Prevailing trends can hold Indian startups in good stead in 2023 — just a little bit of Christmas cheer amid the gloom of 2022
Inc42 Daily Brief
Stay Ahead With Daily News & Analysis on India’s Tech & Startup Economy
It’s not been a year that has brought cheer to many startups. And even though Indian startups should be more than familiar with cycles of growth and slowdown, no one likes a grinch at this time of the year.
At the end of this eventful year, there’s guarded optimism about a comeback tempered by an acknowledgement that the road to recovery might be longer. Nevertheless, certain prevailing trends can hold Indian startups in good stead in 2023 — just a little bit of Christmas cheer amid the gloom.
What are these? We’ll look to answer, after these top stories of the week:
- BYJU’S Promises Changes: Under pressure from the National Commission for Protection of Child Rights for alleged mis-seling, edtech giant said it would modify its refunds policy and not sell courses to any families with less than INR 25K monthly income
- Google Vs CCI, Vol 2: The tech giant has approached NCLAT to challenge the INR 1,337.76 Cr penalty imposed by the CCI for alleged anti-competitive business practices in Android
- PhonePe’s New Innings: Ecommerce giant Flipkart has separated its ownership of fintech startup PhonePe, which is eyeing an IPO in India in the near future
Christmas & Beyond For Indian Startups
It’s easy to lose sight of how the startup ecosystem might bounce back after the grim year that has just gone by.
Over 18,000 layoffs, funding slowdown, shutdowns galore and spiralling losses for giants in the ecosystem — it does not make for pleasant reading. But these ‘negatives’ have a flipside and that’s where some of the potential optimism for Indian startups stems from.
Looking Ahead To Dry Powder
To begin with, investors have hoarded capital instead of deploying it as freely as they did in 2021. As per our analysis, investors are estimated to be sitting on over $16 Bn of dry powder with more than 100 new and refreshed funds being seen in 2022.
At the moment, VCs are content to wait and watch and take their time in assessing potential deals. There’s no hurry since the typical deployment cycle for new funds is the first three years, so there’s still time for the market conditions to improve.
However, much of the hoarded capital will need to be disseminated in the next 12-18 months if investment horizons are to be met. We expect caution to take a backseat towards the second half of 2023 as fund cycles come into play.
Sustainable Models In Vogue
Of course, even as the dry powder is being reserved, startups are in cost-cutting and conservation mode. One of the hopes for investors is that the 2022 downturn will lead to a significant rewiring of startup business models.
Across the board, the message to founders this year has been: Either fall in line with revenue, unit economics and profitability expectations, or suffer the wrath of valuation slashdowns and working capital crunch.
Sustainable revenue models are back in fashion and the focus is on fundamentals again, instead of VC-fuelled cashburn. One just has to read the statements coming from major startups that have had to undergo layoffs and downsizing this year
Paytm founder and CEO Vijay Shekhar Sharma said the time for cash burn is over. Unacademy cofounder and CEO Gaurav Munjal also hinted at the need to further streamline costs while laying off another 10% of the company’s workforce in November, after multiple such rounds of layoffs in 2022 already.
“We need to keep optimising and building efficient systems for leaner and unprecedented times,” Munjal said.
Stronger Governance Incoming
Another major undercurrent of 2022 was the focus on corporate governance and due diligence given the slew of controversies at BharatPe, Zilingo, Bikayi, Zetwerk, Infra.Market and other startups that grabbed the headlines.
We have seen a number of startups change their board structure in the past few months, with many appointing independent directors, including BharatPe, Zetwerk, Navi, Urban Company and others. A lot of these appointments can be seen through the lens of IPO ambitions of startups, especially those that have been around for nearly a decade.
Zomato’s troubles with corporate governance in the past year are a hint of what might await some of these startups when they hit the public markets.
Beyond IPOs, the business impact of lack of corporate governance and due diligence is also telling in the case of Zilingo, Bikayi and some other startups that have fallen by the wayside in 2022.
It’s no surprise then that stronger corporate governance measures are being put in place. Will this lead to more robust and better-run startups? It very well might, but without the final piece of the puzzle — growth — these steps might ring hollow
Where Will Growth Come From?
So let’s come to growth and how startups might actually unlock this in a sustainable manner. The massive latent potential of customers in Tier 2/3/4 towns of India or ‘Bharat’ as it’s colloquially known is almost a cliche at this point.
Even as startups eye ‘Bharat’, what’s not known is how they will unlock this value without squandering the unit economics gains.
To be clear, this opportunity was not hidden away, the problem for startups was the fact that these segments were not delivering sustainable growth. It came at the sacrifice of revenue and unit economics, which is as true for B2C models as it is for B2B players.
Edtech unicorn PW unlocked profits by focussing on affordability and acquisition. Consumer services such as Zomato, Swiggy, Dunzo and others are looking to boost revenue from major metros and Tier 1 cities to offset the poorer unit economics of smaller towns and cities. The same could be said for ecommerce giants Flipkart, Amazon and Meesho that have also scaled down certain verticals in the pursuit of sustainable models.
While the signs are clear, the only question is whether the dry powder, the focus on sustainability and stronger corporate structures will be enough to bring some cheer and hope to Indian startups in 2023.
2022 In Review Series
As we count down to 2023, we continue our recap of the biggest stories and developments of the year and how they might play out in the new year.
- Funding Winter, Regulations Hit Pause On Gaming Startup Growth
- Why 2022 Was A Slow Year For Unicorn Creation
- From Dhoni To Tendulkar — Indian Cricketers Backing Startups
- Twitter’s Tumultuous Year: Will Elon Musk’s Plan Work In India?
- Will The Startup IPO Parade Be Back In 2023?
- From BharatPe To Meesho: Startups That Caused A Stir On Social Media
- Can India’s Crypto Economy Stage A Comeback After A Turbulent Year?
Sunday Roundup: Startup Funding, Stock Markets & More
- Funding Comes To A Crawl: The last week of December is a stark reminder of the funding winter. A mere $97 Mn was raised by startups across 21 deals in the past week, one of the lowest weekly tallies all year
- DroneAcharya Goes Public: Pune-based DroneAcharya debuted on the stock exchanges at INR 102 per share, a premium of over 90% on its INR 54 issue price
- Tech Stocks Spooked: Pretty much every listed new-age tech company took a hit last week as investor caution and sell-offs continued to dictate price movements. On a week-on-week comparison, Nykaa and Zomato saw the biggest dips
We’ll be back next Sunday with more insights and another roundup from the Indian startup world.
{{#name}}{{name}}{{/name}}{{^name}}-{{/name}}
{{#description}}{{description}}...{{/description}}{{^description}}-{{/description}}
Note: We at Inc42 take our ethics very seriously. More information about it can be found here.