“I believe a stronger ‘second-chance’ framework could help experienced entrepreneurs access credit, working capital, and regulatory support without being defined by a previous business setback,” Saurabh Mehlawat, Director, SS Buildcon, told The Secretariat. 

Raghunandan Saraf, Founder and CEO, Saraf Furniture, said, “Shutting down gets you nothing — no debt relief, no restart fund, no counselling, and you’re basically left alone with your losses. The system cheers for first-timers but abandons second-timers, even if they’re wiser.” 

India’s startup ecosystem, the third largest in the world, may have caught global attention. However, mega failures have often played spoilers.

The BluSmart Case

Remember BluSmart, the electric cab hailing service? Just when it had started to rapidly gain market share and acceptance, giving stiff competition to Uber, the news of its failure hit the headlines. Finally, it had to halt its operations in 2025. Reason? A massive fraud following a default in loans.

The BluSmart co-founders, the Jaggi brothers — Anmol Singh and Puneet Singh - who secured more than ₹260 crore for the acquisition of new electric vehicles, were caught diverting the funds for personal use.

E-commerce startup Dunzo, which received funding from Google, also shut down last year after being in operation for 10 years. However, the failure was for a different reason - and a more genuine one. It could not scale up and compete with other bigger brands.

Edtech startup Byju’s, which once reflected the success story of the startup ecosystem in the country, met a similar fate. Its promoter Byju Raveendran was found to be involved in several discrepancies, which threw light on severe gaps in governance. The firm focused on rapid debt-led expansion and aggressive marketing strategies.

The Long List

According to government data, the total number of recognised startups in India is over 2 lakh. But as India incubates more startups, founders feel that the process of rebuilding after closing a business isn't quick or clean.

As of 31 December 2026, the number of Department for Promotion of Industry and Internal Trade (DPIIT) recognition certificates issued has increased from 743 in FY2016-17 to 38,632 in FY25-26. The numbers highlight the pace at which India has created its known startup ecosystem since the launch of Startup India.

In a written reply to the Lok Sabha in March 2026, Minister of State for Commerce and Industry, Jitin Prasada, stated that 2,12,283 entities have been recognised as startups by DPIIT.

The question is how many have failed. Prasada said 6,789 recognised startups have been closed or struck off so far.

Funding, Credit Support

In 2016, Prime Minister Narendra Modi launched the Startup India programme, a government initiative to boost the startup ecosystem by creating a conducive environment for these firms to nurture.

According to government data, about 50% of DPIIT-recognised startups have sprung up in Tier-II and Tier-III cities.

The government has also established financial support at various levels. The ₹945-crore Startup India Seed Fund Scheme (SISFS) supports early-stage requirements from proof of concept and prototype development to product trials, market entry, and commercialisation. The Small Industries Development Bank of India (SIDBI) has established the ₹10,000-crore Fund of Funds for Startups (FFS). The Credit Guarantee Scheme for Startups (CGSS) was launched in October 2022 for startups, with credit guarantee coverage of up to ₹10 crore per borrower.

Regulatory, Tax Facilitation

The policy helps in operating efficiency via tax deductions under Section 80-IAC, deferment of taxes on Employee Stock Option Plan (ESOP), among other relaxations in public procurement policies, and the GeM Startup Runway. Startups have the option to self-certify compliance with 9 labour and 3 environmental laws, and 62 regulatory changes since 2016 have aimed to streamline compliance and overcome operational burdens.

But what India needs now is to be prepared with a plan for a second life.

Vikas Sethia, Founder of MioPods.Space, said, "Rebuilding confidence is just as difficult as rebuilding a company."

The Gift Of Second Life

A setback can prove to be an asset, analysts say. 

Rebuilding confidence is just as difficult as rebuilding a company

- Vikas Sethia, Founder of MioPods.Space

“While India has developed a fairly robust infrastructure to support business startups and scaling, it has yet to develop a structured support system for entrepreneurs who wish to reopen a business after a genuine closure,” SS Buildcon’s Mehlawat said.

Reena Beri, Founder of Triksha EduTech, pointed out that while the policy measures provide the right runway for startups to take off, they don’t have adequate built-in mechanisms to allow promoters to learn from mistakes.

“Policy has put huge efforts into enabling people to start businesses but not into learning from the process when it fails to go as planned,” she said. These are assets of intellectual capital, self-belief, resilience, and mentorship which, if recognised and nurtured, can help build a second venture, she said.

Sadhika Agarwal, Lead, Investments, Equirus InnovateX Fund, said investors do value second-time founders and look at how failures were overcome instead of viewing them as red flags. 

“The real gap is at exit. Startup India's incentives, incubation, tax breaks, and seed support are all front-loaded for launch and scale. None of it recognises a good-faith closure or fast-tracks a responsible founder's re-registration,” she told The Secretariat. “Fix exit, and restarts take care of themselves,” she said.

The Global Picture

The number of domestic-based venture companies in South Korea increased from 24,636 in 2014 to 35,857 in 2024, an average annual growth rate of 3.8%. It has transformed the venture economy, with service-sector companies increasing by 7.4% a year, more than doubling manufacturing company growth of 1.6%. 

Fix exit, and restarts take care of themselves

- Sadhika Agarwal, Lead, Investments, Equirus InnovateX Fund

Seoul’s total investment in the Korea Fund of Funds has also increased from about US$ 340 million in 2025 to US$ 560 million in 2026. This is meant to help startups exit and restart. 

China’s startup policy, in the recent past, has come under the spotlight. Stringent regulatory norms and crackdowns, especially amid rising global risks, have somewhat damaged the entrepreneurship spirit. 

However, Beijing is now aggressively trying to nurture startups that invest in futuristic sectors such as artificial intelligence (AI), environment, electric mobility, and chips.

A 2025 plan released by seven government departments provides increased support for failed entrepreneurs, including guidance and re-entrepreneurship support, for which eligible entrepreneurs can receive entrepreneurship training, guidance, financing, or loan support. 

These policies contrast with other countries, suggesting India needs to demonstrate that support to entrepreneurs following a business failure can be an explicit component of entrepreneurship policy.

India needs to learn from the global startup landscape. Genuine commercial failure must not be placed in the same bracket as closure due to misconduct or fraud. Personal bankruptcy protection for honest founders is key.