With the mushrooming of nearly 5,000 startups, 2015 would clearly be one of the most prolific years for India, home to 19,400-technology startups.
However, while the entry into the ecosystem is quite robust, the exit valuation for the investors on the initial funding still remains low, noted the Economic Survey for 2015-16, Indian government’s annual economic development document that is presented in Parliament prior to the Union Budget.
“It is important that start-ups, too, see “exit”, which would take the form of these companies being listed, allowing the original private investors to cash in on the initial investment, and plough it back into other similar ventures,” the survey said, noting that as of December 2015, eight Indian startups belonged to the ‘Unicorn’ club, with valuations greater than $1 billion. These include Flipkart, Snapdeal, Ola among others.
Indian startups have raised $3.5 billion in funding in the first half of 2015 and the number of active investors in India has increased from 220 in 2014 to 490 in 2015. A sizeable 2,000 startups have been backed by venture capital and angel investors since 2010, half of which were created in 2015 alone.
“A market economy requires unrestricted entry of new firms, new ideas, and new technologies so that the forces of competition can guide capital and labour resources to their most productive and dynamic uses. But it also requires exit so that resources are forced or enticed away from inefficient and unsustainable uses,” it said.
The problem of low exit valuations is expected to ease and valuations are seen increasing as as a result of new SEBI policies on listings comes into effect and as equity markets, in general, revive from current low valuations, caused by a sense of gloom in the global economy.
The survey said e-commerce in India is expected to grow at 21.4 per cent in 2015-16 to reach $17 billion after growing steadily from $ 4.4 billion in 2010 to $ 13.6 billion in 2014. While online travel accounts for nearly 61 per cent of e-commerce business, e-tailing constitutes about 29 per cent. It is estimated that that will spend between $1 billion and US $2 billion on e-commerce-related infrastructure over the next five years.
“India home to a new breed of young startups has clearly evolved to become the third largest base of technology start ups in the world. Within one year, the number of startups has grown by 40 per cent, creating 80,000—85,000 jobs in 2015. This emerging sector is set to get up a fillip with the Startup India programme,” it said.
Startup India, the countours of which were outlined last month, is the flagship initiative of the Indian government to build a strong ecosystem for nurturing innovation, driving sustainable economic growth and generating large—scale employment opportunities.
Apart from technology, the startup movement is being extended to an array of sectors including agriculture, manufacturing, healthcare and education.
“Startup India will turn Indian youths from job seekers into job creators. It will encourage entrepreneurship, innovation and creation of revolutionary new products in India, that will be used by people around the world,” the Survey said.
Among other provisions promised as part of the Startup India Plan, the government has promised easier entry and faster exit for startups.