Friday, March 4, 2011

Funding - The Supply Side Constraint of Indian Entrepreneurial Ecosystem

Looking at the India growth story, there are many underlying economic factors that support the contention that India will be the next economic power house. And this directly implies explosive growth to our cities. By 2008, India’s urban population was estimated close to 340 million people*, which was about 30% of the total population of India. It is estimated that by 2030 the population in urban cities of India will together reach 590 million people*. Needless to point out here that unlike other developed nations which have aging population, India has young population with a healthy growth rate. Over the next two decades over 180 million* people are expected to join the work force – as many analysts would call this phenomenon, a potential demographic dividend. And this dividend can pay off too.

If statistics has any credence, it implies that there will be an increase in the total available market across the industries such as healthcare, education, retail, concierge services, waste management, housing (real estate and services related to the interiors of the houses), generation and channelizing clean energy and many more. Simultaneously there will also be churning of niche segments requiring much specialised needs too.

Indian Entrepreneurship Ecosystem has taken some concrete shape in the last decade. There are about 40 incubation centres, over 275 VC’s, an estimated 275 angels and about 10 to 12 corporate VC funds operating to support start-ups in India. Though these numbers are still way below than what they are in the United States, UK, other parts of Europe and even those in China, there is something to look forward - that the Indian Entrepreneurial Ecosystem is evolving. But the real problem still lies with the fact that India has less of seed fund investors, who can drive the entrepreneurship to next level where the VCs can pitch-in or the start-ups get acquired. Our need for expanded Ecosystem for Entrepreneurship is evident. Given that the economic factors suggest entrepreneurial opportunities almost in every sector and a large potential market, most of the start-ups will have a good market share, provided they get funded at an early stage.

*Some data has been collected from the MGI report from McKinsey.