Reporting from the trenches: trends that shaped the Indian startup ecosystem in 2018 and what 2019 might bring us
A lot of highs and a few lows. Blockbuster events in 2018 also signaled positivity and optimism in a market that many call tough to crack.
The year 2018 was packed with action when it came to the startup ecosystem. While one would say that’s a good thing, as someone reporting it, it’s kept me on my toes.
Byju’s became the world’s most valuable edtech startup in 2018, and Walmart bought 77 percent stake in Flipkart to complete the largest ecommerce deal in the world. If that was not enough, Swiggy entered the Unicorn club and then to wrap up the year raised a $1 billion funding round, Flipkart’s Sachin Bansal and Binny Bansal again made headlines and Snapdeal had people guessing whether it had managed to pull a phoenix story.
Looking back, 2018 was a mixed bag of good and bad. On the global front, it was Facebook’s annus horribilis when it came to data privacy; US President Donald Trump started a trade war with China and NASA’s InSight probe landed on Mars. Closer home, angel tax made a comeback.
These are the trends the Indian startup ecosystem threw up. They're also an indication of what 2019 might hold in store.
Returning investor faith
Tracking startups and funding is all part a day’s work. Entrepreneurs and investors, though, insist that talking about funding isn’t healthy for the ecosystem and that conversations should be around products and companies.
All well and good, but one cannot not look at the numbers. In 2015, the euphoria and frenzy saw $9 billion invested in the startup ecosystem. This sank to $4 billion in 2016 as startups found the going tough and shutdowns and takeovers almost became common. Then some great ideas failed - collateral damage. 2017 saw some correction. But not everything was hunky dory. There was a near absence of growth-stage deals (Series C-D) - a sure cause for worry. 2018 corrected that to a large extent. Deals were fairly evenly distributed across early stage, growth stage and late-stage deals.
According to YourStory Research data, last year, the Indian startup ecosystem saw over 855 deals amounting to $12.64 billion in equity funding. In comparison, 2017 saw $12.74 billion in funding, and 2016 had seen $4.06 billion.
Investments are important because they reflect external faith and belief in startups.
In 2019, I don’t see a shift in investor faith and belief. There will be a higher number of bets placed, but investors will continue to remain cautious. There will be sharper focus and attention in sub-sectors.
The returning favourite - Foodtech
Three years ago, foodtech was the darling of investors. Then started the downward spiral with Tinyowl. The fall of Tinyowl created a domino effect and investors refused to look at anything to do with food.
But 2018 turned that, and I’d say that was a welcome change. The year saw two Unicorns coming in from the foodtech space - Swiggy and Zomato. While larger funds didn’t look at the foodtech sector in 2015, in 2018, Naspers, DST Global, Alibaba and Meituan-Diaping - all placed their bets on the sector. And word on the street is Softbank may also look at a piece of this pie this year.
Last year saw a big shift for the foodtech sector. The survivors of the 2016 bloodbath slowly and efficiently built the market. They had the time, space, and most importantly, capital to continue building the space.
This year, the swords are drawn in the foodtech space as unicorns Zomato and Swiggy, as well as smaller competitors UberEats and FoodPanda battle it out to dictate how India eats.
The ripple effect of the Flipkart-Walmart deal
For me, the most interesting development last year was the fact that biggies like Softbank and Tiger Global returned to the Indian startup ecosystem. And much of this was thanks to the $16 billion Flipkart-Walmart deal which gave them stellar exits.
An investor said that when the big two - Softbank and Tiger Global - invest, early-stage investors get an exit, and with that, they have more funds for newer startups. This year, Softbank’s Vision Fund began with investing in Uber, but was soon investing in Indian startups that soon made it to the Unicorn club - Oyo, Paytm Mall and Policybazaar.
The Flipkart-Walmart deal also proved that India was a market where money could be made. With this exit, Softbank posted a 49 percent rise in its first-quarter operating profit, meaning it had more money to deploy.
The Flipkart deal may also open the field for other corporates to look at India. Other significant M&A activities included Mettl, which gave a Rs 300 crore exit to its investors, and Tapzo was acquired by Amazon Pay.
2019 will continue to see more consolidations, big and small.
The love for Indian languages
India is suddenly hooked – and strangely it is going back to its roots, literally. Indian language content saw what some call an explosion in 2018. Everyone – from ecommerce players to edtech companies, from news aggregators to information platforms – was looking to cash in on the next set of customers – Indians logging in to the internet for the very first time. And to be sure, they don’t speak English.
Amazon and Google have already acknowledged the need to not just focus on shoppers from Tier II and Tier III cities, but also merchants from the region and the easiest way to do this is communicate in the language of their preference. I call this phenomenon the ‘Jio Effect’. And this is just the beginning. This will turn out to be one exciting space and I for one am not taking my eyes off it this year.
The ecosystem that everyone was looking for in 2015 has finally arrived – and in style if I may say so. In 2019, there will be increased push on the content business.
As older trends get refined and newer ones emerge, 2019 promises to be an exciting year for the Indian startup ecosystem and I for one can see myself staying on my toes this year as well! Cheers to that!