Indian startups - traversing maturity cycle in 2017

The storied success of Indian tech startups is nearly a decade-old. It is estimated that there are 5,200 of them today, and growing at 7% (over the previous year). Some things remain unchanged though. For instance, Bengaluru, Delhi NCR and Mumbai constitute 68% of the startup base and continue to remain hot spots. Although, promising startups are emerging from Tier II and III cities as well (up from 16% in 2016 to 20% currently), ushering a whiff of democratisation.

India has nine Unicorns, and though we are behind the US and China on absolute count, we have the second highest average unicorn valuation. This year, approximately, 1,000 startups were added, and though it is lower than last year, interestingly, 47% were in the B2B segment, signaling a definitive shift from B2C. To be fair, this is a trend that has been gaining prominence in the last couple of years, and this year, it was even more pronounced.

The increasing influence of Chief Digital Officers (in large enterprises) and the compounded impact of a changing business model, customer experience and culture may have catalysed the avowed shift. While not wanting to risk obsolescence, even some of the traditional organisations do not want to be perceived as digital laggards.

The Digital Revolution that is yet unfolding in India at breakneck pace has definitely benefitted the common man. Today, he has a bank account, a mobile phone and a unique identity. Despite these stark improvements, age-old problems that the nation faces have not been addressed to an extent it is desired.

Undeniably, pockets of success remain luminescent, but the overall imbalance has been a glaring one. Especially true in the areas of healthcare, education, financial inclusion, clean energy, and infrastructure. Is it then any surprise that the idea of 'Build for India' resonates so strongly with entrepreneurs who are wont to look at market imbalances as great opportunities? These enterprises, immersed as they are in solving for India, have been growing at 18% annually; but to really make a significant impact, two things are required. We need a lot more infusion of Patient Capital – a plea of sorts to philanthropists (if you will), and for them to come forward to fund such ventures. In addition, the used cases have to be showcased in various platforms through concerted efforts and outreach programmes. These are inspirational stories and will have to be told with gusto. Perhaps someday soon, touching a billion lives would secure a place on the same pedestal as those clocking a billion dollars in valuation.

Advanced tech startups have grown at a 30% CAGR in the last five years, of which the last two years have been particularly impressive. Today, there are approximately 700 advanced tech startups in analytics, AI, IoT, AR/VR, robotics, blockchain and 3D printing. In overall funding, this segment has garnered more than 20% share in H1 of 2017, of which, AI startups have proved to be the winner – quite incredibly, they received 3X more funding than those in IoT. In as much, Enterprise Product, FinTech and HealthTech have emerged as the top verticals being disrupted by advanced tech.

The question that looms large: the funding winter witnessed in 2016, is it behind us? As things stand today, in all likelihood, it may have bottomed out. In comparison to H1 of 2016, this year, there has been a drop in overall funding, but encouragingly enough, average funding for funded startups has improved by 7%. If anything, investors want to tread cautiously and have taken their money to early and growth stage – a discernible shift from betting on seed stage.

So, what's the typical profile of a startup founder? Median age 32 (a gradual increase from 31 in 2016), and is likely to be an engineer nurturing an ambitious dream. This year, however, there has been a significant increase (~30%) of student startups, which indicates that academic incubators have delivered. This is indeed a positive trend for a nation where young people have traditionally been job-seekers, and now we may see many more job creators. A much needed fillip in times, when demographic dividend comes at a premium.

That, Ease of Doing Business index has gone up significantly, and the recent TRAI recommendations on Net Neutrality reinforces our belief that the ecosystem is being fostered and the future bodes well. Though, continual governmental support is required to break down existing regulatory barriers further (including those around Angel Tax), which allow for quick exits.

What we are seeing right now is a market consolidation of sorts. Call it the Startup Wave 2.0, where the focus is on advanced technologies with much wider applications at competitive price-points. Young enterprising Indians are realising the potential of the domestic market – the Gold Rush is right here!

(The writer is Vice President for Industry Initiative at Nasscom)