The Indian startup industry, which is said to have more than 19,000 companies and is the third largest market for tech startups in the world, has been undergoing some serious changes. In the past two years, while on one hand, the number of startups in the country have swelled up in numbers, but on the other hand, funding and valuations have unfortunately taken a serious hit with a few startups even closing their shops unexpectedly.

Statistically speaking, less than 2 per cent companies in India end up raising money from any professional investors whatsoever. Further, according to a Forbes report, about 63 per cent of entrepreneurs in India confessed to having an 'unfavourable’ experience while raising funds for their startups in 2016. This was largely because of a couple of reasons, ranging right from the non-scalable nature of businesses not appealing to investors anymore to the lack of exists making it difficult for investors to make a long term commitment. Several industry experts are now claiming, that after several years of aggressive fundraising, the Indian startup space is finally exhibiting the early signs of maturing.

Techseen's Sharmistha Mukherjee recently sat down with Manish Singhal, Founding Partner, pi Ventures to discuss how investors’ approach towards investing in the Indian startup industry has evolved in the recent few years, and what startup entrepreneurs can do to score those early stage funding deals that they're eyeing. The conversation leaned mainly towards tech and tech startups in India.

How Do Investors Value Companies differently?

Answering one of the most frequently asked questions by entrepreneurs, Singhal explained that when it comes to tech startups, there are a number of parameters that investors take into account while deciding the valuation of a startup. Some of the most important parameters include the uniqueness and defensibility of the IP that the startup has built, how much validation have they been successful in garnering and what has been the extent of the impact on the business case they are on a mission to solve. According to Singhal, they themselves at Pi ventures take into account these parameters along with the stage of the startup they're interested in investing. In addition to the aforementioned parameters, some investors are also interested in having knowledge about the data strategy put together by the startup; how does the startup plan on acquiring data, what will be the total cost involved, who will have the ownership of the data, how will they grow it, etc.

Changing Venture Investing scene in the Indian Startup Ecosystem

According to Singhal, the Indian startup industry is currently undergoing a shift in thesis for venture investing. Till a few years ago, it was all about backing a company that can get a larger share of the market that they are operating it, but the situation is not the same anymore. VCs are now making a move from this market share led thesis of investing to more of IP led product thesis. With more and more such IP led product thesis investments becoming a runaway success, the decade old practice of running behind unicorns is most liable to change.

Can Artificial Intelligence be leveraged to make Investment Decisions?

Considering the fact that AI is now responsible for revolutionising several areas of a company's operations, including decision-making processes and helping in budgeting, that time is not far behind when AI will help investors in determining their investment moves. In fact, the west is already witnessing some interesting advancements in the area with several US venture investors trying their hand at AI to make their investment decisions. Though this is still very young, but it does offer a lot of potential. According to Singhal, pi Ventures will also try its hands at the technology for taking investment decisions sometime in the near future.

IoT and Indian Startups

IoT is currently the hot trend, which has caught the fancy of almost every second entrepreneur in India. According to Singhal, the technology is here to stay and still has a lot of unexplored potential.

According to recent statistics made available by analysts at ReportsnReports, from a market of $16 billion in 2016, IoT-driven devices are expected to reach a market cap exceeding $195 billion in 2023. This exponential growth is courtesy the ubiquitous manufacturing of smarter mobile, in-home, and transportation devices and the increased interest in capturing that data and enhance communication infrastructure. The aforementioned statistics are testimonial of the fact that not only is IoT the present, but it will surely also be a significant part of our future.

Further, according to a study done by Gartner, IoT-driven semiconductor market will be at a whopping $45 billion by the year 2020, with consumer IoT taking the majority share and the automotive industry (including self-driving vehicles) taking a second place. The accuracy of sensors and actuators that help in measuring acceleration, temperature, motion, and geospatial proximity, will all play a crucial role in differentiating the industry leaders from the rest.

Coming to India, IoT in India is expected to see a rapid 31-fold growth to reach 1.9 billion by 2020, according to a Deloitte report. The report also states that the market value of IoT is expected to reach a jaw dropping $9 billion by 2020. Thus, one can apprehend that investors have taken an active interest in IoT startups in India and the trend is expected to continue for a foreseeable future. According to data available, investors have made a cumulative investment of a whopping $60 million in Indian IoT startups in the last two years alone.

Fintech and India

According to KPMG International’s quarterly report on global fintech investment, the total global funding to fintech companies in 2016 declined by a tragic 47.2 per cent from 2015. However, despite this downward trend being witnessed in fintech companies all over the world, India is still a key focus of VC investors in Asia.

According to Singhal, Fintech is currently seeing disruption and will continue to do so as it still had a lot of unexplored potential. Currently, the initial areas being tapped by fintech startups are digitisation, credit models etc, but in the future, we might see the Indian fintech industry moving towards analysing the vast datasets on consumer intelligence using the power of Artificial Intelligence.

Via -Sharmishtha, Techseen

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