Chapter 7: The Startup Environment and Funding Activity in India

India has the third-largest startup ecosystem in the world with an estimated 26,000 startups, 26 “unicorns” (startups valued at over US$1 billion), and US$36 billion in consolidated investments over 2017–2019. The ecosystem has expanded rapidly, mainly through private investments including seed, angel, venture capital, and private equity, along with technical support from incubators/accelerators, and public policy. On its part, the government has tried to create a conducive environment through its flagship Startup India initiative. With India pushing towards a knowledge-based, digital economy, the government is also attempting to deploy ICT infrastructure and provide policy support for enhanced e-governance, investments, and technology innovation through research and funding higher education to spur entrepreneurship and economic growth. Data suggest that the startup ecosystem is largely clustered in large (Tier 1) cities and states with financial depth, more so in IT-enabled sectors including e-commerce, transport, and finance. Despite the progress made so far, Indian startups face huge challenges, such as the unorganized and fragmented nature of consumer and business markets, lack of clear and transparent policy initiatives, lack of infrastructure and access to government incentives (e.g., tax breaks), lack of knowledge and exposure, and complexities in doing business. Increasing awareness of government initiatives and incentives, credit disbursement to priority sectors, promoting outreach and network benefits to Tier 2 and Tier 3 cities, as well as simplifying investment opportunities and taxation rules for foreign and domestic investors could improve opportunities for startups in India.