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India to remain a global start-up hotbed for years to come

India to remain a global start-up hotbed for years to come
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You're reading Entrepreneur India, an international franchise of Entrepreneur Media.

India’s start-up scene has witnessed an explosion over the last couple of years. In the first 7 months of this year, close to 30 hyperlocal start-ups have raised over $130 million in funding. According to CB Insights, there are now 7 Unicorns (privately held companies worth more than $1 billion in size) in the Indian tech space, with Flipkart in the top 10 list with a whopping $15 billion valuation (larger than companies like Dropbox, Pinterest, Spotify and SpaceX.) 

Start-ups’ news often make on the front page of leading national newspapers and full-scale, dedicated start-up blogs are proliferating and thriving.  HNIs have put around Rs 1,200 crore into early-stage VC funding space, 60 per cent of Indian senior executives are investing or planning to invest in start-ups and an ever-increasing number of foreign funds are investing in Indian start-up space. If you have not heard of the start-up craze in India, the cave you are living in must be really, really deep, with no 3G signal.

Yet it isn’t all peaches and cream – creaky infrastructure, corruption, large income disparity, low GDP per capita and poor air quality in metros mean that India still ranks low in terms of ease of doing business (according to the World Bank, it ranks 142nd in easiest country to do business). Even more worrying data according to World Bank again is that India ranks 158th globally in ease of starting a new company. So, instead of all the challenges faced by companies to start-ups in India, why has India become such a hotbed for start-ups?

Solving Real Problems

These challenges are the reasons that start-ups are thriving. Successful companies are built on solving real problems for consumers or businesses. These challenges are giving Indian start-ups massive opportunities to solve very big problems. If you add to the mix the ability to apply a technological solution to an offline problem, you quickly get a scalable solution which reaches consumers across the country directly on their smartphones.

A lot has been written about inflated valuations of e-commerce companies and the lack of profitability. But in my view, the fundamental problem they are solving is enormous. The retail supply chains struggle to offer the same wide selection of goods to consumers living outside of its purview.  The e-commerce companies have flattened the playing field – now wherever you live, you have the same shopping options as your relatives in the metro, with products delivered to your doorstep. 

Start-ups are also focusing on solving big infrastructure problems, whether it is a company like RedBus optimizing the inventory of bus travel; Ola aggregating smaller cab players; or OYO Rooms enabling discovery and standardization of cheaper and smaller hotels. The hyperlocal start-ups such as Grofers, Peppertap and others are tackling inefficiencies in the grocery supply chain and shopping experience. Quikr, OLX, Overcart & others are making big changes to the way secondary product markets and reverse logistics operate. Delhivery, goJavas and others are expanding the reach of last mile logistics. The list of problems being tackled goes on and on.

Huge Market Opportunities

In addition to the challenges, the market opportunities these companies are chasing is enormous.  Internet penetration, driven by the availability of cheap smartphones, has grown at an incredible rate in across the last few years, currently over 300 million and counting.  To put that into context, world’s third most populous country – the United States has a total population of about 320 million. Long gone are the days when tech start-ups were raising money on estimated future market size, the current market size is gigantic.  And that’s only at 15 per cent penetration, so there’s still a long way to go. For instance, China is approaching 50 per cent penetration!

In the last quarter of FY2014-15 (finishing March this year), India became the fastest growing economy globally, finally overtaking the Chinese dragon to the number one spot.  Add to that the feel good factor that came with Prime Minister Modi’s election earlier in 2014, and India is leading global growth surfing a wave of feel-good optimism.

Building an Ecosystem

There’s nothing like success. All these factors have created an ecosystem where companies can become very big.  Five new Unicorns since 2013 have emerged in India. Smaller companies are being acquired, making founders and early employees rich. Even a couple of IPOs have driven outsized returns for founders and investors. Exits are starting to happen, investors are getting returns and in-turn valuations are soaring.  There’s nothing like a good success story (or several) to bolster dreams and pave the way. And this has driven more and more people to start-up or to join fledgling companies. 

In the Valley, Indians are very often on the founding teams or early employees of start-ups. There has been a recent trend of NRIs coming back to work at and even founding start-ups in the motherland; no longer does good tech talent need to fly halfway around the globe to work at well-known tech companies.  Adding to that, later-stage start-ups and growth-stage companies are starting to offer comparative, often, even higher salaries than MNCs. The teams building start-ups are getting stronger and stronger, and the talent pool they have to recruit from is becoming bigger and bigger.

Important problems to solve, rapidly growing economy, large market size with increasing purchasing power, disruptive new technologies, several success stories and great talent to choose from – all the stars are aligned for India to remain a global start-up hotbed for years to come. Talented individuals, young and old alike, are putting a lot of blood, sweat, and tears into solving big challenges through technology. And we are only getting started.