The growth momentum continues for the start-ups

Devendra Agrawal, Founder & CEO, Dexter Capital Advisors

Investing Trends: The COVID-19 pandemic, started last year, has truly changed the way we go about in our daily lives. The Indian start-up ecosystem too didn’t remain untouched. While the pandemic impactive certain sectors negatively (such as fintech lending, travel-tech, etc.), it acted as a major catalyst for multiple sectors and provided a huge boost to their growth. We saw significant funding activity in sectors such as E-commerce (grocery, D2C brands, pharmacy), EdTech, Payments, AgriTech, etc. Basically, due to the pandemic, digital adoption among Indian consumers has zoomed up and the Indian internet economy has been a huge beneficiary. In 2020, 924 start-ups collectively raised $11.5 bn – continuing the hot streak of start-up funding that started in 2017 (when Indian start-up raised $13.2 bn). The momentum has continued in 2021 as well, where 268 start-ups raised $2.7 bn.

Effect of Pandemic on startup: Barring a 2-3 sectors, pandemic has actually brought a funding windfall for start-ups across sectors. Given most of the start-ups are a part of the Internet economy and work on digital-first models, pandemic actually accelerated their revenues, app downloads, engagement, etc. We expect this funding windfall to continue in 2021 as well.

Advice to the startups: The days of burning investor money for growth are gone. Start-ups need to have a strong & sustainable business model in place with good unit economics. Even if the start-up is loss making today, it should demonstrate a clear path to profitability. When we advise any start-up, few things are key for us – Founder quality, market opportunity/size, unit economics, advantage over competition, etc.

Sectors attracting investors: We believe that AgriTech is a very attractive investment opportunity. The space is already being disrupted by multiple business models such as providing direct market linkage, agri-fintech, input selling, SaaS solutions, automation, etc. Rural India is becoming digital savvy at a brisk pace and farmers are realizing the benefits of solutions offered by Indian agritech start-ups. Moreover, the sheer size of market opportunity in agri is huge.

In fact, future is expected to be driven by smart & connected farming – farmers operating in a digital environment (transacting via smartphones, engaging with customers directly to command better prices, increased use of targeted SaaS solutions, and higher mechanization). New Sectors: Besides AgriTech (as mentioned above), we expect B2B e-commerce to attract strong investor interest. B2B e-com is expected to follow the same growth trajectory that we witnessed in B2C e-com during 2008-2016.

The pandemic has made Indian SMEs focus on becoming tech-enabled. They are now reaching out to customers via WhatsApp, accepting online payments and adopting PoS & SaaS solutions offered by a myriad of start-ups. Rising digital adoption is disrupting traditional supply chains in the B2B market and enabling SMEs to procure goods directly from the OEMs/brands.

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