Guide to Indian startup ecosystem

Posted by Prasad Jadhav on October 7th, 2019

The Indian startup ecosystem has come a long way from its initial days as a backwater in the field of technology. Open the newspaper daily, and you will see hundreds of advertisements featuring stories of new startups and also expansion by existing startups like Ola, Flipkart etc. Before delving further, let us brief you about the concept of startup.

Startup is defined as a young firm which is in its initial stages of its development. These startups have very less staff and are financed and operated by its founders. In India, startups have been founded by college graduates, experienced professionals professionals and industry stalwarts. Indian startups are today concentrated in almost all the fields like mobile development, IT programming, gaming, animation etc. One of the major reasons why the Indian startup system has flourished so rapidly, is the easy availability of venture capital from various sources. Venture capitalists are those people who finance startup firms in return for an equity stake in these companies. This process is also known as crowdfunding. In India, there are many well known VC’s such as Sequia Capital, Helion Venture Partners, Accel Partners which provide ready available funds. Additionally, in the Indian startup ecosystem, presence of renowned technological institutes like Indian Institute of Technology, Indian Institute of Science and Indian Institute of Management help new entrepreneurs with readily available business plans, industry knowledge, innovative product or service. For example, Flipkart’s founders are alumni of IIT Delhi respectively. Some of the famous household names which have been founded are Just Dial, Practo, Make My trip, Flipkart, Redbus etc on the basis of the capital from these VC firms.

Indian startup ecosystem has been largely modeled on that of the Silicon Valley. In the field of technology, India is the 2nd largest base for startups after USA. Currently, there are around 20000 startups and 800 are emerging year after year. Out of 20k, 4700 startups are based on technology. Bangalore and NCR are two of the topmost contributors as of today, closely followed by Mumbai, Pune, Hyderabad and Chennai respectively. NASSCOM is targeting no of jobs being created to reach 3lakh by 2020. Interestingly, most of the startup founders have prior experience of working in tech MNC’s. However, one worrying aspect is that only 6 per cent of startup founders are women in India. One of the main reasons is that women often give up careers due to family demands. The prime factors which has led to a big boost in startups in India are labelled as follows.

1) Cost of doing business.

2) Close to vendors/customers.

3) Domestic market size.

Currently, there are 7 million college graduates every year and majority of them desire to work in startup firms. India is the second largest internet market in the world, just after China. In India, the startup infrastructure is excellent which involves incubators, accelerators and working spaces. Big corporates have entire team dedicated to startup funding. For example, Wipro has set up 100 million USD for crowd funding. IBM is partnering with 100 startups and Indian data weights. Another interesting aspect is that Tier 2 cities are now beginning to see a lot of startup activity. The Indian government has launched Startup India mission as its cornerstone policy.

Currently, the Indian tech startup system is divided into two parts, namely B2C and B2B. Majority of firms are focused on Business 2 Consumer model, whereby consumers are the main target. Currently, B2C firms have a 70 per cent market share. Of late, we have seen significant progress in B2B firms in diverse fields like healthtech, fintech, traveltech and lots of emphasis on Artificial Intelligence, Machine Learning etc. Some major B2B firms include Industrybuying, Wydr and Mswipe respectively.

The key sectors where Indian startups are prominent are mentioned as follows. In health sector, currently, there are around 350 startups which provide services. Some firms like Gramin healthcare, Karma primary healthcare deliver solutions in villages. Other startups like Portea, Netmeds, BioQuest, GetActive deliver online access pertaining to eye scanning devices, genomic tests, calorie counters.

Another hot area is fintech, where the government has made it a policy to encourage cashless transactions, increase documentation and financial inclusion. There are plenty of startups which are focusing on mobile wallets, Points of Sale and Unified payments Interface. Prominent among them are Paytm, Bankbazar.com, PhonePe etc. As of today, the no of fin startups has reached approx 400.

Travel and tourism is the next big thing for Indian economy, as it is expected to create millions of jobs in the subsequent years. Here, a lot of startup activity is being observed especially with regards to online travel and hospitality. Prominent among them consist of Oyo, Makemytrip, Goibibo, Yatra.

Even after seventy years of independence, India contains the largest no of illiterates in the world. More than illiteracy, there is acute shortage of quality education in rural areas due to the collapse of the state education sector. There is a huge opportunity with regards to providing education. Quite a few startups like Byuju, Simplilearn, Toppr are filling this gap by delivering online lectures of all school subjects. Apart from academics, they are also focusing on career counseling and personality development. One major innovation, which these firms are doing is that they are providing lessons in regional languages, even for science subjects.

One area where the Indian startup system still has a lot of catching up to do is manufacturing startups. Due to outdated labor laws regarding hiring labor, the country is trailing China by quite some distance. However in the future, due to soaring labor costs in China, a lot of firms like Foxconn are keen to shift their businesses to India. So, there are plenty of opportunities for startups in the field of smartphones manufacturing, auto components, textiles, electric vehicles etc. Some prominent startups consist of Olaelectric, Algo Engines Pvt Ltd. Here we take up certain cases and learn more about the ecosystem.

Byuju is one of the most popular startup companies to have emerged. It is a Bangalore based online tutoring company. The main product is Byuju's the learning app in the smartphone. The content is wide focusing mainly on mathematics and science. The company has students from classes 4 to 12.

In addition to normal studies, they also train students for competitive exams like IIT, NEET, IAS, CAT and international exams like GMAT and GRE. It is a paid app and the concepts are explained with the help of digital animations and moving pictures all captured within short videos. As of today, the app has over 15 million subscribers and around nine lakh paid subscribers. The retention of the subscribers is around 90 per cent. The main feather in its cap is the fact that it received crowd funding from Chan Zuckerberg Initiative and is the first company in Asia to do so. It also received funds from other notable VC companies like Sequoia Capital, Lightspeed Venture Partners, Sofina, Verlinvest. Times Internet and Aarin Capital. In 2018, Naspers and Canada Pension Plan Investment Board gave it 540 million dollars in funding. In 2018, BYJU became a unicorn and its valuation was termed as 1 billion USD. The success of the startup ecosystem can be gauged from the fact that in 2017, Byuju acquired Tutor Vista and OSMO, an American video maker in 2019. Additional acquisitions include Pearson's tutor vista and Edurite lines of business.

Next, we go to the most popular fintech product, Paytm which has revolutionized our daily life, including the way we shop and transact. It is the number 1 ecommerce payment system and digital wallet company. It is available in 11 Indian languages and is currently valued at 10 billion USD.

As of today, the firm has diversified into many firms like Paytm Wallet which has been added by Indian railways and Uber for making payments. Later in 2016, the firm launched events, movies and airplane ticket bookings along with Paytm QR. Another of very popular products is Paytm Gold , which helps users to purchase 1 rupees of gold online. It has also launched Paytm Payments Bank and a new feature 'Inbox' for sending and receiving messages along with inchat payments.

The story began in 2007, when Paytm's parent company One97 Communications Ltd, received funding from VC firm SAIF Partners. The firm was established with funding from its founder,Vijay Shekhar Sharma of around 2 million USD. Later, as common with other startup stories, it received additional 10 million USD funding from from Sapphire Ventures. Alibaba Group also has invested in its parent firm One97 by taking 25 per cent stake in it. As of 2017, Softbank the giant Japanese VC has given a lot of funds to Paytm, which by itself is a big achievement.

Next, we examine the case study of OYO, which is the leader in hospitality startups. It was founded in 2013 and consisting mainly of budget hotels. Currently, it allows booking in 12000 hotels and over 337 cities. It has also started operations in UAE, China, Indonesia, Malaysia and Nepal. The firm was started in 2012, after the founder Mr Ritesh Aggarwal decided to launch Oravel stays, a website designed for booking and listing of budget accommodation. Oravel stays was later converted to OYO rooms. The firm received 24 million USD funding from Sequoia Capital, Greenoaks Capital, Lightspeed Venture Partners and DSG Consumer partners in 2015. Later in the same year, it received 100 million USD from Softbank group. In 2016, another round of funding followed, this time from Softbank group,Innoven Capital to the tune of 90 million USD. The firm launched OYO home a marketplace for short tem rentals in 2017. OYO Home has been expanded to all the major destinations like Kerala, Goa, Udaipur, Shimla, Pondicherry. OYO rooms has also gone international, with the launching of the 1st OYO room in Dubai. In 2018, OYO raised 800 million USD from Softbank Visionfund, with participation from Greenoaks Capital, Sequoia and Lightspeed. OYO has also made its presence felt abroad by acquiring Amsterdam based Leisure Group for 369.5 million euros.

Ola Electric Mobility was launched by Ola cabs as a flagship, in order to spin off its electric vehicle business into a separate entity with 56 million USD funding received from Tiger global and Matrix India in February 2019. Ola Electric is also working on EV batteries, charging solutions to allow commercial EV's to operate at scale. The project was launched in Nagpur as a joint venture with Mahindra and Mahindra Ltd. It desires to bring one million electric vehicles on road upto 2021. The eminent Indian industrialist Ratan Tata recently announced funding in OLA Electric Mobility which has come as a big boost. The firm is trying to develop an electric mobility ecosystem which will consist of battery swapping and a charging infrastucture.

This goes to show that level of maturity and satisfaction in the Indian startup scene. Companies like Byuju, OYO receiving funding from so many VC's and has also gone global by acquiring firms abroad. Such a scenario would have been unthinkable a few years ago.