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INDIAN STARTUPS -CHALLENGES AND OPPORTUNITIES
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INDIAN STARTUPS - CHALLENGES AND OPPORTUNITIES
Prof Meghasham Chaudhari
Asst. Professor,
Indira School of Business Studies, Pune
meghashamc@[Link]
+91 77220 93095
Abstract:
Motives to establish a start-up are to get the freedom to work on projects that have meaning in
your life, filling a void in the society, making money, flexible schedule, being your own boss, tap
into creativity, sharing your talents with the society etc. This helps to create employment.
However, this also requires persistent efforts and making sacrifices. Factors encouraging startup
system are huge population, growing middle class & working population, tech-savvy customers.
Government schemes like ‘Make In India’, ‘Startup India’, and ‘Vocal for Local’ are boosting
entrepreneurial spirit. Entrepreneurs should start startup in a planned manner keeping in mind
multiple external & internal factors which can impact the business. Setting up goals of the startup
in terms of revenue generation, target market, profitability, new product development, customer
service etc. need to be defined clearly and in advance. Qualities of entrepreneurs and ability to
organize, utilize multiple resources is key to sustainable growth of a startup. Startups also face
challenges in terms infrastructure, support system, finance, marketing efforts etc. There are various
examples of startups failures in initial period if they don’t overcome these challenges. This paper
discusses some of the challenges or problems faced by Indian startups along with opportunities
provided by India as market and startup eco system.
Key words: Entrepreneur, ‘Startup India’, Start-up.
1. INTRODUCTION
Government of India launched ‘Startup India’ on 16th January, 2016 which is intended to catalyze
startup culture and build strong, inclusive ecosystem for innovation and entrepreneurship in India.
Startup India is intended to build a strong eco-system for nurturing innovation and Startups in the
country that will drive sustainable economic growth and generate large scale employment
opportunities. Through this initiative, which encourages use of innovation and design, Government
is aiming growth of startups. As defined under this initiative, Startup means an entity, incorporated
or registered in India not prior to five years, with annual turnover not exceeding INR 25 Crore in
any preceding financial year, working towards innovation, development, deployment or
commercialization of new products, processes or services driven by technology or intellectual
property.
Action Plan of Startup India is managed by Startup India Team, which reports to the Department
for Industrial Policy and Promotion (DPIIT). The 19-Point Action Plan is:
1. Compliance Regime based on Self-Certification: To reduce the regulatory burden on
Startups thereby allowing them to focus on core business and keep compliance cost low
2. Startup India Hub: To create a single point of contact for the entire Startup ecosystem
and enable knowledge exchange, access to funding
3. Rolling-out of Mobile App and Portal: To serve as the single platform for Startups for
interacting with Government, Regulatory Institutions for all business needs and
information exchange among various stakeholders
4. Legal Support and Fast-tracking Patent Examination at Lower Costs: To promote
awareness and adoption of IPRs by Startups and facilitate them in protecting and
commercializing the IPRs by providing access to high quality Intellectual Property services
and resources, including fast-track examination of patent applications and rebate in fees.
5. Relaxed Norms of Public Procurement for Startups: To provide an equal platform to
Startups (in the manufacturing sector) vis-à-vis the experienced entrepreneurs/ companies
in public procurement
6. Faster Exit for Startups: To make it easier for Startups to wind up operations
7. Providing Funding Support through a Fund of Funds with a Corpus of INR 10,000
crore: To provide funding support for development and growth of innovation driven
enterprises
8. Credit Guarantee Fund for Startups: To catalyse entrepreneurship by providing credit
to innovators across all sections of society
9. Tax Exemption on Capital Gains: To promote investments into Startups by mobilizing
the capital gains arising from sale of capital assets
10. Tax Exemption to Startups for 3 years: To promote the growth of Startups and address
working capital requirements
11. Tax Exemption on Investments above Fair Market Value: To encourage seed-capital
investment in Startups
12. Organizing Startup Fests for Showcasing Innovation and Providing a Collaboration
Platform: To galvanize the Startup ecosystem and to provide national and international
visibility to the Startup ecosystem in India
13. Launch of Atal Innovation Mission (AIM) with Self-Employment and Talent
Utilization (SETU) Program: To serve as a platform for promotion of world-class
Innovation Hubs, Grand Challenges, Startup businesses and other self-employment
activities, particularly in technology driven areas
14. Harnessing Private Sector Expertise for Incubator Setup: To ensure professional
management of Government sponsored / funded incubators, Government will create a
policy and framework for setting-up of incubators across the country in public private
partnership
15. Building Innovation Centres at National Institutes: To propel successful innovation
through augmentation of incubation and R&D efforts
16. Setting up of 7 New Research Parks Modelled on the Research Park Setup at IIT
Madras
17. Promoting Startups in the Biotechnology Sector
18. Launching of Innovation Focused Programs for Students
19. Annual Incubator Grand Challenge
2. INDIAN STARTUP ECOSYSTEM
India has witnessed launch of more than 55,000 startups to date with more than 3,200 startups
raising $63 Bn in funding in the last five and half years alone. Home to 34 unicorns, and 52
soonicorns with a potential to become unicorns by 2022; the world’s second largest startup
ecosystem is poised for disruption.
Parameter Details
Startups launched in India 55,000
Active startups in India 40,000
DPIIT registered startups 33,000
Funded startups that have shut down 385
Funding raised by Indian startups USD 63 Bn
Funding deals witnessed 5400
No. of funded startups 3202
Average time taken by Indian startups to reach Unicorn status 7 Years
Investors participated in startup funding 4640
Number of jobs reported by Recognized startups 1,55,000+
Share Of Female Employees In India-Based Venture Capital Firms 24%
The steps taken by Government to incentivise private investment in start-ups post the
COVID-19 pandemic are as follows:
Regulatory measures have been taken by Central government, RBI, SEBI, IRDAI and the
ministries to boost businesses in India. For entrepreneurs, measures regarding tax, regulatory and
RBI led monetary relief have been introduced.
• DPIIT had launched the United against COVID-19- Innovation Challenge to identify
innovative solutions to combat COVID-19.
• SIDBI has launched Covid-19 Startup Assistance Scheme (CSAS) for startups which aims
to aid innovative startups that have demonstrated ability to adapt to economic impact from
Covid-19 and ensured employees safety, financial stability. Through this scheme, startups
can receive a loan of up to Rs. 2 Crore.
• SIDBI has also announced a concessional interest rate of 5 percent for MSME loans under
the SIDBI Assistance to Facilitate Emergency Response against Covid-19 (SAFE
Scheme). These loans would be provided within 48 hours, with no collateral and minimum
paperwork for MSMEs manufacturing products or delivering services related to the Covid-
19 fight are eligible for these loans.
• Availability of additional financial window for healthcare sector under scheme called
SIDBI Make in India Soft Loan Fund for Micro Small and Medium Enterprises (SMILE)
for financing the healthcare sector for their requirements related to fighting Corona Virus
is launched.
Further, 39 such regulatory changes, to enhance ease of doing business, ease raising capital and
reduce compliance burden are undertaken.
3. CHALLENGES OR PROBLEMS FACED BY STARTUPS
Startups need leadership with entrepreneurial abilities clubbed with clear market focus, business
acumen, motivational communication skills, taking calculative risks, ability to anticipate market
developments. Startups face multiple challenges or problems. Some major ones are:
1) Founders’ persistence
Founders of startups should never give up till the results are achieved. They should be persistent
in order to achieve set goals. Regarding components of marketing mix, they might be ahead of
times and market acceptance may be slow. In such situations entrepreneur should be persistent
with his/her efforts. Entrepreneurs need to focus on long term results even though they face initial
hiccups.
2) Mentorship
As people embark on entrepreneurial journey, they need mentoring. This is more so, as they might
have started the venture only with an idea but may lack experience of running a commercial
organization. It is a proven example that a brilliant idea works only if executed promptly
(Mittal,2014). As per Milan Hoogan, Vice President -Sales and Marketing at Erfolg Life Sciences
feels that lack of proper guidance and mentorship is one of the biggest problems that exist in the
Indian startup ecosystem (Choudhury, 2015).
3) Rules & regulations
New business requires multiple permissions/ approvals/NOC’s from government agencies.
Entrepreneurs face challenges on this front, through the ecosystem is supportive now a days.
According to World Bank's annual report on the Ease of Doing Business (EODB), 'Doing Business
2020: Comparing Business Regulations in 190 Economies', India ranks 63rd out of 190 countries
which is upward movement by 14 spots this year.
4) Growth hurdles
Sometimes few agencies of the startup ecosystem them themselves become hurdles in the early
stages of a startup. As per [Link] Co-founder & CEO, Sneh Bhavsar, one of the major
issues is the influence of incubators, institutes and similar organizations which try to control,
manage start-ups in the name of helping, mentoring etc. (Choudhury, 2015). Conducive co-
operation amongst multiple agencies will smoothen the process for startup entrepreneurs.
5) Infrastructure Support
In order to start ups to flourish and grow various support mechanisms are available like incubators,
labs form testing prototypes, labs to check quality of the products, science and technology parks,
business development centers, other business support service centers like marketing support,
patent registration support etc. Lack of these and access to these may fail the business. Some
centers like National Chemical Laboratory are providing such supportive infrastructure to start
ups.
6) Financial Resources
For entrepreneurs with a commercially viable idea, lack of funds may become major hurdle to
execute the idea. Availability of finance is critical for the startups and is always a problem to get
sufficient amounts (Mittal, 2014; Truong, 2016). ). About 85% of new company’s reportedly
underfunded indicating potential failure (Iwasiuk, 2016). A number of finance options ranging
from family members, loans, grants, angel funding, venture capitalists, crowd-funding etc. are
available. Scaling of business requires timely infusion of capital. Proper cash management is
critical for the success of the startups (Skok, 2016, Pandita, 2017)
7) Generation of Revenue
Startups fail if they fail to generate revenue at appropriate pace. As the business grows, operational
expenses also increase and hence along with revue generation, efficient management of the
available funds is useful. Many a startup entrepreneurs lack in Finance Management aspect of the
business. From business point, focus should also be on maintaining the growth.
.
8) Setting up Team
One of the important resources for running a business enterprise is suitable manpower. Finding,
hiring the right talent is crucial for starts ups as some employees may be less enthusiastic to join
the starts. Apart from founder(s), startups normally start with a team consisting of trusted members
with complementary skill sets. Assembling a good team is the first major requirement, failure to
have one sometimes could break the startup (Skok, 2016). Also retaining them is also a challenge
for startups.
9) Awareness Creation
Startups come up with innovative solutions to customer’s pain areas. They fail if they lack or fail
in generating sufficient in the market. This problem can also be with existing firms but becomes
prominent for starts ups due to new, unique product offerings.
10) Customer Expectations
Being offerings from a startup, customer expectations are high regarding products, service support
and communication from the organization. Startups need to meet and exceed these expectations to
establish and subsequently improve credibility. In order to meet client expectations, constant
improvement in systems & process, innovation in products is important.
11) Lack of proper Branding
Any organization needs to create & improve its image and position themselves as the ones offering
best solution to client’s problems. This becomes more critical for the startups. So, proper branding
strategy is important for startups. Many startups concentrate on acquiring new clients, get busy in
operational aspects of the business and fail to come up with proper, sustainable branding strategy.
12) Replicating other starts ups
Many startups try to emulate strategies of other successful startups in foreign markets as well as
in India. They also get influenced by successes of other startup in growing sectors or industries.
Successful strategies/ programs in other markets/ industries may not be suitable to their market or
industry or their own organization. Before implementing, they need to make it suitable to their
own requirements and then implement it with thoughtful planning.
4. REASONS FOR FAILURE
As per Forbes May’17 editorial, though India has become the third-largest startup ecosystem, it
lacks successful innovation. Various (77%) venture capitalists surveyed believe that Indian
startups lack new technologies or unique business models. India filed 1,423 international patents
in 2015-16, while Japan filed 44,235, China 29,846 and South Korea 14,[Link] regards major
reasons for failure of startups, a survey based on analysis of 101 firms showed that 42% failed as
the product had no market, 29% firms ran out of cash, 23% did not have the right team,18% closed
due to pricing issues, 17% firms had poor product, 14% failed due to poor marketing and 8% had
no investor interest(Griffith,2014).
5. OPPORTUNITIES FOR STARTUPS
Even though there are multiple problems, challenges faced by the startups, huge market like India
offers opportunities to solve customer problems with suitable solutions. Some of the opportunities
are:
• INDIA’S POPULATION
More than 65 per cent of India’s population today is below 35 years of age and that is really a huge
advantage. This prominence of working-age population will last till 2055. It is expected that in
current year, the working age population would surpass the non-working population. Satisfying
needs of this huge population offers multiple opportunities for startups.
• HUGE INVESTMENTS IN STARTUPS
FII’s and Indian investors are making huge investments in Indian startups. Between January to
September 2020, $8.1 Bn has been invested into Indian startups across 652 funding deals. Sequoia
India, Accel and Mumbai Angels Network are few of the top investors in Indian startups. Other
prominent investors are Tiger Global Management, DST Global, and Softbank etc.
• MIND SET OF WORKING CLASS
Working class of the day is ready to take risks and try new career options. This works well for
startups to attract talent and grow. Traditional career paths are giving way to Indian startup space.
People get attracted to startups due to career growth, challenging assignments, good compensation.
Many high profile executives are quitting their jobs to start or work for startups. The number of
students joining startups and e-commerce companies is growing constantly since last few years.
• GOVERNMENT INITIATIVES
There are multiple government and semi-governmental initiatives to help startups. They are:
o Start-Up India
This initiative provides three-year tax and compliance breaks intended for cutting
government regulations and red tapism.
o MUDRA Yojana
Through this scheme, startups get loans from the banks to set up, grow and stabilize
their businesses.
o SETU (Self-Employment and Talent Utilization) Fund
Government has allotted Rs.1,000 Cr in order to create opportunities for self-
employment and new jobs mainly in technology-driven domains.
o E-Biz Portal
Government launched e-biz portal that integrates 14 regulatory permissions and
licenses at one source to enable faster clearances and improve the ease of doing
business in India.
o Royalty Tax
Indian government has reduced the royalty tax paid by businesses and startup firms
from 25per cent to 10 per cent
• INVESTMENTS BY BUSINESS HOUSES & SUCCESSFUL ENTREPRENUERS
Successful entrepreneurs like Ratan Tata, Nandan Nilekani, Azim Premji are making
investments in startups and through this are encouraging budding entrepreneurs. Big business
houses are also investing in startups.
Considering advantages offered by vast Indian market, Startups in India have huge scope in
serving sustainable local markets. This offers good opportunities of revenue generation and
employment creation. Startups offering suitable products to pre- defined markets are proving
to be successful in India.. Huge investments in infrastructure sector and the bottom-of-the
pyramid space, growing consumerism offer great potential to the startups. Indian investors will
continue to invest in sectors like e-commerce, edtech, fintech and SaaS, while we can foresee
growth in SpaceTech and Agritech.
6. CONCLUSIONS
Indian government is introducing Industry friendly policies and taking multiple initiatives like
‘Make in India’, ‘Startup India’, MUDRA, ‘Vocal for Local’ etc. Make in India was initiated to
encourage companies to manufacture in India and incentivize dedicated investments into
manufacturing. In line with the Make in India, individual states too launched their own local
initiatives which help startups to attract investments. Startup India is trying to build a strong eco-
system for startups which will drive sustainable economic growth as well as generate huge
employment opportunities. Investments by many successful entrepreneurs in startups is helping to
improve economy and employment generation. Startups face multiple challenges starting from
organizing resources to maintaining sustainable growth. India's huge population offers good
number of opportunities for startups to offer products and services taking care of basic needs to
high-tech applications. Some of these startups have potential to become unicorns and growing to
become global businesses.
References:
Articles:
1. Anand, Paramjit, “ Opportunities for Startups in India”, Acreaty Management Consultant
(P) Ltd ,The Entrepreneur,Feb,2016
2. Chaudhary, Varnana, “The Biggest Roadblocks Faced by Startups in India”,2015
3. Derek, Iwasiuk , “Key Challenges, Opportunities for Tech Startups in Emerging Markets,”
[Link], 2016.
4. Griffith, Erin, “Why startups fail, according to their founders”, 2014.
5. Mittal Ashish, “ Indian Startups: Challenges and Opportunities”, Economic Times,
24.11.14
6. Skok, David , “5 Reasons Startup Fail “, Matrix Partners,2016.
7. Pandita, Shivani, “10 Financial problems faced by startups and their possible remedies”,
[Link],2017.
8. Truong, Alice, “ After analyzing 200 founders’ postmortems, researchers say these are the
reasons startups fail”
Websites & Reports:
1. BUSINESS INSIDER [Link]
be-a-watershed-moment-for-india-tech-ecosystem-here-are-the-startup-sectors-that-vcs-
are-betting-on/articleshow
2. FORBES [Link]
due-lack-of-innovation-according-to-a-new-ibm-study Suparna Dutt D'Cunha
3. Grant Thornton Report- ‘Startup India’- An Overview,2015
4. INC42 [Link]
2020/
5. India filings Report, “Challenges faced by Startups in India”,2016
6. Times of India report, “17 startups to watch in 2017”
7. Startup India [Link]
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