How Can Indian Startups Emerge Stronger in 2022?

The Indian society as a whole has witnessed unprecedented challenges and transformations since the COVID-19 pandemic in March 2020.

The pandemic and subsequent nationwide lockdown disrupted the operations of startups and even established businesses. Being more vulnerable of the two, startups have seen severe impacts from business closure, especially those in the hospitality and tourism industry.

Nonetheless, the Indian startup ecosystem survived the uncertainties and emerged stronger than ever through new business models (1), diversion of VC fundings (from particularly China) to India (2), and government support (3). It witnesses a rebound amidst the pandemic, led by SAAS, Fintech, deep tech, edtech, ecommerce, online gaming, and other sectors with increased internet penetration and adoption of digital technologies (4).

The success of home-grown companies like boAt, BYJU’S, and Freshworks is a testament. Even during a worldwide economic slowdown, 10+ Indian startups entered the unicorn club in 2020. And since early 2021, there has been a huge surge in funding across many sectors both in volume and value, 40+ startups attained unicorn status, and at least nine companies went public (5, 6) (Suggested Reading: India on Unicorn Spree, The Party has Only Started).

According to a recent PwC India report (7), Indian startups minted over 10.9 million USD from July to September 2021. It is twice the funding amount received in Q3 of FY 2020 and a rise of 41% compared to Q2 FY 2021.

As of October, Indian startups have raised a cumulative amount of 28.5 billion USD in funding, which is twice the amount secured in 2020, 11.3 billion USD, and in 2019, 13.1 billion USD.

By the end of October 2021, as many as 745 startups received VC foundations compared to 698 startups in 2020 and over 763 in 2019.

According to data by Hurun Research Institute (8), India has now become the third-largest startup ecosystem worldwide, right after the United States and China.

Considering the fact that there is a rapid surge in the number of future unicorns and more companies going public, we believe that the Indian startup ecosystem is poised to reach another level in 2022.

But, there are still a plethora of disputed questions that threaten the upward movement of Indian startups. For instance (9, 10), many unicorns in India still lack a compelling revenue base and have to fight hard for cash flow and to survive, especially with Omicron threatening the economy.

Indian Startups Whether They Succeed or Fail; They are Creating Value

India has witnessed 72 startups become unicorns in the last ten years, with 42 in 2021 alone (11). While during the pandemic, the global investments coming to India were affected, it fell to 23rd position in the Global Startup Ecosystem Index last year. Regardless, it climbed to 20th rank this year (12).

With startups witnessing record investments round, the prospects for 2022 and the years ahead look bright. The success of Indian startups like BYJU’S, Udaan, Razorpay, and Freshworks indicates the potential of Indian startups.

There has been a significant demand for talent across companies, leading to a rush for talent to sustain growth (13). The addition of new startups, increased funding, the rise of unicorns, and the adoption of deep India will further strengthen India’s march towards the 1 trillion USD digital economy (14).

Of course, the year also witnessed many startups fail for one reason or another amid the brunt of the pandemic. Some examples include SMAAASH (15), Vigo Video (16), and Hike (17), to name a few.

But, it is not all gloomy and dark. We believe that even if a startup fails, they offer our society progress and tremendous learnings for their peers (18). A startup can fail; money can come and go. Yet, these lessons will stay with entrepreneurs forever (Suggested Reading: 10 Sure Ways to Improve the Potential of Your Next Startup After Experiencing Failure, Lessons You Can Learn From Failed Startups (2021 Update)).

For instance, Tesla was first started by Marc Tarpenning and Martin Eberhard in 2003. Elon Musk only invested in them in 2004 and only got involved when cofounders left Tesla in 2008 or so (19).

He led the company through critical times and made it a massive success a decade later. Today, the success of Tesla is to a point where all major governments and other automaker companies worldwide are forced to go completely electric within a decade.

It will help us if we get rid of fossil fuels, reduce pollution and improve our climate.

However, the point here is that if it was not for Tesla cofounders in 2003, despite their “failure,” we could have probably never seen such progress towards cleaner automobiles today.

Challenges in the Indian Startup Ecosystem

While India has made some progress over the ease of doing business over the past few years, it is still tough to do business in this country for established businesses and even more for startups. Apart from that, there are still several challenges that have existed in India even before the pandemic that we would like to highlight:

Many Indian startups still lack a sustainable business model that can lead them to become autonomous organizations yet (20).
Many startups still rely on deep discounts and purchasing a market share, which is not a businesses models, even if they have backing from Softbank and other big VCs. Remember Housing.com?
It takes at least seven to eight years to build a new business in India (21), and startups can’t force acceleration by putting in more money.
Again, India is a tough place to do business, especially with government rule changes that entrepreneurs often fail to think through and later become their nightmare (22). For example, taxes and demonetization.

So, How Can Indian Startups Do Better in 2022?

It can be tough for startups to survive or sustain themselves in the market over the next few years.

That’s why we compiled some tips for startups to survive during tough times, such as the COVID-19 pandemic.

For VC-Backed Startups: We hope that your VCs are thick-skinned; otherwise, there are always chances of abandonment. Your best bet would be to raise more from VC as you may need, conserve cash as much as possible, and aim to survive at least for the next two years with the least cash burn. Make sure you adapt yourself and your businesses as needed.
For Bootstrapped Startups: Conserve cash as much as possible and focus on increasing your revenues. Try to pivot or adapt if you need to and reduce costs in the fairest way possible. Again, focus on surviving the next one to two years. In the worst-case scenario, consider shutting down if you don’t think all will work out now or in the near future.

Let’s all hope that India and the world will start recovering in 2022, and our startup ecosystem shall grow constructively from thereon.

The Indian Startup Ecosystem in 2022

Trends Among Venture Capital Companies

We believe that it is likely for VCs to move away from FOMO and focus on the fundamentals of any startup (23).

Instead of over funding or overvaluation, it is likely that funding will be split into phases and milestones-driven deliveries and tractions.

Also, burning cash to beat the competition may become a rarity in 2022, and unit economic will become important. Meaning, 2022 will lead to a more rational and sustainable startup ecosystem with more focus on profitability.

Since profitability is more likely to become more important in 2022 for VCs, they will also be more inclined towards the bottom line. Meaning, investors will emphasize profits and not revenues at any cost (24).

Indian Startups

Considering the scenario mentioned above, startups will be able to secure fewer funds. Hence, they will not stray or diversify into every possible opportunity and focus on core business tasks.

If nothing else, the economic uncertainties during 2020 amid the pandemic taught businesses to reduce costs, go more digital, and be more efficient (25).

Since VCs will emphasize profitability, startups will also be inclined towards it, making them sustainable businesses (26).

The Indian Government

We can expect more policies from the government, hopefully, in-depth, that can help startups grow further (27).

Consumers

With the rise of Millenials and Gen Z buyers, customers are becoming more value-conscious over seeking discounts (28). We believe that the trend will carry on even in 2022.

Since they are ready to pay extra for fast delivery, convenience, and any problems businesses solve (29), it can lead to better ready market-ready business opportunities for founders if they set good price points and value propositions.

Wrapping Up

All in all, we believe that the overall startup ecosystem in India is poised to get better in 2022 or so.

Let’s tighten our seatbelts and get on this challenging ride with TimesNext.

What are your thoughts? How do you think the startup ecosystem of India will evolve in the upcoming year? Would it continue its upward trajectory, or will it go downhill? Let us know in the comment section.

Stay tuned with us for more updates!