By Archana Jahagirdar
The journey of India’s startup-VC ecosystem has been like a rollercoaster ride, with exhilarating highs and challenging lows defining its trajectory over the years. From the unprecedented growth witnessed in the peak era of 2020-2022 to the funding winters of 2023, the landscape has been a melting pot of innovation, resilience, and adaptation.
One notable example is the story of Blinkit, formerly known as Grofers. Blinkit’s journey epitomizes the highs and lows of the startup world. Initially, Grofers struggled to compete against giants like Zepto and Swiggy Instamart. Despite these challenges, Blinkit rebranded and focused on ultra-fast deliveries, eventually becoming a significant player in the quick commerce space. This transformation highlights the importance of giving founders the space to innovate and evolve, irrespective of market conditions
The peak era: an anomaly or the new normal?
The years spanning from 2020 to 2022 marked a zenith in India’s startup ecosystem, defying odds amidst the tumult of the COVID-19 pandemic. Surpassing all expectations, India emerged as the third-largest startup hub globally, boasting a staggering rise in the number of startups, investors, and unicorns. The digital economy, fuelled by increasing internet penetration and affordability, served as the bedrock for this meteoric growth, propelling India into the forefront of global innovation. The exponential rise in funding, mergers, and acquisitions underscored the robustness of the ecosystem, cementing India’s position as a beacon of entrepreneurial dynamism. However, this period of exuberance was not without its challenges, as the subsequent year would unveil.
Startups like Zomato and Mamaearth became unicorns and saw massive valuations and funding rounds. Zomato’s IPO in 2021 faced scepticism over its valuation, but its market cap growth has since validated its strategy. Mamaearth, despite facing a campaign against its IPO listing, reported a positive Adjusted Profit Before Tax (APT) of Rs 111 crore in its latest reports.
Startup ecosystem in 2023: a reality check
The year 2023 served as a stark reality check for India’s startup landscape, punctuating the euphoria of previous years with a sobering decline in funding and investor sentiment. The plummeting late-stage funding, coupled with governance issues and global economic headwinds, ushered in a period of introspection and recalibration.
Overall the startup ecosystem faced the brunt of funding constraints, leading to a surge in shutdowns and layoffs, particularly in sectors like edtech. Mega rounds dwindled, unicorns saw a decline, and deal volumes contracted significantly, painting a sombre picture of the ecosystem’s resilience amidst adversity. Amidst the gloom, there was a little hope. Seed deals surged, acquisitions flourished, and the government’s supportive measures injected optimism into the ecosystem. Despite the setbacks, India retained its allure for venture capital, underscoring the enduring potential of its startup landscape.
Startups were advised to focus on sustainable growth and prudent financial management. For instance, a startup offering traditional Indian snacks and confectionary, thrived by maintaining a lean operational model and avoiding unnecessary expenditure, setting a benchmark for other startups.
The present and future: Navigating towards resurgence
The startup-VC ecosystem now stands at a crossroads, poised for resurgence amidst lessons learned from the trials of 2023. While funding and deal volumes may have faltered, founders and investors have embarked on a journey of introspection and strategic realignment. Capital reserves have been replenished, regulatory support amplified, and focus redirected towards high-innovation sectors like healthtech, cleantech and deeptech. The government’s initiatives, coupled with investor confidence, lay the groundwork for a revitalized ecosystem poised for sustainable growth.
The rise of Mindgrove, a semiconductor startup invested in by Peak XV and Speciale Invest, exemplifies this trend. Mindgrove has secured significant funding and support, showcasing the increasing focus on high-innovation sectors and the potential for future growth.
New and emerging sectors: Pioneering innovation
The burgeoning landscape of India’s startup ecosystem heralds the rise of new and emerging sectors, shaping the contours of innovation and sustainability. From the digital corridors of fintech and e-commerce to the frontiers of healthtech and cleantech, these sectors epitomize the convergence of technology and societal imperatives. Fintech, with its transformative potential in the digital economy, leads the charge, followed closely by e-commerce, enterprisetech, healthtech, and cleantech, each carving a niche in the ever-evolving startup landscape. As investor interest surges and unicorns proliferate, these sectors pave the way for India’s emergence as a global innovation powerhouse.
Investor-founder relationship: Navigating the nexus
At the heart of India’s startup saga lies the symbiotic relationship between investors and founders, a crucial bond for fostering growth and sustainability. While capital infusion fuels entrepreneurial dreams, investor guidance and mentorship catalyse strategic decisions, shaping the trajectory of startups in the ecosystem. The tumultuous journey of 2023 underscored the need for a more proactive investor role, emphasizing corporate governance and strategic oversight. Founders, in turn, embraced a balanced approach, recognizing the significance of investor alignment for long-term success.
An example is the relationship between Zepto with Nexus Venture Partners. These partnerships highlight how strategic investor guidance and founder vision can collectively drive startups to success.
India’s startup-VC ecosystem is a tale of resilience, reinvention, and relentless pursuit of innovation. As we stand on the cusp of a resurgence, armed with lessons from the past and a vision for the future, India’s startup-VC ecosystem embarks on a new chapter, poised to conquer new frontiers and redefine the contours of global innovation.
Archana Jahagirdar is the Founder and Managing Partner at Rukam Capital. Views expressed are personal. Reproducing this content without permission is prohibited.