In recent years, startups have been receiving an enormous amount of attention all over the world, including India. The number of startups increases and more support has become available from all dimensions. Prime Minister Narender Modi’s wish to make India the hub of entrepreneurship. The government took various initiatives such as StartUp India and policies to support new businesses that do not seem to be paying off. Through technologies and innovation, the startup can generate an impactful solution and thereby, result in socio-economic development. Over the last two decades, the Indian startup ecosystem has been evolved dynamically. Bangalore has become India’s primary startup hub, recently the significant activities were found in Mumbai and National Capital Region(NCR), and some smaller cities as well. All these initiatives and opportunities made India – the third-largest startup ecosystem.
Despite being the third-largest, India is still considered as the worst eco-system for startups in the world. It has been observed that 90% of the Indian startup failed within the first five years. The number of startups in 2019 fell to 5,462, a 35% drop as compared to 2018. And, India has dropped to 23rd position in 2020 from 17th position in 2019 out of 100 countries in terms of the Startup eco-system. But the decline is not a surprise, this trend is going since 2016. While there was so much hype surrounding StartUp India (an initiative by the government), it has failed to boost the health and sentiments of the Indian startup ecosystem.
What are the major reasons behind the drop in the Indian start-up ecosystem?
Well, it is obvious that the most common reason for the failure is the lack of innovation – 77% of the ventures themselves believe that Indian startup lacks unique technologies and new business models. Another reason that impacts the most is the lack of a skilled workforce. Other reasons cited are lack of funding, inadequate formal mentoring, poor business ethics, and some immense infrastructure problems.
By far, Indian startup is prone to imitate the global companies to local servers such as Ola for Uber, Flipkart for Amazon, Gaana for Spotify, Instead of generating their unique business models. But India does not able to create meta-level startups such as Google, Facebook. On the other hand, China which India repeatedly compare itself built their local services such as Baidu for Google, Alibaba replacing Amazon. However, in 2016, Indian companies – Asian Paints and Gillette India – were mentioned in Forbes 25 most innovative companies.
As many as 1,503 startups have been closed down since 2015, the major reason behind this is the replication of western technology instead of creating their unique business model. According to the analyst, the highest number of failures are seen in sectors like logistics, food industry, and e-commerce. Apart from them, there are many new high net worth individuals without proper due diligence having flop business ideas were the reason behind the massive failures in the startup during the past two years. Investors have burnt their hands numerous times in the past few years and now they are cautious which results in the difficulty of fundraising. Therefore, the thought of becoming an entrepreneur is vanishing in Indian Youth.
However, it’s not all gloom and doom. The truth is, the startup that begun their journey five years ago or so – and successful – are now making a larger amount of money every year. The cautious investors are only spending their money on tested-and-proved business models in the startup hoping for better yields.
With the upcoming technologies like Artificial Intelligence and Machine Learning, there is a need for splendid technical talent and global business skills in the Indian Startup Ecosystem. Though India is dealing with various challenges coming up with new startups, the economic openness and large domestic market offer a significant advantage.
In the middle of the current COVID times, when a startup is reeling under the pressure of pandemic due to lack of demand and supply chain production. Nasscom Survey estimated in April that this year around 40% of the startups are about to shut down. Amid pandemic, while large companies have their hand-full dealing with the problems, Imagine how difficult will be for a startup.