THE BLOG

How India Can Become the Largest Startup Country in the World

04/17/2015 04:40 pm ET | Updated Jun 17, 2015

To most tech investors, the promise land is somewhere between San Jose and San Francisco. But on the other side of the world, a new Silicon Valley-style ecosystem is brewing. In 2014, Indian startups secured $5 billion in investment funding, tripled what was invested the year prior, according to Quartz. India is now the fastest growing startup country in the year, and it's estimated that in the next five years almost 12,000 startups will be up and running.

The Indian entrepreneurial bug bit the country after InMobi was launched in Mumbai in 2007 and quickly became the second largest mobile ad network in the world. Today the Indian startup ecosystem is thriving with everything from delivery service apps like PepperTap, ZopNow and Grofers to mobile payment apps like FreeCharge, MobiKwik, Paymt and AppMoney. These mobile payment apps are particularly interesting because they tend to incorporate several trends currently taking place in India. AppMoney, for example, gives India's growing mobile population a fun way to "recharge" their data plan by embracing the surging popularity of mobile coupons with e-commerce.

Indian startups are currently bringing in several million-dollar investments from Silicon Valley's top investment firms like Sequoia Capital, perhaps the most prestigious investment firm in the world, having invested in Google, Airbnb, Instagram and basically every note-worthy tech startup in the last 30 years.

Finally Indian finance regulations are changing to encourage more investors to take a change on an Indian startup. Last month, the Securities and Exchange Board of India (SEBI) announced separate regulations for startups that want to list in India. These changes include setting up a crowdfunding platform and tweaking regulations around IPO filings. This changes could encourage more Indian entrepreneurs to list in their home country as supposed to doing it abroad where tax and regulations are more lax on early-stage startups.

Despite these much-needed alterations to funding and investment, Indian entrepreneurs are eager for the SEBI to bring on more changes that could potentially make India the largest startup country in the world. For example, right now only startups that have a profitable track record are allowed to be listed in India, which is not very favorable for Internet and tech startups. Amazon hasn't made a profit in years, but it's still a very valuable company in the U.S.

Furthermore, to file for an IPO in India the current regulations state that the investment be used for acquiring fixed assets, which are mostly non-existent for Internet companies. These tough regulations are biased against Internet and tech startups, which are ironically the type of businesses that have proven to be flourishing in India and where most of the country's financial growth can be expected.

If the SEBI doesn't act quickly to make it more favorable for Internet startups to thrive in India, many entrepreneurs are going to take their business abroad. InMobi, for example, is now headquartered in startup-friendly San Francisco.

All the pieces are in place and startups and investors are making India a hotbed of economic activity, despite these regulations. Right now India has the opportunity to rival Silicon Valley in value or stand to lose some of its brightest entrepreneurs, most popular startups and all their intellectual property to greener pastures.