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Demonetization & the Rise of Digital Startups
In a ‘surgical strike on black money circulation‘ the central government quite suddenly demonetized Rs. 500 and Rs. 1000 notes across the country, earlier this month, and small business owners in the unorganized sector who rely on cash-based transactions were caught off-guard. In this cash crunch, they had to resort to finding creative alternatives to physical money.
Soon enough, signs of Paytm, Freecharge and other digital payment gateways appeared at several stalls, auto rickshaws, local grocers and more; with smartphones being used to buy cups of tea!
As the giants of India’s Fin-Tech world rejoice this potential move towards a cashless economy, it represented an example of how important new-age digital start-ups have become in India. Entrepreneurs disrupting the financial world, (raising $1.2 billion in funding in 2016 alone, according to NASSCOM) are just one of many such examples.
Infrastructure that dressed India as world’s 3rd largest start-up ecosystem
The start-up landscape in this country has seen an unprecedented leap forward in terms of investments, over the last decade; raking up an estimated Rs. 1,11,700 crore between 2005 and 2015 (total venture investments) according to the 8th Annual Report on Indian Venture Capital and Private Equity on Start-ups.
This growth, that has pushed India up the ranks to becoming the world’s third largest start-up ecosystem, has been more or less concentrated over the last three years.
A three-year tax break and self-certified compliance with labor and environmental laws, and no inspections up to three years are some of the many measures this government has announced and implemented in its ‘Startup India’ scheme, to encourage entrepreneurs.
In fact, dissolving regulatory roadblocks hasn’t been the only cause. Adding to this fertile ecosystem, one of the biggest boosts has been the rise of accelerators and incubators across the country, to guide burgeoning entrepreneurs.
Becoming a ‘Unicorn’ in India
Why entrepreneurship isn’t as glamorous as it seems
With global eyes on Indian start-ups, investments began to pour in from the likes of New York-based Tiger Global Management, Silicon Valley’s Storm Ventures and Japan’s Softbank, among many others.
Not to say that Indian investors weren’t stepping up as well. With independent city-wise angel networks such as Delhi Angels, Chennai Angels and more; alongside Ratan Tata, Sequoia Capital, Blume Ventures, etc.
No surprise then that this ecosystem has given birth to successful ‘unicorns’ who come back full circle to instill faith in other entrepreneurs, such as:
Flipkart’s Sachin Bansal investing in NewInShorts and Roposo,
Toppr.com’s Zishaan Hayath backing Adpushup and Housing.com.
As I paint a rosy picture of entrepreneurship in India I must insert a disclaimer that Dhruv Shringi, co-founder of Yatra.com once said at a TiE Entrepreneurship Panel Discussion,
It’s time to dispel this ‘unicorn’ myth. Not everyone will end up a unicorn.
The Perks of a Fertile Start-Up Ecosystem
Advantages of technology development that come with a conducive start-up ecosystem are apparent and undeniable, but is this truly progress in the larger sense?
Being able to order an entire room’s furniture set from your phone or order a cab at the click of a button are certainly consumer benefits, but let’s take a look at the ‘bigger picture’ perks of a booming start-up economy.
According to a Microsoft Accelerator report earlier this year, 50% of the ‘enterprise-ready’ start-ups are in retail, banking and healthcare – all spaces that have seen massive disruptions at the hands of tech-savvy innovative start-ups looking to overturn the status quo.
For instance India’s healthcare sector, whose resources have always been disproportionately concentrated in cities, is now becoming more and more digitally enabled, thereby improving accessibility via start-up platforms such as 1MG and Lybrate.
Image source: tech.co
This improvement in accessibility can be extended across the board to other industries as well, such as Ed-Tech and Agriculture.
However, for the sake of a balanced argument, I must highlight what Dr. Madhav Chavan founder of the education non-profit Pratham once told me about how entrepreneurship for the sake of entrepreneurship is flawed.
Just handing students a tablet is not the answer. Technology has the ability to bring about chaos. But it must be used in the right way, not to just further the already existing rigid structure.
On the other hand, several entrepreneurs in the space of education are actually pushing the envelope with interactive learning methods and more.
The benefits and unprecedented negative effects of technology and innovation entering various fields can be argued from different perspectives until we’re blue in the face. Instead, let’s look at a ‘positive’ that is perceived by most to be quite concrete: job creation.
The Start-Up Job Creation Paradox
New, young companies being set up across the country should logically point to job creation.
However, numbers indicate that when the focus is on growth targets that are difficult for start-ups to achieve, coupled with rise of technologies like artificial intelligence; it can lead to massive lay-offs.
Image source: Outer Places
The India Startup Outlook Report 2016 released by InnoVen Capital in February concluded that ‘over 5,000 jobs are expected to be created by about 130 start-ups in the next 12 months.’ This positive outlook points to an undeniable fact: the growth of start-ups in India have led to a significant number of jobs being created.
But that’s not the whole story.
In July, earlier this year:
Flipkart fired up to 700 employees.
Ola let go of 250 people.
Snapdeal joined the club with 200 pink slips.
Ask Me topped the list with nearly 4,000 people laid off.
As a study by Growth Enabler found, the most common reasons cited by start-ups for these massive layoffs are:
- Inability to meet growth projections,
- Change in business strategy,
- Funding issues, and
The founder of the automation company Grey Orange, once proudly told me that his robots bring about 50% manpower cuts in various warehouses. Ironically, Grey Orange is one of India’s leading hardware start-ups.
So, while start-ups are creating several jobs without a doubt, the durability and security of these positions are as risky as the path of entrepreneurship itself.
Still, a ‘Youth of the Nation’ poll 2016 conducted by IPSOS, a global market research and consulting firm, and InShorts – found that 68% of the 1.4 lakh youngsters surveyed said that they would prefer to work with a start-up rather than a big corporation. Perhaps a sign of the faith that young India still has in the potential of disruptive entrepreneurs and their ideas.
Don’t worry – India’s startup culture is here to stay
Lay-offs and unforeseen downsides of technology infiltration might reveal the dark side of India’s growing start-up culture, but that’s a by-product of pretty much any economic cycle.
Not to say lay-offs are collateral damage – that would be quite misguided. But they call for a balanced view of the innovation breakthroughs that founders in this fertile ecosystem have been able to make.
Apart from economic benefits, this movement has re-ignited the faith of young, thinking entrepreneurs in problem-solving and that might be one of the most significant reasons India’s start-up ecosystem is so crucial.