The start-up show: Let’s applaud the play

The turn of the decade has been truly remarkable for start-ups and ventures. While Wordsworth might have been overjoyed seeing ten thousand daffodils at a glance, tossing their heads in sprightly dance , I am equally captivated by the number of start-ups that have been founded in recent years, and the vibrancy that they have generated.

Statistically, India is among the top three globally in terms of the number of start-ups. During 2005-15, the aggregate investment in start-ups and ventures exceeded ₹1,11,700 crore (in 2015 values). The entrepreneurial urge among Indians is well known – we probably have the largest number of Micro, Small and Medium Enterprises (MSMEs) in the world. But what differentiates the modern day start-ups from the traditional MSMEs is the degree of innovation and the intensive adoption of technology as an enabler.

The start-up quotient in urban centres is significantly higher in day-to-day discourse than ever before. While the Nehru era was about the commanding heights of the economy through large scale industrialisation, the current era is about start-ups. The strongest protagonist has been the Prime Minister himself when he said, “ Hindustan mein koi aisa zila na ho, aisa block na ho jahan startup na shuru ho. Start up India, Stand up India .”

The three major segments that comprise the start-up act are: the ecosystem, founders, and investors.

Hurdles may remain, but there is a genuine effort to keep the doors of entrepreneurship open for everybody. A major component of the start-up ecosystem is the incubators and the accelerators that mentor and provide other forms of support during the initial months of a start-up. In the absence of a formal finishing schools for entrepreneurs, the incubators and accelerators provide inputs to the young founder on “how to fish.”

More than 50 per cent of the incubators have been established in the last five years. On an average, an incubator supports about 30 start-ups at any point in time, and an accelerator about 100 start-ups. Thus, setting up an incubator or an accelerator has a strong multiplier effect. They help start-ups compress the time taken from concept to early revenues.

The supportive start-up ecosystem, changing social perceptions to entrepreneurial failures, increased risk-taking appetite, the opportunity to make an impact, and the extraordinary financial success of gladiatorial entrepreneurs have inspired many to venture on their own rather than settling for conventional employment.

LetsVenture, India’s largest start-up funding platform, shows that between 2010 and 2015, the number of start-ups founded increased by more than 20 times — an annual growth of about 85 per cent. The highlight of this start-up explosion has been the democratisation of the venture formation process. The access to inputs for starting a venture is not restricted to those born with a silver spoon. Ninety five per cent of the ventures are today started by first generation entrepreneurs and professionals who are not from business families.

While bootstrapping is an option, raising funds from investors is the preferred choice for most entrepreneurs today. A big challenge for entrepreneurs has been to raise the initial capital from external investors.

Angel investment activity has significantly expanded in recent years. There is a strong growth in deals for any three-year period during 2008-15. The annual growth in the number of angel deals and amount invested has been about 124 per cent and 205 per cent, respectively.

In 2015 alone, close to 1,000 angel investors have invested in various start-ups. There are several more who invest through angel networks such as Chennai Angels and Indian Angel Network. A noteworthy trend has been the increased risk appetite of the angel investors. They are investing very early in the game – the average age of the start-ups at the time of getting angel investment has reduced by 90 per cent during 2008-15.

The confluence of a favourable ecosystem, bold entrepreneurial approach, and investors’ increased risk appetite has created a vibrant start-up economy in the country. Entrepreneurs have never had it better – a much improved business environment, greater availability of early stage capital, and to boot, rock star like status for those successful. Concerns remain though, whether the growth is bordering on exuberance, and the resulting hard landing that can hurt when the party is over.

However, as a commentator, I am reminded of Bob Dylan’s verse: “ And don’t speak too soon, For the wheel’s still in spin, And there’s no telling who that it’s naming, For the loser now will be later to win… ” Start-ups have made a definite impact in our day-to-day lives with several innovations products and services. The script is still playing out and the ending – who gains? How much? – is not clear yet. But as they say – the play is being performed, lets’ applaud the play.

The author is Professor, Department of Management Studies, IIT Madras.

COMMENT NOW