“Tech Startup Ecosystem: The Indian Perspective”

Prof. V K DURGADEVI
B.com, MBA, Research Scholar, Anna University, Chennai
[email protected]

Prof. JEENA RAJU

Research Scholar, Assistant Professor-MBA, Patel Group of Institutions, Bangalore
[email protected]

MS. MANASA G
B.E, MBA (pursuing), Bangalore
[email protected]

ABSTRACT

India is about the ABCs, which stands for Astrology, Bollywood, and Cricket, and is a joke about
the country. However, it is time that we make the S of ABCs stand for Startups. India’s Startup
industry is booming, fueled by entrepreneurial energy and a supportive environment for Innovation
and growth. The startup ecosystem including the network of people, resources, and institutions
brings together individuals from different disciplines facilitating the exchange of ideas and the
creation of new technologies and products. The Indian startup ecosystem has been facing a
funding crunch, According to market intelligence platform Tracxn, the total equity funding in
the tech space was $2.8 billion in the first quarter of 2023 (Jan-March), which plummeted more
than 75 % as compared to $12.1 billion in the same quarter in 2022. This Paper emphasizes the
growing phenomenon of the current Indian technology startup ecosystem with a holistic approach.
(Nityesh bhatt, 2022) Incubators and accelerators.
Key Words: Startup, Ecosystem, tech startup, Finance, Environment.
 “Tech Startup Ecosystem: The Indian Perspective”

INTRODUCTION:

In recent years, the Indian startup ecosystem has emerged as one of the fastest-growing and most
dynamic ecosystems globally. With the availability of a large pool of skilled talent, a vast market,
and a supportive government, India has become a hub for tech startups. The country is currently
witnessing a surge in the number of startup ventures across various sectors, including healthcare,
education, finance, and e-commerce. The growth of the startup ecosystem in India has been driven
by several factors, such as the rise of the middle class, advancements in technology, and an increase
in venture capital investments.

The objective of this research paper is to study the growth of the startup ecosystem in India and
analyze various constituents of the ecosystem for tech startups in India. The paper aims to explore
the factors contributing to the growth of the startup ecosystem in India, the challenges faced by
startups, and the role of the government and other stakeholders in fostering a supportive ecosystem
for startups.

This research paper aims to provide a comprehensive analysis of the tech startup ecosystem in
India. By examining the growth trajectory, drivers, and challenges of the ecosystem, the paper
seeks to highlight the potential of the Indian startup ecosystem and the need for a supportive
environment for startups to thrive.

REVIEW OF LITERATURE:

Startups have come largely in e-commerce, healthcare, financial technologies, education, travel,
artificial intelligence (AI), and customer services sectors. This paper illustrates the growing
phenomenon of the current Indian technology startup ecosystem with a holistic approach including
policy framework, startups have come largely in e-commerce, healthcare, financial technologies,
education, travel, artificial intelligence (AI), and customer services sectors. (Nityesh bhatt, 2022).
It also witnessed a rise of startups that cater to the needs of the nation especially in healthcare,
education, inclusion, clean energy and agriculture. As per the report, the total tech startups in 2017
expected to be between 5,000–5,200. India is home to third largest startup base and is just behind
the USA and the UK. The number of startups were less when compared to the previous years as
the focus was shifted to the solving the problems than mere existence. The report examines the
 “Tech Startup Ecosystem: The Indian Perspective”

evolution of the ecosystem, and its growth drivers, and highlights the role played by investors,
incubators/ accelerators, and the government. (NASSCOM, 2017). The report has touched upon
every aspect of the start-up landscape and as a solid reference guide in framing actionable
directives for the ecosystem.

The India Start-up ecosystem has been an unstoppable freight train, having produced 25,000 to
27,000 start-ups in the last decade alone. The tracks firmly laid, through corporate participation in
the form of investments, acquisitions, and open innovation programs, government support, and the
momentum fueled by founders and funders. Funding for Indian start-ups has been on a decline,
creating a pall of fear on the future of Indian start-ups. Public market valuations experienced a
correction in 2022 – with technology stocks taking a big hit. Funding for Indian start-ups has been
on a decline, creating a pall of fear on the future of Indian start-ups. Public market valuations
experienced a correction in 2022 – with technology stocks taking a big hit. (ZINNOV-NASSCOM
INDIA TECH START-UP LANDSCAPE, 2023).

Study defines disruptive innovation ecosystems and illustrates the impact that the financial
technology (Fintech) ecosystem has had on disrupting the financial services industry. Even amidst
a possible recession, nearly 50% of the Indian start-up founders are more worried about hiring and
increasing competition from unexpected sources than they are about a market recession. The area
of emphasis on future research on disruptive innovations and ecosystems as outlined. The tracks
firmly laid, through corporate participation in the form of investments, acquisitions, and open
innovation programs, government support, and founders and funders alike fuel the momentum.
(Maximilian Palmi, 2020).

The economy of any nation depends on the policies that the government frames and thus, the
government should make efforts in encouraging youth to start their own enterprises by providing
tax rebates for the first generation entrepreneurs. Besides, the government should encourage non-
resident Indians (NRI’s) to fund Indian startups thereby encouraging individual investors. The
2017 Global Startup Ecosystem Report indicates that several Indian startups struggle for survival
and thus a renewed focus on the recent advances and the forces that underpin the startup ecosystem
in India assumes significance. Against this background, the paper underscores the need for linking
sustainability to the start-up ecosystem and proposes a framework with the help of a triple bottom-
line approach to sustainable development. (Bharat Chillakuri, 2020). The role-played by the
 “Tech Startup Ecosystem: The Indian Perspective”

ecosystem-related parameters in the emergence and growth of high technology start-up clusters in India.
It has based on secondary data from six major start-up hubs in India during the period 2005-2013. The
factors considered in the study are Internet penetration, the volume of deal flow, availability of VC
funding, and a pre-existing critical mass of relevant high-technology businesses and skill sets. The paper
consists of three approaches; the first approach proposes phase-based models to understand the
phenomenon of high-tech start-up emergence and growth. The second approach focuses on
identifying the vital independent factors that affect the emergence and growth of high-tech start-
ups. The third approach has viewed as a theory aimed at bridging both the above approaches.
(Kshitija Joshi, 2014).

India is undertaking an essential shift towards start-up-welcoming policies and a business-friendly

environment. India is a populated country having increasing demand, which is putting a
competitive environment forcing to the creation of innovative systems. One of these systems is a
Startup ecosystem. This paper has aimed at about the growth and prospects of Startup systems in
India. India declared 2010-20 as the Decade of Innovation. Innovation is the key to start-up
ecosystems and results in more industrialization. (Jain, 2016). Bangalore occupies a unique
position in the startup world, and Hyderabad is fast emerging as one of the promising startup hubs
in the country. Given this background, we set out to explore and examine the structure, evolution,
and growth of ecosystems for technology startups in the context of Bangalore and Hyderabad. This
article focused on the diverse components of entrepreneurial ecosystems in different parts of the
global economy, and clearly identified some common elements without which an entrepreneurial
ecosystem may not come into existence or may not be effective and successful. Adequate and
growing presence and interactions will generate vibrancy in the ecosystem for its further growth.
This would lead to an increasing scale of technology start-up emergence, nurturing for survival
and stability, and growth of the successful ones, thereby contributing to national economic growth,
innovation achievements, and employment generation. (Subrahmanya, 2017).
 “Tech Startup Ecosystem: The Indian Perspective”

OBJECTIVES

1. To study the growth of the startup ecosystem in India.

2. To analyze various constituents of the ecosystem for tech startups in India with the drivers of
the startup ecosystem and challenges faced.

RESEARCH METHODOLOGY

The research is descriptive and based on the data collected from secondary sources like articles,
blogs, and online websites. Based on the objective we developed the paper about START-UP
ECOSYSTEM constraints.

COMPONENTS OF STARTUP ECOSYSTEM

A start-up ecosystem mainly consists of entrepreneurs with new business ideas, investors investing
in new business ideas, other non-financial systems (incubators, accelerators), and academic
institutes across the country, and central and state governments with policies and programs
supporting emerging start-ups.
Start-ups play an important role in the development and growth of the country. In the last few
years, entrepreneurship and start-ups have become a phenomenon of growth in this country. It is
only in the last decade and a half that more people are thinking about creating jobs rather than job
search. However, entering into a start-up ecosystem and sustaining in today’s competitive
 “Tech Startup Ecosystem: The Indian Perspective”

environment is tough as we see more failures and losses, competitions, mergers, and lack of
marketing skills leading to loss of identity than success. Therefore, it is very important for start-
ups to be prepared to face all the challenges and hurdles, and risks in all stages of the pre-
incubation, incubation, post-incubation in innovation development.

Ecosystem thrives:

In order to thrive, an ecosystem needs a number of things to happen at the same time. There need
to be ideas and entrepreneurially minded people to pursue them, which often requires some kind
of academic backdrop. The ecosystem also needs access to talent who want to work in growth
ventures. Access to capital is also critical. Ecosystems should also work somehow to be close to
the type of customer the start-up serves. “There is a fundamental difference between running
something and building something. In a growth company, you are growing and building so you
need to have builders on your team. The skills required of these builders are very similar to the
ones you need if you are an entrepreneur. Therefore, in order to build a successful growth
company, you need many people who can operate like an entrepreneur. Entrepreneurial people
never get stuck – they overcome obstacles like lack of money or resources, and are skilled at
finding creative solutions to the most difficult problems.”
 “Tech Startup Ecosystem: The Indian Perspective”

The advantages a start-up ecosystem can bring to the local area include both tangible and intangible
benefits such as:
• Increased employment rates
• Access to investment capital
• Increased tax income
• Increased tourism income
• Cultural exchange
• Improved living standard
• Innovation and idea-sharing
• International recognition
• Prevention of brain drain

GOI INITIATIVES:

• Prime Minister Narendra Modi .on 15 August 2015 announced “Start-up; Stand up India”,
an initiative to enable start-ups and encourage entrepreneurship in India thereby leading to
the creation of employment opportunities in the nation.
• Atal Innovation Mission
• The Atal Innovation Mission (AIM) which is a part of the Start-up India programme will
have two main functions which includes the promotion of entrepreneurship through Self-
Employment and Talent Utilization (SETU) and innovation promotion in order to motivate
start-ups to come up with innovative ideas
• Using Private Sector Expertise for Setting up Incubators: A policy and framework are
created by the Government for setting-up up incubators all over the country in public-
private partnership (PPP) to ensure professional management of Government funded
incubators.

• New Research Parks

Parks being set up in India, around 7 new Research Parks are being set up by the
Government in certain institutes like IIT Guwahati, IIT Hyderabad, IIT Kanpur, IIT
Kharagpur, IISc Bangalore, IIT Gandhinagar, and IIT Delhi with an initial investment of
 “Tech Startup Ecosystem: The Indian Perspective”

INR 100 crore each. Model these Research Parks on the b Innovation Focused Programs
for Students. The Government so as to promote research and innovation among young
students shall execute measures like the Innovation Core program to target school kids,
National Initiative for Developing and Harnessing Innovations in order to award INR 10
lakhs to 20 student innovations, and Uchhattar Avishkar Yojana for fostering very high-
quality research amongst IIT students. Asis of the Research Park that has been set up at IIT
Madras.
 “Tech Startup Ecosystem: The Indian Perspective”

Challenges in Start-up-Ecosystem:

• Lack of Innovation: Indian start-ups used to imitate already successful global ideas; they
lack pioneering innovation in their business. Building viable ideas in this market is a greater
challenge and varies legal formalities from state to state. More steps to reach customers
leads to stopping thinking out-of-the-box habits.
• Lack of skilled workforce: The research by IBM surprisingly reveals that finding
 “Tech Startup Ecosystem: The Indian Perspective”

Talents are one of the biggest challenges faced by Indian start-ups. Many job applicants
are not sufficiently skilled. Start-ups see a research, Information, Innovation, and
technology gap as needed in the real-time work environment, the fresh graduates from
colleges/universities in this fast-moving technology-driven environment. Therefore, start-
ups have to invest a significant amount of time and cost to train the hires.
• Inadequate formal mentoring: Start-ups rely on thorough market and user research. While
they learn some market knowledge from mentors, it will probably not spare them from
talking to their users to get a better understanding of their needs. In particular, to overcome
the problems of start-up founders and customers, especially in rural India, they need to do
more field research and obtain greater exposure to people on-site. Accessibility to mentors
is difficult in rural and urban areas also. Finding and paying remuneration is also difficult
when you are in the start-up stage.
• Lack of experienced leadership: Based on the proverb “success has more parents, and
failures are orphans”. The willingness to take risks should be more appreciated and
failure seen with less negative judgment. In addition, to overcoming stereotypes leadership
is a necessary step to increase diversity, which would help the big ideas of our day get the
ecosystem of support they need in order for them to have a chance in the environment.
• Lack of sufficient source of working Capital: Naturally raising of working capital is
difficult in an early start-up. Because the impression emerged that investors predominantly
fund start-ups, which are likely to exit within a few years with multiple times the initial
amount invested. Fewer investors have a more long-term orientation and are willing to
invest in R&D-intense start-ups. Further, although more start-ups are currently entering
consumer markets, the ecosystem described to still less favourable to start-ups who develop
hardware or other physical products.
• Lack of PAN India start-ups: India is a highly diverse country with a plethora of cultures,
languages, ethnicities, values, customs, and religions. Because Indian customers are
equally assorted, the start-ups’ understanding of them is often limited to confined regions,
which they know well and where they know local people to work with. In that sense,
advantages are region specifics linked to different states across the country. Therefore,
building up a pan-Indian start-up is more difficult, because they have little limited
understanding of customer needs in other states.
 “Tech Startup Ecosystem: The Indian Perspective”

• Price Sensitivity: Indian customers are expecting more quality products with lesser prices
and they are showing less willingness to pay for products and services. Often customers
expect offers such as discounted prices, and freebies which tend to incline towards cheaper
versions of products from China. Therefore, start-ups face the challenge of building
competitive prices, the expense of quality with a lesser margin on the return on investment
(ROI).
• Lack of Income Tax Regulatory Practice: Start-ups are required to file their income tax
returns regularly, even if there are no revenues generated. On the other hand, if the
payments from customers, distributors, retailers, whole-sellers, and Agents, not paid the
bills then start-ups run into a liquidity inflow freeze. If they fail to file the tax on time,
they end up paying huge penalties. On the other hand, much criticism was directed towards
the so-called “Angel Tax”, which was introduced in 2012 with the aim to prevent
Lobbying.
Table 1: Indian Unicorns
 “Tech Startup Ecosystem: The Indian Perspective”

Start-up Sector Valuation (US$ billion)

InMobi Mobile & telecommunications $1
Snapdeal E-commerce & direct-to-consumer $7
2014 Ola Cabs Auto & Transportation $6.2
2015 One97 Communications Fintech $10
Hike Mobile & telecommunications $1.4
2016 Shop clues E-commerce & direct-to-consumer $1.1
BYJU’S Edtech $5.75
2017 Renew Power Other $2
OYO Rooms Travel $4.3
Swiggy Supply chain, logistics, & delivery $3.3
Zomato Internet software & services $2.18
Policy Bazaar Fintech $1
Udaan Supply chain, logistics, & delivery $1
2018 Bill Desk Fintech $1.8
Delivery Supply Chain, logistics, delivery $1.6
Big Basket Supply chain, logistics, delivery $1
Dream11 Internet software & services $1
Ola Electric Mobility Auto & transportation $1
2019 Rivigo Supply chain, logistics, delivery $1
• Source: CB Insights (2019)
NON-FINANCIAL SUPPORTERS IN THE ECOSYSTEM:
• Start-up Incubators
Start-up Incubators are an increasingly popular means of arranging for seed capital funding
and other business needs that entrepreneurs face in the primary stages, they provide
businesses with capital requirements and other ancillary services such as marketing needs,
storage facilities, transportation needs, warehousing facilities, etc. Required for successful
operations on the condition that they meet certain criteria and prove attractive to investors.
In subsequent years, the number of start-ups as well as various incubators, accelerators,
 “Tech Startup Ecosystem: The Indian Perspective”

and other support organizations increased fast. During the period 2013 to 2018, between
7200 and 7700 tech start-ups incepted, which equates to an overall base growing at 12-15
per cent

• Startup Accelerators

Start-up accelerators are a later development than start-up incubators, which preceded
them. They are a more consolidated program designed to weed out unworthy ideas from
those that have a higher probability of success. They include mentorship and educational
components and culminate in a public pitch event or demo day. While traditional business
incubators are often government-funded, private companies, accelerators can be either
privately or publicly funded and focus on a wide range of industries.

FINDINGS

The key findings of this research paper are:

• The Indian startup ecosystem has emerged as one of the fastest-growing and most dynamic
ecosystems globally, driven by factors such as the rise of the middle class, advancements
in technology, and an increase in venture capital investments.
• The growth of the startup ecosystem in India has been driven by several sectors, including
healthcare, education, finance, and e-commerce, with startups largely focusing on solving
problems.
 “Tech Startup Ecosystem: The Indian Perspective”

• The Indian government and other stakeholders have played a critical role in fostering a
supportive environment for startups to thrive, including through policy frameworks,
incubators, accelerators, and investor support.
• Despite the rapid growth of the Indian startup ecosystem, there are challenges that need to
addressed, such as a funding crunch, increasing competition, and a need for sustainable
development.
• The Indian startup ecosystem has the potential to continue to grow and contribute
significantly to the economy of the country, but it requires continued support and
investment from various stakeholders.

CONCLUSION

The research paper discusses the growth of the startup ecosystem in India, which has emerged as
one of the fastest-growing and most dynamic ecosystems globally. The paper analyzes various
constituents of the ecosystem for tech startups in India, explores the factors contributing to the
growth of the startup ecosystem in India, the challenges faced by startups, and the role of the
government and other stakeholders in fostering a supportive ecosystem for startups.

The paper provides a comprehensive analysis of the tech startup ecosystem in India, examining
the growth trajectory, drivers, and challenges of the ecosystem. It highlights the potential of the
Indian startup ecosystem and the need for a supportive environment for startups to thrive. The
review of literature identifies that startups have emerged in various sectors, such as e-commerce,
healthcare, financial technologies, education, travel, artificial intelligence (AI), and customer
services sectors. The report also touches upon the evolution of the ecosystem, its growth drivers,
and highlights the role played by investors, incubators/ accelerators, and the government.

The study defines disruptive innovation ecosystems and illustrates the impact that the financial
technology (Fintech) ecosystem has had on disrupting the financial services industry. The report
emphasizes the need for future research on disruptive innovations and ecosystems. The research
concludes by suggesting that the government should encourage youth to start their own enterprises
by providing tax rebates for the first generation entrepreneurs and encourage non-resident Indians
(NRI’s) to fund Indian startups, thereby encouraging individual investors. Additionally, the paper
 “Tech Startup Ecosystem: The Indian Perspective”

underscores the need for linking sustainability to the start-up ecosystem and proposes a framework
with the help of a triple bottom line approach to sustainable development.

In summary, the research paper provides a comprehensive analysis of the Indian tech startup
ecosystem and highlights its potential. It also identifies challenges and opportunities for the
ecosystem and provides recommendations for stakeholders to foster a supportive environment for
startups to thrive.

Bibliography
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Maximilian Palmi, J. W. (2020). The evolution of the financial technology ecosystem: An

introduction and agenda for future research on disruptive innovations in ecosystems.
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NASSCOM. (2017). Indian Start-Up Ecosystem – Traversing The Maturity Cycle.

Nityesh bhatt, P. s. (2022). Technology startup ecosystem in India. International journal of

Business innovation and research.

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“Tech Startup Ecosystem: The Indian Perspective”