Partho Dasgupta on Indian Startups: Is There Fuel Left in the Tank?

“The future of startups is bright, driven by relentless innovation and boundless entrepreneurial spirit.” –  Partho Dasgupta

New Delhi (India) July 23 : India’s startup landscape has experienced a remarkable transformation in recent years, emerging as one of the most vibrant and dynamic ecosystems globally. From humble beginnings just a decade ago, the country now boasts over 1.17 lakh (117,254) officially recognized startups as of December 2023, a staggering increase from just 450 startups in 2016. This exponential growth has been driven by a combination of government support, access to capital, a growing talent pool, and a thriving entrepreneurial culture. 

Despite facing setbacks and funding challenges, India’s startups are charting new paths, embracing innovation and resilience to solidify their position as global contenders. The Indian startup ecosystem, often celebrated for its rapid growth and innovation, has encountered significant turbulence in recent times. Let’s explore the ups and downs of Indian startups with Partho Dasgupta, former CEO of BARC India and currently Managing Partner at Thoth Advisors

The Setbacks: Failures and Slowdowns

The Indian startup landscape has seen its fair share of high-profile failures and slowdowns. Notably, the Edtech and health tech segments, which experienced exponential growth during the pandemic, have faced severe financial uncertainties. Prominent players like BYJU’S and PharmEasy have seen their valuations plummet by 85-90 percent, signaling a harsh market correction. The financial instability led to the shuttering of several firms and widespread layoffs.

Indian startups have laid off approximately 10,000 employees in 2024 as they navigate funding challenges and adopt prudent hiring strategies to enhance early-stage profitability. In the first half of 2024, layoffs were fewer compared to the preceding six months of 2023, during which around 15,000 employees were let go. This marks a decrease from the first half of 2023, which saw 21,000 job losses, according to data from Longhouse Consulting.

Partho Dasgupta says “These developments underscore the challenges that come with rapid expansion and the volatile nature of startup investments. While layoffs may reduce costs short-term, they can harm startups long-term by decreasing product quality and stifling innovation as remaining staff face burnout and lost talent.” Startups should be cautious with layoffs as a cost-cutting tool, as it can undermine their foundations. Sustainable growth comes from investing in people and finding creative solutions to challenges without widespread job cuts.” He adds.

Attracting New Funding in 2024

Despite these setbacks, the Indian startup ecosystem has shown remarkable resilience by continuing to attract new funding in 2024. Venture capital firm Antler announced plans to invest $10 million in early-stage Indian startups over the next six months. This initiative, targets idea-stage founders with investments of $500,000 per company, totaling 20 investments. This $10 million investment is part of the $75 million that Antler committed for India, reflecting continued confidence in the potential of Indian startups.

This influx of new funding indicates that investors still see significant opportunities in the Indian market. The focus on early-stage startups suggests a strategic shift towards nurturing new ideas and fostering innovation from the ground up, rather than solely relying on scaling established players. This approach could mitigate some of the risks associated with overvaluations and ensure a more sustainable growth trajectory.

“Rather than chasing ever-increasing valuations, startups in India should focus on securing steady cash flows. It’s crucial for both B2B and B2C businesses to build annuity revenue streams into their models instead of constantly seeking new clients each year. Sustainable growth comes from consistent, recurring income, which is far more reliable than the allure of high valuations.”  States Partho Dasgupta.

A Bright Future Amid Letdowns

The Indian startup ecosystem has demonstrated remarkable resilience in the face of recent economic challenges, emerging as a beacon of innovation and growth amidst global uncertainty.

Despite the funding slowdown that has gripped the startup world, the Indian ecosystem has continued to attract significant investments. According to a report by Tracxn, Indian startups raised a total of $44 million in funding during the first quarter of 2024, showcasing their ability to navigate the so-called “funding winter.”

This resilience is further underscored by the fact that India has now cemented its position as the third-largest startup ecosystem globally, with over 1.23 lakh (123,000) startups as of March 2024. This impressive figure represents a 5% increase from the previous year, underscoring the ecosystem’s ability to thrive even in the face of adversity.

“The pandemic served as a crucial stress test for Indian startups, and they emerged stronger, more agile, and better equipped to handle economic volatility. Many startups pivoted their business models, embraced digital transformation, and found innovative ways to serve their customers, ultimately enhancing their long-term resilience.” Says Partho Dasgupta.

While the funding landscape has undoubtedly become more challenging, a new breed of “silent, resilient startups” has quietly secured investments and laid the foundation for sustainable growth. These startups have prioritized profitability, operational efficiency, and building robust business models, rather than chasing inflated valuations.

The resilience of the Indian startup ecosystem is a testament to the entrepreneurial spirit and risk-taking nature of its founders. As the landscape continues to evolve, this ecosystem remains a hotbed of innovation, attracting young, ambitious entrepreneur’s eager to disrupt established markets and create lasting value.

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