These are exciting and invigorating times for the venture capital and entrepreneurship landscape in India. We are witnessing multiple large fundraises and exits. On the whole, the ecosystem is buzzing with energy. Makes us question -- are we on a Moore’s Law ride?
Moore's Law, from the world of computing, refers to the number of transistors on a microchip doubling every two years, though the cost of computers is halved.
Interestingly, the law and the multiplier effect at its core have been relevant across multiple sectors in the past. A great example at hand and still unfolding is the vibrant Indian venture capital and entrepreneurial ecosystem. The third largest in the world, the Indian startup ecosystem witnessed tremendous growth in the last few years across talent, capital, markets, policy, and exits. These markers directly impact the health and success of the ecosystem and charter a way forward.
Exits in India, for quite some time, have happened primarily via secondary sales to growth/private equity investors. That has seen a seachange in the recent past.
Overseas technology companies, global and local unicorns (startups valued privately at $1 billion or more), Indian conglomerates, secondaries, IPOs, and SPACs -- are all at play providing healthy exit options for performing startups.
The Tata Group's acquisition of Big Basket, the market leader in the e-grocery business, and edtech decacorn Byju's acquisition of coding platform White Hat Jr re-emphasize that there are many local options that are as compelling. IvyCap Venture’s exit from beauty products etailerPurplle.com, or Kalaari Capital’s exit from mobile gaming unicorn Dream11, with more than a full fund return, is indicative of how the power law is at play in the Indian venture capital ecosystem.
Between 2016 and 2020, about $60 billion has been invested in the ecosystem. There have been 25-plus rounds of investments larger than $100 million in 2020, indicating the abundant availability of capital for Indian startups. Currently, with about $80 billion dry powder waiting on the sidelines and impressive growth rates registered by many startups, there is a firm belief that India will have 100 unicorns by 2025.
While geopolitical reasons have led to investments from China slowing down, investment activity from corporates such as Google, Microsoft and Salesforce, sovereign funds, and pension funds indicate larger financial capital inflow in the near future.
While some of the sectors such as ecommerce, logistics, fintech, and entertainment have been the main focus the past several years from a startup perspective, the COVID-19 pandemic-led digital transformation has stimulated several others. Healthcare, education, gaming, NBU, SaaS, and SMEs going digital have experienced tailwinds.
The constant growth in internet penetration, mobile user base, road connectivity, and reach of electricity to households across the hinterland have democratized market access and growth.
Today, startups do not need to desperately expand to the US or Europe for scale (if there isn't an appropriate fit). They can focus on India and regional markets such as South East/West Asia to achieve scale. Even for companies aiming for the Western markets, there are playbooks that have been created by Inmobi, Zoho, Druvaa, Freshworks, Innovacer, and Chargebee, etc.
The talent scenario for startups has seen a wide transformation. Entrepreneurship has become mainstream as opposed to an earlier time when it was viewed as a monetary, career, and social risk. Being an entrepreneur or working for a startup is now a cool and sought-after employment choice. With ESOP buy-backs announced by the likes of RazorPay, Zetwerk, Cred, and many other, job seekers see start-ups as great places to work for and be compensated handsomely
With Flipkart, Swiggy, Ola, etc. achieving large scales of operations, technology talent that helped these unicorns gain scale is available to do the same for newer ventures in the market, thus creating depth.
Policy drives change, and the Indian government has acted as a huge catalyst to grow the startup ecosystem and create a startup friendly environment with initiatives such as Atmanirbhar Bharat, direct listing of equity shares of companies incorporated in India on overseas stock exchanges, GIFT City (IFSC), SEBI AIPAC, and the National Startup AdvisoryCouncil.
Data shows that new ventures create 1.3 times more jobs than traditional companies and pay higher taxes besides the wealth creation (for every $1 billion, $200 million of direct and $600 million of indirect taxes which is 1.9 times more taxes than companies that aren't backed by VC/PEs). Unicorns such as Zomato, Delhivery, Policybazaar, Freshworks, Flipkart and Nykaa are eyeing IPOs in days to come.