Whether you like it or not, Startup Winter is here but is it here to stay?

It will be determined
by a lot of business factors. I am Gaurav Gupta and let me take this opportunity to take you
through the current startup ecosystem in India.

But before that, let us take a step back and understand what has led to this tremendous start-
up boom in India.

India’s Demo - The size of our country, increasing purchasing power, our stable economics,
and mass Digital & Tech after the pandemic allowed these startups to scale in the manner that
they have. ………

After the pandemic, Countries reduced interest rates to support their economies and
collectively infused over 13 Trillion$ in money supply to help them sail through numerous
lockdowns/……….

Last year we also witnessed china’s crackdown on its tech companies and the rising global
need for China +1 strategy….

As a result, enormous amounts of global money have been diverted to the Indian market.
Never before has the startup ecosystem in India had it so good?

This propelled India to the top of the global investor list and it emerged as the third-largest
startup ecosystem in the world. The total number of startups rose from a mere 471 in 2016 to
over 73000 and counting by mid of this year.

But just like every great story, The startup ecosystem has its own dramatic twist, the one that
we are currently witnessing. If crumbling global macros majorly driven by rising inflation
due to extended periods of low-interest rates and never-ending infusion of the money in the
system weren’t enough. Rising global tensions between geographies have pushed up energy
prices, causing an asset bubble to burst……

With rising interest rates, money is returning to developed countries. Startup funding is
drying up, valuations are falling, and the industry is consolidating.

This has resulted in changing expectations of all stakeholders - investors are now focusing
more on investing in profitable businesses than getting a profitable exit, and Founders are
doing everything in their capacity to run their businesses profitably than focusing on growth
at any cost, Interestingly, this has also resulted in now employees salaries expectations to
normalize as they focus on stability rather than chasing inflated salaries…..

This brings us to the current health check of Indian startups where amongst the top 100
unicorns only 18 attained profitability while 57 of them are in deep losses.

As businesses are pivoting to focus on profitability, first we witnessed hiring sprees across
industries, and now lay off in startups is everyday news. So far over 15,000 employees have
been laid off.

With all these ecosystems & behavioral changes, lets look at fundamental business drivers
that will explain why some businesses are struggling while some are still showing massive
growth….
As investors are demanding profits to justify the PE multiple the preposterous spending from
some of the startups should take a halt, These companies took money from investors and
spent it on unviable channels.

Startups with unviable business models will have to look within to get it right. The most
obvious flaw is when a business model's value propositions generate more costs than
revenues from customers. Startups with Jazzy PowerPoint that misjudged the market size and
hired people at outrageous salaries, were forced to oversell growth prospects and set
unrealistic goals. This will no longer work…..

With rising delivery & labor costs the quick commerce delivery startup will have to find the
right product-market fit as the margins on most of their products are extremely low which
doesn't justify these costs.

Startups working in unregulated markets bring in a lot of uncertainty and just with one
regulation can get thrown out of business, however great their value proposition could be.

Though India is 3rd in the list of the number of startups, but when it comes to innovation we
are way behind at 46th position, many businesses are trying to make an idea, that has worked
outside work in India without understanding the nuances of the Indian market….

But it's not all gloom and doom - according to me, it is a perfect opportunity for businesses to
ignore the noise and focus on the fundamentals of business to grow slowly and organically
exactly like Google and Amazon did after the dot.com crash and as a result, added
tremendous value not just for investors but for the entire ecosystem.

India's tech startups are thriving. The most appealing opportunities for investors are in
enterprise, fintech, and proptech space. Companies that are focused on continuously
innovating & building economic moat by building trust with their product-led growth strategy
will make it more and more difficult for newer companies to enter.

Startups such as Zerodha that have built their businesses on strong fundamentals and business
models by keeping their CAC low will see rapid growth. Those who put in consistent effort
and continue to come up with innovative ideas and unique strategies will gain a competitive
advantage.

Aside from its valuations, Nykaa has created a massive economic moat by becoming a
household name in the high-margin cosmetics industry.

Startups that focus on problems that overlap with government policies will see tremendous
value generation, as we saw with Paytm following demonetization.

Traditional businesses struggled to adapt to these disruptive businesses at first, but MNCs
such as Tata Group and Reliance have now established startup wings to allow them to operate
in an agile and lean manner. Yes, some of these companies had legacy issues and lacked
technology, but they had massive amounts of customer data, a history of operations,
resources, licenses, and networks. In order for their existing businesses to scale, incumbent
players will also learn to reinvent themselves by collaborating with new technological
developments brought in by startups.
Finally, this is India's VIX, which indicates how stable investors believe Indian markets are.
India, a high-growth emerging economy, has reached a critical juncture, and Indian startups
have a bright future ahead of them. India is full of incredible talent and entrepreneurs with
brilliant ideas. The country should be proud of its tech startups, and I eagerly await what they
will bring to market in the coming years!