Indian tech startup base is growing 8-10% Y-o-Y: report

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New Delhi: Indian tech startup base is witnessing a steady growth of 8 -10% Year-on-Year, according to an annual startup report – Indian Tech Startup Ecosystem – On the March to Trillion Dollar Digital Economy.

With over 1600 tech startups and a record number of 12 additional unicorns added in 2020 –the highest ever added in a single calendar year. Indian tech startup base is witnessing a steady 8-10% year-on-year growth, revealed the report.

Indian IT trade body Nasscom in partnership with Zinnov – a global strategy consulting firm released this report this week.

The report stated that the Indian tech startup ecosystem continues to witness a significant growth trajectory on the back of rapid digitalisation and tech adoption in India.

Interestingly, COVID-19 not only accelerated digital adoption and shift to online in India but created new opportunities for tech startups. They are capitalizing on this opportunity with rapid digital acceleration and a shift to SaaS-based solutions.

Deep-tech is getting deep-rooted into startups’ DNA with 19% of tech startups leveraging deep-tech solutions to build product competencies for market expansion.

This has led to significant momentum in the deep-tech space with increased interest from venture capitalists (VCs) and funding firms to invest in deep-tech startups.

Deep-tech startups attracted 14% of total investments in 2020 – an 11% more than in 2019. Further, 87% of all deep-tech investments were in AI/ML startups in 2020, the report revealed.

According to Debjani Ghosh, President, NASSCOM, the Indian tech startup ecosystem’s performance in 2020 has demonstrated the resilience and can-do spirit of the Indian entrepreneur.

“With the continued addition of new startups, booming unicorns and increased adoption of deep-tech, the ecosystem shows an even more promising future,” said Ghosh.

Depending on headwinds, Ghosh added that 2021 promises to be a positive year for Indian tech startups – marching steadily towards $1 trillion digital economy goal.

According to Zinnov CEO Pari Natarajan 2020 saw startups increasingly leveraging and piggybacking on the foundational infrastructure that the government has in place.

Such as the India Stack, UPI infrastructure, GST norms, FASTag, etc. – that offers up a unified set of layers with contactless and presence-less digital economy truly coming into its own.

“These pillars reached an inflexion point in the wake of COVID-19, with startups not only innovating on top of these layers but bringing in the unaddressed and underserved tier-2/3 cities into the larger digital economic inclusion mix. Khatabook, Udaan, etc., are cases in point,” said Natarajan.

Despite a lower number of total startup deals in 2020, seed-stage investments are recovering at a good pace as investor activity at lower ticket sizes has increased. Seed-stage funding in 2020 recovered to more than 90% of 2019 levels.

Early and late-stage investments are also recovering steadily. An increase in median deal size is further underscoring investor confidence and a willingness to take big bets.

Sectors with COVID-19 tailwinds such as edu-tech, BFSI, agri-tech, gaming, etc., are witnessing a steady increase in first time funding, up from 29% in 2019 to 42% in 2020, garnering a 14% growth in absolute numbers.

In 2020, Indian tech startups not only managed to stay afloat amidst uncertainties and rapid experimentations but also strategically strengthened their playbook by converting the crisis into opportunity.

As a result, Indian enterprises’ digital maturity has jumped to 55% in 2020 from 34% in 2018.

Customer experience (CX) and retention are back in focus as founders rethink growth strategies in a post-pandemic scenario. There’s a steady focus on operating margins to allow growth capital to be used for investments.

Profitability along with valuation should to given equal weightage in future, felt 50-55% of Indian tech startup founders.

Remote working continues to see significant adoption amongst tech startups, with around 30-35% offering remote roles and 15-20% companies having committed to remote work culture, as per NASSCOM tech startup survey.

Further, with rising digital adoption and remote working reducing geographical disadvantages, tech startups are expanding into global markets; 28-30% of tech startups are targeting the overseas market for growth and business expansion.

Cross border trade restrictions in 2020 accelerated peer-to-peer collaborations and public-private partnerships, leading to fast and effective knowledge transmission.

In fact, 66% of Indian tech startup founders are exploring partnerships post-COVID-19, as per the report.

Although cautiously optimistic, 2021 promises a return to normalcy for the Indian tech startup ecosystem. Deep-tech and new startup hubs will continue to grow at 40-45% CAGR.

Investments in 2020 were significantly lower than in 2019. But the recovery in deal pace and investments is expected to return to 2019 levels, if not exceed in 2021.

In terms of total unicorns, India is on track to have a 50-plus strong unicorn club in 2021. M&A deals and IPO pipeline are also more expected in 2021.

NASSCOM defines tech startups ecosystem as active technology product or platform companies incepted in the last 5 years in 2015 or later.

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