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About The Start Ups 2.0


  • The Indian start-up landscape, which experienced a thrilling phase in 2021 when private equity and venture capital investors injected substantial funds into these emerging ventures, still faces challenges. However, there are potential rewards for start-ups that are willing to learn from their mistakes and aim for sustainable growth.
  • (Private equity (PE) encompasses financial firms investing in private companies not traded on public stock markets, with these investments referred to as private equity. Venture capital funds comprise investments from wealthy individuals or companies, managed by VC firms, directed toward high-risk start-ups in exchange for equity.)


GS3- Indian economy

Mains Question:

Analyze the Indian startup landscape post covid19 pandemic. What can be done to strengthen the startup ecosystem in India? (15 marks, 250 words).

Analyzing the Struggles of Indian Start-ups:

  • The ongoing “funding winter” persists, with the cost of financing increasing (due to aggressive central bank policies) and significant losses recorded in technology stock portfolios, reducing the investable surplus of investors.
  • (“Funding winter” refers to an extended period of reduced capital inflows into start-ups, which has been a global trend throughout 2022 and is expected to continue into 2023. According to a recent PwC report, Indian start-up funding in 2022 dropped by 33% compared to 2021.)
  • Between April and June 2023, PE-VC investments in Indian start-ups totaled less than $12 billion, marking a 15% decline from the same quarter in 2022 and a 50% decrease from the record-high investments in the September 2021 quarter.

Signs of Growth:

  • A report in The Hindu revealed that foreign portfolio investors (FPIs) increased their holdings in listed start-ups like Zomato, Paytm, and PolicyBazar threefold in the June 2023 quarter compared to the same period in 2022.
  • These companies also reported strong revenue growth ranging from 37% to 64% and significantly reduced operating losses in the first quarter of FY24.
  • For instance, Zomato’s operating loss narrowed from ₹307 crore in the first quarter of FY23 to ₹48 crore in FY24’s first quarter. Paytm reduced its operating loss from ₹234 crore to ₹77 crore during the same period. In contrast to the past focus on achieving high growth to attract high valuations, investors now seek more than mere business expansion. Many start-ups have downsized their workforce, closed unprofitable verticals or subsidiaries, and cut selling expenses to mitigate losses.
  • Zepto, the first start-up to join the unicorn club in 2023, announced its focus on achieving positive EBITDA in the next 12-15 months, reflecting a shifting mindset among start-up founders. (EBITDA, or earnings before interest, taxes, depreciation, and amortization, is an alternative profitability measure that excludes non-cash expenses, taxes, and debt costs to represent cash profit generated by a company’s operations.)


The growing interest of FPIs in select start-ups suggests that companies demonstrating sound financial metrics and stable growth may find it easier to secure funding. However, other start-ups must learn from their past mistakes. Overly optimistic projections of user base and market size need adjustments, and governance must improve with timely compliance with regulatory requirements and disclosures. Instances of misgovernance in some larger start-ups have setback fundraising efforts across the sector. Besides SEBI’s regulation of listed start-ups, the Ministry of Corporate Affairs must enhance supervision of unlisted start-ups to rebuild investor trust in these companies.

March 2024