Discussing ‘Indian Startups: 10 years and Counting’ at the Economic Times Startup Awards (ETSA) 2024 on a rainy Saturday in Bengaluru, the panel members felt that the first decade was just the warming up with the real scale-up set to happen over the next decade and more.
“We raised money during the toughest phase for the Indian startup ecosystem, so we had to tap more traditional investors who asked us more operational questions, went into further details of the business, which pushed us to find those answers and eventually solve them,” said Aadit Palicha, chief executive officer of Zepto. “Now I see more conventional funds also asking the same questions, going into the details of the operational mechanics of technology companies.”
Zepto raised $1 billion in equity funding from the likes of General Catalyst and Epiq Capital Advisors in the current year with its valuation jumping to $5 billion.
Speaking about fiscal discipline, Lenskart cofounder Peyush Bansal, who won the ‘Startup of the Year 2024’ award, pointed out companies need to be careful about their expenses and that is how the right companies get built. “If, for any company, Rs 1 lakh starts looking like a rupee, then there is definitely going to be a problem going forward,” he said.
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Corporate governanceWhile growth and profitability are important to the startup ecosystem, Infosys chairman Nandan Nilekani, the panel moderator, raised the issues of corporate governance faced by many new generation companies over the last two years.
Responding to his question on how much of the blame lies on venture investors, Subrata Mitra, partner at Accel, one of the most prolific startup backers, said investors cannot take the entire blame, everybody has a part to play.
“It is not always easy to catch fraud in your company, but I would say that if in case you get to understand that there might be something wrong, then you should take it very seriously and act very early on,” Mitra said.
Growth of the ecosystem
One point that came up early in the discussions was how the Indian startup ecosystem has exploded. From around 1,000 startups a decade back, now there are more than 100,000 startups in the country, remarked Nilekani.
With the government building the Digital Public Infrastructure (DPI), many startups have been able to build on top of the technology stack and serve consumers.
Nilekani further pointed out how large tech companies and traditional conglomerates have all spawned new startups. Companies like ITC and Infosys have helped grow the first batch of tech startups and now large startups themselves have helped spawn newer ones.
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From Paytm to Flipkart, Zomato and Swiggy, every startup has seen many of its top executives quit eventually to start their own ventures. The likes of Groww, Slice and Rentomojo came out of Flipkart, wealth tech startup Dhan, Indiagold and Park Plus were started by ex-Paytm employees.
“Startups beget startups,” Nilekani remarked.
Mitra of Accel said the number of startups seeking venture capital firm’s backing has gone up five times from around 3,000-4,000 in 2015-16.
Bansal of Lenskart said the first decade for Indian startups were only on tangibles, growth valuation and such. But now founders are looking at the intangibles as well.
“It is not human resource, it is human capital, and as the ecosystem grows and we aspire to go international, this is something that we have to invest in,” he said.
Finding the right fit
An important point highlighted by the founders in the panel was about finding the right product for the market and the right means of servicing customers.
While Palicha gave up his course in Stanford University once he found that Zepto was solving a major pain point for its consumers, Lenskart’s Bansal found out very early in his journey that 80% of the people were not buying from his website because they wanted to touch and feel the glasses.
Bansal started with a store between his office and his home and in a short span of time, the store started doing better business than all the opticians in the neighbourhood.
“After a few years, people saw it (offline store) was making money and started calling it omnichannel. We learned early on why people are buying or not buying and you are clear that you are not building for the public market or private market,” Bansal said.
While large consumer facing brands like FirstCry, Myntra and such invested heavily in building their offline channels, even online payment firms like Razorpay and Paytm built offline payment systems to serve these ‘omnichannel’ brands.
Like Bansal found the right fit in ‘omnichannel’, Palicha’s core business insight was that consumers prefer to buy small-ticket grocery items multiple times in a week instead of making bulk purchases. This is where Zepto’s quick commerce service fits in perfectly.
“Average frequency of transactions in India is 2.2 times a week, it is around 2.4 times a month in the US. The average ticket size of transactions on Zepto is around Rs 500,” Palicha said.
Building global firms in India
Looking into the future, Indian founders are seeking to tap global markets and building solutions for the entire world.
“In my opinion space, tech, services…all of these are going through a new evolution and Indian companies now know how to compete in that arena. Hopefully, some of them become truly global,” said Mitra of Accel. “It’s fair to say that the people in the West do not understand services, so we might see some of the best companies marrying AI with services. Those will be large winners from India,” he added.
Pointing out that the ecosystem needs to have more faith in itself, Bansal said investors worry a lot when their portfolio companies talk about going abroad. “In the next ten years, we have to create impactful companies that can grow and run sustainably for decades to come. We also need to create consumer brands. I still feel that we are awed by global brands. I think the same needs to happen for Indian brands,” he said.
Lenskart, which has operations in different Asian countries, gets around 40% of its overall sales from outside India.
Pointing out that Indian companies have the right to win in global markets, Palicha said the total addressable market (TAM) in India has gone up exponentially, which means that Indian brands are already servicing large consumer bases. So, there is no market size excuse, talent excuse, or capital excuse…it is just execution, he said.
Setting targets for the next decade
While laying out targets for the next decade, Palicha pointed out that India has not been able to create companies of the scale of Uber or Airbnb yet. So, that is what the founders will need to strive for, he added.
“If I would have benchmarked the internet ecosystem, it would be like how many $50-billion companies are created over the next ten years and I think we desperately need that,” he said.
Palicha further said very large global funds that he interacted with over the last year or so during the course of his fundraising were not investing heavily in India. Firms like Fidelity, which has more than $5 trillion in assets all over the world, are still not actively investing in Indian startups, he said. That should be the target for the next decade.
Bansal struck a more optimistic note, pointing out if the first decade was about profitability, the next decade would be about allocating those profits. “Allocating that money will become the biggest question mark for companies because everybody is making profits and how we use that money will be very crucial,” he said.