For Prelims:National Startup Awards, National Initiative, Action Plan taken by Startup India, and Fund Scheme 

For Mains:Problems faced by startups, Advantages of startups, and Structure of startup ecosystem and its economic significance. 

Why in the news?

According to recent statements made by the Indian government, the number of unicorns and the Start-Up ecosystem in India place it third globally.

What do we need to know about Startups?

Startups are young businesses created with the goal of creating an original good or service, marketing it, and making it impossible for customers to resist and impossible to replace.

A startup, which is rooted in innovation, aims to address flaws in current products or develop completely new categories of products and services, upending long-established ways of thinking and conducting business for entire industries. Because of this, many startups are referred to as "disruptors" in their respective industries.

Facebook, Amazon, Apple, Netflix, and Google are big tech companies. These big tech are collectively known as FAANG stocks. 

Types of Startups

A good idea alone won't be enough to start a business in the modern world, where everyone strives to bring innovation. It is necessary to go over the following six types in order to better comprehend the characteristics of various startups.

  • Scalable startups. This category frequently includes businesses in a tech niche. As a result of their high potential, technology companies can easily enter the global market. These startups include Google, Uber, Facebook, and Twitter as examples. 
  • Small business startups. Individuals from the general public founded and funded these companies. They develop at their own rate, and typically have a good website, but lack an app. The ideal examples are grocery stores, hair salons, bakeries, and travel agencies.
  • Lifestyle startups. A lifestyle startup can be started by someone who has a hobby and is eager to pursue their passion. They can support themselves by doing what they enjoy. Numerous examples of lifestyle startups are readily available. Take dancers as an example. They actively start online dance studios to instruct kids and adults in dancing and make money doing it.
  • Buyable startups. Some individuals in the technology and software sector create a startup from scratch with the intention of later selling it to a larger organization. Giants like Amazon and Uber purchase small startups in order to grow them over time and profit.
  • Big business startups. Due to shifting consumer preferences, technological advancements, and rivals, large companies have a limited shelf life. Because of this, businesses should be prepared to adjust to changing circumstances. As a result, they create cutting-edge products that can meet the demands of contemporary consumers.

What are the Growth Drivers and Challenges for Startups?

  • Growth Motivators
    • Government Support: Over the past few years, India's Gross Expenditure on R&D (GERD) has increased by more than three times.
      • Over the past eight years, there has been a 40–50% increase in the country of India's over 5 lakh R&D personnel.
      • Women have doubled their involvement in extramural R&D over the past eight years.
    • Adoption of Digital Services: Consumers' adoption of digital services was accelerated by the pandemic, assisting startups and new-age businesses in creating customer-focused tech businesses.
    • Online Services and Work from Home Culture: A large number of Indians have shifted to using online services, investigating a variety of offerings from e-grocery to food delivery and Edu-tech.
      • Increased user bases, accelerated business expansion plans, and investor attraction were all facilitated by the work-from-home culture for start-ups.
    • Digital Payments: Another factor that benefited the unicorn the most was the expansion of digital payments.
    • Buyouts from Major Public Corporations: Major public corporations that prefer to concentrate on acquisitions to grow their business rather than investing in internal growth often buyout startups, turning them into unicorns.
  • Challenges:
    • A startup's success is not always guaranteed by increasing investments: The enormous wagers on far-off outcomes represented by the billions of dollars being put into startups do not produce value in the form of revenues.
      • With such investments, one cannot anticipate the high survival rate of these startups, which can be guaranteed by profits.
    • India is still a minor player in the space industry, contributing less than 2% of the USD 440 billion global space economy.
      • The lack of a framework to ensure transparency and clarity in-laws is one of the factors preventing independent private participation in space.
    • Indian Investors Unwilling to Take Risks: The major foreign investors in India's startup scene are SoftBank from Japan, Alibaba from China, and Sequoia from the US.
      • This is due to the absence of a robust venture capital sector with a willingness to take on risk in India.

What startup-related initiatives does the Indian government have?

    • Startup India Seed Fund Scheme (SISFS): It seeks to offer funding assistance to startups for market entry, product testing, prototype development, proof of concept, and commercialization.
    • National Startup Awards: It aims to recognize and honor exceptional startups and ecosystem enablers who are promoting innovation and boosting competition, thus enhancing economic dynamism.
    • SCO Startup Forum: In order to collectively develop and enhance startup ecosystems, the Shanghai Cooperation Organization (SCO) launched its first-ever Startup Forum in October 2020.
    • Prarambh: The "Prarambh" Summit aims to give startups and young minds from all over the world a platform to develop fresh concepts, innovations, and inventions.
    • National Initiative for Developing and Harnessing Innovations (NIDHI)

 

  • Startup India Action Plan (SIAP)
  • Ranking of States on Support to Startup Ecosystems (RSSSE)

 

Changes that we need in the system

  • Due to the rapid growth of the startup ecosystem, significant funding is required; therefore, venture capital and angel investors play a crucial role.
  • Aside from decisions made at the policy level that support entrepreneurship, it is also the responsibility of India's corporate sector to support entrepreneurship, build alliances to develop significant technological solutions, and achieve sustainable and resource-efficient growth.
  • The world is paying closer attention to the lucrative tech opportunities in India and the potential value that could be created as a result of recent events that have increased capital mistrust in China. In addition to the Digital India Initiative, India needs to take decisive policy measures in order to achieve this.