How India’s Early-stage Startup Ecosystem Became An Investment Hotspot

The Indian startup ecosystem has performed exceptionally well in 2021. Growing investor confidence in Indian startups is overwhelming and is gaining momentum at various growth stages of a startup journey, including seed stage funding. Early-stage investments in potential startups are a major driver of the entrepreneurial ecosystem and are viewed as promising investment options by various investor communities, including High Net Worth Individuals (HNIs) and Ultra High Net Worth Individuals (UHNIs). There are three key reasons behind this emerging trend that early-stage startup investing is becoming a high-return asset class.

Availability of a large talent pool aspiring to become entrepreneurs: India has recognized the need to develop innovation and incubation hubs for its large student community to encourage innovation and entrepreneurial mindsets through academic institutions. The IIMs and IITs, R&D institutes, non-profit organizations etc. are seen as drivers of this agenda with the help of the state governments. A rising number of incubators and a steady propensity of young executives to start their own businesses are also driving entrepreneurship and the early-stage startup ecosystem in India. A Tracxn study of tech startups in 2021 found that a significant number of edtech founders are recent graduates from IITs and leading engineering schools, or have worked for global consulting firms. This availability of young talent with the right mix of passion, expertise and mindset of Indian entrepreneurs definitely gives India’s early stage startup ecosystem an edge ready to seize the opportunities of a booming market.

Favorable Regulatory Environment: The Government of India plays a crucial role in fostering the growth of early-stage startups through the implementation of progressive policies and infrastructure. As part of the Startup India Initiative, launched in 2016, the government has made efforts to simplify complex legal, financial and knowledge-related requirements in order to encourage the participation of potential early-stage startups. Reforms such as opening up sectors such as space technology to private equity, tax exemptions for startups that meet certain eligibility criteria such as annual turnover and year of incorporation to meet working capital needs, and the creation of state incubators, to name a few, are reducing the chances Creating successful startups and helping them grow. Strategic interventions of this type are being embraced by aspiring entrepreneurs, and the result is a boom in the number of early-stage startups that is only expected to grow exponentially.

Company-built startup ecosystems: Established companies that lack the ability to innovate and agility, and nimble early-stage startups that lack the money to grow and the networks to enter the market and launch products/services offer a unique and scalable platform for a marriage to create multiplied wealth. Various corporate startup partnership schemes have fueled innovation and accelerated the growth of early startups in India across all manufacturing and service sectors. Large companies such as TCS, Accenture, Reliance, Microsoft and Tata Motors have implemented such partnerships extensively and with good results. For example, Microsoft India has accelerated more than 4,000 startups, while Tata Motors is working with half a dozen startups and is exploring partnerships with 20 others, and L’Oréal partners with tech startups and early-stage companies through its Open Innovation Program digitalization is concentrating beauty services and incubators and has driven more than 30 startups. Currently, India is experiencing rapid growth in the number of startups. The incidences of the next round of funding by the startups have increased, signaling the start of a mature investment phase in the Indian startup ecosystem. Some of the notable deals this year that had the next round of funding were BrowserStack ($200M in Series B), Apna ($70M in Series B), Purplle ($45M in Series D) and AdOnMo ($14.9 million in Series A). ).

With the availability of innovative talent, promising markets characterized by favorable government policies, and the injection of capital from established companies, this early investment cycle in the startup ecosystem has become a lucrative prospect for domestic and global investors. Increasing investor interest in India’s startup ecosystem, in turn, fuels the influx of new ideas and vice versa, raising the bar for excellence, growth, returns and investment risk.

Nandini Mansinghka, co-founder and CEO of Mumbai Angels.

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