Indian Startups: ET Startup Awards 2024 | The warm-up decade is over, time is ticking for the real match

the indian startup ecosystem is going through an inflection point where founders are building to profitability and considering an eventual public listing, even investors are evaluating companies more closely, delving into operating metrics, investment performance and so on.

Discussing’Indian startups: 10 Years and Counting’ at the Economic Times Startup Awards (ETSA) 2024 on a rainy Saturday in Bengaluru, the panel members felt that the first decade was just the warm-up with the real scale-up coming over the next decade and beyond.

“We raised money during the most difficult phase for the Indian startup ecosystem, so we had to turn to more traditional investors who asked us more operational questions and went into more details of the business, which pushed us to find those answers and , finally, solve them.” said Aadit Palicha, CEO of Zepto. “Now I see more conventional funds also asking the same questions, delving into the details of the operating mechanics of technology companies.”

Zepto raised $1 billion in equity financing from companies including General Catalyst and Epiq Capital Advisors in the current year and its valuation jumped to $5 billion.

Also read: ET Startup Awards 2024 | Zomato top brass needed a deep clean after IPO highs: Co-founder and CEO Deepinder Goyal

Speaking of fiscal discipline, Lenskart Co-founder Peyush Bansal, who won the ‘Startup of the Year 2024’ award, said that companies need to be careful with their expenses and that is how the right companies are built. “If, for any company, Rs 1 lakh starts looking like one rupee, then there will definitely be a problem in the future,” he said.

Corporate governanceWhile growth and profitability are important for the startup ecosystem, infosys Chairman Nandan Nilekani, moderator of the panel, raised the corporate governance issues faced by many new generation companies in the last two years.

Responding to your question about to what extent the blame lies with venture investors, Subrata Mitra, partner at Accelerateone of the most prolific startup backers, said that investors can’t take all the blame, that everyone has a role to play.

“It’s not always easy to detect fraud in a company, but I would say that if you understand that there may be something wrong, you should take it very seriously and act from the beginning,” Mitra said.

Ecosystem growth

One point that came up early in the discussions was how the Indian startup ecosystem has exploded. From about 1,000 startups a decade ago, there are now more than 100,000 in the country, Nilekani said.

With the government building the Digital Public Infrastructure (DPI), many startups have been able to build on the technology stack and serve consumers.

Nilekani further pointed out how big tech companies and traditional conglomerates have spawned new companies. Companies like TIC and Infosys have helped grow the first set of tech startups and now big startups have helped spawn newer ones.

Also read: ET Startup Awards 2024 | From chips to AI… India is moving ahead in the digital value chain: Ashwini Vaishnaw

Of pay to Flipkart, Zomato and Swiggy, each startup has seen many of its top executives eventually quit to start their own companies. Companies like Groww, Slice and Rentomojo emerged from Flipkart, wealth tech startup Dhan, Indiagold and Park Plus were founded by former Paytm employees.

“Startups beget new companies,” Nilekani said.

Accel’s Mitra said the number of startups seeking venture capital The company’s support has increased five-fold, from around 3,000 to 4,000 in 2015-16.

Lenskart’s Bansal said the first decade for Indian startups was solely focused on tangible assets, growth valuation and so on. But now the founders are also looking at the intangibles.

“It’s not about human resources, it’s human capital, and as the ecosystem grows and we aspire to internationalize, this is something we have to invest in,” he said.

Finding the right fit

An important point highlighted by the founders on the panel was finding the right product for the market and the right means to serve customers.

While Palicha dropped out of his course at Stanford University once he discovered that Zepto was solving a major problem for its consumers, Lenskart’s Bansal discovered very early in his journey that 80% of people weren’t buying from his website because they wanted to touch . and feel the glasses.

Bansal started with a store between his office and his home and, in a short time, the store began to do better business than all the optical stores in the neighborhood.

“After a few years, people saw that (the offline store) was making money and started calling it omnichannel. We learned early on why people buy or don’t buy and we are clear that we are not building for the public market or the private market,” Bansal said.

While big consumer-facing brands like FirstCry, Myntra and others invested heavily in building their offline channels, even online payment companies like Razorpay and Paytm created offline payment systems to cater to these brands’ omnichannel’.

Just like Bansal found the right fit in ‘omnichannel’, Palicha’s core business insight was that consumers prefer to purchase low-cost grocery items multiple times in a week rather than making bulk purchases. This is where Zepto’s fast trading service fits perfectly.

“The average transaction frequency in India is 2.2 times a week, and in the United States it is around 2.4 times a month. The average ticket size of transactions on Zepto is around Rs 500,” Palicha said.

Building global companies in India

Looking ahead, Indian founders are looking to tap into global markets and create solutions for everyone.

“In my opinion, space, technology, services… all of them are going through a new evolution and Indian companies now know how to compete in that space. Hopefully, some of them will become truly global,” Accel’s Mitra said. “It’s fair to say that people in the West don’t understand services, so we could see some of the best companies combining AI with services. “These will be India’s big winners,” he added.

Noting that the ecosystem needs to have more faith in itself, Bansal said investors get very worried when their portfolio companies talk about going abroad. “In the next ten years, we have to create impactful companies that can grow and operate sustainably for decades to come. We also need to create consumer brands. I still feel like we are impressed by global brands. I think the same should happen with Indian brands,” he said.

Lenskart, which has operations in different Asian countries, earns around 40% of its total sales from outside India.

Noting that Indian companies have the right to win in global markets, Palicha said the total addressable market (TAM) in India has increased exponentially, which means Indian brands are already catering to large consumer bases. So there’s no excuse for market size, talent or capital… it’s just execution, he said.

Set goals for the next decade

Setting goals for the next decade, Palicha noted that India has not yet been able to create companies on the scale of Uber or Airbnb. So that’s what founders will have to strive for, he added.

“If you had evaluated the Internet ecosystem, it would be like how many $50 billion companies are going to be created in the next ten years and I think we desperately need that,” he said.

Palicha further said that the very large global funds he interacted with over the last year during the course of their fundraising were not investing much in India. Companies like Fidelity, which has more than $5 trillion in assets worldwide, are still not actively investing in Indian startups, he said. That should be the goal for the next decade.

Bansal struck a more optimistic note, noting that if the first decade was about profitability, the next decade will be about the allocation of those profits. “Allocating that money will become the biggest question for companies because everyone is making a profit and how we use that money will be very crucial,” he said.