If there was one thing India’s startup ecosystem learned in 2022, it was that the lofty valuations and big-ticket funding of 2021 were things of the past and perhaps an aberration. It was evident in the fact that in 2022 only 21 companies turned unicorns, less than half (44) of the startups that reached a billion dollar valuation in 2021.
Although 2023 may not see a repeat of the hyped valuations and crazy funding of 2021, industry watchers said the Indian startup ecosystem is well placed in the global economy.
Despite the ongoing headwinds that global markets continue to face in the form of geopolitical uncertainties in Ukraine and the resurgence of Covid infections, the current situation is much better than what the world saw in 2008, said Anirudh A Damani, Partner Manager. , Artha Venture Fund.
Millions of job cuts were happening every week in the US. Today, banks are extremely strong and well capitalized, Damani said.
“Unless something absolutely catastrophic happens, like the Russia-Ukraine war going nuclear, I am clear that a record amount of money will flow into India in 2023,” he added.
Unfavorable market conditions in 2022 caused many startups to abandon their IPO and fundraising plans due to low valuations. As a result, funding raised by Indian startups in seed, early and late stages in 2022 fell 43% to $14.76 billion, according to data from Crunchbase, a US-based research platform that tracks private companies.
However, industry watchers felt this was required to restore some sanity to India’s emerging new-age economy, which is expected to contribute 4-5% to its gross domestic product in the next two to three years.
“Sanity has returned to the markets,” said Fireside Ventures director Prayag Mohanty.
While experts predicted that the flow of funds would gradually improve in 2023, they expected it to remain sluggish for some time.
“The funding scenario may continue to remain tight in the short term but ease eventually,” Deloitte India partner Jatin Kanabar said.
Investors, however, said f that they were trying to fund startups with strong fundamentals.
There will be much more focus on investing in those startups with profitability or a path to profitability, Mohanty said. “Good companies are still getting funded and that’s good for the ecosystem,” he added.
The others agreed.
“In the current market cycle, investors will invest in capital-efficient and sustainable businesses that focus on unit economics,” said Unicorn India Ventures managing partner Anil Joshi. There is capital available for good businesses and fundamentally strong markets, Joshi added.
Sectors to bet
Accounting for 19 of India’s 102 unicorns, fintech remains the preferred sector for investors and is expected to continue to perform well in 2023. “Fintech also has a huge opportunity. The government is serious because it wants credit to flow into the economy,” said Damani.
Startup founders also noted the government’s initiatives.
“This growth (of the fintech sector) has been supported by multiple factors, including major initiatives taken by the government to help expand fintech companies into new markets,” said Nirav Choksi, CEO and co-founder of CredAble, an employee . capital technology provider.
Amid the growing digitization drive in the country, many startups have, over the past few years, turned to digitized lending. This has blown up to become a key space to care for, Choksi said.
Investors felt that the fintech space was still at a nascent stage and that there was more room for growth in this segment.
“Six credit cards in 140 crore population is not even a drop in the bucket. I think there’s a lot of money going into the fintech enablement ecosystem—how you can enable loans,” Damani said.
Apart from the fintech and software-as-a-service (SaaS) segments, which together contribute to 36 of India’s 102 startups, investors are also bullish on several newer sectors.
“In the next couple of years, we could see more action in the edtech, health tech, deep tech, agritech and media/entertainment space,” Deloitte’s Kanabar said.
Given that the world is going through challenges, agro-tech and media-tech are also likely to do well, Joshi said.
Advances in technology and increased digital adoption will change the way healthcare is delivered in India in the coming days, said co-founder of health tech startup Practo, Siddhartha Nihalani.
“With innovative and technology-enabled solutions, disruption from health tech startups, the future of healthcare is very bright in India,” said Nihalani.