The year 2021 set new benchmarks for the Indian startup ecosystem — both in terms of record capital inflow and the creation of new unicorns. And these developments have catalysed into the emergence of a new era for startups – scale up.
A study done by NASSCOM, taking into account the growth trajectory of over 100 high growth startups to define scale up, saw that there was considerable acceleration in the number of ventures with revenues of more than $15 million over the last 10 years. Besides, such startups grew more than 5x the industry average revenue growth.
The funding inflow into Indian startups in 2021 was estimated to be upwards of $30 billion, which was a complete turnaround from $9.94 billion in 2020, the year of unimagined uncertainty due to the Covid-19 pandemic. However, the biggest highlight last year was the creation of 44 unicorns, i.e., startups with a valuation of over $1 billion, and startup IPOs.
While these achievements have been building up for the last several years, it is now time for Indian startups to move into the next orbit, which is of achieving scale.
Sangeeta Gupta, Senior VP and Head of Strategy, Nasscom, describes this scale up as an interim period between a startup and a fully grown enterprise.
“There are certain segments within the Indian startup ecosystem which have reached the maturity stage and they are starting to scale,” says Sangeeta.
In this backdrop, Nasscom believes there is now a playbook for startups to look up to on how they can ‘scale up’ with their recent report – Scaleups from India: The Next Leap.
The report looks at over 100 startups, which includes unicorns, those with over $15 million in revenue, and those that are less than 15 years old.
Secret sauce
Nasscom believes the secret sauce to scale up depends on four factors — revenue, funding, timing, and experience.
“Many of these startups have started putting in their building blocks to ensure the systems are in place for the growth trajectory,” says Sangeeta.
These building blocks are primarily centred around people, processes, and technology.
The Nasscom report notes there has been considerable acceleration in the number of scale-ups, with revenue of over $15 million in the last 10 years, with more than 5x industry average revenue growth of such startups from 2016-19. Also, it took about five years for startups to scale which was across sectors.
The report notes that of over 100 scale ups that were analysed, they generated revenue of more than $12 billion between 2018-2020 and these accounted for more than $200 billion in valuation.
Pillars of growth
Behind this rapid growth are the few pillars which everybody needs to keep in mind. These include marketing, sales, and product development.
In terms of marketing, startups need to build to considerable credibility using various channels while the sales approach has to be the digital-first mode. However, the most important driver behind the product development where startups need to constantly build and refine their solutions is based on customer feedback.
At the same time, startups that are on the scale up mode should focus on certain elements, which are internal to their organisation.
Initially, the founders will be the only ones who are driving their business, but then they realise the need to expand the talent capability by inducting new hires. There is also the requirement for process maturity where technology and operations go hand-in-hand.
Startups in scale up mode should also look at funding, which gives them capital as well as mentorship. However, the most important point is the pivot, as the Nasscom report notes, “Pivot early if the business is not giving the required result and then push for growth.”
Success mantra
The Nasscom report also notes the success mantras of few startups from India, which have achieved scale. For example, in the case of homegrown ecommerce marketplace Flipkart, which was acquired by Walmart in a deal valued at $16 billion, it was always the case of going the extra mile to satisfy the customer, which pays off in multiple times.
In case of Zerodha, the bootstrapped online brokerage startup, which achieved unicron status without any external funding, the mantra was customers’ best interest should always be priority even if it affects business. For edtech unicorn upGrad, it adopted the strategy of building a robust middle management which consisted of quality people with experience.
Future
The stage is now set for more Indian startups to get into the scale up mode due to conducive external factors.
Nasscom believes that improved internet accessibility and rapid digitisation is accelerating the scale up journey.
This is especially more pronounced in Tier II and beyond locations, and the Nasscom report says that these geographies will offer substantial consumer base for many Indian scale ups. These are driven by factors such as digitisation, cheaper data, and internet penetration, which is enabling the adoption of new digital solutions.
The Covid-19 pandemic has given a push to startups in segments like edtech, healthtech, and ecommerce. Besides, the presence of many public infrastructure platforms like UPI and Aadhaar has given the impetus to the fintech segment.
However, the biggest boost for the Indian startup ecosystem has been the rising global investor confidence and trust in the country. This community is betting on the innovative and scalable solutions that startups can deliver.
The Nasscom report notes,
“The ticket size of investments have increased substantially, enabling startups to scale faster.” It further added that there has been a 5x rise in private equity funding from 2010-20.
According to Sangeeta, India offers a very unique opportunity as startups are looking at both the domestic and overseas markets as opportunities for growth.
The two segments which have been driving the scale ups till now are largely from the fintech and retailtech segment, and Nasscom believes that emerging areas like D2C, edtech, logistics, automotive, real estate, travel and hospitality will be the thrust areas in the next three years.
“The Indian startup ecosystem is expected to add over 100 scale ups by 2025,” says the Nasscom report.
