Behind the Scenes: A Quick Guide to The Start-Up Rankings

Ideas are easy, implementation is hard, writes American author Guy Kawasaki. These words resonated deeply as we embarked on creating a comprehensive ranking system for India’s start-ups. The process was akin to assembling a complex mosaic, where each piece, no matter how small, plays a crucial role in revealing the bigger picture. Over the past few months, we went on an intense journey to ensure our evaluation of start-ups, states and cities is both nuanced and robust.

The first step in the process was honing key sectors for which start-ups were to be evaluated and ranked. Each sector was chosen not just for its current prominence, in terms of the number of start-ups, as well as funding received by the sector, but also for its latency in shaping tomorrow’s economy.

While direct-to-consumer (D2C), fintech, enterprise tech, health tech and clean tech were the top sectors selected for evaluation, space tech and defence tech were chosen as watchout sectors in view of their emerging potential in India’s start-up ecosystem.

Within each sector, a list of growth-stage start-ups was prepared. Then they were evaluated and ranked. These start-ups were founded in 2010 and after, were in funding stages A and B in 2023–24 and had a latest valuation of $10–800mn.

Evaluation Framework

As LinkedIn co-founder Reid Hoffman famously said, “Starting a company is like throwing yourself off the cliff and assembling an airplane on the way down.” Our evaluation framework needed to capture this inherent complexity of start-up building and therefore we structured our analysis around three fundamental pillars: financial performance, funding and valuation, and operational capabilities—each representing a critical aspect of start-up success.

The evaluation of states and Union Territories (UTs) proved even more complex. We developed six distinct parameter categories, ranging from business environment to digital evolution. During our discussions, interesting debates emerged.

One team member pointed out, “A state might be economically prosperous but that doesn’t automatically translate to ease of doing business.” This observation led us to carefully separate macroeconomic fundamentals from business environment parameters.

The final six parameter categories for evaluation of states and UTs that emerged were: business, safety and regulatory environment, digital evolution, funding and investment, human capital and knowledge edge, macroeconomic scenario, and sustainability and inclusion.

Similar categories were used for evaluation of cities, except digital evolution and sustainability and inclusion due to lack of data for parameters in these categories at a city level.

The digital evolution category sparked particularly engaging discussions. Initially conceived as a straightforward measure of internet penetration, it evolved to include parameters like digital payment adoption and e-government use.

During one brainstorming session, a teammate pointed out that mere smartphone ownership doesn’t equal digital maturity. The insight led us to incorporate parameters like digital payment adoption and e-government service.

Some of our most animated debates were centred around using artificial intelligence (AI) as an evaluation tool. “AI hallucinates—for now. Even if 1% of it is hallucination, we should avoid it,” a team member said. And that was the decisive comment that led us to exclude AI-based evaluation tools, despite their growing popularity.

Parameter Weights

The process of determining parameter weights was like conducting an orchestra, every instrument, that is metric, needed to play its part perfectly. Some metrics needed to be louder than others. Our methodology wasn’t just about crunching numbers, it was about understanding the narratives behind those numbers.

“We need to ensure that the focus doesn’t shift solely to the investor profile rather than a start-up’s actual performance,” one teammate cautioned. This led us to fine-tune our approach to balance the influence of high-profile investors with tangible business achievements, ensuring that start-ups are evaluated holistically. In case of start-up rankings, the battle between funding and financial performance emerged as a central theme.

After hours of debate, we reached a conclusion: while both were crucial, their relative importance varied by sector.

Likewise, in the health-tech sector, we recognised that innovation and intellectual property might outweigh traditional financial metrics due to long development cycles and regulatory considerations inherent in the industry. This insight prompted us to adjust our parameter weights, recognising that different sectors necessitate tailored evaluate criteria. It became evident that a one-size-fits-all approach wouldn’t suffice, each sector demanded its own set of priorities.

In evaluating states and cities, we faced a challenge that was almost like solving a Rubik’s cube—each turn affected multiple faces simultaneously. Human capital emerged as a key battleground for discussion. “If there are funds available, it’s already proven that start-ups are happening,” one side argued. The other side said that human capital forms the foundation of any start-up ecosystem. The debate concluded when someone shared examples of start-ups struggling despite funding because they could not find the right talent.

Evaluating cities presented unique challenges—how do you balance physical infrastructure against digital connectivity? What weight should be given to the presence of support systems such as incubators versus organic growth factors?

Similarly, the team debated extensively about parameters such as programmes undertaken to connect start-ups with private funds, ultimately deciding to retain it under the business environment category.

A Marathon

Crafting this ranking system has been an enlightening journey. A mosaic of ideas, debates and decisions paint a comprehensive picture of the start-up ecosystem. It’s clear that the real value lies not just in the final rankings but in understanding the interplay of factors that make start-up ecosystems thrive.

Our methodology, while data-driven, acknowledges that start-up success is influenced by a wide array of factors—some quantifiable, others more nuanced. This ranking is an attempt to understand what makes start-ups successful. And the process reinforces our belief that building successful start-up ecosystems is indeed a marathon, not a sprint.