India’s start-up sector is on a roll – The Hindu BusinessLine

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Start-ups are faring much better than anyone would have dared predict last year   –  Getty Images/iStockphoto

Seizing the pandemic-driven opportunities, quite a few have attained unicorn status and funds are pouring in

Almost a year ago, as Covid-19 numbers began soaring, commentators started penning obituaries for India’s feisty and booming tech start-up sector. Business would slow to a trickle as venture-capital investors snapped shut their wallets, doomsters forecast. Funding would dry up. In short, RIP.

India is now estimated to have 50-55 unicorns, up from about 30 a year ago when only seven new companies attained unicorn status (there were just six that got unicorn ranking the previous year).

Many venture capitalists reckon the Indian start-up sector will accelerate even faster from here as the pandemic propels adoption of online technologies. There are even predictions of nearly 100 unicorns by year-end. Other, slightly more modest, predictions are there’ll be 100-150 by 2025. India will retain its position as the country with the third-largest number of start-ups after the US and China.

The fact the entire start-up sector is faring much better than anyone would have dared predict last year is testimony to two facts. Firstly, India’s start-up entrepreneurs have been quick to adapt to the new Covid circumstances. Tech trade body Nasscom, for instance, says over 1,600 new start-ups were established as the pandemic quickened last year and more than 55 are “soonicorns,” firms that could become unicorns. Secondly, the bigger players particularly have been quick to grab new opportunities that arose as people fearing leaving their homes bought online.

Look, for instance, at Udaan, the B2B company that links manufacturers and the small kirana stores in hundreds of small towns and cities. Udaan has been a major beneficiary of the coronavirus-driven shift to ordering online. It’s seen the number of food buyers on its site climb by 50 per cent in just the last six months and it collected 100,000 new lifestyle category users on its platform during 2020.

For a shift of tempo, let’s take the case of a small company that began by giving in-person music lessons at schools and was looking at going online gradually. When Covid struck and schools closed, they faced the prospect of having to shut shop till pupils returned to classes. Instead, they revved up their online plans and now boast more pupils than they’d planned for.

Says Raman Roy, chairman of Quattro Global Services: “Once the schools closed, their business model disappeared. But they had students and they figured out how to teach them online. Then, they got more customers via social media.”

India’s new unicorns straddle all kinds of sectors but the biggest winner of all is fintech with companies like PhonePe and Paytm. Healthcare, too, has gained major traction for understandable reasons. Take a glance at online pharmacy PharmEasy, which aims to link pharmacies, doctors and hospitals. It has just raised $350 million and carries a $1.5 billion valuation. It’s now raising money to bring more customers into its network. But it’s in a furiously competitive segment: Reliance has just acquired Netmeds and the Tata Group is closing a deal to snap up 1MG. PharmEasy which itself acquired rival Medlife.

Other new unicorns include Gupshup, launched in 2005, which is a chatting app offering nine regional languages and also functions as a platform for companies to keep in touch with customers. Also, there’s Sharechat which combines WhatsApp-, Twitter- and Facebook-like offerings in eight regional languages.

It’s clear the pandemic has changed the entire online world and speeded up processes that most players expected would happen between now and 2025. What’s more, when customers began to vanish in March and April 2020, it forced companies to squeeze spending and focus on the essentials of their business.

Companies like Swiggy and Zomato tightened their belts and explored ways to make the best of the new commercial landscape and expand in tough market conditions. Says Pranav Pai, founding partner of 3one4 Capital: “2020 was a great filtering event for many companies.” He adds: “Now. demand for digital (services) is at an all-time high and this isn’t something temporary. It’s not going away.”

Still, everyone’s experiences were slightly different. Many existing start-ups had a tough time. Look at Tamil and Telugu digital news site Lokal. Like many others, it found business vanishing in March and April 2020. Then, it discovered that its digital viewer numbers were starting to surge because people had time on their hands and were visiting the site.

Also, many Indian companies are now firming up plans to list and the main question preoccupying them is whether they’ll achieve better valuations in Mumbai, New York or London. One of the initial players looking at listing is InMobi, a step expected by around year-end. It’s estimated InMobi will seek to raise $1 billion that would give it a total valuation in the neighbourhood of $15 billion.

Is it all rosy?

Is there a downside to this rosy picture of high-valued start-ups? Inevitably, the answer is yes. For starters, we no longer have Chinese investors scouring the Indian start-up sector for fast-moving winners. At one level, it can be argued the Chinese have been replaced by US and European investors and funds from the Middle East who’ve scented India’s start-ups are in blast-off mode. At another level, loss of the Chinese takes out a key investor group who’ve spread funds far and wide among Indian companies.

More serious is the fact the world is literally awash with money, thanks to interest rates hovering just above zero per cent. Says Arun Natarajan of Venture Intelligence: “Huge global liquidity is driving a tsunami of capital towards risky asset classes. This phenomenon is driving up valuations in private markets including in India.”

Natarajan reckons this funds tsunami poses dangers. “A potential risk factor for the Indian market is the heavy re-linkage with the US market. If that market sneezes, our markets will catch cold,” he says, adding: “It would be almost immediate since there is no counter-balance available from China.”

Right now, start-ups, though, aren’t stressing too much about such scenarios as they’re glad to have survived so far through the pandemic. And, in a world going the online way faster than anyone predicted, they’re looking to seize all new opportunities coming their way.

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