Amid Upbeat Funding Expectations, Indian Startups To Ramp Up IT & Ad Spending In FY25

Piggybacking on positive market sentiment that is anticipated to embrace the upcoming financial year 2024-25 (FY25), Indian startups are looking to accelerate their advertising and IT expenditures. 

According to Inc42’s Indian Startup Founder Sentiment Survey 2023, 76% of the 400+ Indian startup founders surveyed by Inc42 plan to raise their advertising spending by 20-30% in FY25. Further, 74% of the startups plan a 10% to 30% increase in their IT expenses for the same period.

For context, as many as 139 startups spent INR 23.9K Cr on advertising in FY22 and 81 startups coughed up INR 22.2K Cr on advertising and promotion in FY23.

It is crucial to mention that FY24 proved to be a tough run for many Indian startups in FY24. Ranging from a drop in valuations to funding decline and increased government regulations to a continuous shift in consumer sentiment, layoffs, shutdowns, and consolidations, the year was nothing short of flavours.

As a result, 69% of the surveyed startups went into a ‘cash conservation’ mode. This decision impacted IT spending at Indian startups and resulted in salary cuts and a slowdown in startup hiring. 

Overall, the ongoing financial year (FY24) is proving to be a year of caution and constrained growth in the Indian startup ecosystem. While most startups are yet to file their FY24 financials, it is believed that those who have survived this phase have undoubtedly emerged stronger and with more stable fundamentals and financial metrics. 

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Why Is FY25 The Right Time For Increasing IT& Ad Spend?

With FY25 touted to be the year of growth and scale, Indian startup founders will be looking to double revenues, expand customer base, grow teams and enter new markets, according to the Inc42 survey.

The increased expenditure in IT and advertising is along the same lines as tech-optimised processes and customer visibility and engagement are the two key components of any business growth.

Meanwhile, other key factors that will lead to an increase in IT and ad spending in FY25 include:

Expected Increase In Funding: According to Inc42 predictions, startup funding is expected to see a 36% year-on-year increase in 2024. Also, more than 72% of the startup founders are looking to raise funding this year. The increased funding influx in the ecosystem is thus expected to help the founders increase their spending on IT and promotional activities.

Growth Spurt Expected In The Indian Advertising Market: The plans of Indian startups to scale their ad expenditure coincides with the growth spurt that the Indian ad business has seen in recent years. The country became home to the 11th largest ad market globally in 2023.  

Digital Advertising To Gain Focus: According to a report by IPG Media’s Magna Global, the Indian advertising market is expected to grow at 11.4% in 2024. In this growth, the digital medium is expected to continue its momentum of growth and become one of the most prominent mediums for businesses to reach out to their potential customer base. Indian startups are traditionally native to the digital medium and thus already focus on utilising it to get the word out. 

AI & ML To Drive IT Spends: A forecast by Gartner, Inc. released in November 2023 estimated India’s IT spending to touch $124.6 Bn in 2024, up 10% YoY. A spike in the expenses allocated to IT can be attributed to companies looking to enhance their AI capabilities. For instance, IPO-bound fintech unicorn MobiKwik plans to invest INR 135 Cr of the net proceeds from its INR 700 Cr IPO for investment in data, AI and ML, and product and technology.

GenAI to take the lead within IT spends: EY CEO Outlook Pulse 2023 survey found out that at least 84% of Indian chief executive officers (CEOs) are raising new capital or reallocating budgets to invest in generative artificial intelligence (GenAI), compared to 70% globally. India currently has 100+ native GenAI startups and 81% of these startups have sector-agnostic (horizontal) use cases, opening up many opportunities for Indian startups to explore. According to Inc42 analysis, India’s GenAI market is projected to surpass $17 Bn by 2030 from $1.1 Bn in 2023, growing at a CAGR of 48%.

In conclusion, the decision to increase IT and advertising spending in FY25 aligns strategically with the anticipated growth and expansion goals set by startups in 2024. As startups gear up for this strategic initiative, the synergy between increased funding, a thriving ad market, and the technological advancements in AI and ML positions FY25 as the opportune time for a substantial boost in IT and advertising expenditures.

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