Home / Opinion / E-commerce | Indian start-ups turn 18

As 2015 comes to an end and we dwell upon start-ups, the year can be termed as the one when the Indian start-up ecosystem truly came of age and made its mark on the global stage. The year 2015 has been remarkable for the ecosystem and we at Tracxn expect this momentum to continue in 2016.

Even though the slowdown of US tech IPOs (initial public offerings) and write-downs in valuations of unicorns like Snapchat cooled venture capital investment in the second half of 2015 in the US, Indian start-ups continued to attract investor interest throughout the year. In fact, from the data we have gathered, Indian tech start-ups have garnered $7 billion in 2015 compared with $4.7 billion in 2014. This shows the bullishness of global and domestic investors in the Indian market.

The rapid adoption of cloud infrastructure from the likes of Amazon Web Services and easy access to venture capital reduced the costs and risks of launching tech start-ups the world over. India, too, has seen its fair bit of love from entrepreneurs. More than 3,500 companies have been founded in 2015, compared with just 1,000 in 2011.

Access to capital at an early stage and specifically at the ideation and pre-revenue stage was one of the major pain points for entrepreneurs. Increase of late-stage activity (from 88 deals in 2013 to 200 deals in 2014) has provided much-needed exits to angels and enabled them to invest with lower risk. This large and vibrant angel investor community more willing to bet on start-ups directly led to the increase of angel rounds in 2015. A key enabler to this trend is the group of entrepreneur-turned-investors—founders of Flipkart, Snapdeal and InMobi, etc.—who have been bankrolling other start-ups and helping them in raising follow-on rounds through their connections with mid- and late-stage funds.

2015 also saw three companies—Paytm, Quikr and Zomato—enter the unicorn list. Investments from large hedge, mutual funds and private equity funds into Indian start-ups surged in 2015. Interestingly, Chinese tech giants like Alibaba and Tencent have also made strategic investments in companies like Snapdeal and Practo.

Limited partners in India-focused funds often complain about lack of exits. The mergers and acquisitions market opened up in a big way owing to the acquisition spree of mature start-ups and other established companies. Apart from mega deals like those of TaxiForSure and Freecharge, the year also saw the number of acqui-hires go up. Acqui-hire is an instance of buying out a company primarily for the skills and expertise of its staff, rather than for the products or services it supplies. Not so long ago, the number of exit options available to founders and investors was limited. This recent phenomenon of acqui-hires by larger funded start-ups has made the effort, time and money spent more rewarding for founders as well as investors.

Among the sectors that have caught the attention of entrepreneurs and investors alike, hyperlocal delivery, on-demand services, food and grocery start-ups are at the forefront. These hyperlocal and O2O (online to offline) start-ups are enabling local merchants to expand their reach along with organizing the messy terrain of services and delivery sectors, creating a win-win proposition for both customers and service providers.

A new breed of start-ups sprouting up in varied sectors are vying to disrupt traditional models. Lending is one such sector where the existing institutions have a limited reach to serve customers with their long, bureaucratic loan approval processes and age-old credit rating methodologies. New-age fin-tech start-ups armed with smart algorithms are expanding the pool of lendable population and are looking to compete with the traditional players in 2016 and beyond.

The first wave of Indian tech entrepreneurialism in the 1990s and the early noughties was heralded by IT service firms catering to clients in the US and Europe. We believe, software product start-ups are going to be the next big wave. This new breed of SaaS (software as a service) start-ups is unafraid to tackle global players head on and is starting to think global from day one. Few of them like Freshdesk have attracted interest from late-stage, bulge-bracket investors. In 2016, SaaS start-ups are expected to continue their run and will eventually create a pool of professionals equipped with world-class product expertise.

Many established global firms have committed to India big time and have allocated large amounts of capital to their Indian subsidiaries. These global firms are bringing their best practices to India and creating a talent pool which can compete globally. The local upstarts competing with these firms have to innovate continuously to stay relevant and make a dent in the market. Another interesting pattern is the flow of talent from Silicon Valley to India. Deep-pocketed consumer Internet firms have convinced prime talent from the valley to relocate to India and work on exciting opportunities over here.

Though there have been cases of shutdowns, lay-offs and profligate cash burning on user acquisition, obstacles and course correction are part of the journey towards maturity. As entrepreneurs and founders learn from this, a better and more mature ecosystem will emerge. Overall, it can be said that 2015 was the year when you couldn’t afford to ignore India and its teeming ecosystem anymore.

Abhishek Goyal is co-founder, Tracxn.

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