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Enroute to becoming next Silicon Valley: India’s start-ups are blazing a trail

2021 was a pivotal year for India’s start-up ecosystem, where VC funding in India grew 3.8x over 2020 and reached $38.5 billion. A total of 44 unicorns were minted in India.

India is home to prolific levels of innovation, and that’s one huge success story out there!

The past couple of years have been a period of unparalleled growth for the Indian technology ecosystem. Now, Indian start-ups are going global, and into new business areas. India offers an excellent environment for both the birth and growth of unicorns, especially in consumer tech and B2C segments. However, while start-up growth has centered on consumer services until now, the prevailing narrative is set for an intriguing twist. Look beyond the fast-growing fintech and e-commerce ventures, and it becomes evident that entrepreneurial B2B tech companies are rising to the fore. Bolstering recent trends, some analysts anticipate another surge through 2022 in areas such as life sciences, gaming and, of course, enterprise and SaaS technology.

The story until now: The numbers say it all …

2021 was a pivotal year for India’s start-up ecosystem, where VC funding in India grew 3.8x over 2020 and reached $38.5 billion. A total of 44 unicorns were minted in India, and for the first time, 14 sectors received over $1 billion investment each. Trade body NASSCOM’s recent report says, more than 2,250 technology start-ups were founded in 2021, taking the total number to between 25,000 and 26,000. The report indicates Indian start-ups raised $24.1 billion in funding — a 3x increase over the total funding generated in 2020. Per NASSCOM, Indian SaaS companies are expected to increase aggregate revenue six times by 2025, reaching a record $13 billion to $15 billion — and a significant portion of this revenue will come from global markets.

Start-ups that focused on the growing needs of the domestic market and consumer-oriented services have been a big success story. While demonetization and the Covid pandemic were important push factors, most start-ups were already thriving before these events. These include micropayments (CRED), e-commerce (Flipkart), transportation (Ola Cabs), and online learning (Vedantu). Many B2B technology players gravitated to support this consumer-oriented growth, and distribution and e-logistics in India became the fastest-growing market globally. While B2B technology continues to transform industries such as transportation, logistics and distribution, Indian start-ups continue to support consumer-oriented growth such as food-delivery platforms Zomato and Swiggy. Such is the level of growth that industry estimates suggest e-logistics in India has become the fastest-growing market globally.

Tracking a global path on the start-up journey

What’s notable now is that enterprise tech start-ups are eyeing the global market. The SaaS landscape is witnessing an interesting twist. Start-ups built on global customer bases witnessed a healthy 2.9x growth resulting in investors writing large cheques, with 12 start-ups raising $100+ million (Chargebee, Postman, Gupshup, and HighRadius). There is a distinct upswing in deal volume in emerging areas of B2B commerce and Web 3.0 / crypto as new subsegments and business models have evolved in these sectors. KPIs used to monitor SaaS companies such as Annual Recurring Revenue, Net Revenue Retention, Churn Rate, etc., are now being used in other businesses, which indicates the SaaS-ification of all businesses.

Indian start-ups are building innovative solutions for global clients with India as the base, implying increased focus on globally distributed sales and client relationship management teams, and a deep enterprise-focused product strategy. These start-ups are adopting rapid innovation by creating new categories (e.g., API management, testing platforms) and development of products addressing complexities for enterprises (e.g., subscription management, billing, security) and SMBs (e.g., accounting).

India has also seen the emergence of enabling entities that help bridge the gap between a start-up’s need for access to global markets, and markets that have that need. Principle among these is The Indus Entrepreneurs (TiE) founded in 1992 and still very active; through its global points of presence, it plays a seminal role in connecting the world with Indian start-ups and vice versa. Many foreign governmental outfits have also set up bases in India to enable deep collaboration, like La French Tech, Business Finland, Swissnex, Indo-Netherlands Business Circle, etc. They run frequent programs to connect the start-ups and prospective clients and partners from both sides, running meetups and hackathons, and engaging with the Indian government through agencies like MeitY.

Overcoming the challenges … and blazing a trail

While analyzing India’s start-up ecosystem with an impact globally, it is pertinent to discuss some challenges surrounding it. Apart from concerns like government regulations on labor laws or dispute resolution, other challenges include systemic delays or those surrounding the lack of transparency. While a major concern among investors is the issue of IP rights enforcement, challenges accompany the start-up system anywhere, and India is no exception. It would help to incorporate global best practices and remove any barriers around IP protection, like reducing time for approvals, for instance, but it is pertinent to know that India’s IP legislation covers every aspect around its governance in line with global norms.

In fact, the success of India’s start-ups is largely the result of state policy. Initiatives like Start-up India and Digital India have provided start-ups a boost to compete globally. And the results are all around us. With a large internet user base driving an economy enabled by digital products and services, key sectors like education, banking and finance, trade and commerce, and government and agriculture, have been transformed by a mix of start-up innovation backed by state policy.

The net result is that India has become the third-largest start-up ecosystem in the world after the US and China. The country has the world’s largest pool of software developers (1.5x times that of US), and the Indian SaaS segment now has the attention of prominent global VCs, enabling them to raise significant capital. With the continued momentum, and growth-focused policies by the government, it’s only a matter of time that India will be home to the next generation of global SaaS start-ups.

– By Rajan Venkatesan, Chief Financial Officer, LatentView Analytics

Source: Financialexpress