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India’s entrepreneurship landscape continues to flourish with an increasing footprint of startups despite the macroeconomic concerns and a funding winter. According to the Economic Survey 2021-22, nearly 14,000 new startups joined the rank across 555 districts during fiscal 2022. 

Indian startups raised a cumulative $24 billion across 1,021 deals in the calendar year 2022, according to data from ‘Startup Perspective’ report by management consulting firm PwC. Though the numbers were 33% lower compared to the hyper-funding cycle of 2021, the investment into the ecosystem was more than twice as that in CY2020 and 2019. 

With greater digital adoption and growth in consumer internet sectors, the focus of early-stage investors has shifted to addressing business and sector-specific issues. 

“India has seen reasonable growth on ecommerce and consumer internet which will continue to grow due to digitisation and simple payment solutions, and will also offer many opportunities for other areas of growth,” Anil Joshi, Managing Partner of Unicorn India Ventures tells YourStory. 

He adds, “With deep penetration of digitisation, delivery of services and products across the country has become reasonable. We expect strong growth in tech-enabled business which will drive new India aspirations.”

The focus on technology and digitisation has thrown the spotlight on sunrise sectors. 

Climate tech

The climate tech sector has been on a growth curve with the adoption of green transportation and the booming electric vehicle industry. Around 172 Indian climate tech startups raised funds in 2021, followed by a $2.2 billion investment in the sector across 143 startups in 2022.

The trend will continue in the coming year, with the government incentivising investments in the EV and allied space. 

“If we look back five years ago, hardly anyone knew about electric vehicles. Now, nearly everyone is thinking about their next vehicle purchase being electric. More enterprises are placing an increased focus on sustainable alternatives—in packaging, supply chain, logistics etc. This is bound to accelerate the adoption of green alternatives,” notes Swapna Gupta, Partner at Avaana Capital. 

She adds that innovation across energy transition, supply chain decarbonisation, future of mobility, sustainable agriculture, and resource management are being looked at with a keen eye.

AI, deep tech, SaaS

The curiosity around Open AI’s chatbot ChatGPT has brought back the conversation on investments in Artificial Intelligence. The coming year will see the use of technology to improve productivity, software adoption to enhance efficiencies across verticals, and using deep tech to solve problem statements in agriculture, healthcare, and other sectors. 

“The focus sectors for Java Capital’s new fund are SaaS, fintech, deep tech, and climate tech,” observes Karteek Pulapaka, Co-founder and Partner at Java Capital. 

He adds, “In 2020, when we invested in The EPlane Company, we were one of the few funds at pre-seed/seed stage to invest in deep tech. We are looking to double down on our expertise to identify and back founders who are pushing the boundaries and building cutting-edge solutions in areas like battery management for EVs, climate finance, renewable energy, semiconductors, and carbon monitoring.”

Shashank Randev, Co-founder at 100X.VC, adds that modernisation of the agri sector will add to the growth of startups developing AI/ML technologies. 

“As more businesses and consumers adopt digital technologies, Web3, fintech, and low-code/no-code startups in India are expected to grow significantly,” he points out.

Agritech

Startups offering marketplace and technology solutions saw big-ticket investments rolling in for CY 2022 from specialised as well as generalist investors. The trend is likely to continue, says Mark Kahn, Managing Partner at Omnivore. 

“In 2023, we expect agritech innovations in three areas to gain momentum—agri deep tech, agrifood life sciences (AFLS), and rural fintech,” Mark tells YourStory.

He adds, “The digitally literate next billion is eager for affordable agritech innovations and we can see entrepreneurs responding to this demand with solutions tailored for smallholders.”

According to data by Venture Intelligence, Indian agritech companies raised nearly $515 million across 49 deals in CY 2022, compared to $859 million raised in the previous year across a similar number of deals. The government’s move to build agristack for innovative agri solutions will be a shot in the arm for startups building for the sector. 

Fintech

RBI guidelines have helped customer-focused fintechs to identify opportunities in the credit and buy now pay later (BNPL) segments. The coming year will see them focus on differentiated offerings. 

The sector contributed nearly 20% to the total funding raised by Indian startups in CY 2022, despite a 40% decline in funding activity compared to CY 2021, according to the data from PwC.

“Fintechs will continue to see investments driven by the strides in data available for lending though broad-based SME lending and invoice discounting will see consolidation,” says Anup Jain, Managing Partner at Orios Ventures. 

Dinesh Pai, Head of Rainmatter fintech incubator, said that the fund’s focus will continue to be on fintech, climate, and health. “We are focusing on these sectors for several reasons: growth potential, innovation, and impact. Our core competency lies in fintech, and specifically, with capital market products that help people manage money better. And we could add the most value to teams working on enabling savings and investments, for instance.” 

Sector- or vertical-specific use cases will continue to do well. Mark Kahn of Omnivore adds that offering formal financial services and solutions for farmers will be key for rural fintech

The addition of new verticals to the open API of Open Credit Enablement Network (OCEN) —bringing together borrowers, loan service providers (LSPs), and intermediaries—will play a key role in growing the lending ecosystem for small businesses.

Need for caution

While the emerging new sectors of interest may boost momentum, the overall growth might still be muted. Startups will dial up their focus on unit economics—cutting burn and putting a clear path to profitability, says Ashish Sharma, Managing Partner at InnoVen Capital.

“We don’t have a top-down target and will evaluate each opportunity from a risk/return standpoint,” he notes, adding, “Startups will spend less on marketing, discounts, and large customer acquisition spends and focus more on driving customer retention, repeat purchase and more efficient customer acquisition. 

Ankur Bansal, Co-founder and Director at Blacksoil, said that acquisition financing too will be in focus as the market heads towards consolidation. 

While most companies are still looking to grow at a healthy rate, investors predict that 2023 won’t offer the sweet growth rates witnessed in 2021 or 2022.