ALIVE AND KICKING
Legendary billionaire investor and wealth guru Warren Buffett would often say this in the context of entrepreneurship and investing: "No matter how great the talent or efforts, some things just take time. You can't produce a baby in one month by getting nine women pregnant." This is true of the Indian startup ecosystem as well. It is still young and evolving, and needs time to mature and become self-sustaining. But there is no stopping it for sure, no matter how adverse the current circumstances are.
Indeed, funding activity has slowed down considerably. A PwC India report states that startup funding in India hit a two-year low at $2.7 billion across 205 deals in the third quarter of CY22. A Crunchbase report showed that funding to venture capital backed startups in India had fallen to the lowest levels since early 2020. But the 'funding winter' is just one part of the big picture.
The bigger picture that remains though is that India is home to the third-largest startup ecosystem on this planet after China and the US. Also, out of the 108 Unicorns, as per the data shared by the Ministry of Corporate Affairs (MCA), 16 profitable unicorns cumulatively paid income tax of Rs 1,276.6 crore in FY21. Of the 16, Zerodha, Zoho and Dream 11 together paid Rs 949 crore in income tax.
Potential Unicorns
India needs more profitable startups. And there are quite a few promising ones with the potential to turn into profitable unicorns with time and patience. Take, for example, the fast-growing app-based startup Country Delight. "In the last three years, Country Delight has grown 10x in scale and is currently at around Rs 900 crore ARR (Annual Recuring Revenue)," says Chakradhar Gade, CEO & Co-founder, Country Delight. To keep the growth momentum going, Country Delight recently raised $108 million in a Series-D funding round led by Nicholas Cator-backed Venturi Partners and Temasek, Gade informs.
But the overall investment scenario at present without doubt remains bleak. The current economic climate marked by inflation, poor performance of IPOs and geopolitical tensions has made the investor conservative in his approach. Experts believe this phase is a correction of sorts and one that was waiting to happen. "The startup world had its excesses over the last five years. Everyone was getting funded and these made it seem like anyone could build a billion-dollar business, which was not true. We were in a bull market,” says, Nithin Kamath, Founder and CEO, Zerodha, the online stock trading platform.
All is Well
Investment gurus say there is no need to panic, as conservative investors are good for the ecosystem. By the end of August this year, there were a handful of big-ticket deals that made the headlines. These included $805 million funding raised by Verse Innovation, $800 million Series F by Think and Learn (Byju's), $700 million by Bundl Technologies (Swiggy), $450 million by Polygon, and $300 million by Xpressbees, among a few others.
“Investors are definitively conservative when it comes to big-ticket deals. But they are still flexible for pre-Series A companies. However, for post-Series A startups, it is tough to raise funds,” says Bodhisattwa Sanghapriya, Co-founder and CEO, IG Drones, a dronetech startup. Sruthi Kannan, head of Cisco LaunchPad that nurtures startups says, "Pivoting is a critical aspect of being in a startup ecosystem. This is especially true during the current funding winter and the potential recession. The core fundamental theme that Cisco focuses on while working with startups is value addition. And for this, we look at how technology can act as an enabler."
So, what’s on the menu for the next couple of years? What should be on the entrepreneur’s mind in 2023? "The next two years will separate serious founders from non-serious founders. We will see founders that are actually passionate about the problem that they are solving and building towards. Beyond this, there will be correction in terms of valuation and maybe round sizes too," says Roopan Aulakh, Managing Director, Pi Ventures, an early-stage fund.
When asked whether his spacetech startup Pixxel would get impacted by a possible recession, Awais Ahmed says, “Thankfully, the economic slowdown hasn't really affected our operations,” adding, “We are actually hiring more people because we are struggling to keep up with the demand for our data.” Pixxel’s headcount now stands at over 100 and it plans to hire around 50 more people in the next six months.
While the wait is on for the ecosystem to get right, the key is to go back to the drawing board and also to maintain the focus. At the end of the day, investors do track the heart of a startup when making the investment decision. Integrating environmental, social and governance (ESG) into their businesses, and working on creating value through job creation are a few elements of the focus.
Clear Focus
One of the largest players in India's micro-mobility space is Bengaluru-based Yulu, which has made urban mobility seamless, shareable and also sustainable. In its five years of operations across Bengaluru, Mumbai and Delhi-NCR, the company has revolutionised two-wheeler trips in the last-mile segment and its rides are 35 per cent cheaper than the petrol alternatives. While this has made traveling over limited distances affordable for many, Yulu has also become the ride of choice for thousands of delivery boys who cannot afford motorbikes.
"At this point in time, we are not just creating an impact by solving mobility needs. We are also solving the occupation part, where we are providing a living to many people. Today, there are so many people coming from the neighbouring towns and villages to cities like Bengaluru, Mumbai and Delhi in search of jobs despite not owning a bike of their own," says Raunak Bidasaria, Head of Revenue and Operations, Yulu.
The investor community too adopts a focused approach to investing. Harvard Business School alumnus Amit Ratanpal says his company Blinc Invest has chosen to back the edtech sector because of India’s 54 per cent youth, and that the boom in the sector can be attributed to calls for employability. “We believe that each sub-sector of education will grow multi-fold. K12, we believe, will grow 12-15 per cent while skills and development, depending on its sub sector, will grow at 20-30 per cent.” Highlighting the positive effects of entrepreneurship, he stresses on the fact that each entrepreneur creates close to 10-15 job opportunities.
As to Blinc Invest’s forthcoming plans, Ratanpal says, “Our vision is to occupy the pre-Series A space in edtech and fintech in India.” The investment firm may also eye similar opportunities in the Asia region. He believes that founders should get the market- and consumer-fit for their product. Besides, they must have a singular approach while solving a business problem and that requires them to be always mindful of cash flow, revenue and profits.
Speaking to BW Businessworld, Anjali Bansal, Founder, Avaana Capital, a finance lender say, “At Avaana, we are looking forward to the next set of unicorns in climate and sustainability. Increased policy support, including blended finance and catalytic capital announced by the Honorable FM in the budget, as well as large-scale public digital infrastructure such as UPI, ONDC and National Health Stack, also create ideal conditions for new business models to emerge and scale.”
Varun Alagh, Founder Mamaearth
How can the Indian government help the startup ecosystem?
By improving the taxation impact on angel investors; by creating better regulation for unlocking crowdfunding and by using Use Net Investment Income (NII) and SIDBI to drive diversity of investments in women led and homegrown start-up’s.
What are your plans for next year?
We plan to continue scaling up the Honasa portfolio of digital-first brands and become the number one choice of Indian Millennials in the BPC segment
How is the landscape of angel investment transforming in India? Is it still dominated by HNIs?
It’s expanding rapidly, and a lot of corporate executives, and SME businessmen are actively participating as angels, especially through syndicates like Angellist and LetsVenture.
Reset, Rethink
For entrepreneurs, this is the time to reset and rethink. The more they add value to the core of their businesses the more resilient their creations will be. Bobble AI is an Indic keyboard, which offers advanced features to users to help personalise their conversations using AI-based recommendations on gifs and stickers. Beyond the urban population, users from Tier-2 and Tier-3 cities are actively participating in the internet revolution we are witnessing. “They will eventually start using our product, Bobble AI will play a major role because everyone will require a keyboard to interact with their smartphone. Keyboard in personalised and even vernacular manner will be a cherry on the cake for the potential users,” says, Abhik Kapoor, AVP-Business Products, Bobble AI.
Recently, entrepreneur, actress and philanthropist, Priyanka Chopra launched her haircare brand Anomaly in collaboration with the beauty platform Nykaa. In a conversation about the launch, Anchit Nayar, CEO, Beauty E-Commerce, Nykaa said, “Nykaa’s mission is to democratise access to beauty and that means partnering with some of the best global brands and bringing them to the country. And giving the Indian consumer a chance to interact with the best the world has to offer.” Anomaly is one such brand they have collaborated with.
According to Nayar, beauty in India is still an under-penetrated category. “There is so much more consumption that is yet to happen in the category. And therefore, the timing for a brand like Anomaly to enter India was perfect. The launch defied our expectations, on the first day, one Anomaly product sold every seven seconds on the platform.”
Future Fantastic
There are some sought after subsets within the overarching tech startup space that continues to enthuse investors and entrepreneurs alike. Agrifood is one such segment. The India AgriFood Startup Investment Report states that the country has overtaken China as Asia-Pacific's biggest funder of agrifoodtech innovation, attracting record levels of investment in FY2022. Alongside the increasing volume of deals, the average round sizes have also increased significantly across all funding stages, with the overall investment volume up 119 per cent to $4.6 billion in FY22. The number of deals increased to 234 in FY22 from 189 in FY21.
Flash, a startup founded by Flipkart's former SVP Ranjith Boyanapalli, raised $5.8 million in a seed round from Global Founders Capital, White Venture Capital, Zinal Growth, Soma Capital, Emphasis Ventures, Peer Capital. Flash is on a mission to revolutionise the online shopping space globally. It is introducing a first-of-its-kind digital shopping identity to enhance the experience of power shoppers globally.
Recently, Bollywood actor Shilpa Shetty Kundra became an investor as well as the brand ambassador for Hunar Online Courses. Through this collaboration, skill-tech platform Hunar hopes to enable one lakh Indian women to achieve financial independence by 2023.
Besides fintech, edtech, foodtech and agritech, the startup ecosystem around drone manufacturing and operations is another area that holds big promise in 2023. This is because the Indian government is actively funding it by floating tenders worth up to Rs 120 crore each across industries as varied as surveying, defence, agriculture, mining, among others. As long as investors can understand the business, there won’t be any dearth of funding for entrepreneurial ventures.
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