How tech startups can make the most of 2023

With over 77,000 DPIIT-recognized startups, India has emerged as the 3rd largest ecosystem for startups globally. Despite major uncertainties in the economy, startups in India raised $27.5 Bn in 2022, a figure slated to hit US $180 Bn this year. The startup ecosystem continues to play an active role in bringing innovation to India’s business arena.

Regardless of the recent downturn, tech startups & enthusiastic entrepreneurs are competent to address the real challenges of conventional businesses & industries. The technology adoption & digital transformation by each business segment & sector has enabled Indian startups to combat inefficiencies, implement troublesome manual processes, and defeat post-pandemic skill shortages even during the economic recession. India witnessed the arrival of 1300 tech-driven startups last year raising the tally to 25000- 27000. Together they raised funds that exceeded pre-pandemic levels with annual investments of about $18.2 Bn in 2022 (Source: Nasscom Tech Startup Report 2022 – Rising Above Uncertainty).

Opportunities galore…

India has a powerful ecosystem of angel investors, dynamic disruptors, venture capitalists, as well as major business giants. Spread across 56 diversified sectors, around 4500 startups are recognised as emerging tech startups. Overall the tech-based sectors are flourishing, be it in the domain of E-commerce, EdTech, FinTech, HealthTech, AgriTech or new-age sectors like Robotics, Artificial Intelligence, Green-tech, blockchain, electric mobility, Deep Tech, and Security Tech.

While the introduction of D2C models has altered the nature of the e-commerce sector, the mass adoption of digital payments, communication and business management tools and telemedicine platforms has rapidly changed the course of health tech, fintech, and enterprise tech, attracting funding from investors. With $54.1 billion in funding, e-commerce and fintech funding accounts for more than 40% of all funding since 2014. On the other hand, enterprise technology has seen the most deals—nearly 1,400 out of the 5000+ deals—spanning over the last eight years.

The maturity of this particular ecosystem is noteworthy with tech startups calculatedly focusing on profitability over valuation & the trust of investors, even influenced by macroeconomic factors. This creates the path of growth in India in 2023 and further.

Growing investor's inclination toward Indian tech startups

In the post-pandemic era, while entrepreneurs stayed determined in their efforts to succeed irrespective of unfavorable market conditions, prolonged funding rounds, and deflated valuations;  investors did go ahead backing the dynamic tech ecosystem, greatly appreciating the resilience shown by young entrepreneurs. India saw a staggering 39% year-over-year (YoY) increase in the venture capital (VC) funding volume reaching 976 deals in the first half of the year 2022. Additionally, the growth of the tech arena in India, the quality of founders, heightened tech innovation being adopted by end users, options for scalability, and a higher ratio of Customer Acquisition Cost (CAC) to Customer Lifetime Value (CLTV) further added to the positive receptivity shown by the investors.

Tech startups addressing real on-ground challenges backed by a prudent team, a clear business model, with a strategic business growth roadmap have struck a chord with potential and existing investors. Given the economic environment, investors prioritize investing with startups that have short to mid-term profitability goals as opposed to hockey stick growth at the cost of high capital burn which was the case before summer 2021.

Building a cost-conscious startup is the need of the hour

With a slowdown in the global economy, inflation, and other competitive challenges, Indian startups are suffering much pressure from investors & business networks to succeed. Many startups disappear before they get financial stability. In such situations, investors expect startups to manage capital efficiently and confidently to nurture & grow a long way.

The key factors that startups need from the outset include intelligent strategic planning and stringent cash flow monitoring in a cost-conscious manner. This leads to a stable financial situation where the startup founders can react to the macro changes without having to worry about monetary pressure. It is wise to add a buffer while creating a business plan and be prepared for unforeseen situations like pandemics and economic slowdown.

Prudent capital management & close eye on the bottom line helps startups not just to succeed but also allure investors into their business. With growth, they also require concentration to measure & track profitability. A mix of both investments and cash flows should be used to reach profitability. Hence, enthusiastic startup founders are required to consider several factors to work efficiently without bearing any stress or pressure from customers, investors, employees, or other business associates.

India ranks as the second-largest internet user in the world, and the growing number of internet users is expected to reach 650 million by 2023 and 900 million by 2025. It effortlessly helps create a robust digital ecosystem in the nation. The vast consumer base, ranging from teenagers to older people, is driving demand thereby aiding market growth. As opposed to other economies, this growing population and affinity towards digital channels make the digital marketing domain in India stronger than ever.  The digital marketing domain is pegged to grow at a CAGR of 32.1% and reach around USD 24.1 billion by 2028 from nearly USD 4.5 billion in 2022. The improving digital infrastructure of India enables the establishment of multi-billion verticals in technology-based businesses. Consequently, investors will continue to invest in digitization and technology where good business ideas and innovation are still being supported.

Authored By: Yogeeta Chainani, Co-Founder and Chief Executive Officer (CEO) at Swaarm