Journal of Intellectual Property Rights

Vol 26, January 2021, pp 31-38

Startups and the Growing Entrepreneurial Ecosystem

Malvika Garg†and Suman Gupta
BSC BioNEST Bio-Incubator, Regional Centre for Biotechnology, Faridabad 121 001, Haryana, India

Received: 13th May 2020; accepted: 12th January 2021

Startups are now being widely recognized as important engines for innovation and growth. The Indian startup
ecosystem has evolved dynamically over the last two decades. Some startups were founded in the 2000s, but the ecosystem
was still immature as only few investors were active and the number of support organizations such as, incubators and
accelerators were limited. The Government of India is taking every possible step towards creating a conducive environment
for the country’s startup ecosystem. This paper discusses about the growing startup entrepreneurial ecosystem in India, the
support available for nurturing the ecosystem, the role of incubators in the development of startups, the importance of
intellectual property (IP) protection and the challenges faced by startups.

Keywords: Entrepreneurs, Startup Ecosystem, Minimum Viable Product, Corporate Social Responsibility, Incubator,
Startup, Startups Intellectual Property Protection

India has experienced a phenomenal growth in the validate a scalable business model.1 Through the
startup landscape in the recent years. In today’s startup India scheme, the government aims to build an
world, startups play a significant role in enhancing the ecosystem in which entrepreneurs can innovate and
economic growth. To nurture innovation and excel without any barriers.
encourage entrepreneurship traits among youth, the Definition of Startups
Government of India launched the Startup India A gazette notification was released on 19 February
initiative. Startup India is about creating prosperity in 2019 by the Department for Promotion of Industry
India. Startup India is a flagship initiative of the and Internal Trade (DPIIT), widening the definition of
Government of India, designed along with Make in startups from the earlier definition under ‘Startup
India, Skill India, Digital India and Ease of Doing India, Standup India’ Scheme. As per the new
Business in India. The Hon’ble Prime Minister, Shri definition, a ‘Startup’:
Narendra Modi, launched the Startup India initiative a) should be incorporated as a private limited
on 16 January 2016. In order to meet the objectives of company or registered as a partnership firm or a
the initiative, Government of India announced the limited liability partnership
Action Plan that addresses all aspects of the Startup b) shall be considered as a startup up to 10 years
ecosystem. With this Action Plan, the Government from the date of its incorporation
hopes to accelerate spreading of the Startup movement. c) the turnover for any of the financial years since
The Action Plan is based on the following three its incorporation should be less than INR 100
pillars: crores
a) Simplification and handholding d) should be working towards innovation/
b) Funding support and incentives improvement of existing products, services and
c) Industry-Academia partnership and incubation processes and should have the potential to
Startup India aims to build a strong ecosystem and generate employment/ create wealth. An entity
help India become a nation of job creator rather than formed by splitting up or reconstruction of an
job seeker. existing business shall not be considered a
"Startup"
Startup and the Startup Ecosystem
A startup is a company or project initiated by Startup Ecosystem
an entrepreneur to seek, effectively develop, and All across the world and within our country, the
—————— startup ecosystem is growing with varying level of
†
Corresponding author: Email: [email protected] success. Besides the entrepreneurs themselves, the

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32 J INTELLEC PROP RIGHTS, JANUARY 2021

startup ecosystem consists of various stakeholders, country in the world. A Unicorn is a privately owned
including incubators and accelerators, investors, startup company with a value of over US $1 billion.
service providers, educational and research The robust startup ecosystem of India is at a
institutions, and big companies (Fig. 1). The startup cumulative valuation of US $ 95-101 billion. It has
ecosystem thus brings the parts together (resources, given rise to 390,000 – 430,000 direct jobs with over
investors, infrastructure, networking, marketing, 60,000 jobs in 2019 alone. India as one of the
experts, talent, etc.) which helps in the growth of youngest nation in the world and huge overall
a startup. The startup ecosystem supports all population has one of the largest consumer base in the
entrepreneurs. Some startups relocate to new locations world. For every unique need of each segment of
just because the ecosystem there is better. The population, there is an opportunity for new venture.
entrepreneurs have to be proactive in order to utilize Overall, the startups have raised about US $7.5
the benefits of the ecosystem. Besides providing billion in funding in 2018, as against US $4.3 billion
support in terms of capital or funding from investors in 2017 and US $3.5 billion in 2016, according to the
or other sources, knowledge and experience are the report tabled by Hon’ble Finance Minister, Nirmala
two most valuable things, which an entrepreneur Sitharaman.The growth in the number of startups is
gains from a startup ecosystem.2 increasing year on year. India has been very active in
Growing number of funds, angels, and support building a strong startup ecosystem. Those who wish
organizations such as incubators, accelerators, event to work harder; who are not scared of accepting
platforms and academic programs support the startup challenges and who are not averse to taking the risk
ecosystem. Growth in the number of all these go for startups and the current generation is ready to
components point towards a growth of startup invest their years into entrepreneurship. Multiple
ecosystem. Over the last 5 years or so, India has factors are feeding and supporting the startup
witnessed remarkable growth in the startup ecosystem in India, ranging from government funding
ecosystem. According to the NASSCOM report of schemes to a growing number of startup incubators.
2019, over 1300 startups added in 2019 and India Entrepreneurs and startup owners face several
continues to strengthen its position as the 3rd largest challenges like pitching an idea to investor and
start-up ecosystem across the world, taking the total converting an idea to enterprise etc. Startup
number of tech startups to 8900- 9300 in the last five ecosystem gives new opportunities to display ideas,
years. India also witnessed the addition of 7 Unicorns generate funding and finding the right partner(s) for
in 2019 till August, taking the total number of startups the collaborations. Thus, accommodative government
with a valuation of over US $1 billion to 26, which is policy, institutional support, access to capital, access
the third highest number of Unicorns in a single to markets, entrepreneurial culture, and availability of
relevant talent are some of the key ingredients for a
successful startup ecosystem in a country.
Stages of Startup Lifecycle
Before becoming a large company, a startup goes
through a series of stages. For every entrepreneur
understanding the lifecycle of a startup is very much
important. The sequence of activities and stages might
vary among different startups.
Startup lifecycle
Ideation
Finding the right idea is the very first step in a
startup journey. This is the stage where the birth of a
new startup takes place. During this stage, the key
focus of a startup is in understanding the needs,
identifying the problems and the extensive market
research by an entrepreneur who subsequently
organizes a series of activities, mobilizes resources and
Fig. 1 — Startup Ecosystem creates competence using their networks in an

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 GARG & GUPTA: STARTUPS AND THE GROWING ENTREPRENEURIAL ECOSYSTEM 33

environment in order to create value. The value improvement and constantly looks for ways to grow is
proposition is important at the early stage of the very important for scaling.
company because it sets some of the foundations for
Maturity
future business development. The value proposition
At maturity, the final stage in the startup lifecycle,
should quickly and clearly outline what customer will
a startup should be earning consistent revenue through
get if they purchase a particular product or service, and
stable streams year after year. During this stage,
why it is different from competitors. The value
business owners are often less directly involved with
proposition is the promise that the entrepreneurs make
the day-to-day operations of a business, with these
to their customers, that specific problem solutions will
responsibilities charged to an entire hierarchy of
be offered and certain needs will be satisfied. Value
management and employees.
proposition for any startup defines the business model
of the startup company, how the company will generate Challenges Faced by Startups
profit and revenues and how customers will experience For a sustained economic growth, innovation is of
the value of the product. Investors are always interested prime importance. To get an edge over large
in the value propositions of the startups they are willing companies, it is essential for the startups to keep
to invest.At this stage, startup should be sure of a innovating. However, there are number of challenges
Problem/Solution fit. This is followed by the execution before every startup, starting from the stage of
and validation of the idea. incorporation through the stages of raising capital,
Minimum Viable Product (MVP) hiring resources, scaling up etc. If not taken
This stage refers to the initial stage of creating the care of, these challenges could have serious
first workable (and saleable) version of the new idea consequences.
or product. The viability of the product is proved by
Funds
developing a MVP. MVP is the product that has only
‘Funding’ refers to the money required to start and
the essential features that make the product work.
run a business. Collecting money to launch a startup
According to the author of the Lean Startup
and keep it running is the first and the most common
methodology Eric Ries, the MVP is defined as, ‘A
challenge for any startup. It is really a daunting
Minimum Viable Product is that version of a new
challenge to fund one’s own business, as one has to
product which allows a team to collect the maximum
spend money to make money. Obtaining funds from
amount of validated learning about customers with the
investors or bootstrapping are the two major options
least effort’. The market’s reaction to the MVP makes
for financing.As the business grows, the requirement
it possible to understand the strengths and weaknesses
for funds also increases. For the success of a startup,
of the solution. This is important to establish the
proper management of finances is very critical. Most
Product-Market fit.
startups do raise funding, especially as they grow
Scaling larger and scale their operations. Generally, the
After the establishment of Product-Market fit, the funding is raised at different stages such as pre-seed,
growing or scaling stage of a startup starts. Scalability seed and series (A, B, C and so forth), depending on
is the ability of a startup to grow. Premature scaling the progress they have made in developing their
may even cause business to fail. In 2011, the Startup products or services. Funding is required for
Genome Report surveyed about 3200 startups and many purposes like prototype creation, product
found that 74% of startups failed due to premature development, team hiring and working capital etc.
scaling. So defining the right time for scaling can be a Thus, a detailed financial and business plan is very
key point for a startup. In this stage, the focus is on important before approaching any investor.
growing of the customer base, products, and the
company itself. Venture capital funds are very active Team
at this stage. A lot of planning and thought goes into In building a strong and sustainable business,
scaling a startup. Scaling allows revenue to grow especially for startups, getting the right team is the first
without the increase in expenses resulting from hiring and extremely important step. The team plays a key role
more people or deploying more resources. Thus, in understanding and executing the company / founder’s
creating an environment that embraces continuous vision. However, due to the risk associated with a

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34 J INTELLEC PROP RIGHTS, JANUARY 2021

startup, joining a startup is not always a choice for a job Technology, which are shown below (Fig. 2a & 2b).
seeker. Therefore, finding a right talent is always Details for each scheme can be viewed on the
challenging for startups. A2018 report by CB respective website.
Insightszeroed in on the top 20 reasons for startup A very exciting and never-seen-before startup
failure.3 Not having the right team is the 3rd main reason ecosystem is emerging in India. Raising money for a
for most of the startup failure. Building a right team lays startup is not easy. Startup funding pays for
down the stepping-stone to success for any startup. incorporation, business licenses, insurance, facilities,
Competition and Taking Product from Lab to Market equipment, marketing collateral and the hiring of
Identifying the product based on market need is yet necessary talent. Fundraising rounds don’t have hard
one of the important challenge before a startup. Due rules around types of investors, stage, etc., but are
to the competitive landscape, it is always challenging general indicators of where a startup is at in its
for a startup to stay ahead of competition. Lack of lifecycle and what its capital needs are. Earlier, there
proper mentoring is yet another challenge, which were not many fundraising options, but recently, there
could bring a potentially good idea to an end. has been a wave of funding available in different

Fundraising for Startups

Fundraising is important for every startup from
growth stage to scale-up the business from a limited
set of users, to greater customers. In the past few
years, the Indian government has introduced several
funding schemes to support startups and boost the
startup ecosystem in the country. The Indian
Government has introduced over 50 startup schemes
to help boost entrepreneurship and the startup mission
in India. Government has created an entire ministry
dedicated to helping new businesses and has taken
several initiatives for promoting startups in India.
Through this paper, we have tried to compile some Fig. 2a — Funding departments of Ministry of Science &
funding schemes by the Ministry of Science & Technology

Fig. 2b — Funding Schemes from various departments

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 GARG & GUPTA: STARTUPS AND THE GROWING ENTREPRENEURIAL ECOSYSTEM 35

stages. Various stages of funding from self-funding to capital raised in a Series B round tends to be
IPO are:4 somewhere between US $ 7 million and US $ 10
a) Pre-Seed funding million.8
b) Seed funding Series C Funding
c) Series A funding In this stage, startups search for more funding to
d) Series B funding help build new products or services, reach new
e) Series C funding markets, buy out businesses. It is the last stage in a
f) IPO: Stock market launch company’s growth cycle before an initial public offer.
Pre-Seed Funding At this point, companies hold a value of at least US $
This stage is also known as self-funding or 100 million and receive upward of US $ 50 million in
bootstrapping stage. It also gives the freedom of being funding.8
your own boss. Self-funds or funds from family and
Initial Public Offering (IPO)
friends can be used to support the startup. At this
It is the process of offering corporate shares to the
stage, startups are involved in developing a prototype
general public for the first time. When a startup decides
or proof-of-concept. A Pre-Seed round is a pre-
to raise funds from the public including institutional
institutional seed round that either has no institutional
investors as well as individuals, by selling its shares, it
investors or is a very low amount.5
is known as an IPO (Initial Public Offering).Typically,
Seed Funding this stage of growth will occur when a company has
The initial capital raised by any startup is called reached a private valuation of approximately US $ 1
Seed Funding or a Seed Investment. This is the billion, also known as unicorn status.
earliest stage of raising the capital for startup. In this Usually, a company starts with a seed round and
system of funding, in exchange of the investment, a then continues with A, B, and C funding rounds.
stake in the company is offered to the investors. Seed Availability of sufficient venture capitalists at growth
funding is required for various purposes like acquiring stage of startups in the form of Series A and B rounds
office space and other infrastructural facilities, hiring of funding ensures optimal growth of not just one
key personnel, development of a product or service startup, but the entire startup ecosystem.
and marketing, it is thus essential for the growth of
the business. Most startups will fail at an early stage Startup Incubators
without such investment.6 Seed funding investments Entrepreneurship is tough and a long journey. The
can range from anywhere between US $ 10,000 to US more the startup grows the more challenges it faces.
$ 2 million.7 From awareness and sustainability of businesses
to regulations associated with legality and
Series A Funding enforceability, the list of challenges is long. Given
It is the first venture capital funding for a startup these challenges and without any guidance and
and is one of the important milestone for a startup. In assistance, it can be hard to get started on the
series A funding, startups should have a strategy for entrepreneurial journey. When one is just getting
developing business models and generating revenues. started, incubators can serve as a great platform to
To acquire this funding, startups should not only just give that much-needed support and push to build a
have an idea but also demonstrate Minimum Viable solid foundation.9 Startup accelerators and incubators
Product (MVP). Typically, Series A rounds can are organizations that help startups attain success.
collect US $ 2 million to US $ 15 million. Typically, Startup incubators assist new startups in their initial
Round A investors are venture capital firms.8 phase of development by providing various services.
Series B Funding Incubators share both tangible and intangible
It is the second stage of venture capital financing resources such as equipment, office space, services
for a startup. In series B funding, startups already such as accounting, computing and legal services. To
found their product/market fit and needs help in reduce the financial burdens and resource issue,
expanding. This funding is required by the companies they assist startups in raising startup capital and
to scale up in order to meet the growing demands, to perform various networking activities. According to
face competitors and to have market share. Estimated NASSCOM, Bengaluru, followed by Mumbai and

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36 J INTELLEC PROP RIGHTS, JANUARY 2021

Delhi-NCR continued to be the top hubs in India, protection is essentialand patents are often topmost
accounting for over 40% of all incubators and among IP in terms of value. Protecting the IP will let
accelerators in the country. a startup monetize their ideas and work, avoid the
Incubators help entrepreneurs in developing their theft of their ideas, help them secure funding, and lead
ideas, skills, knowledge, building sustainable business to higher valuations when their business eventually
environment while benefitting the broader corporate gets valued. Innovations give an edge to the startups
communities.10 They are involved at all stages from over their competitors. Innovation is the process of
idea stage to revenue-generation to late stage of a transforming new ideas, new knowledge into
startup development. If a startup is a part of an new products and services. Innovation does not
incubator or a startup accelerator in India, the chances always mean to create something new, something that
of its getting funded also increases. Various startup already exists can be taken and improve, to make it
incubators supported by many different government better and the best for their customers. IP could
bodies, corporations, and even educational institutions help to create a sustainable and strong differentiator
are present in India. for an entity.
Incubators provide a support environment for Baum and Silverman12 showed that startups of
startup companies, thereby promoting local job biotechnology, which are in possession of patent
creation, economic development, and technology applications or patent grants, have been likely to
transfer. The services offered by an Incubator, namely receive more venture capital financing than venture
infrastructure, coaching and networking are at firms, which do not have patent protections. Startups
very cost effective and affordable rates to the must balance the need to protect IP with other areas of
Incubatees. the business. In order to make a decision about what
With startups facing a high chance of failure, the to patent, a startup must first know what IP it has. The
resources and support provided by an incubator are probability of receiving funding also improves by
invaluable. The startups do have an idea, but filing patent applications.
incubators guide them to make it a reality and reach A patent is an exclusive right granted for an
the market. invention, which is a product or a process that
Recent government regulations favour allotment of provides, in general, a new way of doing something,
2% CSR funds to incubators run by government and or offers a new technical solution to a problem.13
academic institutions. Every year, companies with a Patents permit the owner to ''exclude'' others from
minimum net worth of Rs 500 crore or more, or making, using, selling, offering for sale, and
turnover of Rs 1,000 crore or more, or net profit of Rs importing a product or service embodying the
5 crore are required to spend at least 2% of their invention. Patent is a ''negative'' right, which means
average profit for the previous three years on that obtaining a patent does not give the right to sell a
corporate social responsibility (CSR) activities under product or provide a service: many products and
the Section 135 of the Companies Act, 2013 (the services are covered by the claims of multiple patents
“Act”). India has the 3rd highest number of incubators owned by different parties. Patents are generally,
with over 250 incubators being present in India. viewed as the strongest form of intellectual property
Incubators and accelerators both play an important because they can prevent a competitor most
role in the growth of startups.11 Incubators can help a effectively from making its product. A patent can also
startup with initial funding and help them in making translate into tangible economic value in the
their innovative product a reality through experienced following ways: (1) patents can be sold outright to
mentors. Guidance & Mentoring from those who have another person or entity; (2) patents can be licensed to
already succeeded on this path is really a blessing for others to practice the patented invention; (3) patents
a startup journey. can be asserted against others in lawsuits to obtain
damages for infringing the patent.14
Startup and Intellectual Property Startups have become an inseparable element of
Intellectual property (IP) is one of the most the innovative economy presently. Many of these
valuable assets for a startup company. It’s often the companies base their competitive edge on intellectual
intellectual assets that differentiate a startup from capital and innovations. In this context, it is extremely
other large companies, deliver the competitive important to legally secure the intangible goods
advantage, and go on to drive revenue. IP belonging to a given company, as well as to

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 GARG & GUPTA: STARTUPS AND THE GROWING ENTREPRENEURIAL ECOSYSTEM 37

constantly increase the knowledge on management excel without any barriers. Increasing government
and protection of intellectual property, especially in support, coupled with rise in investor’s confidence and
the area of effective transfer of technologies.15The technological advancements are revolutionizing the
value of IP protection should not be underestimated startup landscape of India.17 New technologies have the
by startups. IP is thus important at every stage of potential to find solutions to challenging economic and
business development. In today’s competitive and social problems. The growing number of incubators
fast-growing environment, IP can be a Unique Selling across the country has also helped the startups to get
Proposition (USP) of the goods or services especially mentor support, know various sources of funding and
for startups. Valuation of a company can be taken to develop links with the industry. Startup ecosystems
another level when IP is correctly and strategically have the ability to innovate and create jobs. The Indian
protected. A start-up can protect their product/ startup ecosystem is growing at a fast pace and the
services/ symbols, logos, brand name etc. under entrepreneurial culture in India is picking up. Indian
different forms of IP namely as Patents, Trademarks, startups backed by government’s support will
Designs, Copyrights, etc. definitely be influential in transforming India and will
The Indian startup ecosystem has grown have significant impact on the economic growth. The
tremendously over the past year. According to data Indian government has set its vision of being a US $ 5
released by Startup Blink, India moved up to 17th trillion economy by 2024-25 and with the government
position in 2018 from 37th spot last year in the support; the startups are certainly contributing and are
Startup Ecosystem Ranking for 2019. India ranks definitely going to play a crucial role in achieving
17 globally among 100 countries, based on the this target.
strength of its startup ecosystem, according to Startup
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38 J INTELLEC PROP RIGHTS, JANUARY 2021

13 https://www.wipo.int/patents/en/ (accessed on 26 February Production and Services, 10 (2) (2018), 66-74 DOI:
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