India is home to about 4,700 start-ups, behind the US and UK, but ahead of countries such as China and Israel, with about 1,400 new start-ups being founded in 2016, an 8-10% year-on-year growth, according to a report published by industry lobby body Nasscom and consultancy firm Zinnov.
The report estimates that the number of start-ups in India will more than double to about 11,000 by 2020, employing a 210,000-250,000-strong workforce.
Though India is the third largest start-up hub, it is less than one-tenth of the US, which is home to about 52,000 start-ups.
According to the report, about 36-40% of the roughly 1,400 start-ups founded this year were business-to -business companies, while business-to-consumer companies account for the rest.
“The start-up landscape is undergoing great churn with fast-paced changes happening across the board. Owing to focused funding and a growing need of scaling up capabilities, Indian entrepreneurs will continue to attract global attention due to a perfect mix of talent, technology, traction and transactions. With Indian start-ups now churning out critical services and solutions for large multinationals, riding on the digital revolution which is encompassing the world; the situation for Indian start-ups is only going to get better,” said Ravi Gururaj, chairman of Nasscom Product Council.
While the number of start-ups increased this year, access to funds continues to be a major challenge for homegrown start-ups. Investors have become increasingly cautious about their bets. Unlike the heady days of 2014 and the first half of 2015, investors are now releasing funds in tranches subject to attaining certain business metrics.
According to the report, investors pumped in about $4.9 billion in 2015, which decreased by about 25% to about $3.8-4 billion in 2016. The number of start-ups funded increased from 600 last year to about 650 in 2016, which implies that capital accessed by start-ups on an average has decreased in the last 10 months.
The cash crunch has subsequently spurred mergers and acquisitions with about 80 deals expected to close in 2016, the report says.