India today is the 7th largest economy in the world (US$2.4 trillion GDP) and the Indian startup ecosystem is the 3rd largest behind US and China . Indian market cap at 101% of GDP is also the 8th largest . By some accounts, the Indian startup ecosystem seems to have come of age. With over 3,000 startups being set up every year, India seems to have become the hot bed of innovation and growth. About 32% of India’s population are millennials that are driving this amazing growth story in the overall economy as also the early stage ecosystem.
For any ecosystem to grow and mature a few key building blocks have to fall in place and work simultaneously. It is my belief that the Indian startup ecosystem is now at this juncture. Allow me to elaborate how various factors have started contributing to this amazing growth:
A trend that is gaining traction is the participation of a new breed of investors, those that qualify as high net worth individuals, seeking diversification avenues by participating in up and coming startups. The following chart depicts this changing asset allocation and a willingness to back riskier alternative investments.
Some of these individuals have teamed up and are now organised as angel networks. Some of the more prominent ones are Indian Angel Network and Mumbai Angels though there is a prevalence of newer networks being formed and gaining in size and numbers every month. The rising trend of HNIs becoming angel investors essentially points to the growth in the startup ecosystem and its acceptability as an asset class. Enhanced involvement of HNIs, even from small towns and cities, has fundamentally democratised the angel investment ecosystem. The fact that individuals are allocating capital backing risky ventures has evolved into an interesting topic of discussion around dinner tables.
Most of the large global venture capital firms, like Sequoia, Accel Partners who are betting big on these entrepreneurs have deployed hundreds of millions of dollars already. In 2016, total investments by all the VC Funds in India crossed $3481 million. In total, 563 deals were seen.
I estimate there are over 750 angel investors and well over 200 institutional investors supporting the startup ecosystem.
Incubators, Accelerators, Co-shared workspaces and Intermediaries
We have over 100 incubators and 50 accelerators including those floated by corporates (Google, Microsoft, Intel, PayPal, Cisco, etc.), government (T-Hub), educational institutions (IITs, IIMs) and a few independent ones.
Further, we now have intermediaries including investment bankers, lawyers and consultants who can make a living by focusing on this ecosystem, which is a far cry from just a few years ago when there weren’t enough early stage deals going around to support these service providers.
There are over 170 co-shared workspaces available across cities making it possible and convenient for small teams to work from with basic conveniences like availability of good internet connection and decent tea and coffee. A report published by CBRE Group, the largest commercial real estate services and investment firm in the world, stated that the co-working space segment in India is expected to touch 6 - 10 million sq. ft. by 2020, with 2017 witnessing the absorption of nearly 1.5 million sq. ft. of space . Even leasing activity by shared office operators, as mentioned by the report, more than tripled in over the last three years to over 0.7 million sq ft.
Importantly, the press covers most of the developments pertaining to early stage companies in a lot of detail - the ups, downs and all the challenges in between. Getting involved with startups has caught the public eye. In recent times, the startup ecosystem has also received tremendous support from the government in the form of Startup India, Digital India, Make in India, Financial assistance, Tax Exemption etc. By some accounts, there are over 50 different schemes and programs that the government is running to support startups in India. This too is going to go a long way to ensure that the ecosystem matures and attracts the right kind of capital.
Winner – the startup ecosystem
The Indian startup ecosystem is changing the way we live our lives. The ideas and products are changing the way we interact with the world at large. The possibilities have always been limitless and now the chances people are taking also seem infinite.