Entrepreneurship: Incubation, Startups, Unicorns, Venture Capital, and Angel Investors - RajRAS

Entrepreneurship: Incubation, Startups, Unicorns, Venture Capital, and Angel Investors play a crucial role in shaping innovative businesses and driving economic growth. Effective management of these elements helps entrepreneurs turn ideas into successful ventures. Understanding the journey from incubation to funding is essential for building a thriving startup ecosystem.

Previous Year Question

Year	Question	Marks
2023	List two criteria (as per SEBI) for qualifying as an ‘Angel Investor’ in India.	2 M
2021	What is the objective of the Startup India scheme?	2 M

Entrepreneurship

Entrepreneurship is the process of creating, developing, and managing a new business venture with the goal of generating profit and making a meaningful impact. It involves not only innovation and risk-taking but also strategic planning, leadership, and adaptability in the face of challenges.
Entrepreneur– It is an individual creating a new enterprise and bearing the risks and the rewards of the establishment. The process of establishing a business is known as entrepreneurship.
Entrepreneurs combine capital, labour and natural resources to provide services and manufacture goods.
They play a key role in the economy as they use their skills to study the market and bring new products according to the market.

Features of Entrepreneurship/Startup :

Innovation: Introducing new ideas, products, and services to solve existing problems.
Risk-Taking: Assuming financial and social risks to start and run a business.
Opportunity Identification: Spotting and capitalizing on market gaps for profitable ventures.
Resource Management: Efficiently acquiring and managing resources to maximize business potential.
Adaptability: Adjusting strategies in response to changing market conditions.
Vision and Leadership: Leading teams with a clear business vision and driving it to success.
Value Creation: Creating value for customers, employees, and society.
Customer Focus: Meeting customer needs and preferences through products and services.
Continuous Learning: Seeking new knowledge and skills to stay competitive and innovate.

Importance of Entrepreneurship/Startup in India:

Economic Growth: Drives economic growth by creating businesses and increasing GDP.
Employment Generation: Creates jobs, crucial for India’s large population.
Innovation: Advances technology and develops new solutions to societal challenges.
Regional Development: Promotes industrialization in underdeveloped areas, reducing regional disparities.
Wealth Creation: Generates income for entrepreneurs and stakeholders, improving living standards.
Social Impact: Addresses critical issues like education and healthcare, driving social change.
Global Competitiveness: Enhances India’s position as a global leader in business and innovation.
Self-Reliance: Encourages independence and self-sufficiency among individuals.
Supporting Initiatives: Contributes to government programs like “Make in India” and “Startup India.”
Culture of Innovation: Fosters creativity and innovation, contributing to national progress.

Basic Entrepreneurship Terms:

Seed Funding: The initial capital used to start a business, often provided by the founders, friends, family, or angel investors.
Incubator: A program or organization that supports startups by providing resources, mentorship, and sometimes funding, usually in exchange for equity.
Accelerator: A program designed to rapidly scale startups by providing mentorship, resources, and access to investors, typically in a short period.
Bootstrapping: Building a business using personal savings or revenues from the business rather than seeking external funding.
Equity: The ownership interest held by shareholders in a corporation, representing a claim on part of the company’s assets and earnings.
Exit Strategy: A planned approach to selling or exiting a business, typically to investors or another company, often through mergers, acquisitions, or IPOs.
Customer Acquisition Cost (CAC):
The total cost of acquiring a new customer, including marketing, sales, and other associated expenses.
Burn Rate: The rate at which a company is spending its capital before generating positive cash flow.
Break-even Point: The point at which total revenues equal total costs, resulting in neither profit nor loss.
Valuation: The process of determining the current worth of a business, typically used during investment rounds or sales.
Crowdfunding: The practice of funding a project or business by raising small amounts of money from a large number of people, typically via online platforms.
Brand Equity: The value of a brand, determined by consumer perception, recognition, and loyalty to the brand.
Flipping: The process of transferring the entire ownership of an Indian company to an overseas entity, including the transfer of all Intellectual Property and data owned by the Indian company, is called ‘flipping’.

Incubation

What is Incubation?

Incubation refers to the process of nurturing early-stage startups or business ideas by providing them with the necessary support, resources, and mentorship to help them grow and succeed.

Startup Incubators:

These incubators are usually run by entities with expertise in business and technology. They offer various forms of support, including technological facilities, advice, initial growth funds, networking opportunities, co-working spaces, lab facilities, mentoring, and advisory services.
As early-stage mentors, incubators play a crucial role in the startup ecosystem.

Role of Incubators Under the Startup Policy

Incubators play a vital role in the growth of startups. They provide the necessary resources, such as infrastructure, mentorship, and financial support, to nurture and support the innovation of startups. India has 400+ incubators, with most of them at a nascent stage. Startup India aims to enhance the capacities of the existing incubators and also provide support in setting up new incubators.

Key Components of Incubation:

Mentorship and Advisory : Startups are provided with mentorship and advice from experienced mentors.
Technological Support: Startups are given access to the latest technological resources.
Funding Assistance : may provide seed funding or help startups connect with investors and venture capitalists.
Co-working Spaces: Startups are often given access to shared office spaces, which reduces operational costs and fosters collaboration among entrepreneurs.
Networking Opportunities: Incubators connect startups with industry experts, potential partners, investors, and other startups.
Business Services: Administrative support, legal advice, marketing services, and assistance with intellectual property rights (IPR) are commonly offered to startups in incubation programs.
Access to Markets: Incubators help startups with market entry strategies, customer acquisition, and scaling operations to reach broader audiences.

Types of Incubators:

University-Based Incubators: Linked to academic institutions.
Corporate Incubators: Sponsored by large corporations.
Private Incubators: Independently operated.
Government-Supported Incubators.

Role of Incubation in the Startup Ecosystem:

Catalyst for Innovation: Incubation plays a crucial role in fostering innovation by supporting startups that bring new ideas, products, and services to market.
Reducing Failure Rates: Incubators reduce failure rates by providing startups with the right direction and support.
Economic Development: The success of startups boosts local and national economic development.

Examples of Incubation Initiatives:

Atal Incubation Centres (AICs): Part of the Atal Innovation Mission, AICs provide world-class incubation facilities to startups across India.
Y Combinator: A renowned private incubator in the United States, known for helping startups like Dropbox, Airbnb, and Reddit during their early stages.

Startup Incubators in India

Atal Innovation Mission (AIM): AIM promotes the establishment of Atal Incubation Centres (AICs) to achieve its mission objectives.
Atal Incubation Centres (AICs): AICs offer capital equipment, operational facilities, expert mentoring, business planning support, seed capital, industry partnerships, training, and more to encourage innovative startups. These centers are established in sectors such as manufacturing, transport, energy, health, education, agriculture, water, and sanitation.
- Selected AICs receive a grant-in-aid of up to ₹10 crore for a maximum period of 5 years to cover capital and operational expenditures under AIM.
AIM-iCREST(Incubator Capabilities enhancement for a Robust Ecosystem for high performing Startups): AIM-iCREST is an Incubator Capabilities Enhancement program designed to strengthen the ecosystem and support the creation of high-performing startups.

Startups

Startup Ecosystem in India

India has become the world’s 3rd largest startup ecosystem. The country ranks 2nd in innovation quality, excelling in the quality of scientific publications and universities among middle-income economies.
The Indian Startup Ecosystem has experienced remarkable growth between 2015 and 2022:
- A 15-fold increase in total startup funding
- A 9-fold increase in the number of investors
- A 7-fold increase in the number of incubators

According to DPIIT the Eligibility Criteria for Startup Recognition is :

The Startup should be incorporated as a private limited company or registered as a partnership firm or a limited liability partnership
Turnover should be less than INR 100 Crores in any of the previous financial years
An entity shall be considered as a startup up to 10 years from the date of its incorporation
The Startup should be working towards innovation/ improvement of existing products, services and processes and should have the potential to generate employment/ create wealth. An entity formed by splitting up or reconsutrctuon of an existing business shall not be considered a “Startup”

Challenges Faced by Indian Startups

Limited Geographical Distribution: India’s startup activity is predominantly concentrated in three clusters—Bengaluru, Delhi NCR, and Mumbai.
Concentrated Funding: Funding in India’s startup ecosystem is heavily concentrated in three major regions—Bengaluru, Delhi NCR, and Mumbai
Regulatory Environment and Tax Structures: Startups encounter regulatory hurdles, bureaucratic red tape, and complex tax structures.
The “Valuation Game”: Startups often focus on increasing subscribers through cashbacks and discounts to inflate valuations, attract more funding, and eventually launch IPOs. However, this can lead to revenue decline once incentives are withdrawn.
Narrow Sectoral Focus : Many startups concentrate on e-commerce aggregation due to the “valuation game,” while sectors like agriculture, manufacturing, healthcare, and education remain underrepresented, despite their critical importance to India’s growth.
Sustainability Issues: As noted by Dr. Raghuram Rajan, the long-term sustainability of “free” products and services offered by “superstar” companies is questionable, raising concerns about who ultimately bears the cost.
Angel Investor Practices: There is a need to address issues of tax evasion and avoidance by some (fake) angel investors.

Government Initiatives to Strengthen the Startup Ecosystem

Rajasthan Startup Initiative:

The Rajasthan Startup initiative is the flagship program by the Government of Rajasthan aimed at promoting innovation, generating employment, and facilitating investment within the state.
iStart Portal: The iStart Portal (www.istart.rajasthan.gov.in) serves as a single window for startups, providing streamlined access to various resources and support systems.
Key Program Components: Q-Rate Ranking System, Incubators, Innovation Challenges, Innovation Hubs in Jaipur, Jodhpur, and Kota, iStartNest facilities in Jaipur, Bharatpur, Bikaner, and Udaipur.
Startup Registrations : As of March 2024, a total of 4,422 startups have been registered on the iStart Portal.
Expansion Initiatives: The government has launched the School Startup and Rural Startup programs to further expand the startup ecosystem across the state.

India Startup Initiative:

Startup India:

Launched in 2016, this initiative aims to catalyze the startup culture and establish a strong and inclusive ecosystem for innovation and entrepreneurship in India.

Nodal Ministry: Commerce Ministry
Definition of a Startup Company:
- Less than 10 years old
- Annual turnover below ₹100 crore
- Focuses on innovation and development of goods/services
Key Features:
- Tax Exemption : Startups under this initiative receive a 3-year exemption from Income Tax and Corporation Tax.
- Self-Certification: Allowed for compliance with EPFO, ESIC, and other regulations.
- Relaxed Norms: like Easier participation in public procurement.
- Faster Exit for Startups: The government has designated startups as ‘fast track firms,’ allowing them to wind up operations within 90 days, compared to 180 days for other companies.
Startup India Hub
Startup India Seed Fund Scheme (SISFS)
Fund of Funds for Startups (FFS)
Credit Guarantee Scheme for Startups (CGSS
Support for Intellectual Property Protection:
States’ Startup Ranking: The States’ Startup Ranking is an annual capacity-building exercise created and released by the Department for Promotion of Industry and Internal Trade (DPIIT), which evaluates all of India’s states and UTs on their efforts to create a startup-friendly ecosystem.

Stand Up India Scheme, 2016

Nodal Department: Department of Financial Services, Ministry of Finance
Objective: The scheme mandates that each Scheduled Commercial Bank (SCB) branch provide Greenfield loans ranging from ₹10 lakh to ₹1 crore to at least one SC/ST entrepreneur and one woman entrepreneur, with a loan tenure of up to 7 years.
Extension: The scheme has been extended until March 31, 2025, as per the Full Budget of 2019.

Additional Support:

National Initiative for Developing and Harnessing Innovations (NIDHI): Supports knowledge-based and tech-driven startups.
PRAYAS Program: Offers financial aid to aspiring innovators.
Biotechnology Innovation: Supported by the Biotechnology Industry Research Assistance Council (BIRAC).
Defense Sector: iDEX program fosters innovation in defense and aerospace.
Atal Innovation Mission: Establishes Atal Incubation Centres (AIC) and supports startups solving national challenges.

Atal Innovation Mission (AIM):

Objective: AIM is the Government of India’s flagship initiative to foster a culture of innovation and entrepreneurship nationwide.

Major Initiatives:

Atal Tinkering Labs.
Atal Incubation Centres: Fostering world-class startups and enhancing the incubator model.
Atal New India Challenges.
Mentor India Campaign: A national mentor network collaborating with the public sector, corporates, and institutions to support AIM’s initiatives.
Atal Community Innovation Centre: Stimulating community-centric innovation and ideas in underserved regions, including Tier 2 and Tier 3 cities.
Atal Research and Innovation for Small Enterprises (ARISE): Promoting innovation and research in the MSME sector.

Rajasthan Startup Policy 2022

Launched on November 13, 2022, at the second edition of the Rajasthan DigiFest 2022 in Jodhpur
Vision : To establish Rajasthan as India’s leading entrepreneurship and innovation centre by providing a conducive environment
The new policy builds on the older startup policy that was implemented in 2015,
DESIGN PRINCIPLES
- Ease of Navigation : A well-defined policy architecture by linking incentives to life cycle stages
- Incentive Simplification : Minimised complexity
- Efficient Disbursals : ‘One Stop Shop’ mechanism
- Seamless Transition : Define processes clearly
USE OF RAJASTHAN STARTUP FUND
Recognises following THRUST areas – Agriculture (Precision farming, farm to home), fintech (financial inclusion etc), healthcare, education,SAAS, IR 4.0 (Robotics, AI/ML etc), Green areas (Renewable energy, energy storage, circular economy), SUNRISE sectors (Green hydrogen, Ethanol, Biotech etc)

INCENTIVES FOR STARTUP

for All startups registered under the iStart program:

Funding Incentives : on the life cycle stages of startups –
- Pre Seed & Seed Stage: a grant of INR 2,40,000, provided the idea meets the criteria {For Startups having more than 50% equity with women founders, additional INR 60,000 Ideation grant will be provided ये कही वीमेन पे चिपकाना है }
- Growth Stage : based on Qrate Startup rating (Bronze, Silver, Gold, Platinum to Signature) →differential incentives
Additional Financial Incentives
- Investment subsidy: 75% of state taxes due & deposited for 7 years as per RIPS 2022
- Intellectual Property Incentives
- Rajiv Gandhi Innovation Challenge awards to promote new and innovative ideas
- Exemptions
  - 100% exemption of electricity duty, mandi fee & land taxes for 7 years as per RIPS 2022
  - 100% stamp duty benefit will be given in stages as notified by the State as per RIPS 2022
Enabling Support
- Corporate Partnerships and funding support
- Capacity and Skill development:
  - Training and Upskilling Centers : such as the Rajiv Gandhi Center of Advanced Technology (R-CAT), Rajiv Gandhi Fintech Digital Institute and Rajasthan Institute of Advanced Learning.
  - Incubation Cells at each district with 9 divisional headquarters and a central Techno Hub.
  - Rajiv Gandhi Knowledge Service and Innovation Hub in Jaipur, Jodhpur and Kota.
    - Ease of Doing Business : Self-Certification, Plug and Play Incubation Facilities, Patent Information Centre (‘PIC’)
    - Public Procurement: additional work orders through e-Bazaar
  - Exit Stage : Graduation Work Orders

Startup Funding Mechanisms:

Bootstrapping: Self-funding by using personal savings or revenue generated by the startup itself. This method allows founders to maintain full control over their company but may limit the scale of growth.
Friends and Family
Angel Investors: Wealthy individuals who provide capital for startups in exchange for equity or convertible debt. Angel investors often offer not only funds but also mentorship and industry connections.
Venture Capital (VC): Venture capital firms invest in startups with high growth potential in exchange for equity. VCs typically provide larger sums of money than angel investors and may also offer strategic guidance and networking opportunities.
Crowdfunding: Raising small amounts of capital from a large number of people, typically through online platforms like Kickstarter, Indiegogo, or GoFundMe. Crowdfunding can also help in validating a product idea by garnering support from potential customers.
Incubators and Accelerators: Programs that provide startups with mentorship, resources, and sometimes seed funding in exchange for equity. Incubators help develop early-stage ideas, while accelerators focus on scaling existing businesses.
Bank Loans
Grants and Competitions: Non-repayable funds provided by governments, non-profits, or organizations through grants or startup competitions.
Private Equity: Investment from private equity firms that buy into more mature startups with the potential for significant returns.
Initial Coin Offering (ICO): A form of crowdfunding that uses cryptocurrency. Startups create and sell their own digital tokens or coins, which can be traded or used within the company’s platform. ICOs are highly speculative and face regulatory scrutiny.
Initial Public Offering (IPO): When a startup goes public by offering its shares to the general public through a stock exchange..

Stages of Funding:

Pre-Seed Funding: The earliest stage where the founders might use personal savings or funds from friends and family to develop the initial idea.
Seed Funding: The first official round of funding, often used to develop a prototype, conduct market research, or launch the product. Angel investors, incubators, and early-stage VCs typically participate at this stage.
Series A: Funding used to scale the product and user base. This round usually attracts larger VC firms that help the startup grow its market presence and refine its business model.
Series B: Focused on scaling the business to meet growing demand. Series B funding is often used to expand the team, develop new products, and enter new markets.
Series C and Beyond: Used for significant expansion, including entering new markets, acquiring companies, or preparing for an IPO. At this stage, startups are typically well-established with proven revenue streams.
Bridge or Mezzanine Financing: Short-term funding used to cover the gap between later funding rounds or before an IPO. This financing is typically convertible into equity or repaid upon the next funding round or IPO.

Unicorns

UNICORN

A startup company valued at over US$1 billion which is privately owned and not listed on a share market
Term popularised by venture capitalist Aileen Lee.
Since India’s first unicorn in 2011, India is now home to 118 startup unicorns, who are collectively valued at $354 Bn.
Example-Flipkart, BYJU’S, Nykaa, Paytm, OLA

DECACORN

Unicorns with over $10 billion in valuation have been designated as “decacorn” companies
Less common than unicorns
Significant growth and market dominance.
56 companies worldwide.
Five Indian startups- Flipkart, BYJU’s, OYO Rooms, Swiggy, PhonePe

Gazelles:

Start-ups that are most likely to go Unicorn in the next three years.

Cheetahs:

Start-ups that could go Unicorn in the next five years.

Hectocorn:

A company valued at over $100 billion. These are extremely rare and typically include the largest tech companies globally.

Venture Capital and Angel Investors

Aspect	Angel Investor	Venture Capital
Meaning	An angel investor is an individual who provides financial backing to startups or small businesses in their early stages. They often offer not only capital but also mentorship, industry expertise, and networking opportunities. Ex- Ratan Tata, Nandan Nilkeni	A venture capital is a professional firm that manages pooled funds from various investors, such as pension funds, endowments, and high-net-worth individuals. They invest these funds in startups and growing companies in exchange for equity.Ex- Accel Partners India,Nexus Venture Partners
Source of fund	Typically individual wealthy investors.	Professional firms managing pooled funds from various investors.
Investment amount	Invests smaller amounts, often in the early stages of a business.	Invests larger amounts, often at later stages of a business, and may participate in multiple rounds.
Investment Stage	Often involved in the seed or early stages of a startup.	Primarily involved in later stages, including Series A, B, and beyond.
Decision-Making Speed	Can make decisions relatively quickly due to individual decision-making.	Decision-making process may be more complex and involve multiple stakeholders, potentially taking longer time.
Level of Involvement	Can be more hands-on and provide mentorship and guidance.	Typically less involved in day-to-day operations and more focused on financial returns.
Risk Tolerance	Generally willing to take higher risks on early-stage ventures.	Balances risk but may be more risk-averse compared to angel investors.
Control and Ownership	May be more flexible on ownership terms and may not seek significant control.	Often seeks a substantial ownership stake and may exert more control over strategic decisions.
Industry Focus	Can have a broad range of industry interests.	May have a specific industry focus or sector expertise.
Exit Strategies	More flexible with exit strategies and may consider alternative options.	Often has a clear exit strategy, commonly through an IPO or acquisition.
Relationship with Founders	May have a closer and more personal relationship with the founders.	Relationships may be more formal, business-oriented, and less personal.
Funding Structure	Individual investments are made directly by the angel.	Pooled funds managed by a professional firm, with multiple investors contributing to a fund

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