The start-up ecosystem has its origins in the United States in the 1960’s and 1970’s. On the other hand, for India it’s been a relatively newer movement with its inception in the 21st century. There are four key factors that affect and matter to the Indian start up ecosystem. Let us approach the topic from the lens of each of these areas coupled with expectations from government; making a holistic case for next set of unicorns.
1. Talent – High quality talent going into startups and many of these people are turning entrepreneurs / CXOs in start ups
2. Capital – Significant majority of capital being invested into India is Foreign Direct Investment (i.e., from countries like US, Japan and, now, even China.
3. Innovation – Earlier, a large number of consumer internet companies secured foreign funding, but, now, startups focused on B2B are getting attention.
4. Adoption and Infrastructure – Thanks to a high smart penetration combined with market creation and freebies by deeply funded startups, consumer enterprises are witnessing good adoption. Indian engineering resonates more with global businesses as compared to Indian corporates, this has resulted in B2B companies, which adopted global-first strategy, to become highly successful.
There are two broad ways to approach the Unicorn–startups that have an enterprise value of $1 billion or greater–journey. Either emulate the learnings from US startup system or study and implement the Chinese ecosystem. Data suggests that Indian ecosystem metrics are like China from a decade and a half ago. On the other hand, US is lightyears away!
Another lesson can be the utilisation of startup energy to fast track growth. On the one hand, the US has successfully integrated the startup movement into the mainstream core economic development process, while the Chinese have gone about keeping startups as a central thought process to leapfrog as an economic superpower.
It’s a common trend for startup investors to scamper for trends that have worked in these markets, and, then push for similar investments in India. A square enterprise, Blume has always practiced first principles and localised its investment strategy.
Adopting the first principles approach to the overall economic agenda, India will do well to chart its own growth and not just copy other models. While we shouldn’t discount their learnings, we need to put our local strengths and challenges into perspective. We need to push for our own path, which may be similar yet highly distinctive in approach.
More important, regardless of the path, we must make India a self-sufficient start up destination when it comes to the four pillars. Indian participation in the startup journey has thus far been limited to being a consumer of products (and services) and media (including content) that has been offered by deeply funded startups from Indian, as well as, foreign competitors. (Examples – Flipkart, Amazon, Uber, Ola, etc). The pool of companies that can use innovations and technology, which a startup brings to the table, have been limited to work with. This has forced many B2B startup founders to relocate overseas and target more sophisticated companies in the US etc. Similarly, when it comes to M&As, Indian corporates continue to be befuddled with ‘buy’ versus ‘build’ conundrum and avoid making acquisitions in areas that may be instrumental in extending their value proposition to their customers. Some bigger market leaders have been cheering startup journey from a distance by either creating small proprietary fund operations or create accelerators that will provide insight in areas of relevance. The government agenda should be to create the right incentive structure to take these to the next level.
Self-sufficiency in the startup ecosystem is the key.
1. Talent – We have done exceedingly well in this field. While we have the required talent base, who become high quality entrepreneurs, there have been instances of foreign talent willing to work in India. Unfortunately, fundamental core sectors, which can help the country leap forward into the next two decades–agriculture, natural resources management, mining, construction, preservation (natural resources, environment, etc)–haven’t seen much start-up activity.
2. Innovation – Although we have struck balance, much more needs to be done. There may be high quality products and innovations from India and/or driven by Indian entrepreneurs, it still has a long way to go. Our entrepreneurs, for instance founders of Grey Orange Robotics, have won international acclaim for their innovation, but not much has been achieved for the country to be considered a hotbed for innovation. Key players can be corporates with research and development functions, and the government, which can foster innovation through programs that can fundamentally challenge the status quo. Any success on newer products and services should be out of the scope of indirect taxes and suitable incentives need to be offered by the government to create mass adoption.
3. Adoption and Infrastructure – Thanks to Jio and telecom operators, supported by deeply funded startups, which aid market creation one can’t complain on the infrastructure front. But physical, business and regulatory infrastructure, still lags in the country. The last stint of the current dispensation was about Jan Dhan, GST and cashless payment. In its present form, it needs to take forth creation of physical assets like highways, further electrification and clear the much-needed regulatory highway needed for businesses to thrive and grow. The government would, thus, do well to create a ‘Department of Startups’ on parity with Department of Revenue. Indian startups are not looking for dole in form of compensation, but there is a need for smooth transition to a a facilitating and non-confrontational environment. This includes work on taxes (income tax, capital gains tax, indirect taxes), corporate laws (procedural aspects or fundamental legal aspect). For instance, of late the departments have been overly zealous on implementing disclosure schedules and forms with little or no regard to the challenges in implementing these. More fundamentally, the government would do well to give thrust to listing businesses in India through their new platform, which will give impetus to Unicorns and also aid wealth creation in hands of Indians.
4. Capital – Most of the capital being invested in India is FDI. The government has been doing its bit through SIDBI and other programs for creating a startup friendly environment, but startups are still dependent on foreign capital for growth. A right balance needs to be struck with capital investments to aid wealth creation opportunities for the citizens and local businesses.
We need a “made in India” startup ecosystem that thinks Indian. India is the land of entrepreneurs and whilst there will be only a few unicorns over the next 5 years, the need of hour is to create sustainable businesses that can scale up to offer products and services that enhance lives and lifestyles of Indians, creating jobs and wealth on the way.