How many startups are founded by Indians

India's start-up scene is on the rise

Establishing a start-up in India is considered very risky. "It's not necessarily what your parents want you to be," said Rahul Singh, founder of the game software company Flexboard, in an interview with Germany Trade and Invest (GTAI). In fact, the founding of start-ups has only been recognized as a career model since the success of the founders Binny Bansal (Flipcart), Kunal Bahl (Snapdeal) or Bhavish Aggharwal (Ola Cabs). They are the creators of the Indian editions of Amazon, Ebay or Uber, the Indian stars analogous to Travis Kalanick or Jeff Bezos.

“We live in an emerging market and have different areas of responsibility than our colleagues in the USA. Hardly anyone can afford to take such a risk, ”says Singh, who himself comes from a rather humble background. If you look at the profile of the successful start-up founders of the past ten years, it is actually the better off who start a company. They have often studied in America or Europe and are now returning to their homeland to prove themselves as business people. They have often studied at elite universities or worked for large international corporations.

Profile of start-up founders in India

criteria

Figures in%

Age

<26 years

20

26-30 years

31

31-45 years

44

gender

male

89

Female

11

education

Engineering studies

50

MBA

25

Source: Nasscom, October 2018

Indians are known for creative, inexpensive and innovative solutions, which mostly arise from a necessity due to a scarcity of resources. This is exactly what they were betting on when the start-up scene was developing. It was hoped for simple but novel ideas and solutions that could fill in the gaps in most areas of life and industries in India and thus benefit the country in its development. This innovative spirit is called Jugaad in India.

“There are successful new products on the subcontinent. Often, however, these are more global models or local imitations with minimal innovation, ”says Alok Bardiya, Chief Executive Officer of the investment arm of the telecommunications company Cisco, in an interview with Wirtschaftswoche. “Whether the e-commerce platforms Flipkart or Snapdeal, the taxi service Ola or the payment service Paytm, the most successful start-ups of the past ten years have primarily been Indian replicas of international models, copies from Amazon, Uber or PayPal”.

There is still great hope that Indian start-ups will emerge in sectors such as the health sector or information technology services and wherever technology is needed that offers solutions to the country's urgent problems. Foreign mentors who not only provide capital but also provide advice are in great demand for this.

Investments increase by over 100 percent

In the period from January to September 2018, 4.2 billion US dollars (US $), 108 percent more than in the same period of the previous year, was invested in start-ups. Late-Stage was able to secure the largest part with US $ 3 billion. Funding in the start-up phase in particular fell, while that in the early phase recorded a plus of 4 percent.

Financing within the various phases (rate of change in%)

Jan.-Sep. 2017

Jan.-Sep. 2018

Change 2018/17

Start phase -

191

151

-21

Early stage - US $ 1 to 5 million

993

1000

+4

Growth / expansion phase -> US $ 20 million

847

3000

+259

Source: Nasscom, 2018

Many founders initially receive financial support from their family, friends or neighbors. Financing through banks, like other small businesses in the country, is difficult. Banks usually have high requirements for granting a loan. Doing business with established customers or “late stage” start-ups mean an expense for the credit institute, but a lower risk than young companies in the start-up or early phase and are therefore more interesting. The establishment of incubators and accelerators (I&A) is all the more important.

Jump start is expandable

As of 2017, there are over 190 active I&A in India. In an international comparison, this is little: in 2017, for example, there were around 390 I&A in Germany and 356 in Israel. Apart from that, most of them are in Tier 1 cities like Mumbai, Delhi or Bangalore. There are few I&A in rural areas and poorer regions like Bihar and Jharkand. Furthermore, experts often criticize the quality of I&A - an estimated 20 percent do a good job and have committed employees.

Most of the I&A in India are located in colleges and universities as these are often government sponsored. Many start-up centers are supervised by academic staff, who, however, have insufficient knowledge of business, explains Julian Zix, GINSEP project manager, in an interview with GTAI.

Above all, the entrepreneurial side and private providers are generating growth impulses. According to the Indian trade association National Association of Software and Services Companies (Nasscom), companies participate in more than 50 innovation programs, 20 I&A and 30 to 40 active investment funds. Global companies were also increasingly looking for cooperation partners. In the first half of 2018, Nasscom registered over 70 business combinations, an increase of 15 percent compared to 2017.

I&A

number

Examples

Form of support (examples)

Companies

20

Zes Fintech, Bosch, Shell

Consultation; Network opportunities

Private

65

Axilor Venture, ISME Ace

Mentorship; Provision of office space

Academic area

90

IIM Kozhikode, IIT Roorkee

Access to faculty; Provision of office space

government

15

10,000 startups

Design of simpler framework conditions

Source: Nasscom, 2018

With the start-up India Action Plan, Prime Minister Modi presented a 19-point list in 2016, which promises considerable relief in the form of tax breaks and funds. Furthermore, the compliance requirements and restrictions for foreign start-up investors have been relaxed.

According to experts, the measures taken so far will not be enough on their own. It is still difficult for company founders to find their way around the legal framework or even to assert themselves in legal disputes. In addition to financing, many start-ups fail to acquire customers and find qualified employees. The protection of intellectual property is also weak. According to a study by Nasscom, just 10 percent make the step to become a profitable company.

The Indian government has also announced the goal of 10,000 new startups by 2020. This plan is very ambitious. The comparison makes it clear: "Israel is regarded as a great role model for Indian players and has" only "600 to 700 start-ups with scalable business models every year," explained Dana Nihari, Trade Commissioner of the Israeli consulate in Mumbai, in an interview with GTAI. Ob India's ability to launch a disproportionately large number of promising start-ups is questionable.


Text: Heena Nazir