The revolutionary global startup culture created nearly $3 trillion in value over the last two and a half years, a figure on par with the GDP of a G7 economy. The industry, which once seemed to be growing its roots only in the developed lands of the US and Europe, has now embarked upon a new journey to reach the developing world where its potential for growth is even higher because of several lucrative factors. At such a juncture, Asia, an abode for rapidly growing world-class smart cities, along with a young, energetic and bright workforce, is becoming a torchbearer in the emerging world order with its excellent and innovative startups.
The first name that catches our attention while thinking about this industry is the magnificent Silicon Valley. In fact, since the 1970s, the US has been the stepping stone for today’s expansive startup industry, although the start-up boom in the area didn’t actually begin until the end of the 1990s when the Dot Com boom swayed the whole world. That was when the power of small silicon chips to make the world an easier place to live in seemed a reality for the first time. Who knew then that companies like Amazon and Apple, which were budding blossoms, would be controlling the better part of the entire global trade one day? It was possible all thanks to people’s belief in start-ups and the core ideas that drove innovation and transformation.
But what has been catching our attention now is the change that has been happening in the global context currently. As per a report by Startup Genome (2020), which shows the percentage share of the industry continent wise, we clearly see a shift in trends globally. Even though North America and Europe continue to have the highest cumulative share in the industry, the developing world is catching up fast. The share of Asia-Pacific cities in the top global ecosystems has increased from 20% in 2012 to 30% in 2020. Six out of 11 top startup ecosystems are now in Asia Pacific. More specifically, if we exclude Sydney and Melbourne, most of this growth is fuelled by Asian cities, which is collectively way more than any of its other counterparts. This means that more start-ups are getting funded and being set on the way to transform these traditional economies.
Initially driven solely by China, the trend seems to be changing intra-Asia too, with the emergence of top cities like Singapore, Kuala Lumpur and Bangkok in South-east Asia, Delhi, Bengaluru and Mumbai in South Asia, and Seoul, Tokyo, Hong Kong and Taipei in East Asia.
Start-ups which are valued at $1 billion or above are termed unicorns. As of 9 October 2020, there are 171 Asian unicorns listed in CB Insights’ Global Unicorn List. Some of the big names are Tencent, Alibaba, Flipkart, Paytm, Didi, Baidu and Byju’s.
Compared to 2019, 31 new companies from Asia-Pacific made it to the list. As of now, China and India are leading the list of unicorns from Asian region. Interestingly, Chinese investors like Alibaba, Tencent, Shunwei, Steadview, Hillhouse and Fosun have been a major source of funding for Indian start-ups but things took a sharp turn after rising geopolitical tensions between the countries, eventually inviting regulatory compliances from the Government of India for funds coming from neighbouring countries and thus making the scenario a bit gloomy for Indian entrepreneurs.
As the pandemic swept across the globe, the total venture capital funding dropped significantly across continents without any exceptions. On the demand side, the impact across various sectors was uneven. In India, the worst-hit sectors were travel and hospitality, energy and utilities and automotive, whereas those which made the most out of the pandemic, and even expanded operations, were edtech, fintech, gaming and enterprise technology.
An overwhelming amount of research has concluded how young companies play a crucial role in bringing newer additions to any economy. Thus, start-ups have become a dream destination for the young and talented, but still unemployed, youth.
In addition to creating jobs, tech start-ups have impressive job multipliers, which means that the creation of one job in the startup industry incentivises other ancillary industries around it to give them necessary support, especially because of the rising trend among firms to outsource work and focus on key areas of expertise.
The Government of India’s Budget 2021 also has a few remarkable measures to give the industry a much required boost. The establishment of the Credit Guarantee Fund for providing portfolio guarantees under the Credit Guarantee Scheme for Startups (CGSS) will provide an incentive to financial intermediaries to lend to startups, resulting in an increased availability of funding for more ideas. A seed fund to an eligible start-up shall disburse up to Rs 20 lakh as a grant for the validation of proof of concept, prototype development or product trials. The grant shall be disbursed in milestone-based instalments like the development of a prototype, product testing, building a product ready for market launch, etc. Up to Rs 50 lakh of investment can also be provided for market entry, commercialization or scaling up through convertible debentures or debt or debt-linked instruments.
Moreover, a one-person company (OPC) can be turned into a public company or a private company at any time. The waiting period of two years for doing so has been revoked. The limitation of paid-up capital and turnover presently applicable for OPCs has been removed so that there are no restrictions on the growth of OPCs. Earlier, the paid up share capital of Rs 50 lakh and an average annual turnover of Rs 2 crore had been a primary requisite.
Lessons learnt from the 2008 crisis and the 1970s’ recession have given us a compelling reason to believe in the continued growth of the start-up industry. Behemoths like Amazon, Apple and Airbnb were formed in the toughest of times because that is when economies need the best of ideas. Countries like India will still need to deal with turbulence after the pandemic when the current low interest rate developed economies undergo a change, resulting in driving out of funds from the country, which would then need to be counterbalanced with even better socio-political and economic incentives for both investors and budding entrepreneurs.
Rajesh Mehta is a leading international consultant and columnist working on market entry, innovation and public policy. Sandesh Dholakia is the co-founder and president of IFSA Hansraj and a researcher for Infinite Sum Modelling & Mehta Software Services.
