Nurturing the third largest startup ecosystem in the world after the US and China, the story of India’s startup ecosystem is one of a thriving community. India is already home to 100+ unicorns (Business India), with 51 gazelles or startups that are two years away from unicorn status, and 71 cheetahs or startups projected to reach unicorn status in four years (Hurun Research Institute).
In April 2023, India overtook China as the world’s most populous country. This implies a deep domestic market that is the perfect breeding ground for startups fueled by a growing, youthful, and digitized population with increasing spending power and access to tools and learning for building and innovation.
But without conflict, no story moves forward. And in the context of India’s burgeoning startup ecosystem, the funding winter of 2022 was a lesson in hard-won resilience.
What was the ‘funding winter’ of 2022 and why it wasn’t so cold ?
The Indian startup ecosystem raised a record $38 billion of funding in 2021, creating a heady mood for investors and entrepreneurs. However, there was a significant drop in 2022 with Indian startups raising $25 billion. Moreover, 250 mergers and acquisitions were completed against 204 such deals in 2022. This made 2022 the year of the funding winter, but it's important to note that funds raised were still more than twice that of 2020’s $11.3 billion (Fintrackr).
All may not have been well, but a spirit of optimism prevailed with some headline-making deals. The acquisition of Blinkit by Zomato for $568 million provided some warmth to the startup community. Other big-ticket deals included the acquisition of Pickrr by Shiprocket, Ezetap by Razorpay, Knowlarity by Gupshup, Karza Technologies by Perfios, Setu by Pine Labs, and Indus OS by PhonePe.
Regardless of the lower funds garnered, early stage deals in 2022 matched 2021 numbers. More than 1230 early stage startups announced being funded in 2022 against 1245 in 2021. This can be attributed to early stage-focused funds and angel investors who continued to pour in capital.
Despite this funding winter, 21 startups joined the unicorn club in 2022 (Inc42), driving home the fact that India’s startup ecosystem has achieved powerful momentum. Several factors drive the story of India’s thriving startup ecosystem:
The power of a young population of digital natives
According to the World Economic Forum, the median age of the Indian population is projected to be 31 in 2030, compared to 42 in China and 40 in the US. This makes India the country with the largest working-age population in the world.
By 2030, 90 million new households will be headed by millennials who are digital natives with a vastly different approach to consumption and the services they expect. A case in point is the exceptional success of UPI (Unified Payments Interface). UPI transactions are expected to reach the milestone of 1 billion transactions per day by 2026-2027, demonstrating the scale of the digital payments revolution (Indian Payments Handbook, PwC).
When seen alongside the Reliance Jio revolution in 2016 which disrupted the telecom industry and gave hundreds of millions of Indians affordable access to the internet, startup-led digital services have a widening market and the scope to scale.
Rising incomes and digitalized tier-2 and tier-3 India
India is expected to add around 140 million middle-income and 21 million high-income households by 2030 (Future of Consumption, 2019). This means a growing consumer market with increasing spending power for startups to serve. And this market is no longer restricted to metros and tier-1 cities. On the back of the Reliance Jio revolution is the digitalization of tier-2 and tier-3 cities. This has bridged the urban-rural divide and unlocked massive opportunities for startups catering to the unique needs of Indian consumers in hitherto untapped areas.
Government initiatives setting the right climate
In January 2016, the Department for Industrial Policy and Promotion (DPIIT) under the Ministry of Commerce and Industry launched the Startup India Initiative to support entrepreneurs and build a robust startup ecosystem. Its mission is to transform India into a country of job creators rather than job seekers.
To support India’s burgeoning startup ecosystem, the initiative has rolled out several programs under three pillars: simplification and handholding for easier compliance, exit processes, legal support and fast tracking of patent applications; funding and incentives to infuse capital into the startup ecosystem along with exemptions on income tax and capital gains tax as well as a credit guarantee scheme; incubation and industry-academia partnerships to create innovation labs, events, competitions and grants.
DPIIT-recognised startups are afforded a host of benefits, from being listed on the Government of India’s e-procurement portal to becoming preferred bidders for government tenders. As of June 2022, more than 13,904 DPIIT recognised startups have clocked sales worth INR 7,533 crore (startupindia.gov.in).
Significant growth and innovation within startup sectors
E-commerce is buzzing
The fastest growing e-commerce market in the world, India’s e-commerce market opportunity is estimated to be a staggering $400 billion by 2030. This growth is catalyzed by the 907 million internet users expected by 2023, which accounts for about 64% of the total population of the country ( Inc42).
With the digitalization enabled by Reliance Jio’s affordable internet, e-commerce has witnessed widespread adoption across almost all pin codes in India. A significant portion of transactions, approximately 60%, originate from tier-2 cities and smaller towns. The popularity of e-commerce is rapidly growing in these regions, with nearly half of all shoppers and three out of every five orders coming from tier-2 and tier-3 cities. The average selling price in these areas is only slightly lower compared to tier-1 or metro cities (investindia.gov.in).
The dominant categories in the e-commerce market, in terms of transaction value, are electronics and apparel, accounting for nearly 70%. However, emerging categories such as hyperlocal services and FoodTech are gaining traction within the e-commerce space, inviting innovation and investment (investindia.gov.in).
EdTech is learning to evolve
After the US, India is the second largest market for e-learning with a market size of $6 billion which is projected to grow to $10 billion by 2025. As a result of the pandemic and the urgent need to provide at-home academic and extracurricular education via the internet, edtech became the most funded startup segment in India in 2021 with over $4 billion in funding garnered (CNBC TV18).
This infusion of funds was also linked to China’s edtech crash in the same year. In 2021, China imposed a ban on for-profit tutoring services wiping out edtech giants like New Oriental Education and Technology Group and TAL Education Group. Global capital that would have been invested in China was diverted to Indian edtech.
As restrictions eased and schools reopened in 2022, edtech startups are adapting to the realities of hybrid learning. Emerging themes like gamification, upskilling, community education, and digitization of schools are fuelling the growth and evolution of Indian edtech.
PropTech is building up
Technological disruption has transformed the real estate sector, as seen by the changing customer journey. Around 95% of buyers now initiate their home buying process online, with 51% making property purchases through online platforms. PropTech investment in India clocked $741 million in 2021 - a record high, compared to $551 million in the preceding year. With a total investment of $3.2 billion, proptech investments have grown by a compound annual growth rate of 55% (2010-2021), compared to a 20% growth in private investments received across industries during the same period (Business World).
The number of proptech startups has skyrocketed from a mere two in 2016 to an impressive 1,400 by 2022. This surge highlights the industry's embrace of technology and the increasing importance of innovative startups in the real estate market.
HealthTech will consolidate
India's healthtech space is on track for remarkable growth, projected to reach $5 billion by 2023 and an astounding $50 billion within the next decade. With the sector still in its early stages, there is a wealth of untapped opportunities for startups to explore and capitalize on. Alongside cautious funding, the emergence of innovative talent, the adoption of omnichannel strategies, the ascent of vertically integrated care models, a strong focus on enhancing the patient experience, increased investment in healthcare technology, and the involvement of tech giants, the industry presents a fertile ground for entrepreneurs and investors. These trends pave the way for startups to venture into unexplored therapy areas, deliver comprehensive care, and establish credible, scalable businesses. As a result, India's healthtech industry is poised for significant expansion and transformative advancements in the near future.
The conclusion - India’s thriving startup ecosystem is shaping tomorrow |
The story of India’s startup ecosystem keeps getting bigger and better with the country poised to be the world's third largest economy by 2035 after China and the US. (The Centre for Economics and Business Research). India’s scale and resilience are remarkable with its growing population of digital natives with increasing incomes and changing attitudes. No longer restricted to urban areas, Indian startups are bringing unique products and services to expanding markets across the country. As domains like AgriTech, FoodTech, HealthTech and more open up, the Indian startup ecosystem is evolving rapidly to disrupt traditional ways of doing business and unlock value. In addition to this, India has been touted to become a hub for DeepTech and Generative AI owing to its very strong talent pool. With supportive government regulations and one of the fastest growing economies in the world, India’s thriving startup ecosystem has the power to triumph over conflicts and script a story of boundless ambition and a future full of possibilities. |
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