Start-ups: India versus the US

A contrasting start-up climate in India and the US imparts some valuable lessons to both entrepreneurs and investors.

Start-ups are problem solvers, insistent on providing a unique and reliable solution to the problems of society. Investors are excited about start-ups on realising the importance of passion over profit, precisely understanding that passion precedes profit. Besides, investors with unique experience are more inclined to nurture and mentor the entrepreneur, on the belief that first time entrepreneurs are more teachable and experimental. Having said that, not all start-ups end up raising a million dollar and become a major corporation. Start-up success rates are very low, almost negligible, about 10% end up succeeding and the rest 90% failing either immediately or within a year. With such a dismal record of performance, it is indeed an insurmountable task to attain funding for an idea, and investors are choosier in their investments. Large failure has been the precise reason why investors are wary, and this has upped their ante on rigorous analysis and appraisal of an idea.

India is an attractive start-up hub, pre-dominantly in the electronic and software industry. Emerging talent, advanced education, and ripe market conditions are perfect combination for a successful pitch, but success ratio has principally depended on how practical and perfect the product is for the market. Surprisingly, recent reports decipher that non-tech based start-ups in India (57%) have surpassed the tech-based ones (43%). This indicates that there has been innovation in all sectors, and that innovation has been a proportionate distribution over all sectors to push growth. It is estimated that India had about 19,000 technology enabled start-ups in 2015 raising $9 billion, compared to China raising $36 billion and US a staggering $500 billion. India being a developing country, the probability of a start-up surpassing the market hurdles is high, culminating into a sound business. Considering the lack of a mature ecosystem for enabling a start-up to be fully equipped with all resources, India is still in the development stage. Even so, India is ranked as the third largest start-up base in the world.

What India lacks is the facilitating mechanism that links entrepreneurs to investors and the sources of funding. Investors in India find doing business with start-ups cumbersome. It has been difficult to exit businesses due to tough listing norms, lack of profits, and fear of immature withdrawal. As a developing country, it must ensure that it develops internet outreach as most start-ups are app based, and build up its digital platform in which it lacks and needs to deliver. It is a contemplating question that if India is ranked third in the world of start-ups, it does not have anything to showcase that is even remotely closer to the like of Facebook or Google, etc. It could be said that Indian start-ups are simply modifying a commissioned start-up to give a new name to serve local needs. If that’s the reality, creative push is absolutely lacking and essential, for a large number of similar start-ups will prove to be an impending bust.

To compete with the start-up environment of developed economies like the US, start-ups in India must understand some essential contrasts, which crucially would serve as the building blocks for new entrepreneurs as well as investors. A classic example of a mature market is the US; a mature market providing all that a start-up could possibly require to launch its business. America remains high in start-up density with almost 197 out of 100,000 people as start-up initiators. A technologically advanced economy, the most exciting instrument that it has for start-ups is pockets full of venture capital finance. The economy has managed to secure, build, and train some of the best talent available, making the market undeniably tempting, leaving India way behind in the quality of talent. This drastically sends a start-up’s collective productivity to some of the highest levels. The country has the best internet speed, internet penetration, the right mentors, and the right network of investors that makes a good start-up idea noticeable for long, eventually making the cut.

Availability of these resources installs an entrepreneurial attitude quite contrary to that in India. Attitude is partly built on the strength of the idea and its value, and partly on the likelihood of the idea getting funded, which is admittedly lacking in India. Of late, a seeming saturation, impenetrable markets, and international investment motivation has US investors seek deals outside in Asia and Europe. Because of the maturity and saturation of the American market, the failure rate is more compared to India, which is still a developing country. Future of start-ups will depend on the development and consistent improvement of an investible environment provided by the economy, to enable legendary ideas breakthrough.

 

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