InMobi, a mobile advertising technology company, was the first Indian tech startup to achieve unicorn status, back in 2011. Ever since, InMobi has been followed by well-known startup heavyweights like online retail company Flipkart, food delivery app Swiggy and ride-sharing app Ola amongst 84 more unicorns in India as of today. The gradual rise in startups is due to several factors including India’s youthful talent pool, growing consumer base, rising capital inflows and increasing disposable income per capita. Recognising the immense potential of the uptrend towards startups within the nation, the government of India made a wise decision to incorporate the cultivation of a robust and enabling tech startup ecosystem into its “Make in India” nation-building initiative in September 2014. Due to its preferred status for many innovation events, its temperate climate and high investor density, Bangalore soon became known as the “Indian Silicon Valley”, and Delhi NCR, Hyderabad and Mumbai also became notable innovation hubs once the government initiative was pushed forward. By 2016, a second initiative called “Startup India” was launched to further galvanise the ecosystem by providing an online networking platform for entrepreneurs and investors, government funding, tax exemptions and other knowledge and networking products to keep up the momentum of startups established and funding invested into them. By the end of 2016, the number of unicorns in India had tripled with 10 emerging within the year, over 1500 high-value investment deals were made and 6,000 new startups had been set up just within the year.
In 2017, however, the momentum began to stagnate. Though investment values continued to rise steadily, the number of startups setup fell to 1,000, investment deals plummeted to below 1,000 by 2019, seed-stage funding fell 21% and an Oxford-IBM survey study showed 90% of Indian startups, especially in the consumer services education technology (EdTech) and financial technology (FinTech) companies, failed within the first 5 years. The reasons are varied according to both investors and entrepreneurs; Chinese and American internet company entries into the country significantly elevated competition that only frontrunners were able to keep up thus creating duopolies between foreign companies and leading local startups, examples being Ola and Uber for cab calling services and Expedia and Oyo for hotel services. Furthermore, despite having a 451 million internet user market by 2019, the second largest after China’s, many of the leading startups began catering their services mostly to high-income urban dwellers. This is due to the fact that the internet consumer market growth was inconsistent and lower than investor expectations, sparking paranoia in investors worried about their returns, which in turn incentivised investing in the more popular and already grossing startups and backing out investments from the new and inexperienced ones.
While confidence in emerging markets dipped considerably from 2017 to 2019, key changes have shifted this trajectory entirely. Firstly, entrepreneurs who had previously worked at unicorns and startups that had successful exit ventures began using their knowledge, networks and expertise to establish their own startups. Additionally, they began mentoring struggling startups to grow them in the right direction with realistic outlooks on the VC and consumer markets. Secondly, COVID-19’s drastic acceleration of digitalisation as businesses and schools went online brought back a surge in demand for FinTech, EdTech, HealthTech and e-commerce companies, an opportunity that tech startups capitalised on fully. By year-end of 2020, the startup ecosystem welcomed 12 new unicorns, US$11 billion in funding and 1,600 new startups. Lastly, as a consequence of the first two reasons, the rapid upskilling of the 1.17 million strong digital talent pool and the post-COVID trend towards the development of frontier technology for economic recovery has exponentially improved the quality of startups which has enabled them to develop innovative services using cybersystems such as blockchain technology, augmented reality, cryptocurrency, and artificial intelligence (AI). These breakout verticals are increasingly being employed in AgriTech, gaming, automotive industries and healthcare systems which, according to both national and international observers, will catapult the entire Indian economy into a whole new tier of economic development in the coming decades.
So it comes as no surprise how India has once more sparked international interest and massive growth in its tech startup ecosystem. In 2021, 2,284 deals by 597 VC funds had become official, including 211 debut investments by international funds. And by the end of the year with 42 new unicorns, 11 IPOs, US$36 billion raised in funding, and 6.6 million new direct jobs and 34 million indirect jobs generated, Indian tech startups have broken through records and solidified their position as the third-largest startup ecosystem in the world. And since analysts predict this breakneck momentum to continue well into 2022 and beyond, the world shall continue to observe India’s brilliant and dynamic digital talent spearheads the nation’s exodus towards the digital future.
Learn more about the trailblazing tech startup industry in India by joining the Commonwealth Chamber of Commerce’s live webinar featuring a panel of emerging Indian tech startups on 25th March at 9 am GST. Please register using this link here.
