Reality check for startups

Source: The post is based on the article “Reality check for startups” published in “Business Standard” on 1st July 2023.

Syllabus: GS 3 – Indian Economy

News: Byju’s is facing numerous challenges and has become a negative symbol for the country’s once-thriving startup sector. India’s start-up sector consists of over 80,000 registered entities. Out of them, at least 70 per cent will eventually fail, while some 100 have achieved unicorn status.

What has been the contribution of the Startups to the macro-economy? 

Some of the ventures have become substantial businesses and employ large numbers, including gig workers.

The bigger start-ups have had a transformative impact on the Indian marketplace by creating a more favorable operating environment for small businesses and changing consumer habits.

Additionally, some startups exhibit promising technological advancements, indicating potential for further growth and innovation in the sector.

What are the challenges faced by startups in India?

During the early stages of rapid growth private investors push company management to prioritize growth over profitability. They often overlook the fact that failures are a part of the startup sector. 

Greed also plays a role in the failure of startups. For example, some promoters have been accused of fraud and companies exhibiting poor governance practices.  

The sector is witnessing a significant slowdown in investment. It has attracted over $150 billion in investment over the past decade. However, new funding in the early months of 2023 has declined by around 80% compared to 2022. 

With diminishing investor funding, companies are now shifting their focus towards sustainability and profitability, leading to cutbacks, slower growth, and staff reductions. 

Only a few well-known startups like Nykaa have managed to achieve profitability so far. But the focus has shifted from externally funded growth to sustainability.