As Indian Start-up Ecosystem Evolves, Greater Diversification of Ideas and Space on the Cards
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The first wave of Indian start-ups can be traced back to the 1980s as the liberalization of the computer industry led to the origination of now iconic software service providers such as TCS and Infosys. The inception of NASSCOM further strengthened the software trade that in many ways laid the foundation of India’s stoic start-up story. The liberalization of the 1990s and the dotcom boom of the 2000s furthered the trend while the proliferation of Internet and smartphones in recent years has served to accelerate and diversify the start-up ecosystem. The last decade saw Indian entrepreneurial space gather immense pace with 49,000 start-ups taking off between 2008 and 2018 together raising more than $51 billion in funds. As many as 26 Indian start-ups find themselves in the enviable Unicorn list today as investor confidence booms.
Interestingly, the evolution of India’s start-up space has continued to throw new trends and directions. With an expanding economy, rising middle class and improved ease of doing business, the entrepreneurial energy has trickled down below the creamy layer with a series of first-generation entrepreneurs making it big at the start-up scene. Apart from this greater democratization of the start-up space, other interesting trends to be noted include shifting of the start-up boom outside the top tier cities, a boom time for new ideas, emerging of new B2B start-ups and greater inflow of investment from Asian countries, most notably China. All these indicators point to maturing of the start-up ecosystem and an entrepreneurial story that will continue its pace in the coming future.
Related Story: The Long and the Short of Indian Startup Ecosystem
Here are some of the trends that are set to drive the future of start-up ecosystem in India.
The Age of Smart mobility-, AI-, AR-Based Start-ups
A large consumer base, multiple market segments within this base, a growing digital economy and presence of high-quality tech talent are actors that have boosted India’s start-up ecosystem. While e-commerce, consumer Internet companies, health tech and fintech are sectors that continue to dominate, a wave of new-age start-ups powered by new ideas are making their presence felt. Smart mobility is one of these new spaces that is attracting significant traction from both entrepreneurs and investors. The government’s National Electric Mobility Mission Plan that aims to make India completely move to electric vehicles (EV) by 2047 has been a major driver of this trend. EV start-ups are introducing scooters with powerful lithium ion battery for fast charging, and a series of start-ups are pushing for the creation of an entirely new market space for smart mobility in India. These new-age start-ups are not just banking on EV technology but are also using better integration of devices, improved connectivity and technology to boost the concept of smart mobility. Similarly, artificial intelligence (AI), Big Data and augmented reality which are global buzzwords today are fuelling a new generation of start-ups. India’s AI startup space is booming and venturing into diverse domains such as self-driving, retail, health and audio production, among others. Interestingly, most start-ups in Smart mobility and AI are less than five years old but the sector is already looking immensely promising.
B2B Start-ups Gaining Traction
While the B2C start-up segment still dominates the space, accounting for over 70 per cent of the market, a new wave of B2B start-ups have emerged in recent years. According to a report by KPMG, half the number of new start-ups in 2017 were in B2B sectors such as fintech, health tech, media, among others, with a focus on AI, machine learning and Internet of Things, among others.
By utilizing the logistics and infrastructure created already created and improved over the years for the B2C segment, start-ups in the B2B domain are expected to grow faster. Moreover, by investing heavily in new-age technologies such as AI, these start-ups promise to change the business landscape completely.
Diversifying Investment Flows
Another positive sign of a maturing start-up ecosystem is the diversification of investment flows from different directions. While the initial investors that plunged into the Indian space were largely western and home grown, today we are witnessing a greater influx of investors from south-east Asia as well. Chinese, Japanese and Singapore-based investors are leading the drive. Increasing Chinese interest in India start-ups is the most notable investor story of this decade. Chinese companies account for a whopping 42% of investments received under Invest India. Chinese investments have grown at a CAGR of 23% between 2000 and 2018 and stand over INR 100 billion. The economic and cultural similarities between India and China have led to a better understanding and cooperation with Indian entrepreneurs increasingly seeking expertise from Chinese investors be it Alibaba or Tencent.
Emerging Startup Space in Tier II & III Cities
There is also a visible geographical shift in origination of new start-ups. While top tier cities such as Bangalore, Mumbai, Hyderabad, Chennai and Delhi-NCR still remain the main strongholds, a new wave of start-ups are also emerging from smaller tier II and tier III cities such as Pune, Ahmedabad, Jaipur, Chandigarh and Kochi, among others. In 2017, as many as 20% of the new start-ups are estimated to have emerged in smaller cities. A number of factors are favoring this geographical shift. These include large under-served markets and availability of low-cost talent and technology.