2015 was the golden age for India’s startups.
Buoyed by Startup India, the government’s much-touted campaign to champion entrepreneurship, and India’s massive and young talent pool, 2015 saw venture investment surge to a record $9 billion and the number of startups being founded increase by 87% when compared with the previous year.
But now, the pace has slackened dramatically. India’s biggest-ever start-up boom, which peaked in 2015, slumped to historically low levels and bankrupted hundreds of companies by the end of 2016.
2016 was a terrible year for start-ups in India.
According to research firm Preqin, venture investment dropped to $2.7 billion in the first two quarters of 2016 and the number of new startups decreased by 67%.
Venture investments slid to around a quarter of 2015-levels and Startup India is receiving fewer and fewer application – and even fewer among these being recognised as startups.
Over 40% of startups set up in the last two years have already shut shop; since 2011, at least 800 startups have shut down.
Around 75% of the founders of failed startups did not try again; they instead sought jobs at other firms or startups, thereby killing innovation and contributing to a general and relative anathema of risk-taking that pervades in the Indian business ecosystem.
The biggest casualties of this entrepreneurial slump are the biggest markets for startups themselves. These include sectors like logistics, e-commerce and food technology – sectors that have given India some of its most successful startups.
Not just India: the startup bubble seems to have peaked around the world
Patterns can be easily identifies when the decline of the startup era in India is analysed on a global scale. Startups around the world are beginning to run out of money and investors are becoming more discerning.
The number of investments in the private market, for example, has fallen by about a third in recent months and the amount raised by technology companies in 2016 fell by 60% from 2015. As The Guardian wrote, “Silicon Valley’s technology bubble has had some of its wind knocked out – not bursting, but fizzling – with VCs making fewer investments, startup valuations falling, and recruitment slowing.”
Why the slump?
Many factors can be blamed on the increasing obstacles Indian entrepreneurs have to face. The main obstacles are decreasing funding, lack of innovation, overcrowding and a general global startup dotcom bust.
Another major contributor could be rising unemployment and underemployment in the country. A more or less healthy growth rate has stopped being accompanied by a proportionately healthy job creation rate. This trend of a “jobless growth rate” has worsened with the decreasing rate of job creation, which job growth in key sectors plummeting to eight-year lows in the past two years. Coupled with the relentless expansion of India’s labour force and population, the scenario is a grave one and, if not addressed immediately, it could set the stage for prolonged social unrest and economic doldrums.
Then there are the neo-monopolies of the startup world (“decacorns”, as they are sometimes called). These are startups valued at tens of billions of dollars (such as Airbnb, Uber and Palantir). These massive companies stifle competition in their respective markets – and without healthy competition startups easily suffocate.
Is there a silver lining?
Not all is lost, however: there are still reasons to hope for a better tomorrow. India’s startup environment is still relatively young and, despite recent setbacks, promising. Additionally, India’s entrepreneurs are overwhelmingly young and thirsty for experience – nearly three-quarters of startup founders in India are younger than 35.
To ensure that India’s startups don’t fizzle out like their foreign peers, the government needs to ensure efficient policy implementation. Startup India needs to be revamped with realistic and well-defined goals. At the same time, fostering inter-state trade, cutting down business regulations, advancing job creation and attracting venture investment will go along way in helping entrepreneurs in the country put their ideas into action.