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Evolving technology, expanding domestic market drives growth for start-ups in India

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Frost and Sullivan’s recent analysis, “Start-up Landscape in India, 2018”, sheds light on start-up landscape in India and outlines value proposition for start-ups and the investor community

The Government of India (GoI) announced the Start-Up India initiative on January 16, 2016 to provide a favorable business environment for start-ups in the country and enhance the ecosystem. The initiative is aimed at promoting bank financing for start-up ventures to boost entrepreneurship and job creation, with a focus on reducing state intervention, smoothening the licensing process, and mitigating other shortcomings such as difficulties in securing land permissions, foreign investment, and environmental clearances. Various GoI ministries, including the Department of Industrial Policy and Promotion (DIPP), have initiated a number of activities for encouraging the growth of start-ups in the country.

The entrepreneurial spirit of the country, backed by the current government, has attracted billions of dollars of foreign funding, encouraging the rise of promising start-ups in India. The huge leap forward in the start-up movement is largely attributable to the changing investment landscape in the Indian start-up ecosystem. Eight out of the ten venture capital (VC)/private equity (PE) investments made in 2015 came from foreign companies, driven by the insatiable consumer market demand created by the mobile/Internet revolution. VC/PE investment in start-ups reached $ 1.8 billion in H1 2017 and currently around 44 per cent of the investors are foreign firms. Focus of giant VC companies such as Tiger Global Management and Accel Partners has boosted the confidence of other private equity and hedge funds in the Indian market. Start-ups and micro-small and medium enterprises registered 10 per cent year on year growth as opposed to 6-8 per cent average industrial growth. Start-ups grew by 7 per cent YoY to 5,200 (number of start-ups in absolute terms) in 2017 and employed almost 100-105K people as of 2017. This is likely to grow at a CAGR of 30 per cent and reach 300,000 by 2020.

“The Indian market is well-positioned for start-ups and small and medium businesses that are driven by the substantial investments, support activities, evolving technology, and expanding domestic market that characterise it. Longstanding expertise, geographical advantage, and availability of resources such as raw materials and economical labour, along with burgeoning income and increasing domestic demand, make India a perfect melting pot for start-ups to flourish, particularly in certain key sectors that offer significant growth opportunities”, said Krishanu Banerjee, Consultant, Public Sector Practice, Frost and Sullivan.

Frost and Sullivan’s recent analysis, “Start-up Landscape in India, 2018”, sheds light on the entire start-up landscape in India and outlines Frost and Sullivan’s value proposition for start-ups and the investor community and their partnering benefits.

Despite strong growth prospects, however, start-ups in India face some structural challenges. Addressing these can accelerate the momentum of growth in this space. As India progresses on its transformational high-growth trajectory, a substantial gap between consumption demand and supply of goods and services persists. This is primarily owing to inadequate professional guidance, underutilisation of talent, and inappropriate channelisation of funds. A proper linkage between entrepreneurs and their go-to markets will make the start-ups and small enterprises more sustainable and profitable in the medium to long term. Frost and Sullivan’s advisory and operational support offers unique partnering benefits for both start-ups and investors and enables bridging the gap in the ecosystem.

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