India is home to over 3,000 start-ups with an addition of 800+ new start-ups in 2014. A National Association of Software and Services Companies (NASSCOM) report reveals that India is the fastest growing and fourth largest start-up ecosystem in the world after the US, the UK and Israel. India is expected to cross 11,500 start-ups by 2020, generating employment opportunities for over 250,000 people.
Indian start-ups are dominated by e-commerce / aggregators and technology companies, offering various products / services including Big Data & Analytics, Enterprise Resource Planning (ERP), Product & Collaboration, Edu-Tech, Ad-Tech etc., with over 59% focused on B2C categories. Approx. 43% have focus on the global market demonstrating the global mind set of the entrepreneurs in India.
The main growth drivers for the increasing number of start-ups in India are:
- The high growth domestic consumption
- India has the second largest telecom subscriber base in the world touching nearly 979 million by the end of Jan 2015, with an estimated 33% internet penetration by June 2015.
- Returning NRIs with brilliant business concept and ability to invest in seed capital
The biggest challenges faced by the Indian start-ups include lack of essence in business models, underestimating competition, keeping pace with the ever changing market dynamics, adding / sustaining talent, running out of cash to finance initial cash burn and difficulty in accessing capital.
Capital raising in India is maturing. In CY 2014, India witnessed an increase in early stage investment, with Angel / seed investments recorded at USD 115 million spread across 285 deals, a growth of 66% in value compared to CY 2013 whereas venture capital investments grew 51% in value from USD 1.41 billion to USD 2.15 billion. In 2014, e-commerce start-ups like Flipkart and Snapdeal have attracted massive investments with Flipkart raising approx. USD 1.7 billion in three rounds. Veteran entrepreneurs like Ratan Tata (Tata Group), Narayan Murthy (Infosys) and Azim Premji (Wipro) are also backing various promising start-ups e.g. Bluestone, Urban Ladder, Snapdeal and Myntra.
Due to high capital infusion and increasing competition, India is witnessing consolidation in the start-up industry which will intensify even further. In May 2014, Flipkart bought fashion portal Myntra and Ola Cabs acquired its rival Taxi-For-Sure in March 2015. On the other hand, Zomato, an online restaurant search and discovery service provider, has acquired various international firms to increase its global presence.
Start-ups are betting high on the evolving ecosystem and support from the government would accelerate things further. Indian start-up companies have the potential to become future billion dollar enterprises as demonstrated by some of the companies like Flipkart (USD 1.6 billion), Inmobi (USD 1 billion), Just Dial (USD 2 billion) etc.
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