Part#1: Monsoon or Moonshot? 🌦️🚀

Hey there!

The most common fear when looking at entrepreneurship in India is that it’s a bubble. I did a poll on LinkedIn to gauge sentiments and while most were bullish, there’s justified skepticism as well. So, this post is an ode to the skeptics to find out if there’s any truth to the hype of the Indian entrepreneurial industry.

This is a two part post. This is Part #1. Part #2 comes next week.

Alright then, you should, join me in finding what India’s startup weather will be - Monsoon or Moonshot? 🌦️🚀

🗝️ Being Cautiously Optimistic about Indian Startups

LinkedIn Poll on my profile

When I started writing this newsletter, I had two goals: to learn about angel investing myself to make it less cryptic for small individual investors and help them invest in emerging startup ecosystems like India. To see if people in my network are interested, I did a small poll that got me the following results.

  • 76% bullish

  • 21% skeptical

  • 3% indifferent

The bullish sentiment is a great motivator, but the nature of angel investing is such that bullish sentiments need to be earned with rationality.

I am an aggressive optimist but I am going a bit out of character to learn to respect the skeptic within me. And that’s what I urge you to do.

Hence, phrase of the day “Be cautiously optimistic”

- Sparsh

Dot-Com Bubble V/S Indian startups

A look into the past can help us be better prepared for future.

Dot-com bubble was a period in the late 1990s and early 2000s when the stock prices of internet-based companies soared, fueled by irrational exuberance and unrealistic expectations of growth. The bubble burst in 2000, leading to the collapse of many internet companies and massive financial losses for investors.

Similarities

Reason for existence

  • Dot-com: Rapid rise in access to a computer and internet usage.

  • Indian startup ecosystem: Rapid rise in access to smartphones and internet usage, growing middle-class.

Nature of ecosystem

  • Dot-com: Internet-based companies in every corner.

  • Indian startup ecosystem: Tech-enabled (and not tech-first) companies sprouting in every corner.

Valuations and Profitability

  • Dot-com: Extremely high, often unreal, valuations. No profit.

  • Indian startup ecosystem: High valuations, no profit.

Differences

Diversity in industry

  • Dot-com: Internet-only companies banking on the rapid rise in internet usage alone.

  • Indian startup ecosystem: Many sectors such as e-commerce, fintech, edtech, healthtech, and more.

Investor Sentiment

  • Dot-com: Chasing quick and massive returns leading to inflated valuations and a lack of due diligence.

  • Indian startup ecosystem: Optimistic but increasingly cautious. Investors appear to be more cautious and discerning.

Historically (and anecdotally), India has been risk averse with cultural focus on frugality, savings, and being cautious with money. I believe, this can mitigate the risk of a complete collapse similar to the Dot Com Bubble.

- Sparsh

Government Support

  • Dot-com: Limited.

  • Indian startup ecosystem: Active support through various initiatives

Market Penetration

  • Dot-com: Primarily in the US market.

  • Indian startup ecosystem: Primarily in the Indian market, with increasing global outreach.

📊 Let’s look at some numbers

Number of Startups:

India is home to over 90,000 startups and 107 Unicorns, making it the third-largest startup ecosystem in the world, behind the United States and China.

Funding

Indian startups received a total funding of $13.2 billion in 2019, $10.9 billion in 2020, $35.2 billion in 2021, and $24 billion in 2022.

Sector distribution

Sector Distribution of unicorns in India - July 2022

The Indian startup ecosystem is diverse, with companies spanning fintech, e-commerce, healthtech, edtech, enterprise software, and logistics.

No Verdict but some signals

Indian startups - Monsoon or Moonshot? It’s a vast question, and we will keep exploring this in Part#2 of this post. In the meantime, we have some encouraging signals.

The Indian startup ecosystem is experiencing significant growth. It is more diversified, and investors seem more cautious than during the Dot Com Bubble. While it's essential to remain cautious of overvaluations and speculative investments, the Indian startup ecosystem's current state appears more sustainable and better equipped to handle potential challenges compared to the US Dot Com Bubble.

- Sparsh

India is home to the world's largest startup incubator, the T-Hub in Hyderabad. The incubator spans 70,000 square feet and can accommodate over 400 startups.

Here are some examples of successful companies coming out of T-Hub:

While it is amazing that Hyderabad has this massive facility, I would not want you to consider this as the best incubator in India just yet. Largest does not always mean the best.

I need to do more research to determine its quality and examples of success. I only found one source to confirm that the above companies are from T-hub.

- Sparsh

Sneak-peak into Part #2

We will dive deeper into the factors that make seemingly genius companies fail, and other companies absolutely ace the business game during a bubble. It’s amazing stuff!

Been a pleasure learning with you! Will see you again next week. Until then,

Stay motivated! Stay strong! Cheers!

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