Start-up: Meaning and Evolution of Start-ups in India

A start-up refers to a new venture that generally has no prior history of operations. In terms of age, start-ups are infants i.e. less than one year old.

Key features of start-up

A start-up is a new business which stands alone. It’s not tied to any other or parent organization except for the purpose of normal business activity. The business idea may not be necessarily new but start-up itself is a new vehicle to exploit an idea. The existing enterprises, spinoffs {spinoff is a new company or entity which is derived from a large firm and is controlled directly or remotely by that large firm}, franchisees etc. Usually, the scope of start-up is linked to the willingness and ability of an individual, who is also a founder of that start-up. The level of risk in start-ups varies from zero-risk to a high and such risk is generally borne by the founder or people who are involved has partners of the founder. Thus, a start-up may emerge as an individual proprietorship or partnership firm or a private limited company and sometimes also as a cooperative.

Factors for Emergence and Start-up Routes

There are several factors for emergence of a start-up, which can be broadly classified into four categories as follows:

• As means of livelihood
• As a result of policy support or inducement
• In response to demand of large firms and market opportunities
• As a result of innovative idea based on knowledge and experience.

The above four categories are not isolated but overlap with each other. Further, the start-ups can spring up in traditional as well as modern manufacturing and service industries or in technology / knowledge intensive industries and services. This implies that there are three parallel tracks for start-ups to emerge:

• Traditional Manufacturing Industries and services:
  • As cottage / household industries or handicraft artisans. These start-ups run exclusively on the basis of household labour and employ no hired labour.
  • As small workshops which employ hired labour. This is scaled-up version of the cottage / household industry.
• In modern manufacturing industries and services:
  • As micro, small and medium enterprises (MSME) sector which are tagged so on the basis of their scale of investments.
• In technology / knowledge intensive industries:
  • Usually as proprietorship or partnership firms or as companies.

Evolution of Start-ups in India

The earliest form of start-ups in India was the cottage industries which led to diversification of the traditional economies from agriculture to industry and services. These included cottage industries such as smiths, weavers, masons, artisans, carpenters etc. They catered to the non-food needs of the rural population. The cottage industries played a decisive role in economic diversification by generating non-farm employment. However, the industrial revolution in Europe gave them major setback, and this system was almost replaced by factory based industrialization. However, in India, these industries kept playing important albeit eclipsed role in rural economies. Post-independence, the government efforts focussed more on heavy industries but rural and cottage industry was given its due importance. In 1970s and 80s, such traditional start-ups emerged in India in the form of livelihood based entrepreneurship called Own Account Enterprises (OAEs). These OAEs have been a major employment generating segments of the economy however, they are unregistered and unorganized. How to bring them into organized sector is a major policy challenge.

From 1950s onwards, a second type of start-up growth also happened in India in the form of MSMEs. The Government had established a Small Scale Industries Board (SSIB) to promote modern small-scale industries (SSI) and also different boards to promote the MSME sector in handicrafts, handlooms, coir, sericulture, and Khadi &village industries. This was supplemented by various policy interventions at national and state levels for their growth. All these efforts led to India’s small scale industrialization and result is that today, MSME sector is able to contribute significantly in production, employment and exports.
However, the term start-up has become synonymous with third type of new ventures that started appearing spontaneously post new industrial policy 1991. These Start-ups rose as a response to the IT revolution, globalization which allowed freer movement of labour and capital between countries and new market opportunities. These Start-ups have emerged into multiple sectors and in multiple forms such as ICT industries, R&D, Technology Business Incubators (TBIs), E-commerce ventures, Remote Education etc. The wave of these start-ups was such that it led to the phenomena of “reverse brain drain” whereby the Indians employed abroad returned back to the country and started these ventures. They have been duly supported by new forms of finances such as venture capital, angel investors, private equities etc. Gradually, an ecosystem has developed in India in cities such as Bengaluru, Mumbai, Gurgaon etc. This ecosystem in India is characterised by the following:

• A strong base of diversified sources of funding including venture capital, angel investors etc.
• Conducive environment, for example the enactment of Limited Liability Partnership Act 2008 helped to create conducive legal environment while SME exchange platforms on BSE enabled them early corporatisation and fund raising.
• Promotion by big corporate such as Tata and industry bodies such as NASSCOM, and MNCs; and presences of online resources such as websites, Start-up initiatives by technology/knowledge intensive companies etc.

According to an October 2015 NAACOM report, India ranks third among global start-up ecosystems with more than 4200 new start-ups. The report said that three to four start-ups are born every day and nearly 5 billion dollars of funding has come in 2015. Since a large number of people are coming on internet, the fast growing consumer base is driving all this growth. In recent times, the promotion of start-ups has attracted attention of the Government agencies. Formation of Technology Business Incubators (TBIs), launching of PRISM (Promoting Innovations in Individuals, Start-ups and MSMEs) scheme in the Twelfth Five Year Plan etc. are some of the notable government initiatives towards healthy growth of start-up ecosystem in India. The recently launched “Start-up India” action plan and movement is yet another government policy intervention in this direction.