Survival and scale: What defines sustainable startups in India’s ecosystem

India’s startup ecosystem is known for its energy and scale. With one of the world’s biggest pools of entrepreneurs, the country is always among the top choices for venture capital. But behind the headlines of billion-dollar valuations lies a tougher truth: only a few startups manage to survive and even fewer grow into market-shaping businesses.

The big question is: what sets these companies apart?

The funding winter and its lessons

The past three years have been a reality check for India’s innovation economy. In 2023, startup funding decreased 60% to $10.7 billion, the lowest in four years, from $25 billion in 2022. With $11.3 billion raised in 2024 and $5.7 billion in the first half of 2025, things are gradually getting back on track.

What is clear now is that the “growth at all costs” approach is no longer sustainable. Investors are now looking for startups that can scale sustainably while demonstrating profitability. Founders, too are turning to new options like alternative credit and structured debt to manage working capital, cut down equity dilution, and bridge funding gaps. It indicates a maturing ecosystem, which values financial flexibility alongside capital efficiency.

Differentiation as the foundation

A startup can only be successful if it gives away something unique and valuable. It may sound like a textbook rule, but in reality, it is what separates short-lived ventures from lasting businesses.

Take the case of ideaForge and Tonbo Imaging, two pioneers in India’s defence tech space. ideaForge is not just another drone maker; it builds indigenous defence-grade UAVs and went on to list successfully on the stock exchanges in 2023 with an IPO oversubscribed more than 100 times.

Tonbo Imaging, which is preparing to file DRHP, blended optics, electronics, and AI to create advanced imaging systems that won global defence partnerships. Both proved that real innovation is what gives startups a defensible positioning that competitors cannot easily replicate.

The power of customer stickiness

Standing out alone is not enough. Lasting success comes from customer loyalty–the ability to retain users, keep them engaged, and turn them into loyal advocates.

This is where companies like Nykaa shine. From personalised product suggestions to beauty advice and community engagement, Nykaa has created a beauty ecosystem where shopping and content blend seamlessly. The results speak for themselves. In FY25, it reported Rs 7,950 crore in revenue, a 24% year-on-year rise, while keeping its beauty business profitable.

Similar to this, Zerodha has changed the Indian broking industry by eschewing temporary price wars in favour of clear, long-term, affordable prices. Its emphasis on ease of use, elimination of hidden fees, and creation of a smooth platform have increased its reputation with retail investors over time and allowed it to grow sustainably without requiring significant marketing expenditures.

Nykaa and Zerodha demonstrate a straightforward fact: customer-centric innovation can include loyalty in the business model when combined with consistency.

Storytelling as strategy

Another crucial but ignored element is narrative building. A strong brand story can amplify individuality and build credibility across stakeholders.

ideaForge secured the belief of investors and regulatory backing by focusing its narrative on indigenous innovation and national pride. Being on the cutting edge of AI and optics, Tonbo Imaging draws in international defence clients.

Nykaa’s narrative meanwhile, is that of authenticity, choice and empowerment in beauty (all with the central philosophy ‘everyone deserves the best’) that has changed them from a retail platform into a stalwart household name.

Stories like these do more than just move merchandise — they can create intangible goodwill, which can enhance customer loyalty and investor confidence.

Towards sustainable scale

Innovation-driven differentiation is how these businesses differentiate in the face of very competitive markets, and customer-led loyalty (aka stickiness) is what keeps them relevant and trusted over time. These two things drive sustainable growth and resiliency in light of the market changes.

There are thousands of companies that are launched every year, but less than 10% survive after five years. Their journey is like ascending a mountain: building a defendable base is the stony first step, then chiselling a clear route up, upward through retention and repeat usage.  You cannot have one without the other, and climbing is not possible without them both.

As India pushes for the $7 trillion economy, startups are going to be instrumental in driving innovation, jobs, and competitiveness. But the businesses that make a difference will not be the ones focusing on rapid valuations, but those building something sustainable with value, trust, and authenticity as their core.

In today’s market, where resilience matters as much as speed, the mantra is clear - innovate to differentiate and commit to creating customer stickiness. Only then can startups turn survival into sustainable success.

Surabhi Sanyukta, VP – Investments, BlackSoil.