, it becomes somewhat difficult for other startups. Sector-specific funds can play a role in such entities.
• Private Equities (PEs) can also play a significant role in meeting the funding requirements of startups. To attract such funding as also managerial support from PEs, startups also need to suitably geared up with a promising business model.
• Crowd funding can help startups to reach to a large number of potential investors while also providing them publicity.

Impact of Covid-19
The lockdown that Covid-19 has imposed on the global economy is expected to have a disproportionate impact on countries with larger informal and SME sectors. While digital entrepreneurs have joined the fight with solutions that range from information-sharing, crowd sourcing food and medical supplies, and enforcing social distancing, to building more sophisticated public health risk assessment capabilities. While this provides certain opportunities for existing tech-based startups, they will have to bear with the bottlenecks arising out of the pandemic. For several others, the impact is difficult to ascertain as of now, but they need to gear up to the emerging challenges and uncertainties.

Summary of Major Findings
A Structure of Startups

• A majority of startups in India are quite young and have been in existence for less than three years.
• A majority of startups are either yet to generate revenue or are at an early stage of revenue generation.
• While entities up to a turnover of 25 cr are recognized as startup in India, only less than one-fifth of startups have exceeded a turnover of 1 cr.
• This shows that the majority of startups in India are in the introduction or growth stage and accordingly, they need support, funding, and mentoring.

Business Operations

• Adequate and continued availability of manpower, money, machinery and markets are critical for the success of a business.
• Having a business continuity plan is very important as startups are risky businesses.
• Securing patents as soon as possible to prevent misuse of innovations is very crucial.
• It is necessary not to blindly chase growth but focus on strengthening core business and USP of the startup journey.

Entrepreneurship

• It is very crucial to pay attention to socio-psychological attributes relating to the business.
• Being prepared for setbacks and the ability to quickly change one's original plans and overcome barriers is key to success in the startup ecosystem.
• Acceptance of a possibility of failure and schemes such as RS provides a conducive environment for entrepreneurship and promotes the culture of startups.
• Higher education institutions need to inculcate the spirit of entrepreneurship and put in place the necessary infrastructure for incubators and accelerators.

Funding

• Own funds and funding from families and friends have been a source of finance for more than 40% of startups.
• Around 36% of the startups availed institutional funding to finance their activities.
• Only 1.7% of the startups availed ECBs.
• Most of the funding decisions are made based on the trust and experience of the financier. Accelerators can play a role in building trust and networking.
• Seed capital and angel financing must be suitably supported by high quality mentoring and technical guidance so that startups have a reliable and scalable business model.
• VC and private equity investments are yet to gain roots in the Indian startup ecosystem. Lack of a reasonable surety about a planned exit remains a top worry for VCs in the Indian ecosystem, which needs to be addressed.
• To attract PE funding as also managerial support from PEs, startups also need to suitably gear up with a promising business model.
• Large-sized startups, especially tech startups tend to garner a major chunk of funding and hence, it becomes somewhat difficult for other startups. Sector-specific funds can play a role in such entities.
• Crowd funding can help startups to reach to a large number of potential investors while also providing them publicity.

Global Best Practices

• The USA promotes entrepreneurship through partnering with companies and investor groups, advocating free markets and strong intellectual property protections.
• The London startup ecosystem supports a culture of innovation that facilitates new businesses to flourish and provides opportunities for individuals to grow.
• Top universities and research organizations in the UK offer support in the form of accelerators and incubators and there is a congenial culture for learning and networking opportunities
• Sweden has a high degree of "intrapreneurship" when coworkers collaborate on projects outside of their usual assignments.
• China has spent generously on making its universities world-class and to promote high-quality research and development to strengthen its startup ecosystem.

Success Factors

• A common feature that cuts across all the successful cases is the ability of entrepreneurs to identify certain problems and accordingly customize their services and product offerings.
• Technology is a great enabler and differentiators for startups not only in India but all over the world.
• Tech-based startups have grown rapidly, technology has also indirectly contributed to the growth of other startups.
• Integration and bringing all funding and support schemes on a common platform is highly useful as it becomes difficult for a user to be active on multiple platforms.
• Incubator or accelerator programs need to scale up substantially to support the increasing number of startups.
• To be effective, incubators/accelerators should have the right management team equipped with best-in-class processes.
• Active coordination and onboarding of research organizations and universities in the startup ecosystem is highly necessary.

Conclusion
The Indian market offers huge opportunities for startups to excel, grow, and offer innovative solutions. Successful entry, growth, and a value-creating exit for startups require a sustained and coordinated support environment through an effective startup ecosystem. Bringing integration and synergy in various government initiatives is highly important to achieve this objective. Several startups have emerged in India and the associated ecosystem has developed dynamically and is gradually moving toward maturity. However, there is a need for scaling up the ecosystem to expand the support across all dimensions, namely, office space and infrastructure, business support through mentoring and networking, availability of seed capital and venture financing, as well as acceptance of genuine business failure as a part of startup culture. This will require the efforts of all stakeholders, the ecosystem players, governmental authorities, as well as the startups themselves. Besides, a focus on increased knowledge sharing and transfer of skills between technical/academic institutions and startups shall improve the odds of their success. The ecosystem should attract enhanced participation from corporate and equity investors at the seed stage and cultivate innovative approaches to bring a sharper focus on the success of startups.

Data suggests that startups can raise early-stage capital through the startup ecosystem in India, but the most significant gap in funding is observed at mid-stages of the business cycle when startups enter the growth phase requiring VC investments. Lack of a reasonable surety about a planned exit remains a top worry for VCs in the Indian ecosystem, which needs to be addressed. It is further observed that large-sized startups, especially tech startups, tend to garner a major chunk of funding and hence, it becomes somewhat difficult for other startups. Sector-specific funds can play a role in such entities. PEs can also play a significant role in meeting the funding requirements of startups. Crowd-funding can help startups to reach a large number of potential investors, while also providing them publicity. As the impact of Covid-19 on startups could be significantly adverse, SIDBI and other agencies could develop newer funding methods once some clarity emerges on the issue.

References

• Babu S and Sridevi K (2019), "A Study on Issues and Challenges of Startups in India", International Journal of Financial Management and Economics, Vol. 2, No. 1, pp. 44-48.
• Dinesh K K and Sushil P (2019), "Strategic Innovation Factors in Startups: Results of a Cross-Case Analysis of Indian Startups", J Global Business Advancement, Vol. 12, No. 3, pp. 449-470.
• Dutta Akanksha (2016), "Start-Up Initiative", IOSR Journal of Business and Management (IOSR-JBM), pp. 93-97, e-ISSN: 2278-487X, p-ISSN: 2319-7668, Special Issue - AETM 2016.
• Gupta Sen S and Kataria A (2019), "An Empirical Study of the Performance of Indian Startup with Respect to Different States", International Journal of Latest Technology in Engineering, Management & Applied Science (IJLTEMAS), Vol. VIII, No. VI, pp. 58-65.
• Korreck Sabrina (2019), "The Indian Startup Ecosystem: Drivers, Challenges and Pillars of Support", ORF Occasional Paper No. 210, September 2019, Observer Research Foundation, New Delhi.
• Kumar G (2018), "Indian Startups-Issues, Challenges and Opportunities", Conference Paper, March 2018 Conference: Indian Startup Ecosystem, Challenges and Opportunities, Hyderabad.
• Luger M I and Koo J (2005), "Defining and Tracking Business Start-Ups", Small Business Econ, Vol. 24, pp. 17-28, available at https://doi.org/10.1007/s11187-005- 8598-1
• Sunanda K (2017), "How to Start and Manage Startup Companies in India, A Case Study Approach", IJEDR, Vol. 5, No. 4, pp. 167-174.
• Upadhyay C S and Rawal P (2017), "Start-Ups; Let's Start Them Up - An Inside View in the Indian Start-Up Scenario", International Journal for Research in Applied Science & Engineering Technology (IJRASET), available at 10.22214/ijraset.2017.10221

---

• https://starting-up.org/en/starting-up/introduction/startup-history. Accessed on April 10, 2020.
• https://economictimes.indiatimes.com/magazines/panache/foreign-investors-love-india-paytm-top-valuedstartup- at-10-bn-snapdeal-byjus-also-in-the-list/countries-with-most-unicorns/slideshow/71438339.cms. Accessed on April 10, 2020.
• Ministry of Commerce and Industry Gazette Notification G.S.R. 501 (E) dated May 23, 2017 (issued in supersession of Gazette Notification No G.S.R.180 (E) of Government of India dated February 17, 2016)
• https://www.startupindia.gov.in. Accessed on April 10, 2020.
• RBI Circular A.P. (DIR Series) Circular No. 13, October 27, 2016, available at https://www.rbi.org.in/Scripts/ NotificationUser.aspx?Id=10667&Mode=0. Accessed on April 19, 2020.
• "Enabling Framework for Regulatory Sandbox", August 13, 2019, available at https://www.rbi.org.in/Scripts/ PublicationReportDetails.aspx?UrlPage=&ID=938. Accessed on April 19, 2020.
• "Pilot Survey on Indian Startup Sector", December 31, 2019, available at https://www.rbi.org.in/Scripts/ PublicationReportDetails.aspx?UrlPage=&ID=956. Accessed on April 19, 2020.
• Adopted from "Indian Startups: Survival Strategy", Dr. Amitabh Bhatnagar, Principal Advisor, Centre For Knowledge Management, A B Vajpayee Institute of Good Governance & Policy Analysis, Bhopal.
• J Prabu (2012), Jugaad Innovation, Cambridge Centre for India & Global Business, UK.
• Adopted from "Indian Startups: Survival Strategy", op. cit.
• Adopted from "Start-up Success Stories", available at https://startupsuccessstories.in. Accessed on April 13, 2020.
• https://www.businesstoday.in/buzztop/buzztop-corporate/highest-ever-vc-funds-spend-10-billion-on-indianstartups- in-2019/story/397547.html. Accessed on April 14, 2020.