The pandemic persists, but there are a few positive signals too
Every Saturday, for the past 45 weeks, we have been outlining the trends of the previous seven days through this newsletter. And it will not be wrong to say that we have mostly highlighted things which hurt the country’s tech startup ecosystem.
But as the turbulent 2020 draws to a close, we think it will be a mistake not to outline the green shoots of hope which have emerged even as the startup community hustled to survive and thrive during the black swan event the pandemic is.
Although a rise in digital adoption (more on that later) throughout the year had a catalytic impact on a few sectors such as online payments and grocery delivery, a sustained surge across the internet economy is only possible when consumers have the ability to make such purchases.
Fortunately, employment conditions improved in November compared to the preceding month. The Centre for Monitoring Indian Economy (CMIE) reported in its household survey that 40.03% of India’s working-age population participated in the labour market by being employed or by searching for employment while being available for work, and the unemployment rate declined to 6.51 in November 2020 from 6.98 in October.
“More evidence has been turned in to show that the Indian economy is pulling out of Covid-19’s deep abyss and is reflating at a pace that beats most predictions. Although headwinds blow, steadfast efforts by all stakeholders could put India on a faster growth trajectory,” said the Reserve Bank Of India on Christmas Eve.
According to a survey conducted by the central bank, consumer sentiment also showed a slight improvement last month even though households and companies remained pessimistic about the current state of economic recovery.
Bright Spots Emerge In Consumer Tech
The Covid-19 pandemic induced many new-to-internet users to go digital for their grocery needs and other home essentials. So, quite a few technology startups took to it irrespective of their sectors, despite the thin margin and small ticket size of grocery purchase.
It was more of a survival measure to ensure cash flow in the face of uncertainty that the lockdowns had created. These companies have now tamped down grocery operations, and we expect them to resume their core functions. Even food delivery majors Swiggy and Zomato are not too keen to pursue what might be described as an adjacent market for them.
In fact, we have good tidings here. With the country’s Covid caseload stabilising or coming down, food delivery is beginning to look up as people are now less reluctant to order from restaurants.
“Food delivery in India is rapidly coming out of Covid-19 shadows. December 2020 is expected to be the highest-ever GMV month in our history. We are now clocking (around) 25% higher GMV than our previous peaks in February 2020,” tweeted Deepinder Goyal of Zomato after the company recently raised $660 Mn.
The ‘Covid shadow’ refers to the revenue slump in hyperlocal delivery due to suppressed demand in high-value transactions as low-ticket grocery buying accounted for a massive chunk of the orders. However, the sector did well by foraying deeper into the ‘Bharat’ market and giving first-time users a taste of convenience when they purchase online.
“It is the Tier 2, 3 and 4 cities which have led the way for digital payments growth in India. While our UPI QR payment acceptance grew by 130% or so in Tier 1 cities, it witnessed 236% growth in Tier 2 markets during February-November 2020,” said Suhail Sameer, group president of the fintech company BharatPe.
The growth in digital payments in Tier 2 locations and beyond also saw a huge rise in semi-urban and rural ecommerce transactions. For instance, the 2020 festive season saw an 88% customer growth compared to last year, driven by 40 Mn shoppers from Bharat, according to a report by management consulting firm Redseer.
As the saying goes, a rising tide lifts all boats, and it will not be any different for the entire internet ecosystem. According to experts who spoke with Inc42, consumer tech startups in edtech, D2C and healthtech are expected to gain more traction in the coming months.
“Consumer spending will likely surpass pre-Covid levels as we have already witnessed increasing tech adoption among consumers to meet their needs. Many segments within consumer tech have proved to be resilient in the face of disruption, and habit-forming trends are expected to see an uptake,” said Ankur Pahwa, ecommerce sector leader at EY India.
Covid Springs A SaaS Boom
It is not consumer tech alone that witnessed positive signals. The country’s SaaS (software-as-a-service) sector also got a fillip from Covid-induced lockdowns as the new normal of working from home meant a huge opportunity for building virtual workflow tools.
For instance, Hubilo, a San Francisco- and Ahmedabad-based company, used to make software solutions for (physical) event management. When the pandemic struck and its revenues came to notch as all events were cancelled, the company pivoted to a virtual event-hosting platform. Today, it claims to have hit $10 Mn ARR (annual recurring revenue) and also bagged $4.5 Mn in funding, led by Lightspeed Ventures.
Several other SaaS startups such as Airmeet, Pagarbook, Rephrase.ai, Mesh and Supplynote also picked up early-stage funding in the past eight months. According to Inc42 Plus data, the SaaS sector attracted more than $817 Mn investment in 2020, the highest in the last six years (the period for which data is available).
Vaccine Brings A Vial Of Hope And Opportunity
The pandemic has also triggered a wide swath of opportunities for SaaS companies as software solutions will be required soon to track and manage the deployment and distribution of Covid-19 vaccines.
“Any healthcare organisation that wants to place an order keeps track of where the vaccine is, the temperature factors during transportation, the handling of vaccines and any other specific requirement a client might have. The vaccine distribution supply chain is a highly complicated one and will require extreme scale with more than 10 Bn doses to be distributed across the world over the next two years,” said Manisha Raisinghani, founder and CTO of logistics SaaS company LogiNext.
This means developing advanced SaaS solutions with dashboards and logistics capabilities which can monitor cold chains, ensure temperature control and track geolocation data in real time and at a massive scale. This will be no easy task as ultra-cool freezers will be required for Covid-19 vaccine storage. For instance, the Moderna vaccine needs to be stored at -20℃ to retain its effectiveness while the Pfizer variant requires storage at -70℃.
According to veteran vaccine delivery expert Raj Shankar Ghosh, tech startups should look at another area which is equally important. It is all about developing a system where both government and citizens can track the data on the effectiveness of a particular vaccine.
But the real question on everyone’s mind is: Can India deliver Covid-19 vaccines to all its citizens in time?
“The ultimate success or failure of the programme does not depend on central planning. It depends on the planning that occurs at sub-district levels, carried out by district magistrates. When I was working for the polio vaccination programme, we had a similar challenge. We had to handle a large number of vaccine vials, and we did not have enough cold chain space. I am talking of 1995, but we managed it because we had planned at the district level. At that level, anything and everything is possible,” said Ghosh.
Of course, the challenge in 2021 is more massive than it had been 25 years ago. But if an India of that time, a period without the possibilities of technology and the internet, could have delivered polio vaccines to the country’s deep interiors then, there is every hope that we would be able to repeat the feat with the Covid-19 vaccine today.
Tech Finds Unicorn Valuations Amid The Pandemic
In a recession-like year, when the revenue crunch caused by the Covid-19 pandemic and the subsequent lockdowns remain the key theme of global and local economies, several Indian startups weathered the storm, recorded impressive earnings and raised funding to reach a valuation of $1 Bn or more. Among the latest entrants to the much-coveted unicorn club are media startups Glance and Dailyhunt. While the former raised $145 Mn from tech giant Google and existing investor Mithril Capital, the latter shored up its balance sheet with a $100 Mn funding round led by Google and Microsoft.
Nine other Indian startups – Unacademy, Pine Labs, FirstCry, Zenoti, Nykaa, Postman, Zerodha, Razorpay and Cars24 – became unicorns in 2020. As experts have pointed out, these startups’ core propositions solved challenges for individuals and businesses during lockdowns and even before that. Hence, the lift-off.
How did they capitalise on the lockdown situation? What was their funding trajectory? What will they do with the fresh capital? We have answered these questions about the pandemic unicorns in our 2020 In Review Series.
Overall, $10.68 Bn was invested in Indian startups across 905 deals in CY2020 (till December 15). This shows a 15% decline in the capital raised compared to $12.7 Bn in 2019. However, the number of deals increased by 18% from 766 in 2019.
Tech Finds Survival Lessons
When a startup finally achieves the unicorn status after chasing many expectations and meeting many challenges, it heaves a big sigh of relief. But this year, most of the unicorns were back to their struggling days, working on survival strategies all over again and reimagining growth.
If Zomato was compelled to fold its Gold subscription model, Flipkart and Ola had to deal with their top people’s exits. While OYO’s expansion plans were severely hit due to lockdowns and zero travel, Bigbasket had to ramp up its operations to cash in on the growing demand created by the pandemic.
Indian unicorns had to deal with these challenges and more in a tough battle for survival and growth. In our special year-end feature on their key learnings from the pandemic playbook, we have summed up all the curveballs they had to dodge and the new war strategies they had to adopt.
As we bid goodbye to the most challenging year, we can proudly proclaim that the country’s tech startup ecosystem fought hard, survived and grew in the face of insurmountable odds. This gives us hope that the community can weather any storm, and the coming year can only be better.
On to 2021.
Until the new year,