Karthik Reddy on How Most New Enterprise Creations Will Be Tech Start-ups
Last year was a watershed one for the Indian start-up ecosystem as it notched up a record investment of nearly $36 billion. 2021 also proved to be a full-cycle year for Indian venture capital as companies like Zomato, Nykaa and PolicyBazaar delivered outsized exits to their investors by listing on public bourses. This was also the year of the unicorn for India—42 start-ups achieved billion-dollar valuations, doubling its count of the entire past decade. Put this in the context of 2012— which accounted for 39 unicorns from around the world—and you get a sense of how far the ecosystem has come in the past decade!
Unicorns on Fast Track:
Tech-led start-ups are rewriting the pace of business aggregation across sectors. While e-commerce, fintech, SaaS and edtech were prolific sectors that have created unicorns, we have the beginnings of unicorns in every sector now—healthcare, B2B commerce, and the first deep-tech ones are coming. Electric vehicles and the ecosystems that support them can alone create a few dozen of these unicorns. I don’t think this is a function of global liquidity or a few funds anymore. It’s a wider macroeconomic phenomenon where most new enterprise creations outside of physical infra-heavy businesses will be tech start-ups.
What was once thought of as an ambitious target of 100 unicorns by 2025 will be breached in the next few months. We need to rerate our ambition to 500 by 2030 and aspire to hit it by 2027-28. Fintech and SaaS may create the largest numbers, along with e-commerce.
Tech IPO is More Real and Accessible: The floodgates have opened. Whether public analysts punish or suspend disbelief and support longterm growth and lack of profits as they did, this is an irreversible trend. It is a win for all market participants and signals the beginnings of a largecap tech universe in India.
It is going to be a tough road. Post IPO, founders who have dealt with 1020 investors so far on their cap table, will need to deal with quarterly and annual goals, granular data/information disclosures, high governance and consistent business (growth) performance or cycles.
The IPO stories of 2021 notwithstanding, accessing public markets will not be an easy task, relative to a private raise. It is also not about simply hiring an investment banker and lawyers, to help you with pre-IPO filings and the listing. It is the beginning of a multi-year journey that will demand a lot of introspection, a massive upgrade of governance processes and behaviour, more scrutiny on one’s public personas, and a culture change in young, hot tech start-ups.
That said, it is going to be very rewarding for long-term company builders. Companies who built despite the odds for a decade, and are just getting started to build for another decade, are relishing the idea of listing and continuing to grow at 30-50 per cent and be a darling of the stock market for another decade.
Large company benchmarks in tech for the first time allow for smaller comparables to list earlier and raise public capital whereas private capital tends to dry out quickly for players outside #1 to #3 in most segments.
Repeat Founders and Seasoned Start-up Professionals: The talent pool of bold technology leaders has multiplied 100x since the beginning of the decade. Trained under unicorns, with rapid growth, and incredible resilience, these new founders are like well-trained athletes ready for start-up marathons. Repeat founders who have had smaller exits and then built under a larger firm, or seasoned executives who were a part of a unicorn build-out tend to understand market issues better, are more fluent about how fundraising works, and are deliberate about choosing co-founders and building initial teams. 2022 will witness the continuation of blockbuster funding rounds headlined by many repeat founders. The growth, in number and quality, of these seasoned founders over the past 3-4 years has been astounding. VCs continue to back them with mega large seed rounds at unheard of valuations. As long as the exits keep coming, this trend will persist.
Monetising India Beyond India1:
2022 promises to continue being a ‘heralder’ of an unprecedented decade of growth for digital and tech businesses in India. LoveLocal, a firm that enables local retailers to sell daily essentials online, has clocked phenomenal adoption speed—reaching 100K retailers in over 1000 pin codes (in under a year). ShareChat and Dailyhunt are unicorns catering to short form content and short form video in multiple languages. Young start-ups like Koo and Stage are hoping to build products that scale with regional language audiences alone. This confidence in catering to and monetising audiences across the country and income strata is unprecedented outside fintech and e-commerce. ‘Build for a need and they will come’ is beginning to play out outside the top 100 million consumers in this country. Every SMB owner wants to participate in the digital-first economy. SMB owners and their employees will constitute a significant chunk of high usage, high engagement customers this decade.
Talent Wars Beget More Talent:
We are officially in the midst of India’s great tech talent crunch. While the war for tech talent is an indicator of macro-level innovation and rebalancing, the funding spree has ensured India’s engineering talent gets paid top dollar (compensation value that rivals their Silicon Valley counterparts).
What the pandemic has done is sound a death knell to geography. This means the future belongs to Indian tech talent. Nurturing millions more of these skilled professionals and having the youth of India proliferate across global tech may singlehandedly be one of the biggest exports.
In conclusion, our path to $5,000 per capita GDP and beyond will be paved with digital enabled roads and infrastructure. The government machinery has created an incredible amount of world-class infrastructure and rails to enable this and the brightest tech minds are building world class products and businesses on these rails.
