Comment: Why I remain optimistic on Indian startups despite a tough 2017

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India has been on a continuous streak of success by actively creating a healthy startup ecosystem.

The nation is now among the top five countries with most number of startups being funded.

The year 2017 saw more than 4,200 startups setting shop, in turn creating more than 85,000 employment opportunities

Over 1,000 startups ventured into the tech sector with B2B startups dominating the ecosystem mainly because of FinTech, HealthTech and B2B enterprise products.

Such prolific growth also caught the attention of investors making way for an overall growth of seven percent with Bengaluru, NCR and Mumbai dominating the ecosystem as the major startup hubs in the country.

H1 full of crucial developments

The first quarter of 2017, saw an intense battle for dominance in the ecommerce sector, Flipkart managed to lock horns with Amazon over India’s booming e-commerce market by securing USD 1.4 Billion within the first week of April.

Paytm (USD 1.4 Billion), Ola (USD 1.2 Billion) and PhonePe (USD 500 Million) were few of the other big-ticket investments in 2017.

The year closed successfully with USD 13.7 Billion being invested into the Indian startup ecosystem across 850+ deals.

The amount of investment saw a 120 percent increase compared to 2016.

The Union Budget 2017 came as a blessing for MSMEs, giving five percent point rebate, decreasing the tax rate from 30 percent to 25 percent.

Contrary to the impressive numbers towards the end, the first half of 2017 was tough with an average ticket size of funding raised in Series-A rounds smaller than those raised in previous two years.

Series C became even tougher, as compared to the figures in 2015, both for the number of deals and funds garnered. (Source: Startup Funding Report H1 2017)

H2 – Demonetisation – A push for FinTech

Even though the struggle was apparent, demonetisation did come as a blessing for some.

The dominance of FinTech startups saw 31 percent year-on-year growth with over USD 200 million invested in the first half of 2017.

It led to a growth of digital payments through Aadhaar-based POS and broader incentives introduced by the government that promoted digital adoption in the nation.

This further encouraged lenders to underwrite loans based on digital user data and the creation of the Payment Regulation Board.

The nation swiftly picked up the pace in its digital growth with cash being replaced by digital transactions, giving rise to a new breed of digital startups, further disrupting the retail sector.

This push to FinTech will continue to grow and attract money supporting the rise of startups in this sector along with new innovations by the existing players.

A Technology-driven startup sector in 2018

Startups this year are expected to thrive on technology with Artificial Intelligence and IoT joining the league of disruptors with the rising interest in the space.

Many global tech giants dialed in the Indian AI space, with Indian startups creating globally leading products in the sector.

The trend will further disrupt manufacturing industries, with robotics taking over factory floors and businesses indulging in chatbots, as the global AI sector is set to grow to USD 16.06 Billion by 2022.

Apart from other technologies, Blockchain emerged with a notable success in 2017. In this year’s budget speech, Finance Minister Arun Jaitley talked about the government’s willingness to explore avenues for implementation of blockchain providing a positive impetus.

Surge of the offbeat sectors

The market is expected to get deeper, with consumers appreciating quality over quantity and discounts. Brands taking advantage of this consumer behavior will attract more funds.

Similarly, the problem of quality of capital is expected to be solved with food and grocery delivery businesses making a comeback, with a renewed demand of their services.

Other sectors like health, education, AgriTech and social entrepreneurship are expected to bring a major trend shift with the growing government interest in these aspiring sectors.

Many founders will pick up these emerging sectors this year, with AgriTech taking the lead.

Government enabled ecosystem – empowering startups growth

In a bid to bolster the efforts the Government recently launched the Ranking Framework Document, along with a Handbook on Good Practices and a StartupIndiaKit for Entrepreneurs, such policies should be explored as the Indian economy evolves towards Ecosystem2.0.

Apart from the efforts of the central government, 11 states including Haryana, Telangana, Karnataka and Bihar launched their startup policies to nurture and support startups in the state in 2017.

Despite limited funding in 2017, Series A and B investments are expected to gradually emerge in the Indian market.

Established startups are likely to see major private equity investments urging them closer to IPOs and partnerships with experienced VCs.

Aspiring entrepreneurs, women entrepreneurs and young entrepreneurs will see great support from government and organizations such as TiE (The Indus Entrepreneurs).

Overall 2017 saw the best of times and worst of times, some startups raised billion-dollar funding while some did not get enough investments to sustain their growth.

With services transforming transactions, and the added stress on complex technology and innovation, 2018 will be a year of miracles which were considered fiction a few years ago.moneycontrol