Highlights
SUMMARY
India’s startup ecosystem has experienced a remarkable shift over the past decade, transforming from a niche market into one of the most dynamic startup landscapes globally. Currently, India ranks as the third-largest hub for unicorns, boasting 118 unicorns which highlight the maturation of the startup sector and its significant contributions to the economy.
A notable trend is the rise of startups from smaller cities, focusing on addressing local challenges and targeting niche markets.
Transformation of India’s Startup Ecosystem
India’s startup ecosystem has undergone a significant evolution in the last decade, transitioning from a small-scale market to a vibrant global player. Although it began modestly, its current standing is a testament to the government’s proactive approach in creating a startup-friendly atmosphere. Initiatives such as Startup India, launched in 2016, have played a crucial role in this development by implementing supportive policies, including:
- Fund of Funds for Startups (managed by SIDBI)
- National Deeptech Policy
- Infrastructure improvements to encourage innovation and entrepreneurship across various sectors.
Early Landscape and Recent Growth
In the early 2010s, India’s startup landscape was primarily dominated by a few major players concentrated in regions like NCR, Mumbai, and Bengaluru. However, as of December 2024, around 157,066 startups have been recognised by DPIIT across 779 districts. India is now the world’s third-largest hub for unicorns, with 118 unicorns illustrating the progress and contributions of the startup sector to the economy. This reflects the diverse and extensive entrepreneurial journey the country has embarked on over the last decade.
The government’s initiative to decentralise has empowered entrepreneurs nationwide, granting them access to resources, capital, and mentorship. This shift marks a significant change in India’s startup ecosystem, with tier 2 and tier 3 cities emerging as vital startup hubs. Venture capitalists have started looking beyond major metropolitan areas for investment opportunities.
Funding Growth
In 2016, there were about 300 DPIIT-recognised startups, a number that surged to over 1.25 lakh by March 2024. The funding landscape for Indian startups has transformed dramatically, with capital raised skyrocketing from $20 billion in 2016 to $111 billion in 2021, and ultimately reaching $158 billion by the end of 2024.
Recently, between June 2024 and August 2024, tier 2 and tier 3 cities experienced a remarkable increase in fundraising, totalling INR 2,202 crore compared to a mere INR 175 crore in June 2024. This upsurge is attributed to government efforts aimed at promoting innovation, improving access to capital, enacting favourable policies, providing tax incentives, and streamlining compliance processes, thereby making it a viable option to explore niche markets and emerging industries.
Startups from smaller cities are carving out a niche by addressing local issues and contributing to inclusive growth, helping to bridge the gap between urban and rural areas.
Supporting Initiatives
The government’s proactive policies, including initiatives such as:
- The Startup India initiative
- Atal Innovation Mission (AIM)
- Pradhan Mantri Mudra Yojana (PMMY)
- Startup India Seed Fund Scheme (SISFS)
have introduced many measures to support startups, offering benefits such as tax exemptions, simplified compliance procedures, and legal assistance for patent applications, thereby facilitating the establishment of new businesses. Furthermore, these initiatives support the creation of incubators, accelerators, and research parks, which provide mentoring, networking opportunities, and access to cutting-edge technologies.
Additionally, India’s commitment to a digital economy through programmes like Digital India and Make in India has made it increasingly easier for startups to establish a foothold and attract global investors. The strong interest from international limited partners (LPs) is notable, as India’s extensive consumer base, swift digital adoption, and an expanding middle class present a compelling investment opportunity. Venture capital and private equity firms worldwide are keen to invest in India’s burgeoning market, providing startups with essential capital to scale their operations and compete on a global scale. This trend is anticipated to persist as the Indian government continues to implement favourable reforms and policies for startups.
The Way Forward in the Indian Startup Ecosystem
Looking to the future, technology will remain at the forefront of innovation, addressing real-world problems across all sectors. Industries are increasingly adopting technology, with agriculture transforming into agritech, education evolving into ed-tech, finance morphing into fin-tech, and more.
Deeptech is poised to see a strong emergence of early movers. Startups focused on deeptech, particularly in areas such as AI, machine learning, IoT, robotics, quantum computing, biotechnology, green hydrogen, and spacetech, are likely to become the next significant players in both India and the global market.
Deeptech startups aim not only to develop new products but also to tackle complex, impactful challenges in industries like healthcare, agriculture, energy, and manufacturing. These ventures require advanced technical skills, substantial research and development, and considerable patient capital for scaling. Fortunately, India’s deeptech ecosystem is being bolstered by a growing cadre of tech-savvy founders and venture capitalists willing to invest. The talent pool is gradually expanding, with the government acting as a key catalyst in this segment’s growth. Initiatives like the Fund of Funds for startups, the National Deeptech Startup Policy, BIRAC programmes, and Atal Innovation Mission offer crucial support to deeptech startups, complemented by the establishment of specialised incubators and accelerators.
The outlook for India’s startup ecosystem appears promising. The government’s policies, the rise of startups in tier 2 and tier 3 cities, and growing international interest are all enhancing the sector’s growth trajectory. As we move forward, deeptech is expected to remain a focal point, with India’s ecosystem developing to foster the next wave of transformative innovations.