National Startup Day: Dissecting current trends and predicting future shifts in key sectors

The National Startup Day, held on January 16, recognises the significance of the ecosystem in driving India's economic growth.

Launched in January 2016, the Startup India Initiative introduced programmes supporting entrepreneurs and fortifying the startup landscape. Seven years later, India has a thriving startup ecosystem. With an ambitious target of becoming a $5 trillion economy by 2027-28, the country is looking at startups to turbocharge its economic growth. 

YourStory looks at the diverse startup landscape, delving into key sectors like mobility, climate tech, edtech, AI, D2C, and Web3, to uncover current trends and identify emerging patterns.

Mobility

After a breakneck pace in the last year, the electric mobility sector is poised to grow multifold in 2024.

Having been led by personal mobility—especially two-wheeler vehicles—e-mobility in 2024 will likely see many more commercial takers, by medium-haul logistics companies, public transportation departments, and last-mile delivery companies.

However, don’t write off personal mobility just yet: four-wheeler sales are expected to finally pick up this year as costs rationalise thanks to legacy companies—such as Tata—launching more cost-effective electric cars.

Also, a lot more demand from smaller cities, particularly for electric two-wheelers, is expected to come to a head this year, according to industry analysts.

On the policy front, with the government’s second phase of the Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles (FAME II) scheme expiring at the end of March 2024, the prevailing anticipation is that the updated scheme will predominantly emphasise incentivising the expansion of charging infrastructure, either directly to private entities, or via public-private partnerships.

Beyond FAME II, the industry hopes to see some sort of development on the battery technology, as well as the charging standard front.

On the anvil for the year also is the highly anticipated initial public offering (IPO) of Ola Electric, which will set the stage for more e-mobility-focused startups in India to flourish.

Climate tech

While it’s still quite early days, global and domestic investors are finally taking note of India’s climate-tech sector, save for a few emerging sub-sectors.

Overall, the climate tech sector raised a total of $1.23 billion, across 55-odd funding deals in the first 10 months of 2023. E-mobility, of course, led the mandate, raising over half a billion dollars, but clean energy came a close second, raising $390.3 million, led mainly by a $360 million mega-deal bagged by CleanMax Solar.

Industries such as clean energy, deep and advanced tech, and food and agriculture saw decent funding last year, but critical sectors such as water, circular economy, waste, and adaptation and resilience went unnoticed in India.

The market for these sectors will pick up in 2024, especially coming off of the discussions that happened at COP28, but it will remain relatively small, according to industry experts.

Climate-tech startups and investors are also pinning hopes on some form of government boost in the form of subsidies and grants to help make the sector more lucrative for private investment, as well as push innovation at least to a proof-of-concept stage.

The government has started taking baby steps towards boosting the sectors already: the Reserve Bank of India (RBI), in April last year, released a framework to mobilise capital for environmentally sustainable projects, enabling retail investors to invest in ‘green deposit’ schemes.

To combat greenwashing, the RBI has stipulated that funds generated from these green deposit schemes exclusively support ventures that advance energy efficiency, mitigate carbon emissions and greenhouse gases, encourage climate resilience and adaptation, and safeguard and enrich natural ecosystems and biodiversity.

Edtech

The edtech sector is going through a challenging period, particularly exemplified by one of the prominent names in the industry, BYJU'S. The company is dealing with a multitude of issues, including legal disputes, liquidity crunch, and questions about its core business. 

These challenges, coupled with widespread layoffs and funding constraints, have had a profound impact on the entire industry, eroding investor confidence and leading to a significant drop in funding in the sector to $712 million in 2023 from $2.9 billion in 2022.

Edtech firms have responded by adopting strategic improvements, focusing on cost-cutting measures, offline channels, and upskilling/reskilling efforts. Layoffs, seen across both large unicorns and smaller startups, have extended to high-level departures, indicating a sector-wide restructuring. Challenging funding conditions have prompted consolidation, with smaller companies either shutting down or being acquired by larger entities.

Amid these challenges, edtech companies are exploring various approaches to enhance their businesses, including hybrid learning methods and upskilling efforts. There is also the emergence of the B2B segment as companies diversify their offerings. 

Looking ahead, the focus for edtech firms should be on long-term strategies, quality content, improved customer experience, and technology adoption, with a particular emphasis on AI-based solutions, and personalised, flexible courses across K12, test-prep and upskilling.

Meanwhile, to attract investor interest, edtech firms must exhibit scale, customer retention and engagement, a sustainable business model, a clear path to profitability, and longevity, all the while avoiding cash-burn situations.

Artificial Intelligence

Generative AI is no longer a buzzword – it’s everywhere. The technology is making a big impact on how many companies today operate. 

Homegrown Large Language Models (LLMs) are gaining momentum in the AI landscape. Krutrim SI Designs, founded by Ola’s Co-founder Bhavish Aggarwal, introduced Krutrim, an AI model proficient in over 22 Indian languages. Similarly, Sarvam AI, a Gen AI startup, released OpenHathi-Hi-v0.1, the inaugural Hindi LLM in the OpenHathi series.

Despite a 54% decline in venture capital investments from 2022 to 2023, AI-centric companies continue to attract substantial funding. Goldman Sachs projects global AI investments to surge to $200 billion by 2025, a significant leap from $21 billion in 2021. 

Tech giant Google unveiled Gemini, its largest and most powerful artificial intelligence model. Developers can leverage Gemini to build products, integrate it into the search giant’s chatbot Bard, and deploy it on mobile devices.

However, the OpenAI saga led to the removal of CEO Sam Altman, interim replacements, and his subsequent reinstatement—all within a week. 

Major tech players continued to show keen interest in homegrown startups like Flutura, TrustCheckr, and Rephrase.ai, which were acquired by Accenture, Truecaller, and Adobe, respectively.

Yet, AI is here to stay, remaining a central theme for investment funds. The Together Fund launched Fund II, a $150 million initiative dedicated to AI investments. SenseAI Ventures initiated the SenseAI Fund I, aiming for Rs 200 crore ($25 million) to invest in Indian AI startups.

Direct-to-consumer

Slow, uninteresting, and muted—three words to describe how the direct-to-consumer (D2C) ecosystem fared in 2023. It was no different from the previous years where impatient consumers, fierce competition, and the prospects of profitability remained among the toughest challenges for the sector.

However, the initial public offering by new-age beauty and personal care brand Mamaearth was a silver lining. Held in November, the Mumbai-based firm’s three-day book-building exercise was oversubscribed by 7.61 times and is poised to give bumper returns to some of its early investors including Snapdeal Co-founder Kunal Bahl, Actor Shilpa Shetty Kundra, and venture capital firms Fireside Ventures and Stellaris Venture Partners among others.

The development certainly added some much-needed cheer and renewed optimism to the ecosystem, with brands envisioning a public-market listing as part of their long-term growth plan. Mamaearth founders Ghazal and Varun Alagh too have become role models for many owing to their clarity of vision and sincerity.

Consolidation—a key feature of the retail and FMCG industry—was a major theme in 2023, with Hindustan Unilever Limited acquiring nutrition brands OZiva and Wellbeing Nutrition, and Marico Limited buying a majority stake in health-focused firm Plix. The trend is expected to continue this year.

The year 2024 will see another consumer firm IPO—online marketplace FirstCry. The firm, which intends to raise upwards of Rs 1,800 crore, is likely to set the tone for public-market milestones going forward.

Web3

With the recent approval of the Bitcoin ETF, companies in the Web3 space are now looking to the future with renewed purpose. The hope is that this will bring more investments into the sector. Web3 companies are also hopeful that the Financial Intelligence Unit (FIU) approve more companies to its current existing list.

Exchanges, in particular, are looking to strengthen their services with stronger KYC protocols to ensure deeper compliance with the law. Sub-sectors like Decentralised Finance (DeFi), and products like self-custodial wallets are seeing renewed activity within the sector, after the collapse of key exchanges in the ecosystem in recent times.

Self-custodial wallets or wallets that are in the control of the user entirely, are seeing renewed competition with players like Block entering the market and vying for users' attention. 

However, another sector which was the epitome of excitement in Web3 nearly three years ago—Non-Fungible Tokens (NFTs)—isn't creating as much of a buzz any longer. While hype-driven NFTs are not

seeing as much excitement. Experts and industry insiders say that NFTs with real-world use cases like fractional NFTs in real estate are likely to see some traction going into the next year.