New Delhi, July 21 -- India's rapidly growing startup ecosystem, driven by innovation in fintech, healthcare, and AI, is supported by a young population and government initiatives like Startup India. While there are over 100 unicorns, and many more are on the rise, many emerging businesses struggle with limited access to funding, complex regulations, talent acquisition issues, inadequate infrastructure in smaller cities, and limited support for global market expansion.

In this fast-paced environment, intellectual property is a crucial asset for startups, helping them stand out, grow faster, and attract investment. IP, as a vital business asset, enhances valuation, attracts investment, secures competitive advantage, and opens diverse revenue streams. Early adoption of robust IP strategies is essential for startups to safeguard innovations, build brand equity, and scale confidently domestically and globally.

Common hurdles that startups face

Securing sustainable financing is a major challenge for new businesses in India. While venture capital and private equity investments have increased, they are concentrated in select sectors and urban hubs, leaving early-stage ventures in Tier-2 and Tier-3 cities underfunded. Traditional financial institutions are hesitant to lend due to the lack of collateral and predictable revenue streams. Even funded startups face pressure to scale quickly, leading to unsustainable burn rates and compromised profitability.

Despite India's large talent pool, startups cannot compete with well-established companies for skilled workers, especially in high-demand fields like data science, cybersecurity, and blockchain. Startups endure challenges such as lower base salaries, lack of brand recognition, and high turnover rates, which hinder their ability to retain talent after funding rounds.

Startups also struggle to gain consumer trust, especially in sectors like health, education, and finance, where reputation is crucial. With limited marketing budgets, they must compete with reputable companies and other new entrants, and expanding beyond Tier-1 cities further complicates matters due to varying consumer behaviour and digital readiness.

While cities like Bengaluru, Delhi, and Mumbai have developed strong startup ecosystems, non-metro regions often lack the necessary infrastructure, such as co-working spaces, testing labs, and professional networks. This regional disparity limits innovation outside urban centres and restricts opportunities in select locations.

Sector-specific hurdles

Startups in India face significant challenges due to the complex regulatory environment, especially in highly regulated sectors like fintech, health-tech, and e-commerce. Bureaucracy, regulatory uncertainties, specific sector-based legislation and frequent policy changes make compliance a nuisance.

Similarly, the prospect of Indian startups expanding internationally poses obstacles and challenges like navigating international regulations, IP protection abroad, and building distribution networks. Without dedicated support for cross-border expansion, global scaling is daunting.

IP as a strategic and financial asset

Intellectual Property (IP) remains an often overlooked yet powerful lever of competitive advantage for startups. In today's innovation-led economy, IP is not merely a legal safeguard but a strategic asset that enhances valuation, attracts investment, strengthens market position, and opens up new avenues for revenue and financing. Although India has introduced supportive policies to encourage IP creation, the challenge lies in effective commercialisation. To truly unlock its potential, startups must treat IP as an integral part of their business strategy rather than a compliance formality.

Today, IP plays a key role in the life cycle of a startup, far beyond legal compliance. First and foremost, it acts as a valuation booster. A strong IP portfolio signals innovation, long-term vision, and market potential, significantly enhancing investor confidence and company valuation, especially in technology and research-intensive sectors. This translates into increased ability to attract funding and secure better terms.

IP also serves as funding leverage. Globally, many startups use IP as collateral for securing loans and venture debt. In India, too, a robust IP portfolio enhances the perceived asset value of a startup, enabling it to raise larger capital for growth. Additionally, IP grants market monopoly by protecting proprietary technologies and brand assets, creating entry barriers for competitors, and reinforcing market positioning. IP is also a direct revenue generator through licensing, franchising, and technology transfer, offering scalable monetisation routes without proportionate operational expansion.

Another benefit of possessing intellectual property assets for a startup is that it facilitates strategic partnerships, joint ventures, and technology transfers. Startups with a diverse variety of IP assets can collaborate with larger corporations or research institutions, the result of which could be a joint pool of resources to commercialise innovations more efficiently. For instance, a startup with patented technology, but having limited market access, can establish joint ventures with established organisations that provide distribution channels or funding, thereby maximising the commercial viability of their IP.

But perhaps the best use of an IP asset would be through licensing, assignment, or franchising agreements. This allows for the direct monetisation of all IP resources a startup claims ownership of, allowing the company to directly profit without manufacturing or selling products by itself. As a result, the startup may find itself with an alternative, but steady, revenue stream, through royalties or fees, that allows the company to ease operational costs and any burdens that come with it.

Recommendations

To fully unlock the value of IP in India's startup ecosystem, it is essential to embed IP strategy at the incubation stage through mentoring and funding support, develop standardised frameworks for IP valuation with the involvement of the Securities and Exchange Board of India, the Reserve Bank of India, and other valuation bodies, promote IP-backed financing models similar to those in Singapore and South Korea, and strengthen enforcement mechanisms through fast-track legal frameworks and specialised IP tribunals for timely dispute resolution.

A great example of this is that since the 2016 launch of the Startup India initiative, patent filings by Indian startups have risen by over 50%, reflecting increased IP awareness. Key government initiatives like the Startup Intellectual Property Protection Scheme (SIPP Scheme), Fast-Track Examination, and the National IPR Policy have supported this growth by providing financial aid, speeding up IP grants, and promoting IP creation and commercialisation.

Conclusion

India's thriving startup ecosystem needs to address legal and operational challenges, particularly around intellectual property, for sustained growth. Startups should view IP as an asset that enhances valuation, attracts investment, and opens diverse revenue streams. Strengthening IP awareness, embedding IP strategy early, coupled with improving enforcement and promoting IP-backed financing, will give startups the confidence to innovate and compete globally. Government support and structural reforms are vital for building an ecosystem that gives rise to innovation across all regions and sectors.

Smriti Yadav is partner, Vishwas Sethuraman is principal associate and Madhura Sureshkumar is associate at law firm Khaitan & Co. Views are personal.

Published by HT Digital Content Services with permission from VC Circle.