2020 was an unprecedented year for India’s startup ecosystem. During the 70-day lockdown, a large number of startups struggled, and 15% of India’s 40,000 startups ultimately had to shut shop as a result of the pandemic. It’s also been a year marked by resilience and reinvention. And, for many digital and digitally enabled startups, it’s been a year of remarkable growth.
During the lockdown, founders were forced to reimagine their businesses. Almost all startups restructured their companies and significantly reduced costs. Many had to explore new distribution channels or new customer segments. Omnichannel consumer brands shifted completely online. We also saw many startups ramp up product innovation.
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Some pivoted to capture new customers or new avenues of growth. Klub, for example, launched last year with a unique revenue-based financing platform that enables consumer brands to raise capital from their patrons. Though it started with food and beverage (F&B) brands, Klub widened its focus to direct to consumer (D2C) brands. In the last few months alone, they have invested in over 20 loved D2C brands. Others shifted to an entirely new industry. Surge 04 startup Kyt, which was a travel company when Surge decided to partner with it, completely flipped the switch and relaunched in September as an edtech company, offering extracurricular learning for children.
Due to frequent cycles of intense competition, many startups in India pursued growth at any cost over the past five years, often posting very high losses for the scale of their business. Covid-19 caused a rethink. For instance, in transaction-driven startups (e-commerce, online food delivery, etc.) founders realized that the days of losing money on every order were over in India and worked hard to create viable unit economics – and chart a path to profitability. That included trimming costs, reducing discounting and unlocking new revenue levers. This mindset, born out of the pandemic, will give rise to leaner, more competitive companies that are more likely to endure.
While the pandemic continues to take a toll on India, it has also played a critical role in accelerating the rate of technology adoption by consumers and businesses. This has provided significant tailwinds for startups across categories. The number of students using edtech products in India, for example, has doubled this year. Telemedicine and digital health have also seen massive adoption as consumers embraced the concept of online consultations for the first time. This marks a fundamental change in consumer behaviour that will reshape India’s healthcare, wellness and fitness industries. Fittr, which offers online nutrition and fitness coaching, saw 30% month-on-month revenue growth from April to August alone, an 80% cumulative revenue retention rate over a 24-month period, and crossed $10 million in annual revenues. What’s more, it achieved all this profitability, with zero customer acquisition costs.
2021 will mark the dawn of the initial public offering (IPO) era for our ecosystem, as growth accelerates across segments and an increasing number of companies start to hit scale. This trend will accelerate significantly once new regulations that enable Indian startups to directly list on international exchanges are formalized.
We will also see an acceleration of unique Indian business models as founders continue to build for Bharat. The unabated growth of smartphone penetration in small cities and rural India is changing the game, giving rise to products that are built specifically for consumers in tier 2-4 cities, and rural India.
India’s Software as a Service (SaaS) sector will deepen, broaden and diversify in the next year. Two years ago, India had no SaaS unicorns. Today, we have six—and all of them have been built for global markets from day zero. Over the past 18 months, a new category of India-focused small and medium enterprise (SME) SaaS startups has emerged. Khatabook, which helps small businesses record financial transactions digitally and accept payments online, and Pagarbook, a mobile-first payroll and workforce management app that aims to digitize human capital management for SMEs are examples of a new category of SME-SaaS companies.
We’ll also see more startups in the global prosumer space, like InVideo; more development tools startups, like LambdaTest, and new SaaS companies targeting Indian enterprises, like Shipsy, emerge in the next 12 months.
While 2021 is sure to bring more uncertainty, as we wait for covid to subside, it will also mark a new era of innovation for India. Our ecosystem has never been in better shape, on many key measures. The best is yet to come as we put a challenging year behind.
Rajan Anandan is the managing director of Sequoia India.