The Next Chapter in the Start-up Growth Story
India’s start-up ecosystem is a global success story where the synergies and active collaboration across geographies have contributed significantly. The country’s start-ups have even defied all odds brought on by the Covid-19 pandemic. Many Indian tech start-ups continue to attract a rush of capital, with a record number reaching unicorn status. In the first half of 2021, Indian start-ups are estimated to have received $12 billion in about 382 deals, the highest in the past five years. So, what’s making us shine? In my opinion, it’s a combination of factors like digital push to get customers online, high liquidity in the markets, and a series of IPO announcements from leading start-ups. The recent Zomato IPO is the inflection point that all of us were waiting for. As India remains the go-to-market for investors due to its sheer size, the country’s potential for technology-led business has led to the emergence of valuable tech start-ups.
Sustaining Beyond the Crisis
The period between 2010 and 2020 is considered groundbreaking for the Indian start-up ecosystem. Before this, a start-up meant a path filled with uncertainty and risk. Today, start-ups are synonymous with innovation, creativity and problem-solving. The tech start-ups are an important enabler for India to become a $5-trillion economy, aided by technology-fuelled productivity. For founders, every customer onboarded, every new user signed up during the pandemic has taught us that the product and value proposition always comes first, everything else later.
The key hurdle faced by start-ups earlier was to move a large customer base online. However, this barrier has considerably reduced in the past year as people stayed home and ramped up their usage of online platforms. The record level of investments in the ecosystem is a testament to this paradigm shift and a signal of the impact that new-age companies can create at the grassroots level.
Another prevalent issue was the concern around the fragmented and price-sensitive nature of the Indian market and, hence, a question on its potential to support highly profitable businesses. Again, technology has played a critical role here. For example, today, OYO works with over 100,000 hotels and homeowners globally while utilising its technology and revenue growth capabilities to ensure successful business for them.
We see an interest and strong intent on underlying business economics, both from the founders and investors. There’s also a strong, early focus on monetisation now. As the start-up investment ecosystem in India evolves post-pandemic, angel investors, global players and entrepreneurs-turned-investors want to be part of the next big market.
Key Trends for the Coming 10 Years
A ‘digital-first’ or ‘product-first’ approach: India’s first internet start-ups took off between 1995 and 2000 with the launch of Rediff.com (1996), MakeMyTrip (2000) and a few others. But it was only with the rise of e-commerce players such as Flipkart, Amazon and others from 2010 onwards that the consumer tech start-up ecosystem found its legs. Edtech, SaaS (software as a service), healthcare, hospitality, fintech and e-commerce are sectors where we expect significant behavioural shift to fully digital solutions. Today, the hospitality industry does not only consist of traditional players but full-stack technology and revenue management platforms that are more focused on customer satisfaction. Small hotels and homeowners have been the backbone of this sector, and it will be critical to equip them with the right technology and supply-chain financing to help them thrive. Consumers are also booking a hotel through digital channels more than physical mediums. The industry needs to be prepared for this transition through its product and digital-first approach. Many businesses, including hospitality, are now turning to data science and predictive analytics for competitive advantage. With innovative, scalable data engineering solutions, OYO has delivered as many as 10 million daily price changes for its global portfolio to stay on top of the constantly changing demand patterns. Digital transformation and technology are at the heart of the start-up ecosystem for many such reasons and examples.
Supportive policy decisions: Over the past few years, the Indian government has accelerated efforts towards making the vision of the Start-up India initiative a reality. The government has launched more than 50 start-up schemes, and made policy amendments so that starting up became a viable career choice. Also, the enforcement of demonetisation, introduction of Goods and Services Tax, attempts to make India through ‘Atmanirbhar Bharat’ as well as amended FDI policies have opened up several growth opportunities for Indian start-ups. Other initiatives such as the new allowance for start-ups and innovators to form one-person companies without restrictions, paid-up capital or turnover norms also will prove a significant boon.
Mergers and acquisitions to IPOs: I remember a time when major companies took at least 20 years to file for an IPO. This has now narrowed to just three-five years. The Indian IPO market has done extremely well in the past 12 months. Many start-ups have grown to a size where an IPO makes sense and is attracting a large pool of investments. The rising number of M&As has also made local and global investors eye larger ticket-size funding instead of better exit opportunities. More M&A deals are expected to foster a collaborative rather than a competitive strategy. This will help weed out less sustainable business models and bring more innovative, personalised products and services to the market. In my opinion, IPOs, however, are not always a means to raise money for all companies. For some, it is the achievement of a milestone in a company’s journey.
Collaborative emerging environment and multi-stakeholder approach: The Indian start-up ecosystem has the potential to be the country’s engine of growth in the long run. According to Redseer Consulting, by 2030, the $90-billion consumer internet market in India will reach $800 billion in gross merchandise value. However, the public sector has an important role in setting proper guardrails to ensure emerging technologies maximise their positive impact while protecting against any potential risks. The notion of start-ups being a threat to incumbents needs to change, shifting towards a culture of collaboration and synergy. A multi-stakeholder concept is vital, shifting away from the concept of a zero-sum game. The stakeholders engaging in the work with corporates, start-ups, universities, VCs gain insight into new and future product and service development, uncovering the potential to be further explored jointly with start-ups. The strong ecosystem-level changes are opening up opportunities for new business models and augur well for the unicorns of tomorrow.
Attracting the best talent: Talent is critical, but a strong, positive culture is also important to enable rapid and healthy scale-up of a start-up. One needs a great mix of unique skills, attitude and resilience in the top leaders who are capable of retaining the best talent. With the hybrid work model and work-from-home, there has been a shift in the quality of the workforce from large cities to even small towns. Workforce demographics, as well as consumer profiles, have changed substantially. At OYO, our top leadership team, including myself, are spending 60 per cent of our time with OYO’s product, data science and engineering teams in order to understand their needs and provide the best solutions.
Covid-19 has prompted start-ups to leverage deep tech such as AI/ML, IoT, big data, blockchain, and more to pivot to adjacent sectors to capture new opportunities. The tech start-ups are riding solid digital adoption, and there’s a massive opportunity. Exits have increased as the pace of M&As has also accelerated, the IPO pipeline continues to strengthen, and there will be more competition in the investor landscape. Zomato and Paytm have fuelled the IPO race in India already. Global investors would like to participate in India’s growth start-up story, especially since other larger international markets are reaching saturation levels to some extent. This makes the road ahead comparatively easier for the emerging start-ups and the overall ecosystem.
The pandemic was a ‘Black Swan’ moment. However, for the Indian start-up and VC world, this has been a year of structural correction. Looking beyond the short term downside, this will likely be remembered as the most effective reboot for India’s start-up economy in this decade and beyond.
(The author is Founder & Group CEO at OYO)
