Indian Startups Are Coming Of Age And This Is Just The Beginning

This article was originally published in Inc42’s The State Of The Indian Startup Ecosystem 2018 report. This 400-page report provides deep analyses of and data-driven insights on startup investments, the industrial landscape, prominent startup hubs, government policies, etc, with a view to influence strategic decision-making in governance, startups, investments, growth, and other core areas.

BCP (no, not Business Continuity Planning, but Bollywood-Cricket-Politics) has been the dominant theme in India for decades, capturing the imagination of the man/woman-on-the-street and becoming embedded in the Indian psyche.

Over the last 10-12 years, however, “entrepreneurship” and “startups” have become the new buzzwords and have done as much, if not more, to shape the India narrative. Today, India’s GDP of ~8% means we are at the forefront of the global economy.

Startups have undoubtedly driven the growth. Coupled with cheap data plans, digital payments identity under the ‘India-stack’ umbrella, adoption of WhatsApp, Facebook, and other apps, penetration of ecommerce in Tier 3 and Tier 4 markets, our leap into the digital era has been complete.

Smartphone users in India are expected to grow from ~200 Mn in 2015 to ~500 Mn by 2022. Last year (2017), we already surpassed the US in the number of smartphone users in the country.

First Wave: B2C-Based Ecommerce

B2C-focused ecommerce players played a dominant role in the first startup wave in India’s startup evolution. Companies such as Flipkart, Amazon, BigBasket, Myntra, Pepperfry and Urban Ladder capitalised on poor retail penetration and the unwieldy nature (poor availability/selection/service and prohibitive costs) of so-called “organised” retail.

Despite obvious constraints such as terrible road infrastructure in much of the country and initial discomfort with card usage/digital payments among Indians, ecommerce has mostly thrived, as illustrated by this wave’s ‘posterchild’ Flipkart creating a $20 Bn juggernaut in 10 years.

This despite the low Internet penetration and lack of proper digital payments infrastructure in the initial years, and the still poor last-mile logistics infrastructure.

Second Wave: B2B, Hyperlocal, Fintech, Logistics And More

After the B2C wave, hyperlocal businesses, payments/fintech, B2B eCommerce, and transport and logistics players came to the fore. The Indian publics’ transportation woes led to the creation of cab aggregator Ola, while OYO standardised local accommodation, and food delivery was transformed by the creation of delivery apps Swiggy and Zomato.

Healthcare saw companies like Portea, Pharmeasy, Netmeds, and Myra altering the access-to-care equation fundamentally while foodtech players such as FreshMenu, GrowFit, and Cure.fit’s Eat.fit vertical have changed how and what India eats.

The rise of digital payments led to Paytm and a host of other payments solutions. The fintech explosion led to credit growth expanding SME, trade, and personal lending, which traditional bankers baulked at.

In fact, fintech emerged as the second most-funded sector. Logistics has boomed in step with ecommerce with companies such as Delhivery, Ecom Express, Shadowfax, BikeNinja, Rivigo, and Blackbuck.

B2B online marketplace Udaan recently became the fastest company to achieve the ‘unicorn’ status, getting to $1 Bn in valuation in just 26 months of its inception. B2B SaaS companies like FreshWorks have achieved global leadership in their domain while B2B foodtech sector like HungerBox are flourishing.

Nearly half the startups founded in India last year operated in the B2B space, according to a NASSCOM-Zinnov report, and B2B startups today make up 40% of the ecosystem in India.

What Kinds Of Startups Will Rise To The Top?

Fortunately for startups, India has lot of problems to solve and all of them are big. There are huge gaps in and lack of access to healthcare, education, housing, food, transportation, energy, clean air, sanitation etc.

However, there’s no point in simply copying business ideas from the US, Europe, and other developed countries where the offline model is already highly developed and has matured over decades and online only provides/improves convenience. In India, offline is non-existent or weak and the presence of an online model is essential.

The smartest entrepreneurs should be thinking “big” and wanting to solve problems. They must be able to hustle hard, use all the help they can get and tap into resources from friends, colleagues, alumni, ecosystem.

They must know when to accelerate and when to conserve cash. They must learn to sprint while also being able to maintain the acceleration over a long distance. The best entrepreneurs focus on the big picture while being able to nail daily execution. They must also be able to attract the best talent with their vision, energy, missionary zeal and passion.

Upwards And Onwards!

There is a plethora of entrepreneurial options/sectors that have opened up and the number of active investors and the amounts they are bringing to the table have exploded. The Indian consumer base has expanded from Tier 1 to Tier 2/3/4. Online purchasing and payments are seeing wide adoption.

Exits are already happening at an increasing frequency and going forward will include both foreign and domestic players wanting a piece of the action. Over the next 5-10 years, we will see a vast number of exits, M&A, and IPOs while more wealth continues to be created in the new/ digital economy. Despite huge challenges, it’s become easier to build startups in India than anywhere else as talent, funding, and knowhow is available across the country.

We’re seeing the emergence of startups from small towns and cities and entrepreneurship is becoming a career choice.

Quite clearly, besides creating millions of direct and indirect jobs, the startup revolution in India has been instrumental in transforming India’s image as the fountain of the next big idea. Data has become super affordable. Almost everyone has a smartphone. The market has expanded from Tier 1 to the rest of India. Internet users have zoomed to 500 Mn. India stands at a pivotal point and is set to witness ‘hockey stick growth’ in the number, scale, diversity, and impact of startups.

And brace yourselves, because this is only the beginning.

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