India is the third largest startup economy(1) in the world. From 2014 to Q1 2022, India launched 57K startups, which raised a total capital of USD 131 billion, and have a combined valuation of USD 450+ billion. It also includes 105 unicorn startups, expected to rise to 250 by 2025.
Also, 1088 startups from different sectors, including fintech, eCommerce, healthtech, consumer services, edtech, media & entertainment, enterprisetech, deeptech, agritech, logistics, etc., have brokered Merger and Acquisition (M&A) deals with corporates.
What’s attractive about the startup ecosystem in India? What do they have to offer the corporates?
Startups are more likely to develop disruptive technologies
Most Indian startups, like Zomato, PhonePe, Netmeds, Dunzo, and Ola Cabs, have based their business models on technology. These disruptive technology-based startups have entirely revolutionised the market.
Corporations can adopt newer technologies and partner with startups developing technologies related to the products/services they offer. Such a partnership will help the corporates get deeper insights into experimental tech and allow them to make product/service development quick and inexpensive. It will enable them to stay ahead of the curve, remain competitive and strengthen their market position.
Working with a startup also has the added benefit of using its agile, fast-paced work culture of innovation to the corporate’s advantage. Such a work environment offers faster development time when compared with hierarchical business models.
It’s the decade of Greentech/cleantech
Corporates stand to gain by collaborating with Greentech startups regarding Corporate Social Responsibility (CSR) and corporate innovation. It helps make a positive social impact and an economic one. The Greentech industry can potentially generate USD 212 billion(2) in revenue by 2030.
Greentech startups employ AI, ML, and IoT to find solutions to the 17 Sustainable Development Goals (SDGs) as listed by the United Nations in the Decade of Action, 2020. Indian startups focus on specific issues like waste management, e-vehicles, water treatment, and renewable energy production.
Indian Greentech startups include the unicorn ReNew Power, Chakr Innovation, Cleanmax, GPS Renewables, Greenjoules, Nepra, etc.
These startups are developing ideas to protect our flora and fauna, ecosystems, and sustainable lifestyles without harming the environment or halting the country’s economic development. It makes collaborating with Greentech startups a pragmatic business decision.
Portfolio diversification is the norm
Portfolio diversification is another strategy through which a corporation can leverage the startup ecosystem. Startups are innovative and disruptive, operate on a high-risk–high-reward matrix and always look for funding to grow. However, there is no way to know which startup will gain prominence and make a profit.
That’s why an established corporation should invest in various sectors and companies to balance its risk-to-reward ratio. For instance, Softbank, a Japanese tech investor, invested more than USD 10 billion in Indian startups. Some startups include Paytm, Flipkart, First Cry, Swiggy, Ola, Oyo, Delhivery, Lenskart, and InMobi. In FY2022(3), they reported a loss of nearly USD 600 million against their investment in Paytm, but at the same time, they gained USD 402 million from their investment in Policybazaar.
Therefore, a diverse investment portfolio can help a corporate stay abreast of the latest trends, maintain a market position and minimise risks.
Mergers and Acquisitions (M&A) are the way to grow
Mergers and Acquisitions are another brilliant way for corporates to leverage the startup ecosystem. They allow corporates to bring startup operations in-house, unite common products (if applicable), expand to new territories, and grow revenues while reducing the risk and eliminating the competition.
Startups also go for such deals as it offers them a scale of synergy and economy, increased market share, talent, technology, and funds to grow.
India has recorded 1088 M&As in the last eight years, many of which have also included startups acquiring other startups. For example, Flipkart acquired Myntra, PhonePe, and Liv.ai. Quickr acquired Zefo, India Property, and Babajob. Zomato acquired Ubereats, Blinkit, and Runnr.
The time for brokering M&A deals is now as the funding has softened(4), and a recession is likely. Startups are looking for funds to support their operations, making them more amenable to the idea of an M&A.
Work culture and agility matter
A corporate works with a hierarchical structure and in a slower-paced environment. It delays decision-making and results in long Research and Development(R&D) phases, which can sometimes be better. Corporations can learn from the startups, which follow flexible, creative, communicative, and fast-paced operations that can lead to growth.
How startups are adding value to consumers
A startup focuses on technological advancement and growth and considers simplifying and making things more accessible and affordable for consumers. For example, Netmeds or Zepto have eased online purchasing of medicines and groceries, respectively.
Moreover, many startups are prevalent in two-tier or three-tier cities, including agritech startups like Fyllo, Agrostar, and Poshn. These are ideal for corporates looking to expand their market share in underserved areas.
Despite the risks, startups look for value propositions to the consumers or the country. They are forward-thinking and innovative.
For example, startups in spacetech and defencetech are pursuing high-risk ventures, but these ventures are instrumental in helping an economy like India develop. They care immensely about their consumers and aspire to make a real change. Corporations should leverage these strengths for innovation and social development.
References:
- https://inc42.com/reports/the-state-of-indian-startup-ecosystem-report-2022/#:~:text=Today%2C%20India%20is%20home%20to,superpowers%20%E2%80%93%20the%20US%20and%20China.
- https://www.business-standard.com/article/current-affairs/india-can-generate-212-bn-by-investing-in-renewable-energy-report-122083101112_1.html
- https://www.business-standard.com/article/companies/japanese-tech-investor-softbank-s-investment-in-india-may-fall-to-a-third-122060300029_1.html#:~:text=Japanese%20tech%20investor%20SoftBank%20may,%243.2%20billion%20in%2012%20deals.
- https://economictimes.indiatimes.com/tech/startups/startup-ma-deals-climb-up-amid-slowdown-in-funding/articleshow/90626951.cms
