India’s start-up ecosystem seems ready to soar once again as funding begins to flow after three years of lull. In 2024, fresh capital infusion increased by 10% year-on-year, reaching $9.78 billion compared with $8.88 billion during the same period last year. Investors attribute this revival to improving market conditions, which are boosting confidence in start-ups preparing for initial public offerings and offering viable exit opportunities. It appears that India’s ‘funding winter’ has come to an end.
This resurgence comes on the heels of a record-breaking $44.3 billion raised in 2021, followed by a prolonged downturn. However, the current revival differs significantly from 2021. Investors are adopting a more balanced approach, carefully assessing the opportunity cost of capital, which is evident in tighter valuations.
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India’s start-up ecosystem comes to life
The growth of Indian start-ups and e-commerce over the last decade has been a transformative phenomenon. Today, India boasts the third-largest start-up ecosystem in the world, with projections for further growth. Multilateral institutions have consistently highlighted India as a bright spot on the global economic horizon, and the country is on track to become the world’s third-largest economy by the end of this decade, with start-ups playing a pivotal role
Currently, India is home to 1.4 lakh start-ups registered with the Department for Promotion of Industry and Internal Trade (DPIIT). The nation adds more start-ups daily than any other country and has witnessed the emergence of one unicorn every 20 days over the past seven to eight years. Prestigious institutions like the IITs and IIMs, as well as universities in Tier II and Tier III cities, have been instrumental in fuelling this growth.
Despite this progress, sustaining long-term growth requires addressing key challenges. The pressing question is: how can India build on this momentum to achieve the exponential growth needed to become a developed nation (Viksit Bharat) by 2047?
Challenges facing Indian start-ups
One major challenge is fostering a culture of entrepreneurship among students. Lessons from developed nations like the US and the UK suggest that economies thrive when higher numbers of students pursue entrepreneurship. A 2021 global survey of 2.67 lakh undergraduate and graduate students from 58 countries revealed that 11% owned businesses, with 16% of US students planning to start their own ventures. In comparison, only 2% of graduating students in India opt for entrepreneurship, as per an August 2024 survey of IIT Bombay graduates.
Increasing this percentage could lead to the creation of thousands of new start-ups annually, generating lakhs of direct jobs and even more indirect and gig opportunities. Integrating the three Es — education, entrepreneurship, and employment — into school and college curricula is essential to foster economic growth.
To compete globally, India must reframe its approach to higher education, treating it as a strategic sector rather than a social one. By embedding entrepreneurship into the education system through innovative teaching methods, fostering research, and encouraging strong industry-academia collaborations, India can unlock significant economic potential.
Another critical issue is the survival rate of start-ups. According to the IBM Institute for Business Value and Oxford Economics, 90% of Indian start-ups fail to survive beyond their fifth year. Policymakers and industry leaders must collaborate to identify and address the underlying challenges causing these failures.
The Union government has introduced a range of initiatives to bolster the start-up ecosystem, including the Start-up India initiative, which offers tax exemptions, simplified compliance, and funding support through the Fund of Funds for Start-ups (FFS) and the Start-up India Seed Fund Scheme (SISFS). Additionally, programmes like the Credit Guarantee Scheme for Start-ups (CGSS) seek to ease access to credit for early-stage ventures.
These efforts have fostered innovation and entrepreneurship, leading to the registration of over 1.4 lakh start-ups with the DPIIT. While these schemes have catalysed the emergence of several unicorns, experts note that issues like bureaucratic delays and uneven access to resources in Tier II and III cities need to be addressed to maximise their impact.
Building a thriving start-up ecosystem
The resilience of Indian start-ups is evident in the growing number of firms going public, including workspace provider Awfis, baby products brand FirstCry, EV maker Ola Electric, and food delivery platform Swiggy. Others, such as quick commerce firm Zepto, wearables brand Boat, and fintech major Razorpay, are expected to follow soon.
While these developments are promising, the government and policymakers must ensure that this momentum does not falter. Access to funding remains a critical factor for growth. The Securities and Exchange Board of India (SEBI) is reportedly easing regulations for investments in angel funds and implementing other measures to boost start-up funding. These moves could significantly benefit emerging start-ups by ensuring that funding is directed towards investors with the right risk appetite.
Countries with thriving start-up ecosystems have implemented targeted initiatives to foster innovation and entrepreneurship. For instance, Singapore offers substantial support through innovative policies and significant subsidies, boasting over 100 incubators and accelerators, as well as more than 150 venture capital investors. Similarly, Chile’s Start-Up Chile programme provides equity-free investment to tech-based start-ups worldwide, attracting ventures from over 85 countries.
South Korea’s K-Startup Grand Challenge, supported by the government, offers acceleration programmes and networking opportunities to foreign start-ups aiming to enter the Korean market. Estonia has introduced the Estonian Startup Visa, facilitating non-EU founders to grow their start-ups in Estonia, attracting more than 2,500 people in less than four years. Portugal has been recognised among the top 25 countries for government start-up initiatives, with cities like Lisbon and Porto leading in start-up ecosystem strength.
Israel has been at the forefront of investing and nurturing a prosperous start-up ecosystem by allocating time and resources to support their ecosystem, being home to successful start-ups like Waze and Wix. India can emulate these efforts by enhancing funding accessibility, streamlining regulatory frameworks, and fostering robust industry-academia partnerships to create a conducive environment for start-ups to thrive.
The revival of India’s start-up ecosystem is a testament to its resilience and potential. However, sustaining this growth will require targeted efforts to address key challenges, from fostering entrepreneurship in education to improving the survival rate of start-ups. Strategic government policies and industry collaboration are crucial to creating a robust and sustainable ecosystem that can drive India’s economic growth and position it as a global leader in innovation.