National Start-up Day: 5 Big trends to watch out for in 2023

The year 2022 was one that saw some unexpected changes in the Indian start-up ecosystem. Nevertheless, it brought several learnings for start-ups, venture capitalists (VCs), founders, and others. 
 
According to a report by PricewaterhouseCooper (PwC), Indian start-ups raised $24 billion in CY22. While this is 33 per cent less than the CY20 number ($33 billion), it is still double of what was raised in CY20 and CY19 (CY10.9 billion and $12.8 billion respectively). Moreover, two sectors that remained unperturbed despite the drop in fundraising were Software as a Service (SaaS) as well as fintech, the report stated.
 
India’s start-up ecosystem is the third largest in the world. In fact, Prime Minister Narendra Modi even called it the “backbone of the Indian economy” last year in January. 
 
What is in store for Indian start-ups in 2023? Which sectors will be hot in 2023? Is the market sentiment around start-ups bullish? This National Start-up Day, Business Today decided to list some of the trends ecosystem stakeholders believe will become big in 2023. 
 
EV space to become bigger
 
According to the PwC report, companies like Amazon, Flipkart, and BigBasket have committed to aggressive two-wheeler and three-wheeler EV adoption in their delivery fleet. As the availability of EV models increases, they will become dominant due to their significant operating cost advantages.
 
“The growth in EV space is going to continue to happen because of the goals set by the country whether it is cutting carbon emissions to net zero by 2070 or becoming 100 per cent electric by 2030,” says Bhargavi Vijayakumar, Partner at Java Capital told BT. 
 
She said that investors are not just interested in the manufacturing of EVs but also in other aspects such as EV financing, battery management systems, and the upcoming technology which has the potential to disrupt the ecosystem. 
 
Hybrid model in edtech
 
The edtech sector saw a 39 per cent decline in fundraising in 2022, as per Tracxn. COVID-19 pandemic-induced lockdowns gave a boom to online learning. However, 2022, which saw schools and offices opening up in a full-fledged fashion, brought lull and layoffs within this sector. Some companies even had to shut shop in the wake of the funding winter. Amid these uncertainties, investors see a hybrid future for the edtech space. The big players are already following suit.
 
India’s 101st unicorn, Physicswallah ventured into the offline space with PW Vidyapeeth last year. Even edtech giant BYJU'S announced that it will open over 250 offline centers in 2023. 
 
Focus on profitability
 
VC and private equity firms have dry powder worth $590 billion globally, the PwC report noted. This amount was supposed to be invested in CY21 and CY22. “The build-up of dry powder is due to a market pullback by VC funds that are picky about their investments. The focus is on companies that have strong unit economics and a path to profitability,” the report stated.
 
Investors believe that the “funding winter has brought a lot of seriousness to the start-up ecosystem.” Moreover, start-ups and investors have started placing more focus on the financials or fundamentals of a company, thus moving away from the “growth at all cost” mindset. 
 
Dry powder to pour into early-stage funding?
 
Funding in early-stage start-ups has seen a steady rise over the years. They raised $1.3 billion, $2.5 billion, and $2.8 billion in CY20, CY21, and CY22 respectively. The average ticket size of the deals was around $4 million. 
 
Investors have pressed the pause button on growth-stage and late-stage funding. A few investors revealed that the funding will pick up either in the latter half of 2023 or towards the end once the market conditions improve. And the dry powder which is waiting to be deployed will most likely go into the early-stage start-ups.
 
Focus on climate tech
 
Indian climate tech start-ups raised over $2 billion in 2022, as per a report by Tracxn. “There is focus on climate tech because it provides a gateway to sustainability,” said Anisha Singh, Partner at She Capital. She also added that a lot is going to happen in the climate tech in 2023 as well as the overall sustainability space because people have started to focus on the impact side of businesses a lot more. 
 
It is also important to note that in 2022, the American management consultancy firm, Boston Consulting Group (BCG), developed the Green Start-up Pledge (GSP) in a joint partnership with venture philanthropy platform ACT for Environment. The pledge will be backed by top start-up founders such as Nithin Kamath (Founder of Zerodha), Deepinder Goyal (Founder and CEO of Zomato), Bhavish Aggarwal (Co-founder and CEO of Ola Cabs), and venture capital investors is intended to align with the United Nations' net-zero emissions target by 2050.

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