A TRANSFORMATIVE journey for INDIA'S STARTUP ECOSYSTEM

Over the last decade, many of us have realised how essential a vibrant knowledge and innovation driven startup ecosystem is for our journey towards Viksit Bharat @2047. As widely known, India's startup ecosystem is at present the third-largest globally, following the USA and China. 

However, just nine years back, the startup ecosystem in the country was virtually non-existent; at best, fledgling. It is a testament to the foresight and vision of our Hon’ble Prime Minister that the Startup India Action Plan was launched in January 2016 with the objective of building and scaling up the country’s startup ecosystem.

The action plan was piloted and implemented by DPIIT, Ministry of Commerce & Industry by putting in place a complement of measures focussed on ease of business, handholding, access to finance/funding and incubation/industry – academic partnerships. As we enter the 10th year, we can only but marvel at the way the nation’s collective entrepreneurial spirit responded to this Government of India initiative and transformed the startup ecosystem to where it stands today.

In 2016, funding of startups was extremely challenging due to variety of well understood reasons revolving around risk perception arising from young untested entrepreneurs/business models and skill sets needed to assess and mentor such businesses. One of the key requirements therefore was enabling capital formation and funding/access to finance for startups.

Accordingly, at the heart of the Startup India Action plan was the Fund of Funds for Startups (FFS), launched by GoI in 2016. As an unprecedented signal of support for the startup ecosystem, the FFS was allocated an ambitious corpus of Rs 10,000 crore. Further, rather than directly investing in startups, FFS adopted a "fund-of-funds" approach, channelising into Alternative Investment Funds (AIFs) that, in turn, invest in startups across diverse sectors. This model was designed to address two critical gaps:

•   bridging the funding gap for early and growth-stage startups.

•  attracting private and institutional capital into the ecosystem by creating a multiplier effect and consequently enabling formation of capital pools in the country for funding startups.

Small Industries Development Bank of India (SIDBI) was entrusted with managing the corpus. The implementation

model adopted the best of public-private partnerships.

Transformative impact of FFS

Over the years, FFS has not only fulfilled its objectives but has also exceeded expectations in multiple ways. Some significant areas of impact of the initiative are as under:

•  The commitments to AIFs out of FFS have exceeded Rs.10,000 crore and this pool has developed into catalytic

   capital which has enabled the AIFs to mobilise a corpus to the tune of Rs.90,000 crore. 

•  Nearly 1,200 startups across sectors such as technology, healthcare, agritech, fintech, and clean energy have

   been empowered to innovate, scale, and compete globally with investments aggregating Rs.21,000 crore.

•  A remarkable multiplier effect has been demonstrated, leveraging every rupee of government funding to attract several rupees of private investment. This has significantly expanded the pool of capital available to startups, reducing dependency on foreign funding and strengthening India's financial autonomy in the innovation space. 

•  The scheme has seeded good number of first-time fund managers resulting in deepening of the AIF industry and fostering a robust community of fund managers with expertise in identifying and nurturing high-potential startups.

•  A heartening outcome is that the funding has been increasingly inclusive, with startups from smaller centres have not only benefitting from the funding but also through development of the local ecosystem.

• Similarly, encouraging outcomes have been reported for women led fund managers as well as women led startups.

• The startups though in early stage have collectively generated over 2 lakh jobs and as they scale up, this number will increase. The availability of funding options for the youth is encouraging more and more to opt for becoming job creators rather than job seekers.  Today, the youth in the campuses are seen talking more about starting their own startup ventures than thinking about lucrative corporate jobs.

•  While achieving the aforesaid outcomes, the funding while developmental in nature, is on track to deliver returns and conserve capital for the Government to be redeployed in similar initiatives. 

The road ahead: FFS2.0

The scheme/initiative has demonstrated the catalytic effect of sovereign capital on emerging sectors.

A key outcome of the Startup India Action plan/availability of funding has been the emergence of new/sunrise sectors with the capital facilitating innovation/ IP creation in deep tech sectors including defence tech, space tech, bio tech/ bio sciences, semiconductors, climate tech, etc.

All these businesses/business models/innovations have emerged only in the recent 5-6 years pursuant to the Startup India initiative. The focus should now be on replicating the FFS experience to exponentially scale up these enterprises which shall provide Amtanirbharta and help achieve the nation’s goals for 2047.

Thus, while continuing the existing momentum, the future roadmap will look at emerging sectors which are poised to drive the next wave of innovation and economic growth.

Vision for a nation of innovators

The success of the Startup India initiative reflects India’s commitment to innovation and entrepreneurship. It is testimony to the visionary leadership of the Government of India and collaborative efforts of all ecosystem stakeholders. As we celebrate the 10th year of the initiative, it is time to reaffirm our dedication to building a nation of innovators, where startups not only contribute to economic growth but also drive nation building/strategic national goals as well as societal transformation.

India’s startup story is a story of dreams, resolve and limitless possibilities. We are confident that the Startup India initiative and the FFS will continue to be cornerstones of this narrative, powering India’s rise to become the innovation capital of the world.

Sanjiv Singh, IRS
Jt Secretary, DPIIT, Ministry of Commerce & Industry, Government of India