India ranked third in launching new startups globally

Despite becoming the third-fastest growing base for startups worldwide, many of India's startups fail to take off due to lack of support.

India has moved up by one position, behind the US and the UK, to become the third fastest growing base of startups worldwide, with the number of startups crossing 4,200 by end of 2015, registering a growth of 40 percent year-over-year.

The US leads the pack with around 47,000 startups, and the UK has 4,800 to 5,000 technology-driven startups, while India is placed third with 4,200 to 4,400 new-age companies, according to National Association of Software and Services Companies (NASSCOM), which represents the IT, ITES and Business Process Outsourcing (BPO) industry in India. Currently, India has 18,000 startups valued at $75 billion, employing 300,000 people.

Launching the second edition of the startup report entitled Startup India -- Momentous Rise of the Indian Startup Ecosystem, along with Zinnov, the Association also said that funding activity grew by 125 percent compared with last year, and the number of private equity, venture capitalists, and angel investors grew by 100 percent.

"More than $5 billion of investments have gone in funding these startups this year, compared to $3 billion in 2014. Various central and state government initiatives are further supporting this progressive phase of startups in the country," the report noted.

The majority of the 1,200 new startups were B2C, primarily present in three segments -- ecommerce, consumer services, and aggregators. Since Q4 2014, there has been over 70 exits, amounting to more than $650 million. This includes acquisition of Taxi4Sure for $200 million and that of free charge for $400 million, the report added.

Mortality rate

The bad news, however, is that the mortality rate of Indian startups are said to be over 80 percent despite a thriving ecosystem in the country. About 10 percent of them do very well, another 25 percent will stay afloat, while rest will down their shutters after some time.

Though these startups raised nearly $5 billion this year from venture funds and angel investors, access to capital and also mentors is a dream for many of them.

The main issue that bothers them is it takes more than four years to shut down the failed venture compared with 19 months in OECD nations, as bankruptcy of such firms in India are governed by the archaic Provincial Insolvency Act of 1920.

Indian Angel Network president Padmaja Ruparel said that in a cluttered market like India, the competition is always higher than in other markets.

"With such stiff competition and even if well-funded, elements like weak strategy or execution, inadequate guidance, and incomplete overview of the ecosystem can lead to a startup's failure. What may also add to such a situation is competing with rivals and deviating from decided growth path," she told ZDNet.

No enabling policy

To overcome the problems faced by these new-age companies, the government should evolve an enabling policy environment for these budding firms that addresses the needs of both the business and its management teams. The much expected startup policy will focus on manufacturing, promoting innovation, and also offering tax incentives to small unlisted startups. This will help encouraging enough people to start-up, Padmaja added.

In an interview to PTI recently, TV Mohandas Pai, former director of IT major Infosys and Chairman of Manipal Global Education, also said that on the back of the right policies, the number of startups could grow over five-fold in the next 10 years, and will target a value of over $500 billion. The country will be a $10 trillion economy by 2030, and the huge growth can be driven by entrepreneurship, he added.