MRC: Big Push For Startups

If the year 2019 was fantastic for the Indian startup ecosystem, 2020 is expected to be even better one. A recent research report says that investors are now showing interest in start-ups that are operating in tier II and III cities. The report says the startup ecosystem witnessed around $42 million worth of investments in 2016. The number jumped 10-fold in 2018 to $447.7 million. The number of deals too doubled from 32 in 2016 to 63 in 2018. During the early part of 2019, some $165 million was raised by the startups from 18 deals.

In 2019, the Delhi-NCR region emerged as the hub for a start-ups with over 7,000 registered in this one geography alone. “The national capital region is also home to 11 unicorns, with at least one new unicorn emerging each year since 2013. These factors, along with the cumulative private market valuation of startups currently worth $50billion, making Delhi-NCR the largest startup ecosystem in the country. “I believe NCR has the potential to become one of the top global hubs for startups. It may very well end up with at least 30 unicorns in NCR by 2025,” says Geetika Dayal, Executive Director, TiE Delhi-NCR, a non-profit venture supporting entrepreneurs.

The proposals in the Union Budget 2020-21 also provide some encouragement for those working in the startup ecosystem as well further relief in tax exemption provisions. This year’s Budget has made few things easier says Sandeep Chaufla, Partner, PwC: “In 2019, government had given a tax holiday to startups with a window of 3-7 years wherein within 7 years they could claim complete tax exemption for any of the three years. This window has been increased to 10 years for startups with a turnover of less than 100 crore.” Why the relaxation? Explains Sandeep Patil, MD, Truecaller: “Because it is evident that technology and financial services will help drive India and take it towards a digital age.”

2020: Hinterland Calling
A senior executive at Google, says: “Around 90 per cent of new internet users in India consume content in regional languages.” Based on this fact alone, experts say India has a tremendous opportunity for the upcoming startup players as many of them are going ‘vernacular’ in their content and communication this year.

Using local language is an aspect tied to startup firms expanding in to the tier II and III cities. “Organise, standardise and localise are the three main mantras for 2020, as the growth of internet users is growing across the hinterland, where the content is consumed in local languages. More and more startups will be focussed on vertical development than the horizontal one in the space they play,” says Jasmeet Thind, Co -founder, Coutloot, a consumer-led tech startup.

Manish Khera, Founder of Happy, a micro-lending startup says within the startup ecosystem, the primary focus will be on profitability going forward. “Investors want to see a clearer path to profitability and start-ups with a quicker go-to-market strategy as well as lower operating expenditure,” he adds. Nitin Chadha, Co-Founder of sRide, a carpooling app says “In 2019, small to big startups focused on the expansion of their user-base, however, this year the focus will be on profitability.”

While Thind underlines that investments in social commerce, alternate commerce, fintech and retail-related startups will rise in 2020, “there will be continuous investments in video and game-related startups as well,” he adds.

Tracking the growth-graph of startups closely, Khera says that there will be diversification of sectors this year. “Newer sectors like agritech, travel-tech, defence-tech, and more may see enhanced investor interest this year. Geographical diversification may also play a part as there is a belief that a lot of early-stage startups are currently functioning hyper locally,” says Khera.

Anurag Avula, Co-Founder, Shopmatic, an online e-commerce marketplace, says the focus of many platforms are shifting towards the rural economy, “This year, we see the demand shifting towards the rural economy. Owing to Digital India campaign, amongst other initiatives and paradigm shifts, the next half billion population of internet users reside in the hinterlands,” adds Avula.

The other sector that has an important role in the Indian startup ecosystem is Kirana stores, which are the economic engine of India, controlling 95 per cent of the $450-billion grocery market. Karthik Venkateswaran, CEO & Co-Founder, Jumbotail, an online marketplace for food and grocery, says: “We are hopeful that this year will see faster expansion and adoption of B2B e-commerce in multiple geographies. The challenges remain in rural areas and it will be important to take solutions built for urban centres and scale the solutions to tier 2 and 3 cities to truly achieve scale.”

Employment-based skilling is another prime focus of the policymakers this year. “We will be seeing a lot more Ed-Tech innovations in 2020, focused on providing ease of learning online and attaining employable skills that will make individuals better prepared for the ever-increasing high-quality skill demand in the industry,” says Divyam Goel, CEO & Co-Founder, AttainU, an online learning platform.

Challenges
A common pain point of this ecosystem are the taxes on salary which is less and the larger part is compensated by the ESOPs (employee stock ownership plan). “This year’s budget has given some relief by giving some deferral of the tax collection on the perquisite value of the shares at a later date for the employees working in the ecosystem,” says Chaufla. Satyam Vyas, a serial entrepreneur and founder & CEO, Arthan, a non-profit supporting EdTech says, “Earlier, the ESOPs were taxable at the time of exercise as well as the time of sale. This lead to a cash-flow problem for employees in both the scenarios of not selling immediately and holding them for a long period. Budget 2020 will ease the burden of taxation on the employees by deferring the tax payment by five years or till the employee leaves the company or when they sell their shares.

Akanksha Chaturvedi, Founder & CEO, Eduauraa- an EdTech says, “Venture tax reliefs on ESOP’s will ensure that start-ups can attract the right talent and create a better-quality product to make a difference to the nation as a whole.”

The startup community is also expected support to micro-entrepreneurs and consumers hailing from India’s hinterlands but according to Thind, government policies have been super friendly with DIPP driving policies and tax exemption for startups.

Future is Fintech
Thind says the announcement of WhatsApp Pay is a trump card, which will change India forever and create a deeper payment infrastructure which the current players haven’t been able to touch. Experts say while video and short content format will drive new touch-points, social media-based distribution businesses will grow faster than traditional e-commerce with acquisition costs going lower than ever. Experts believe that 2020 may become one of the most important years after 2016 for the Indian Internet universe. As per Khera, India may witness the emergence of startups working on newer technologies bringing about innovation in fintech as a large chunk of the unbanked population that doesn’t have access to proper formal financial institutions. “It is a big opportunity for the upcoming entrepreneurs,” he adds. And we will be tracking all the developments in this space as always.