[Editorial] How Start-ups will solve real problems for Indians?
- India attracted immense fuel for improbable entrepreneurial ideas in 2021.
- The private equity investment was $77 billion, of which $42 billion went to early-stage ventures.
What the editorial is about?
- The need for society to encourage many statistically independent and genetically diverse tries by entrepreneurs delusional about their odds of success to harness the gains of innovation, productivity and job creation.
How do startups benefit society?
Innovation, productivity and job creation
- The high failure rate of startups is not a problem per se — society only needs a few successes to harness the gains of innovation, productivity and job creation.
- Venture investments follow a “power law” of distribution, that is, most go to zero but the tiny number that succeeds more than compensate for the losses or mediocrity of the many.
Losses caused by startups are not passed on to society
- Startups don’t socialize their losses.
- The current venture capital binge will create many write-offs but this cost will fall on consenting adults with broad shoulders — foreign institutions, angel investors and entrepreneurs with successful previous exits.
How Start-ups will solve real problems for Indians?
- India is poor not because of a shortage of land, labour or capital but a disease that results from how the three combine — what economists call total factor productivity.
- Ending our poverty needs higher productivity regions, cities, sectors, firms and individuals.
- A modern state is a welfare state that does less commercially so it can do more socially.
- It needs allies in reimagining financial inclusion, supply chains, distribution logistics, employability, retail, transport, media, healthcare, agriculture and much else.
- Many of our startups shall redeem their pledge to solve these problems “not wholly or in full measure, but very substantially”.
Major issues related to startups
Fiscal and monetary policy normalization
- The global capital supply fueling startup funding faces challenges from fiscal and monetary policy normalization.
- Investors are returning to weighing financial sustainability and capital efficiency along with addressable markets.
Creation of excesses
- The explosive startup funding has created excesses.
Calibration of markets
- Private markets are not only delaying IPOs. but unicorn IPOs’ underperformance suggests that public markets have a different calibration.
Stop being startups
- Startups only reach their destiny when they stop being startups.
- Convincing customers to cover their costs, assimilating non-founder leadership and institutionalizing governance are the need of the hour.
- There is a need is to ensure the policy environment for the startups to boom.
Practice question for Mains
- The few Startups that survive will raise India’s soft power and prosperity by using improbable ideas to solve impossible problems. Comment. (150 Words, 10 Marks)