Can India Keep Its Startup Growth on Track?
Although India has a significant share of the global startup industry, it has had difficulty maintaining this growth in recent years. This necessitates a comprehensive assessment of the nation's startup scene to identify both potential and challenges.
Unicorn rush
India's startup ecosystem has grown significantly, with 1,52,139 startups by 2024 compared to 471 in 2016. The number surged significantly during the pandemic, reaching 58,650 in 2021. Between 2019 and 2021, 63 companies became unicorns, with a record 45 in 2021, making India the third-largest unicorn hub globally, behind the US and China.
Widespread smartphone use and rising internet penetration are two factors that have greatly driven this growth. This digital penetration has enabled startups to connect with customers and achieve profitability, turning many into unicorns, especially during the pandemic years.
Funding
Funding for startups can come from various sources, such as Angel Investors, Venture Capitalists or government schemes. As of 2024, there are a total of 125 angel investors in India, having backed 470 startups in the year 2024. In the year 2021, a total of 1,113 deals were backed by angel investors, which is the same year a record-breaking number of unicorns erupted.
Important assistance is provided by government programs such as the Startup India Seed Fund Scheme, which gives companies up to Rs. 20 lakh and incubators up to Rs. 5 crore. Similarly, the Bharatiya Mahila Bank Business Loan, which provides loans of up to Rs. 20 crore, assists female entrepreneurs. The growing role of women in the startup ecosystem is demonstrated by the fact that, by 2024, 73,159 of the 1,52,139 firms had at least one female director.
Additionally, Bengaluru leads the Indian startup funding rankings by city in 2024 with $414 million, followed by Hyderabad with $21 million, Mumbai with $96 million, Delhi with $94 million, and Pune with $51 million. Despite recent difficulties, these cities continue to lead India's startup revolution.
Despite supportive policies, India has seen a decline in startups, with nearly 5,000 shutting down in 2024 alone. This accounts for 3.3% of the 1.52 lakh startups established earlier that year. Many of these were launched during the COVID-19 pandemic to address specific needs that faded as pandemic-related restrictions eased. Significant closures have occurred in major startup hubs in states like Delhi, Karnataka, and Maharashtra. There were 929 shutdowns out of 27,014 companies in Maharashtra, 644 closures out of 16,093 startups in Karnataka, and 593 shutdowns out of 15,645 businesses in Delhi.
Furthermore, issues such as scalability and funding are some of the factors causing the downfall of most startups. Bluelearn, although raking in $4 million as an investment in 2021, had to return 70% of its capital back to its investors. It also cited scalability as a hindrance to the growth of the company. GoldPe secured Rs 71 Lakh from angel investors for their first startup, SPAC, in 2022. As the initial funding couldn't keep them afloat, the founders looked for new investments to sustain GoldPe as it could only generate Rs 1.5 Lakh for a year.
Although the fintech sector was the second most funded sector in 2024 while receiving $1.49 billion in funding, it still saw the closure of startups. Other businesses, such as matrimony ventures and nanotechnology, due to market saturation and stiff competition from existing and established players, saw their rapid shrinkage due to a decreasing market demand, it could manage to open a job market to only 717 and 1850 employees, respectively.
The recent drop in startups emphasizes the necessity of approaching entrepreneurship with greater strategy. Before looking for investors, early-stage entrepreneurs need to thoroughly analyze their business ideas and perform market research. Similarly, investors should perform detailed due diligence before committing to funding. Startups hoping to prosper in India's changing market environment must maintain their competitiveness and initiative while implementing well-thought-out business plans.