How to Raise Startup Funding in India
()
About this ebook
This comprehensive book based on the rich practical experience of Head of an Incubator and CEO, of an angel network aims to guide startup founders regarding how to secure government grants and schemes as well as raise debt and equity funding in the Indian context. It starts with outlining entrepreneurship ecosystem in India and maps it to a startup’s journey in terms of raising funding. It can help startup founders how to undertake startup planning from the perspective of debt and equity financing.It has rich content to guide startup founders on how to prepare their pitch, identify angel networks, and various nuances associated with pitching. It not only depicts key aspects associated with VC funding, but also presents a roadmap depicting the journey from startup to corporate and IPO. To guide the startup founders, it also provides templates regarding Founders’ Agreement, and Term Sheet.
Related to How to Raise Startup Funding in India
Related ebooks
Business Management for Beginners & Dummies Rating: 0 out of 5 stars0 ratingsPrinciples of Small Business: A Look at Critical Components for Small Business Success Rating: 0 out of 5 stars0 ratingsBusiness & Leadership: Vol 4 Rating: 0 out of 5 stars0 ratingsThe Handbook of Small Business Rating: 0 out of 5 stars0 ratingsThe Online Entrepreneur's Handbook. Rating: 0 out of 5 stars0 ratingsLatest Business 101 Guide: How to Start a Successful Business for Every Beginner Rating: 0 out of 5 stars0 ratingsBreaking Out and Making Big: A No-Nonsense Book on New Age Start-Ups and Entrepreneurship Rating: 0 out of 5 stars0 ratingsEradicating Ecocide Rating: 5 out of 5 stars5/5Selling Products Online: A Heavy Chef Recipe Book Rating: 0 out of 5 stars0 ratingsTafelberg Short: Your Small Business Nightmare: And how to wake up Rating: 0 out of 5 stars0 ratingsHow to Invest Without Losing Everything: Things You Need to Know Before You Start Investing Rating: 0 out of 5 stars0 ratingsBig Money in Franchising: Scaling Your Enterprise in the Era of Private Equity Rating: 0 out of 5 stars0 ratingsPlanet Water: Investing in the World's Most Valuable Resource Rating: 5 out of 5 stars5/5Beyond the Label: Women, Leadership, and Success on Our Own Terms Rating: 0 out of 5 stars0 ratingsCertifiable: How Businesses Operationalize Responsible Sourcing Rating: 0 out of 5 stars0 ratingsHow to Have a Massive Online Business without a Profitable Idea Rating: 0 out of 5 stars0 ratingsFinancial Freedom Rating: 0 out of 5 stars0 ratingsSustainability for Busy People: Embrace a Greener Future in Your Busy Life Rating: 0 out of 5 stars0 ratingsBusiness Adventures: A Beginner's Guide to Becoming a Pro In Business Rating: 0 out of 5 stars0 ratingsCapital Catalyst: The Essential Guide to Raising Funds for Your Business Rating: 0 out of 5 stars0 ratingsSouth Asia Economic Focus Fall 2014: The Export Opportunity Rating: 0 out of 5 stars0 ratingsThe Money Train: 10 things young businesses need to know about investors Rating: 0 out of 5 stars0 ratingsHow I Earn $10000 While Sleeping : The Ultimate Guide to Massive Passive Income Rating: 0 out of 5 stars0 ratingsWhat is Financial Independence? Discover the Path to True Freedom: MFI Series1, #92 Rating: 0 out of 5 stars0 ratingsThe Anxious Entrepreneur: Anxiety Defeats Creativity - Creativity Defeats Anxiety Rating: 0 out of 5 stars0 ratingsMaking Money with Social Media: Strategies for Success Rating: 0 out of 5 stars0 ratingsInvest Wisely Rating: 0 out of 5 stars0 ratingsLead Generation Approaches in Drug Discovery Rating: 0 out of 5 stars0 ratingsBuilding, Marketing, and Scaling Your New Business Rating: 0 out of 5 stars0 ratingsThe Startup Funding Formula: How to Raise Money for Your Business from Bootstrapping to IPO: Startup, #2 Rating: 0 out of 5 stars0 ratings
Mental Health For You
Anxious for Nothing: Finding Calm in a Chaotic World Rating: 4 out of 5 stars4/5Why Smart People Hurt: A Guide for the Bright, the Sensitive, and the Creative Rating: 3 out of 5 stars3/5Unfuck Your Brain: Using Science to Get Over Anxiety, Depression, Anger, Freak-outs, and Triggers Rating: 4 out of 5 stars4/5Feeling Good: The New Mood Therapy Rating: 4 out of 5 stars4/5Less Fret, More Faith: An 11-Week Action Plan to Overcome Anxiety Rating: 4 out of 5 stars4/5Decluttering at the Speed of Life: Winning Your Never-Ending Battle with Stuff Rating: 4 out of 5 stars4/5Winning the War in Your Mind: Change Your Thinking, Change Your Life Rating: 5 out of 5 stars5/5Lost Connections: Uncovering the Real Causes of Depression – and the Unexpected Solutions Rating: 4 out of 5 stars4/5How to Manage Your Home Without Losing Your Mind: Dealing with Your House's Dirty Little Secrets Rating: 4 out of 5 stars4/5Healing Childhood Trauma: Transforming Pain into Purpose with Post-Traumatic Growth Rating: 5 out of 5 stars5/5How to Be Yourself: Quiet Your Inner Critic and Rise Above Social Anxiety Rating: 4 out of 5 stars4/5The Highly Sensitive Person Rating: 4 out of 5 stars4/5The New Codependency: Help and Guidance for Today's Generation Rating: 4 out of 5 stars4/5Unfuck Your Anxiety: Using Science to Rewire Your Anxious Brain Rating: 5 out of 5 stars5/5Writing into the Wound: Understanding trauma, truth, and language Rating: 4 out of 5 stars4/5The Overwhelmed Brain: Personal Growth for Critical Thinkers Rating: 2 out of 5 stars2/5Summary of Ichiro Kishimi's and Fumitake Koga's book: The Courage to Be Disliked: Summary Rating: 4 out of 5 stars4/5Beyond Thoughts: An Exploration Of Who We Are Beyond Our Minds Rating: 5 out of 5 stars5/5Do the Work: The Official Unrepentant, Ass-Kicking, No-Kidding, Change-Your-Life Sidekick to Unfu*k Yourself Rating: 4 out of 5 stars4/5The Noonday Demon: An Atlas Of Depression Rating: 4 out of 5 stars4/5Organizing for the Rest of Us: 100 Realistic Strategies to Keep Any House Under Control Rating: 4 out of 5 stars4/5I Don't Want to Talk About It: Overcoming the Secret Legacy of Male Depression Rating: 4 out of 5 stars4/5The Anti-Anxiety Diet: A Whole Body Program to Stop Racing Thoughts, Banish Worry and Live Panic-Free Rating: 0 out of 5 stars0 ratings
Reviews for How to Raise Startup Funding in India
0 ratings0 reviews
Book preview
How to Raise Startup Funding in India - Dr. Karminder Ghuman
What makes a Venture a Startup?
A big business starts small.
–
Richard Branson, English business magnate, investor, author, and philanthropist
What is a Startup?
A startup is a newly established business that is typically characterized by innovation, scalability, and a focus on rapid growth. It is often associated with technology-driven ventures operating in various industries. Startups aim to develop and bring disruptive or novel products, services, or business models to the market. Hence, it’s a new enterprise that has a scalable business model and intends to grow beyond the solo founder.
CRED, Vernacular.ai, PharmEasy, Digit Insurance, Meesho, Groww, Nykaa, Udaan, Dream11, Swiggy, Instamojo, PostMan, Delhivery, Slice, InMobi, Practo, Boat, Skyroot Aerospace, LivSpace, Ather, PhonePe, Licious, PolicyBazaar, Razorpay, Paytm were the top 25 startups in India in 2023.
How a Startup is different from Traditional Business?
Here are some key differences between startups and traditional businesses:
1.Innovation and Disruption: Startups are often driven by innovation and disruption. They aim to introduce new and groundbreaking ideas, technologies, or approaches to solve existing problems or meet untapped market needs. Traditional businesses, on the other hand, may focus on established products or services and incremental improvements.
For instance, Uber reshaped urban transportation, Netflix, transformed our viewing habits, the iPhone revolutionised communication, and now ChatGPT challenging stalwarts like Google by disrupting traditional business models. Indian startup Meesho has made deliveries from more than 1,00,000 registered suppliers, generating more than Rs.500 Cr i.e., $68 million in income for the homepreneurs.
2.Growth Potential: Startups typically have a high growth potential and aspire to scale rapidly. They aim to capture significant market share and expand their operations locally, nationally, or globally. Traditional businesses may prioritize stability and steady growth over rapid expansion.
For example, PharmEasy tied up directly with over 3,000 manufacturers and over 90,000 retailers across India to deliver medicines to customers in the shortest time possible. DREAM 11 the India’s first Unicorn startup, with a valuation of $5 billion, has grown at a CAGR of 230 percent in 3 years from 2020 onwards. The food delivery services startup Swiggy, which started with just 5 delivery boys and 25 restaurant partners in 2014 when Zomato was already there in the market is serving in 27 cities and has partnered with more than 40,000 restaurants. The company’s target market has also grown to 50 million. InMobi, which was founded in 2011, has 22 offices spread across 12 nations and 5 continents, with about 1,500 individuals working there.
3.Scalability: Startups seek to build scalable business models that can grow exponentially without proportional increases in costs. They often leverage technology, automation, and network effects to achieve scalable growth. Traditional businesses may have more limited scalability due to resource constraints or operational limitations.
CRED, the youngest Indian startup to be valued at around $2.2 billion has more than 6 million customers and about 22% of all credit card holders in just 4-years. Groww founded in 2016, has more than 15 million users registered till 2023, and more than 60% of the company investors belong to smaller cities of India that have never invested before. Dream 11 took three years to hit the mark of first 1 million users, and post that, it crossed the 3 million user mark in less than 2 months. The company had around 75 million users before the COVID-19 pandemic started in India, and in 2023 reached 100 million users.
4.Risk and Uncertainty: Startups operate in an environment of high risk and uncertainty. They face challenges such as market validation, product-market fit, competition, and securing funding. Traditional businesses, especially established ones, may have more predictable markets, established customer bases, and proven business models, reducing some of the inherent risks.
5.Lean and Agile Approach: Startups often adopt a lean and agile approach, emphasizing quick iterations, experimentation, and customer feedback. They are adaptable and willing to pivot their strategies based on market insights. Traditional businesses may have more structured processes and decision-making hierarchies.
6.Funding and Investment: Startups often rely on external funding to fuel their growth. They may seek investments from angel investors and venture capitalists (VCs) or participate in incubator or accelerator programs. Traditional businesses may rely on traditional financing methods such as bank loans or personal investments. For example, Nykaa raised Rs.2,396 crore from anchor investors ahead of IPO. and raised USD 715 million in India’s first D2C startup IPO in 2021.
7.Culture and Work Environment: Startups tend to have a dynamic and entrepreneurial culture. They often have flat organizational structures, encourage creative thinking, and foster a culture of innovation. Traditional businesses may have more hierarchical structures and established processes. Culturally also a professionally managed startup is very different from a Lala
mindset company based on following parameters:
Difference between Lala Company and Professional Company Mindset vis-à-vis Employees
Source: Adapted from: Are You working in a "Lala Company’’? Beware - Know this proactively. !
https://www.linkedin.com/posts/sameer-kaul-a70b705_3-million-views-are-you-working-in-a-activity-6947816368759021568--Klv/?trk=public_profile_like_view
These differences represent general characteristics, and there can be variations among startups and traditional businesses. Additionally, startups may eventually evolve into more traditional businesses as they mature and establish themselves in the market.
DPIIT recognised Startup
As per government notification, entities are recognised as ‘startups’ under Startup India initiative by the Department for Promotion of Industry and Internal Trade (DPIIT). Till 28th February 2023, DPIIT has recognised 92,683 entities as startups since the launch of Startup India initiative in 2016.
Eligibility Criteria to become DPIIT recognised Startup
In order to be eligible for tax holiday under the Income Tax Act, the startup must be a Private limited company or an LLP and become DPIIT recognised.
Startup founders should ensure that their startup meets the following eligibility criteria set by DPIIT:
a. The entity should be incorporated as a private limited company or registered as a partnership firm or a limited liability partnership (LLP) in India.
b. The startup should be working towards innovation, development, deployment, or commercialization of new products, processes, or services driven by technology or intellectual property, or it is a scalable business model with a high potential for employment generation or wealth creation.
c. The entity should not be older than ten years from the date of incorporation.
d. Annual turnover should not have exceeded INR 100 crores (approximately USD 14 million) in any preceding financial year since incorporation/ registration.
e. The entity should have obtained a recommendation letter from a startup incubator, or an accelerator recognized by the Government of India or meet certain funding criteria.
f. It should not be an entity formed by splitting up or reconstruction of a business already in existence. It is not formed by the transfer to a new business, or the machinery or plant previously used for any purpose. (33 B)
Process to become DPIIT recognised Startup:
To become a DPIIT (Department for Promotion of Industry and Internal Trade) recognized startup in India, you need to follow the process outlined below:
1.Register Your Business: First, you need to register your startup as a legal entity. It can be registered as a Private Limited Company, Partnership Firm, Limited Liability Partnership (LLP), or Registered Partnership.
2.Register on the Startup India Portal: Visit the Startup India portal (www.startupindia.gov.in) and create an account. Provide the required information about your startup, including details about the founders, business model, and financials.
3.Self-Certification: Complete the self-certification process by declaring that your startup meets the eligibility criteria specified by DPIIT.
4.Upload Required Documents: Upload the necessary documents, including the Certificate of Incorporation, Memorandum of Association, Articles of Association, and relevant documents related to your startup’s legal entity.
5.Recommendation Letter (if applicable): If your startup has received a recommendation letter from a recognized startup incubator or accelerator, upload the letter verifying that your startup meets the specified criteria as part of the application process.
6.Review and Approval: The application is then reviewed by the DPIIT and if meets the criteria and requirements, you will receive the DPIIT recognition for your startup.
7.IMB (Inter Ministerial Board) Certificate: Certification issued by the DPIIT, which makes the startups eligible for various benefits and recognition, including eligibility for government schemes and programs (Discussed in subsequent section).
Note: The process and criteria for DPIIT recognition may evolve over time. It is advisable to visit the official Startup India portal (www.startupindia.gov.in) or consult with professionals or legal experts for the most up-to-date information and guidance regarding the DPIIT recognition process.
Benefits for DPIIT recognised Startups
Being recognized by the DPIIT in India as a startup provides the following benefits and advantages:
1.Tax Benefits: Recognized startups are granted an IMB Certificate and are exempted from income tax on profits and gains for a period of 3 consecutive years out of 10 years since incorporation. They are exempted from the angel tax
on funds raised from recognized angel investors or registered VC funds. A DPIIT recognised startup is eligible for exemption from section 56(2)(viib) of the Income Tax Act and the maximum limit is Rs.25 cr.
2.Fast-track Patent Examination: Startups recognized by DPIIT can expedite their patent application process through the Fast Track Mechanism. This allows them to receive quicker examination and approval for their patents, enabling faster protection of their intellectual property.
3.Easier Winding-up Process: DPIIT-recognized startups have access to a simpler and faster winding-up process under the Insolvency and Bankruptcy Code, 2016. The Government has notified Startups as ‘fast track firms’, enabling them to wind up operations within 90 days vis-à-vis 180 days for other companies.
4.Government Procurement Benefits: DPIIT-recognized startups can participate in public procurement processes and avail benefits, such as exemptions from prior experience/turnover requirements, earnest money deposits, and other qualifying criteria for government tenders. Central Ministries/ Departments have been directed to relax conditions of prior turnover and prior experience in public procurement for all DPIIT recognised startups subject to meeting quality and technical specifications. This opens up opportunities for startups to access government contracts and projects. Government e-Marketplace (GeM) Startup Runway has also been developed as a dedicated corner for government approved startups to sell products and services directly to the Government.
5.Access to Startup India Hub: Recognized startups gain access to the Startup India Hub, a comprehensive platform for networking, mentorship, and knowledge sharing. The hub provides a forum to connect with other startups, mentors, investors, and industry experts, fostering collaborations and business opportunities. The Online Hub hosts startups, investors, funds, mentors, academic institutions, incubators, accelerators, corporates, government bodies, and more.
6.Simplified Compliance: DPIIT-recognized startups are allowed to self-certify their compliance under 9 Labour and 3 Environment laws for a period of 3 to 5 years from the date of incorporation. This reduces regulatory burden and compliance costs for the startups.
7.Access to Funding: DPIIT recognition can improve startups’ access to funding opportunities. They become eligible for various government schemes, grants, and funds dedicated to supporting and promoting startups. The recognition status enhances their chances of attracting investment from angel investors, VC firms, and other funding sources. Startup India Seed Fund Scheme (SISFS) provides financial assistance to startups for proof of concept, prototype development, product trials, market-entry, and commercialization. Rs. 945 crores have been sanctioned under the SISFS Scheme for a period of 4 years, starting from 2021-22.
8.Credit Guarantee Scheme for Startups: It provides access to credit guarantees to loans extended to DPIIT recognised startups by Scheduled Commercial Banks, Non-Banking Financial Companies (NBFCs), and Venture Debt Funds (VDFs) under SEBI registered Alternative Investment Funds up to Rs.5 crores.
9.Support for Intellectual Property Protection: Startups are eligible for fast-tracked patent application examination and disposal. The Government launched Start-ups Intellectual Property Protection (SIPP) which facilitates startups to file applications for patents, designs, and trademarks through registered facilitators at appropriate IP offices. Facilitators under this Scheme are responsible for providing general advice on different IPRs, and information on protecting and promoting IPRs in other countries. The Government bears the entire fees of the facilitators for any number of patents, trademarks, or designs, and startups only bear the cost of the statutory fees payable. Startups are provided with an 80% rebate in the filing of patents and a 50% rebate in the filing of trademarks vis-à-vis other companies.
10.International Market Access: Through international Government to Government partnerships, participation in international forums, and hosting of global events. Startup India has launched bridges with over 15 countries (Brazil, Sweden, Russia, Portugal, UK, Finland, Netherlands, Singapore, Israel, Japan, South Korea, Canada, Croatia, Qatar, and UAE) that provides a soft-landing platform for startups from the partner nations and aid in promoting cross-country collaboration.
11.Startup India Showcase: Startup India Showcase is an online discovery platform for startups in the country.
12.Networking and Exposure: Being recognized by DPIIT offers startups increased visibility and recognition. They can showcase their recognition status to stakeholders, enhancing their credibility and attracting potential collaborations. Startups may also get opportunities to participate in national and international startup events, exhibitions, and trade fairs organized by the government.
13.Skill Development and Incubation Support: Recognized startups can benefit from skill development programs, incubation support, and mentoring initiatives offered by the government.
Note: The specific benefits and eligibility criteria may vary over time and should be verified from the relevant authorities. Startups should consult the official Startup India website or seek guidance from professionals to stay updated on the latest benefits and requirements associated with DPIIT recognition.
Startup Ecosystem
What do you need to start a business? Three simple things: know your product better than anyone, know your customer, and have a burning desire to succeed.
–Dave Thomas, Founder, Wendy’s
According to the Economic Survey 2021–22, India has emerged as the third-largest environment in the world for startups. Startup India initiative was launched on 16th January 2016; since then, there are over 99000+ startups recognized by the government of India as of May 2023. The number of recognized Startups was 452 in 2016 and 84,012 as on 30th November 2022. Nearly half of them have a base in Tier 2 - Tier 3 cities.
The government, too, is making serious endeavours both at the level of policymaking as well as financial support. India continues to demonstrate resilience concerning growth of startups and attracting global investors as the following structural enablers are driving a positive economic outlook creating a long runway for growth:
– Solid macro-fundamental
– Large consumption potential because of favourable demographics
– Sizeable workforce entering the formal economy
– Inclusive growth led by scale digital adoption of the decentralised India Stack,
– Effective fiscal and monetary policy discipline limiting inflationary growth,
– Economic activity shifting away from China.
– Low leverage,
– Increasing tech adoption leading to a digitally enabled population
– Deepening innovation ecosystem
According to a report published by IAMAI and Kantar Research, India’s internet users are expected to reach 900 million by 2025 from 622 million in 2020. The rollout of 5G, digital payments, UPI, and voice assistants are laying down the necessary infrastructure that is fuelling the launch and growth of startups in India.
Looking at the big deals between companies in India, e.g., Walmart and Flipkart (having Myntra and PhonePe), India is growing up as a hub of the biggest startups. One 97 Communications (PayTM), Ola cabs, Dream 11, Swiggy, and Razorpay are a few of the richly valued Indian startups across the world. The country is now getting more startup unicorns, including companies from the sectors like Healthtech, social commerce, finance, and more. According to Inc42, India got its 10 startups listed in the list of Unicorns in 2023.
The recognised startups in India are spread across 56 diversified sectors, with around 4,500 startups recognised in emerging tech, such as the Internet of Things (IoT), robotics, artificial intelligence, analytics, etc. 13% recognized startups are from IT services, 9% from healthcare and life sciences, 7% from education, 5% from agriculture and 5% from food & beverages. With 15 times increase in the total funding of startups, 9 times increase in the number of investors, and 7 times increase in the number of incubators, Indian startup ecosystem has seen exponential growth from 2015 onwards.
India had about 25 unicorns till January 1, 2020, and Indian startups had received $14.5 billion funding. In June 2023 India had 108 unicorns (Startups that value more than $ 1 billion) with a total valuation of $ 340 billion. Out of these, 44 unicorns with a total valuation of $93.00 Bn were born in 2021, and 21 unicorns with a total valuation of $26.99 Bn were born in 2022. In the period of Jan-March 2021, investors have infused around $4.4 billion into Indian startups, and this amount is 26% more than the investments made in 2020 in the same quarter.
However, one prominent challenge lies in the transacting user growth, especially in categories like fashion, beauty and personal care, e-grocery, e-retailing, and mobility. Although total number of internet transactors in India is about 350 million, the growth of mature online transactors who are frequent buyers has plateaued at around 40-45 million.
Classification of Startups
Startups can be broadly classified into various categories based on different criteria. Here are some common classifications of startups:
A. Industry Focus:
On the basis of industry focus, startups can be classified as:
a. Deep-Tech Startups: Focus on developing and commercializing innovative technologies and operate in areas such as artificial intelligence, machine learning, virtual reality, blockchain, etc. Despite past turbulence, India’s internet economy is projected to maintain a steady 25% compound annual growth rate (CAGR) until 2030.
b. HealthTech Startups: Biotech and healthcare startups focus on developing new medical treatments, drugs, diagnostics, medical devices, or healthcare solutions, biotechnology research, telemedicine, or health IT. According to market research firm, International Data Corporation (IDC), India is the third-largest consumer of wearable devices globally and the wearable market in India grew 144.3 percent year-over-year (YoY) in 2020.
c. CleanTech Startups: Focus on renewable energy, energy efficiency, or sustainable solutions for the environment.
d. FinTech Startups: These startups leverage technology to offer innovative financial services, such as mobile payments, online banking, peer-to-peer lending, or cryptocurrency, investment platforms, or insurance technology. It comprises of many sub-themes: insurtech, embedded lending, and wealthtech.
The top gainers in the funding deals in 2020-21 were the Fintech and Financial Services companies (123), followed by Retail and Ecommerce companies (99) and EdTech companies (84).
e. EdTech Startups: Develop technology-based solutions for education by creating online learning platforms, educational apps, tools for classroom management, or specialized software to enhance teaching and learning experiences.
f. E-commerce Startups: Operate online platforms for buying and selling products or services. They facilitate transactions between buyers and sellers and often specialize in specific product categories, such as fashion, electronics, home goods, or niche markets.
According to Redseer, India’s GDP is projected to be at $6.5 trillion by 2030, with a retail market size of $2 trillion, and a per capita GDP of $4,300, indicative of a robust digital ecosystem. In April 2023, there were more than 2,890 DPIIT Recognised startups in the Retail sector. Comparison Shopping, Retail Technology, and Social Commerce formed 77% of all retail startups, Amazon, Flipkart, Lenskart, Nykaa, Vahdam Teas, are leading examples of e-commerce startups. Till April 2023, Retail startups generated employment of over 28,000.
g. AgriTech Startups: Focus on bringing technology to modernize or digitalize the traditional agricultural process with a focus on transforming agriculture into agribusiness.
h. MediaTech Startups: India’s Media & Entertainment industry is expected to reach $30.9 bn by 2024. The media sector in India has seen a massive transformation in the last decade, with the proliferation of digital media and the rise of social media. Media and entertainment sector is amongst the top 5 unicorn sectors with 7 unicorns from the sector.
i. Lifestyle Startups: Lifestyle startups aim to provide products or services that enhance people’s lifestyles or cater to specific interests. They may focus on areas such as fitness, wellness, fashion, food and beverage, travel, or entertainment.
i. Service Startups: Service startups provide various types of services to clients, leveraging technology or expertise in a specific domain. Examples include consulting firms, marketing agencies, software development companies, design studios, healthcare service providers, etc.
B. Business Model
Based on business models, startups can be classified as:
a. Cloud Service Model Startups (XaaS)
– Infrastructure as a Service (IaaS): These startups provide users with computing infrastructure resources on-demand. Users can purchase virtual servers, storage, networking components, and other infrastructure elements from a cloud provider. The resources are accessed and managed remotely through the internet. With IaaS, users have control over their operating systems, applications, and data, while the cloud provider is responsible for maintaining the underlying infrastructure.
– Platform as a Service (PaaS): PaaS startups offers a complete development and deployment environment in the cloud. It provides developers with a platform to build, test, and deploy applications without the need to manage the underlying infrastructure. PaaS providers offer a range of tools, frameworks, and runtime environments to facilitate the development process. Developers can focus on coding and application logic, while the PaaS provider handles the infrastructure, scalability, and security aspects.
– Software as a Service (SaaS): SaaS delivers software applications over the internet on a subscription basis. Users can access and use the software through a web browser or a thin client interface without the need for local installation. The software and its associated data are centrally hosted and managed by the SaaS provider. Users typically pay a recurring fee to access and use the software, and updates and maintenance are handled by the provider. SaaS allows users to utilize software without the need for extensive hardware and software management. SaaS startups develop and provide software solutions that cater to a wide range of industries and business needs. These solutions can include customer relationship management (CRM) software, project management tools, collaboration platforms, human resources management systems, accounting software, and many others. Software-as-a-service (SaaS) and fintech continued to see momentum relative to 2021, growing in salience from 25% to 35% of total funding in 2022.
b. Product Startups: Develop and sell physical products or software applications. They may create consumer goods, electronics, medical devices, software tools, or other tangible products for specific industries or market segments.
c. Service Startups: They provide services or solutions to clients, often leveraging technology to deliver their services more efficiently.
d. Platform Startups: Create platforms that connect users or businesses, facilitating transactions, collaborations, or exchanges of goods and services.
e. Marketplace Startups: Build online platforms that connect buyers and sellers, enabling transactions between them. They may focus on specific industries, such as real estate, transportation, freelance services, or B2B procurement.
Overview of Leading Indian Startups
C. Development Stage
Based on the stage of development, startups can be classified as:
a. Early-stage Startups: These startups in their early stages of development, typically focused on product or market validation, securing funding, and building a team.
b. Growth-stage Startups: These startups have already validated their product or service and are experiencing significant growth in terms of customers, revenue, and market presence.
c. Scale-ups: These startups have achieved substantial growth and are focused on scaling their operations and expanding into new markets.
For instance, 32% of Retail startups in India were in the validation stage, while 33% were in the early traction stage till April 2023.
D. Social Impact
Based on the degree of social impact, startups can be classified as:
a. Commercial Enterprise: The startups have been created to generate profit and shareholder wealth maximization. The social impact of their commercial activities is a by-product but not a part of the mission.
b. Social Enterprise: These startups have a primary goal of creating a positive social or environmental impact while generating sustainable revenue. They often address pressing global challenges such as poverty alleviation, education, healthcare access, environmental sustainability, community development, etc. These startups are driven