Favorable winds for entrepreneurs and startups in the Indian tech sector


Venture capital (VC) investments in Indian startups between January and July 2021 have been estimated at around $ 17.2 billion. Although this figure is lower than the amount of investments made in China during the same period, it is 55% more than the 11.1 billion US dollars of venture capital invested in India in 2020. Here is a point of Even more interesting data: in July 2021, VCs invested around US $ 8 billion in India, in comparison, their investments in China were around US $ 5 billion[1]. It was the first time since 2013 that India attracted more venture capital investment than China.

Capital seeks the best risk-adjusted returns and will therefore always gravitate to where investors expect the best results. India, with its relative political stability, recognized track record of democracy, continued commitment to reform, and growing stature as a global innovation hub make it an attractive alternative.

A swallow doesn’t make a summer, but there is plenty of reason to believe that significantly higher levels of venture capital will become available to Indian entrepreneurs, and especially those in the tech sector. While most of them relate to the intrinsic strengths of India, there are some external forces at work as well. Here’s what I think will fuel Indian tech entrepreneurs over the next five years or so.

  • Sharp increase in the number of Indian unicorns:

In the first 9 months of 2021 alone, 28 new unicorns (a term for startups valued at US $ 1 billion or more) have sprung up in India. This number rose to 38 at the end of 2020[2].

India has seen the birth of several innovative fintechs over the past decade, many of which are already unicorns or on their way to getting there. As the global banking and financial services industry searches for disruptive solutions and new ways to create ecosystems, many of these ‘Made in India’ innovations will become globally relevant and therefore attractive investment opportunities.

  • The rise and rise of Edtech:

Due to the pandemic and the emergence of interactive technologies, the learning and education space has undergone a massive transformation in the past two years. Not only in the early years of school, but also as a coach for various entrance exams. Byju’s, for example, is valued at nearly US $ 16.5 billion and has already acquired 9 other Edtech companies in recent months. Like fintech, the Edtech opportunity also has the potential to tap into global business opportunities.

  • Growing interest among Western venture capital funds:

Existing investors are looking to expand their Indian portfolio, with some large investors like Tiger Global making 25 investments in India between January and August 2021 (in 2020 they invested in 18 startups). New venture capital firms that had not previously invested in India are also entering the market. The Andreessen Horowitz (a16z) fund, for example, recently closed a US $ 260 million investment in cryptocurrency player CoinSwitch Kuber (valuing it at US $ 1.9 billion). Reports suggest a 60% increase in U.S. investor participation in Indian fintech startups over the past three years. The Unacademy Group, another major Edtech player in India, recently raised $ 440 million (investors also included non-U.S. Funds) – valuing the startup at nearly $ 3.5 billion.

  • Many global giants are already present in India:

It was recently reported that one in 12 global unicorns have their technology centers based in India (source: IVCA August report). As Indian companies and their innovations gain global visibility, I think many more global organizations will move to India (As explained in my previous blog – Global Captive Centers in India: Can add value if set up Differently).

India has a large pool of talent in technology and management who can be attracted to startups both through the higher compensation made possible by the support of venture capital and the pleasure of creating something new. . Such talents can form crucial leadership and middle layers as these startups evolve and grow rapidly.

  • Entrepreneurship on the rise:

More and more, young graduates are becoming entrepreneurs – and choosing this path over the security of “secure” jobs in established companies. And of course there are top executives from various companies who are also bitten by the startup virus and leave to start / mentor various start up companies.

Conclusion

Of course, there is also the elephant (more precisely, the dragon) in the room. The leadership of the Communist Party of China has, over the past year, made a number of major policy changes with the apparent intention of targeting large Chinese companies (tech and others). The Chinese government’s apparent reluctance to come to the rescue of defaulting real estate majors is another event that has muddied the waters for investors. Western investors have significant exposure to many of these companies whose wings have clearly been severed. Tensions in diplomatic and economic relations between China and the West are expected to trigger a slowdown in new investment, or even cause Chinese companies to exit.

Capital seeks the best risk-adjusted returns and will therefore always gravitate to where investors expect the best results. India, with its relative political stability, recognized track record of democracy, continued commitment to reform, and growing stature as a global innovation hub make it an attractive alternative.

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