🗝️ Being Cautiously Optimistic about Indian Startups

When I started writing this newsletter, I had two goals: to learn about angel investing myself to make it less cryptic for small individual investors and help them invest in emerging startup ecosystems like India. To see if people in my network are interested, I did a small poll that got me the following results.

• 76% bullish

• 21% skeptical

• 3% indifferent

The bullish sentiment is a great motivator, but the nature of angel investing is such that bullish sentiments need to be earned with rationality.

Dot-Com Bubble V/S Indian startups

A look into the past can help us be better prepared for future.

Dot-com bubble was a period in the late 1990s and early 2000s when the stock prices of internet-based companies soared, fueled by irrational exuberance and unrealistic expectations of growth. The bubble burst in 2000, leading to the collapse of many internet companies and massive financial losses for investors.

Similarities

Reason for existence

• Dot-com: Rapid rise in access to a computer and internet usage.

• Indian startup ecosystem: Rapid rise in access to smartphones and internet usage, growing middle-class.

Nature of ecosystem

• Dot-com: Internet-based companies in every corner.

• Indian startup ecosystem: Tech-enabled (and not tech-first) companies sprouting in every corner.

Valuations and Profitability

• Dot-com: Extremely high, often unreal, valuations. No profit.

• Indian startup ecosystem: High valuations, no profit.

Differences

Diversity in industry

• Dot-com: Internet-only companies banking on the rapid rise in internet usage alone.

• Indian startup ecosystem: Many sectors such as e-commerce, fintech, edtech, healthtech, and more.

Investor Sentiment

• Dot-com: Chasing quick and massive returns leading to inflated valuations and a lack of due diligence.

• Indian startup ecosystem: Optimistic but increasingly cautious. Investors appear to be more cautious and discerning.

Government Support

• Dot-com: Limited.

• Indian startup ecosystem: Active support through various initiatives

Market Penetration

• Dot-com: Primarily in the US market.

• Indian startup ecosystem: Primarily in the Indian market, with increasing global outreach.

📊 Let’s look at some numbers

Number of Startups:

India is home to over 90,000 startups and 107 Unicorns, making it the third-largest startup ecosystem in the world, behind the United States and China.

Funding

Indian startups received a total funding of $13.2 billion in 2019, $10.9 billion in 2020, $35.2 billion in 2021, and $24 billion in 2022.

Sector distribution

The Indian startup ecosystem is diverse, with companies spanning fintech, e-commerce, healthtech, edtech, enterprise software, and logistics.

No Verdict but some signals

Indian startups - Monsoon or Moonshot? It’s a vast question, and we will keep exploring this in Part#2 of this post. In the meantime, we have some encouraging signals.

India is home to the world's largest startup incubator, the T-Hub in Hyderabad. The incubator spans 70,000 square feet and can accommodate over 400 startups.

Here are some examples of successful companies coming out of T-Hub:

• SatSure: $9.6M in funding

• AjnaLens: $6.3M in funding

• Orbo: $1.5M in funding

• Stellapps: $36.8M in funding

Sneak-peak into Part #2

We will dive deeper into the factors that make seemingly genius companies fail, and other companies absolutely ace the business game during a bubble. It’s amazing stuff!