HomeStartup NewsView | What will be, will be: India's start-ups in 2022

View | What will be, will be: India's start-ups in 2022

The Indian start up ecosystem is at the confluence of what one can call a perfect storm. It wouldn’t be surprising if India creates another 75 unicorns in 2022 and perhaps a 100 more in 2023, writes Srivatsa Krishna

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By Srivatsa Krishna  January 14, 2022, 12:57:12 PM IST (Published)

View | What will be, will be: India's start-ups in 2022
India’s startups are the toast of the world now. I got to spend some time in the Bay Area and at Stanford University recently, where Indian startups are slowly finding their rightful place on the global stage. Many US venture capital (VC) funds as also several large hedge funds who seek VC-like returns with a non-VC like risk structure, are looking at an India carve out and even non-traditional investors have begun investing in Indian startups now. This is indeed welcome, despite the well-known complexities and challenges of India. There is unprecedented liquidity in the market and the question remains who are the smartest in the room who can attract them.


It wouldn’t be surprising if India creates another 75 unicorns in 2022 and perhaps a 100 more in 2023. Every conceivable sector — retail, e-commerce, food, groceries, payments, deliveries, entertainment, wealth management, trading, healthcare, utilities — and all aspects of each of them, are facing potential disruption from some startup somewhere. India — with 90 unicorns — is the third-largest unicorn hub in the world, still well behind US (487) and China (301) and raised over $40 billion in 2021 its highest ever record. In 2021 India added 44 unicorns, two more than the those of the nine previous years, put together.

The Indian start up ecosystem is at the confluence of what one can call a perfect storm and this won’t last forever. This is a combination of favorable macroeconomics, a sound proactive support for startups across the country at both federal and the state government levels, several successful startup entrepreneurs who are mentoring and guiding younger startups to flourish, rapid growth in mobile connectivity and per person usage which today’s stands at about 761 minutes per person per month, a rich venture community of about 2000 funds (chasing about 60,000 startups), to name a few. Finally, India is the only country on the planet which has a digital public trunk infrastructure which broadly comprises of Aadhar and the India stack which in turn are enabling private entrepreneurs to create startups very quickly and at an extremely affordable cost for this infrastructure itself is almost free of cost to the private sector to use and create value. It solves for identity, verification, digital storage, and payments easily and affordably.

Some of the hidden gems in the Indian startup ecosystem, whom I have had a chance to observe closely and who will likely see a lot of traction in 2022 include: Trinkerr which calls itself the trading ka Twitter which seeks to democratize trading by taking it to tier 2 ,3 and 4 cities and find the next Indian Warren Buffett from there thereby tapping into the investable surpluses and the individual genius of potential star investors; then there is Fisdom which stands for financial wisdom which is aiming to set up India’s largest and most respected digital wealth management platform; LoCarb which is creating scientifically tested and proven low-carb foods including flour, snacks, sweets and chocolates and is rapidly expanding to tap into the diabetes market through cloud kitchens; VakilSearch which started off as a platform for legal advice is now a one stop shop for all compliance and registration of companies which can be done in under a few days (with the aspiration to do it under a few hours and are currently registering one company every 9 minutes). Quantela, backed by Cisco, is emerging as a leader via a single platform for all urban reimagination and citizens’ service delivery.

Among the established ones Fractal Analytics, which just turned unicorn and is emerging as the Palantir of India, played a critical role with COVID-19 war rooms with Governments and played a critical role, pro bono, during the deadly second wave. DailyHunt/Josh are emerging as the ByteDance of India and have successfully outperformed not just competition in India, but the Chinese too in this space! Each of these startups is attempting to solve tough and unusual problems which have been troubling both companies and citizens for many many years and despite all the resources of the government and corporates there have been no lasting solutions for them.

However, while everyone is toasting the good stories and critical success factors it would be worthwhile to also keep some of the potential risks in mind, even at the cost of sounding like a party pooper. The pessimist of today is often the realist of tomorrow.

First, the US 10-year bond started 2021 at 0.91 percent and is starting 2022 at 1.75 percent. The forecast is that at the beginning of 2023 it will be around 2 percent. This clearly means that the famous quantitative easing (QE) policy of the US Federal Reserve may have reached its limits and tightening has begun. The US Fed’s balance sheet had $4.3 trillion in March 2021 whereas in January 2022 it is up to $8.77 trillion, another clear sign of their purse tightening.

A well-known risk of the US QE policy is that it can lead to high inflation if left unchecked and the governor of the US federal already proclaim that he will do whatever it takes to control inflation including increasing interest rates. The annual inflation rate in the US accelerated to 7 percent towards the end of 2021, which is a four decade high for it, last such highs being in 1982. Thus, as the US Fed controls liquidity it would have ripple effects on startup funding in India too.

Thus, the free flow of easy money, which is fueling Indian startups may not last forever and the early signs above show that the years ahead will see some fist tightening which would impose more discipline on funds and startups. As the joke goes there are two kinds of startups: one who go after VCs, raise stellar funding, then figure out how to acquire customers (sometimes even their business model) splurging OPM (Other people’s money) and then there are others who chase revenue (occasionally profitability) and grow more slowly, but surely, than the former. The drying up of easy money will surely impact the first set more than the second.

Second, China’s aggression on its own tech startups including pulling down scheduled public issues on the global capital markets, placing government nominees on the Boards of their Unicorns who don’t “behave” as per the Government diktat are a blessing in disguise for Indian startups for much of the venture funds is seeking an alternate home and India emerges as a natural choice. China could potentially do a U-turn and start molly codling its startups again, but that seems to be a trifle far away.

Starting March 1, the Chinese government will go after the secret sauce driving China’s Unicorns namely their algorithms. No Algorithm can violate China’s laws, and news aggregators need to obtain a license from the Government, startups need to inform users about the basis and purpose of their recommendation engines and will allow users to opt-out of recommendation engines or other tags. The question on which the jury is still out is on how many of the algos will the government actually be able to access, how they will evaluate and use it, and in what ways will they control it, if at all they can get to the bottom of it.

Lastly, there are perpetual whispers — some backed with evidence, some anecdotal — on the many startups and entrepreneurs who are taking their investors for a ride, sometimes in collusion with the investor’s man on the ground. Many tales of side payments and kickbacks do the rounds, even with the most marquee respected names, where inflated valuations (often difficult to justify or even discern) happen, with perfectly tailored due diligence reports done by some of the top consulting firms, all to cover up a hollow hole within. Indian entrepreneurs need to get their act together so that the wheat and the chaff can be clearly seen, and genuine brilliant entrepreneurs don’t suffer due to a few black sheep amongst them.

India’s startups enter 2022 from a position of strength. They have a red carpet out for them and can have the world at their feet, provided they focus on building sustainable, profitable companies, ethically and not build it on a foundation of bluff or fluff or lies or by monetizing hate or other dubious content, all of which are not just detrimental to them individually but to India’s startups ecosystem, as a whole.

—The author is an IAS officer. Views are personal. He can be followed on Twitter @srivatsakrishna
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