Unicorns Rising: Evolution of the Startup Ecosystem

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In India’s dynamic startup ecosystem, the journey from 2016 to today has been nothing short of transformative. Since the launch of the Startup India initiative, the number of startups has skyrocketed from 442 in 2016 to 1,20,000+ today.

Growth and transformation have been witnessed in the corridors of innovation as much as the boardrooms of investors. Fuelled by technological advancements, favourable policy reforms, and an expanding consumer market, startups have grown across diverse sectors.

Central to this transformation has been the evolution of consumer behaviour. With increasing internet penetration, growing smartphone adoption and a flourishing middle class, Indian consumers have become more digitally savvy, seeking personalised experiences, convenience and value-driven solutions. This shift has spurred innovation and entrepreneurship, with startups leveraging technology to cater to evolving needs and preferences.

One hallmark of India’s startup ecosystem in recent years has been the rise of unicorns—startups valued at over a billion dollars. India’s first unicorn galloped onto the scene in 2011. Fast forward to today, and we’ve crossed the 100-unicorn mark. The combined valuation of 113 unicorns is $350 billion as of January 2024.

The impact created by unicorns extends far beyond valuation metrics. They serve as catalysts for ecosystem development, attracting investments and fostering talent. Unicorns also play a pivotal role in addressing socio-economic challenges, driving growth and empowering communities.

These unicorns, illustrative of India’s entrepreneurial talent, have not only disrupted traditional industries but also catalysed economic growth, job creation and technological innovation. The recent Confederation of Indian Industry (CII) report, titled Unicorn 2.0: Adding to the Trillion, sheds light on the exponential rise of unicorns and their impact on the economy.

The report includes insights into changing societal attitudes towards entrepreneurship, the transformative role of emerging technologies like AI in shaping startups and the imperative of increased domestic investment.

The study says India’s 100-plus unicorns and approximately 1,20,000+ startups have played a crucial role in contributing 10 to 15 percent to GDP growth between 2016 and today. The impact of these startups extends beyond direct employment, with over 12-13 million jobs created, encompassing 9,00,000+ direct organised jobs, a gig workforce of over 3.5 million, and an additional 7-9 million indirect jobs.

Notably, in 2022, startups contributed $20 billion in VC funding to the $85 billion in FDI received, showcasing the expanding investor interest in India’s startup ecosystem. Additionally, there has been a substantial influx of VC investment in cleantech startups, surpassing $500 million, with cleantech driving 20-25 percent of India’s total energy consumption. Furthermore, these startups have catalysed a more democratised consumption pattern, characterised by greater affordability, improved accessibility and increased convenience.

The report also introduces the concept of “orbital shifts”, which are poised to steer Unicorn 2.0 over the next decade. These shifts encompass the ascension of Indian startups as global leaders, the proliferation of innovation-led companies, the establishment of higher governance standards, the amplification of startup talent and the expansion of investor ecosystem.

Startups are at the forefront of driving economic growth across nine pivotal sectors, or the sunrise sectors. These include manufacturing, IT and digital services, agricultural ecosystems, healthcare services, travel and tourism, modern retail, next-gen financial services, communication, media, and entertainment, as well as skills and education. These sectors not only act as engines of growth but are also anticipated to catalyse additional expansion, job creation, and potentially generate 20-23 times the impact on exports by FY30.

To continue, sustain and realise this mission of adding a trillion dollars through startups, there is a need for continual government support to address policy-related challenges. For this, we have been working with the government on further facilitating the ecosystem. Some of the areas to be considered include ease of doing business, angel tax investment, foreign trade policy, alternative funding avenues, strengthening industry-academia ties, and others.

Acknowledging the pivotal role of deep tech startups in Unicorn 2.0 during a consultation with Department for Promotion of Industry and Internal Trade, CII proposed strategies like using Fund of Funds to diversify investment risks, directing CSR funds towards deep tech ventures to merge social responsibility with innovation, and exploring collaborative research to bridge academia and industry. These aim to stimulate private investment, promote applied research in private enterprises and cultivate an environment supportive of deep tech startup growth.

As we reflect on the growth trajectory of India’s startup ecosystem, it is evident we stand at the cusp of a new era of entrepreneurship backed by supportive policies by the Government of India. The journey ahead presents both opportunities and challenges, demanding concerted efforts from stakeholders across the ecosystem. By harnessing the transformative potential of technology, fostering a conducive regulatory environment and nurturing a culture of collaboration, we can chart a path towards sustainable growth and prosperity.

This article was published in the New Indian Express on 10 April 2024

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