What’s the current state of the startup scene in India? “Everything is sparkling,” says Amit Agrawal, director of the investment advisory firm Access Capital Advisors, in the New Delhi area. Agrawal matches startups with private investors, and he says the entrepreneurs he works with are full of optimism: “They see the sun, and nothing [else].”
The numbers back up their confidence. In 2015, investors poured US $9 billion into Indian startups, according to Your Story, a news and research website that covers India’s entrepreneurial sector. And now the government wants to add its support: In January, Indian prime minister Narendra Modi announced a “Startup India: Action Plan” [pdf] with much fanfare. The provisions, many timed to take effect on 1 April, include tax exemptions and regulatory easements for young companies. Modi also promised new investment funds, incubators, and research parks to help startups thrive.
The buzz is attracting foreign investors, Agrawal says, but these foreigners often get into trouble by picking startups that are familiar. “They try to replicate a company that works in the U.S. culture or Singapore culture,” he says. “But what works there won’t necessarily work here.” To pick winners, Agrawal says, you have to understand the quirks of Indian culture.
For example, he points to car-sharing startups that have succeeded in the United States and Europe, such as Zipcar and Car2go, which let urban drivers grab cars off the street whenever they want. But even though India’s city dwellers have the same needs as their Western counterparts, startups trying to copy the Zipcar business model are struggling. In India, hiring a car with a driver is often cheaper than renting a “self-drive” car, Agrawal notes. Indian roadways are famously chaotic, and car rental companies feel more assured that their vehicles will return in one piece if they’re driven by professionals: “There’s a cultural logic to it, not a business logic,” he says.
In addition to studying the Indian way of life, foreign investors must also recognize the challenges posed by the country’s uneven development. Outside the cities, basic amenities like a steady supply of electricity and paved roads aren’t guaranteed, so the logistics of manufacturing and delivering products can become an ordeal. That’s why so many Indian startups are sticking to the “click model”—offering purely online services—as opposed to the “brick model,” Agrawal says. As examples of such successful startups, he highlights companies that provide online booking for rail travel, as well as those offering mobile banking services.
On a final, cautionary note, Agrawal notes that Indian startups often have a difficult time if they’re trying to compete with prices found in traditional local markets. A number of startups with grocery delivery apps are vying for position, he says, and currently offer steep discounts to lure customers. “But as soon as they stop providing discounts, I am not buying anything there, I promise you,” he says. There are plenty of small neighborhood shops that happily deliver cheap goods to nearby doorsteps. Similarly, startups that offer on-demand cleaning services have trouble trumping local options. “If I just peek out of my balcony, I can shout, ‘My maid is not in today. Can you come up and clean the utensils?’ ” says Agrawal, explaining that some neighborhood woman will always answer such a call.
With so many startups jumping in, there will inevitably be lots of flops. Agrawal estimates that in 2015 more than 600 startups backed by enthusiastic angel investors failed to achieve the next step—attracting venture capital firms that believe the company has a successful business model. But there’s no stigma attached to failure in this bright startup scene, he says. Entrepreneurs simply turn to their next sparkling idea.
This article appears in the April 2016 print issue as “India’s Startup Boom.”