Boom time in the domestic and international IT space, growth of B2B organisations, and the emergence of first-generation entrepreneurs in tier-II and -III cities have broadened the scope for startups in India.
The first wave of Indian startups can be traced back to the 1980s as the liberalisation of the computer industry led to the origination of the now iconic software service providers such as TCS and Infosys. The inception of NASSCOM further strengthened the software trade that in many ways laid the foundation of India’s startup story. The liberalisation of the 1990s and the dot-com boom of the 2000s furthered the trend while the proliferation of the Internet and smartphones in recent years has served to accelerate and diversify the startup ecosystem. The last decade saw the Indian entrepreneurial space gather immense pace with 49,000 startups taking off between 2008 and 2018, together raising more than $51 billion in funds. As many as 26 Indian startups find themselves in the enviable “unicorn list” today as investor confidence booms.
Interestingly, the evolution of India’s startup space has continued to spawn new trends. With an expanding economy, rising middle class and improved ease of doing business, the entrepreneurial energy has trickled down below the creamy layer with a series of first-generation entrepreneurs making it big in the startup scene. Apart from this greater democratisation of the startup space, other interesting trends to be noted include the shifting of the startup boom outside the top-tier cities; boom time for new ideas; emergence of new B2B startups; and greater inflow of investment from Asian countries, most notably China. All these indicators point to a maturing of the startup ecosystem and an entrepreneurial story that will gain pace in the future.
Let’s discuss some of the trends that are set to drive the future of India’s startup ecosystem.
AI-, AR-based startups
A large consumer base, multiple market segments within this base, a growing digital economy and presence of high-quality tech talent are actors that have boosted India’s startup ecosystem. While e-commerce, consumer internet companies, health tech and fintech are sectors that continue to dominate, a wave of new-age startups powered by new ideas are making their presence felt. Smart mobility is one of these new spaces that are attracting significant traction from both entrepreneurs and investors. The government’s National Electric Mobility Mission Plan (NEMMP) that aims to make India completely electric by 2047 has been a major driver of this trend. From Ather Energy introducing its first scooter with a powerful Lithium Ion Battery for fast charging to Blu Smart, an all electric mobility platform, a series of startups are pushing for the creation of an entirely new market space for smart mobility in India. These new-age startups are not just banking on electric vehicle technology, but are also using better integration of devices, improved connectivity and technology to boost the concept of smart mobility. Similarly, Artificial Intelligence (AI), Big Data and Augmented Reality (AR). which are global buzzwords today, are fuelling a new generation of startups. India’s AI startup space is booming and venturing into divers domains, such as self-driving, retail, health and audio production among others. Medicus, a healthcare startup, uses machine learning and data analytics to bridge the communication gap between doctors and pharmaceutical companies. PMRY is a platform that provides authorised centres for rural people to leverage e-governance initiatives. Fitphilia is another interesting fitness-focused startup that uses an AI-based voice coach.
Interestingly, most startups in smart mobility and AI are less than five years old but the sector is already looking immensely promising.
B2B startups gaining traction
While the B2C startup segment still dominates the space, accounting for over 70% of the market, a new wave of B2B startups has emerged in recent years. According to a report by KPMG, half the number of new startups in 2017 were in B2B sectors such as fintech, health-tech, media, etc., with a focus on Artificial Intelligence, machine learning, Internet of Things and so on. Some of the notable names include Industry Buying, an online source for industrial supplies; Wydr, an app-based wholesale shopping platform; Hyper Destech, which uses predictive analyses to upgrade digital marketing strategies.
By utilising the logistics and infrastructure created already and improved over the years for the B2C segment, startups in the B2B domain are expected to grow faster. Moreover, by investing heavily in new-age technologies such as AI, these startups promise to change the business landscape completely.
Diversifying investment flows
Another positive sign of a maturing startup ecosystem is the diversification of investment flows from different directions. While the initial investors that plunged into the Indian space were largely Western and homegrown. Today we are witnessing a greater influx of investors from Southeast Asia as well. Chinese, Japanese and Singapore-based investors are leading the drive. Increasing Chinese interest in Indian startups is the most notable investor story of this decade. Chinese companies account for a whopping 42% of investments received under Invest India. Chinese investments have grown at a CAGR of 23% between 2000 and 2018 and stand over Rs 100 billion. The economic and cultural similarities between India and China have led to a better understanding and cooperation with Indian entrepreneurs increasingly seeking expertise from Chinese investors, be it Alibaba or Tencent.
Emerging startup space in Tier-II & -III cities
There is also a visible geographical shift in how new startups originate. While top-tier cities such as Bangalore, Mumbai, Hyderabad, Chennai and Delhi-NCR still remain the main strongholds, a new wave of startups is also emerging from smaller tier-II and tier-III cities, such as Pune, Ahmedabad, Jaipur, Chandigarh and Kochi etc. In 2017, as many as 20% of the new startups are estimated to have emerged in smaller cities. A number of factors are favouring this geographical shift.
The author is chairman, JIIF – JITO Incubation & Innovation Foundation, and owner of MTC Group and Madhuban Toyota