Over the last two years Indian startups received large funding from global and domestic private equity and venture capital investors, turning many of them into unicorns. But a closer look at numbers shows that the excitement is limited to few sectors. Also, the number of new startups being launched has been declining since 2015.
About 28 per cent of India’s recognized startups are from just three sectors – IT services, health/life sciences and education. Professional and commercial services along with agriculture startups are also among the top five sectors.
Animation, dating and matrimonial, airport operations, and passenger experience have less than 100 startups in India. According to Ministry of Commerce and Industry data (as of March 28, 2022) out of 66,810 recognized startups, IT services accounted for the largest share at 12 per cent, followed by healthcare and life sciences startups with 9.3 per cent share. Education occupies third place with 4,457 startups (6.7 per cent share), followed by professional and commercial services and agriculture sector.
There are, however, many laggard sectors which attracted only few entrepreneurs. There are only 326 startups in sports, 298 in waste management, 278 in events, 217 in arts and photography and 211 in logistics.
Decline in new startup launches
According to India Tech Startup Funding Report Q1-2022 from Inc42, India had 3,500 startups before 2006. The highest number of startups (8,000) were registered in 2015 after which the number declined to 5,200 in 2016, 4,500 in 2017 and 4,200 in 2018. The number further, went down drastically during the pandemic to 1250 in 2020 and 1436 in 2021.
According to this report, $124 billion funding has been raised by startups between 2014 and 2021. But just 8 per cent of the startups received this funding from PE and VC investors. Around 100 Indian startups have entered unicorn club, which accounts for less than 1 per cent of the total startups in the country.
Cash burn model?
Availability of excess liquidity in the system resulted in record amount of fund raising in 2020 and 2021, but investors are beginning to tighten the purse-strings now with global liquidity drying up. Startups are also struggling to show business growth with competition picking up.
P P Pawar, an entrepreneur who is trying his hands in agri startups, say that after the initial enthusiasm, startups have realized that it is difficult to sustain on their own. “At the end of the day you have to earn profit to run the show and that’s where many small startups are failing,” he said.
But the government is betting big on this space. The government launched the Startup India initiative in 2016 to build a stronger ecosystem. “There is at least one recognized startup from every State and UT and nearly 50 per cent of the recognized startups are from Tier-II and III cities” according to the Ministry’s reply to the Lok Sabha in April 2022. The Ministry added that recognized startups are spread over 640 districts and have createdmore than 7 lakh jobs.