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Why India’s Startups are Getting Investor Love

COVID-19 may have had its way in damaging the world economy, but India’s startup scene is thriving. So far in 2021 alone, Indian startups have seen $16.9 billion of venture capital funding, standing neck to neck with China in the Asia-Pacific region.

And with food delivery startup Zomato experiencing unprecedented success when it went public in July this year, initial public offerings (IPOs) in India are also heating up, with $8.8 billion raised in the first eight months of 2021.

Over at GGV Capital, we have invested in several Indian startups. We’re proud to include B2B ecommerce firm Udaan, online tutoring platform Vedantu, financial services company Rupeek, online insurance platform Turtlemint, digital ledger Khatabook, and buyer intelligence platform Slintel in our portfolio.

So why are India’s startups getting so much love from investors like us? That’s what we’ll explore in this article, and along the way, you can expect to see how our portfolio startups won our hearts.

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India has the third-largest startup ecosystem in the world

You read that right: India does indeed boast the third-largest startup ecosystem in the world, behind the USA and China today. Bangalore is dubbed the startup capital of India with 10,083 startups (accurate as of 19 July 2021).

And these startups don’t just focus on one area of interest, too: they cover various themes, including e-commerce, social media and social networking, food delivery, edtech, and digital payments.

With such a robust, healthy environment built for startups, it is no surprise that investors are keen to pool their money into India. GGV Capital is no exception to this rule, with our managing partner Hans Tung affirming his confidence in the country:

“India itself is doing interesting things that will increasingly attract international capital. People are paying attention to India and feel that it would take the right lessons from China to grow faster and, at the same time, also provide opportunities for innovations that will happen locally.”

Udaan, a network-centric B2B trade platform that targets small and medium enterprises (SMEs), is one such Indian startup that has our seal of approval. Its founders Amod Malviya, Vaibhav Gupta, and Sujeet Kumar astutely identified that India’s payment landscape was opaque and unreliable. Thus they created a payment system that performs transparent and punctual payouts. 

GGV Capital believes in Udaan’s vision and has been investing in the startup since 2019. Today, Udaan is valued at over $3 billion with a monthly gross merchandise value (GMV) of around $200 million. In the latest news, it is now looking to go public within 18 to 24 months.

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India still has untapped potential for internet penetration 

Although India has come a long way in embracing technology, it still has room to grow in the internet penetration department. According to Amit Anand, co-founder of NextFins, for CNBC, ecommerce penetration in India sits at just 7%, while smartphone penetration is about 30%.

Despite its low internet penetration rates, the fact remains that India does have the third-largest startup ecosystem in the world. This means that the low internet penetration rates present a trove of opportunities for startups to explore.

Online shopping opportunities are plentiful as ecommerce makes up less than 3% of retail transactions in India. Startups in India can most certainly leverage this to build the supply chain and delivery networks to complement online retail shops and apps.

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India’s startups play an important ‘nation-building’ role

Startups often spring up in response to issues that are endemic to their countries. This scenario is all too true in India, where most startups seek to address problems in their society. 

Hans Tung calls this ‘nation-building’, where tackling such problems becomes a boon for India’s economy. That’s why he and GGV Capital are enthusiastic about continuing to invest in India.

“So, we have that nation-building kind of lens when we do investment. We feel that they (India portfolio firms) are playing a role in making the country more efficient and, over time, may even be able to export such efficiency to other regions. So, that’s how we continue to look at India, and we’re bullish.”

Vedantu is an edtech startup that fits the nation-building bill. Founders Vamsi Krishna, Pulkit Jain Saurabh Saxena, and Anand Prakesh identified that India’s standard curriculums and delivery mechanisms were impediments to the country’s education system, serving as obstacles that severely limited the quality of teaching in schools.

This led to the creation of Vedantu, an online interactive tutoring platform where trained teachers delivered tuition classes to students in real-time. The platform did not present lessons in a monotonous, one-way style but with interactions made between teachers and students to personalise the learning experience for the students.

Vedantu’s revenue grew four times in May 2021, and now it is set to become a unicorn following a fundraise of $100 million. GGV Capital, Coatue Management, Tiger Global Management, and an unnamed Asian private equity fund are all part of this fundraising effort.

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India’s startups boldly tackle everyday problems

In line with their ‘nation-building’ quality, Indian startups don’t shy from confronting everyday problems endemic to their country. While these everyday issues may seem insignificant individually, they collectively add up to become detrimental to India.

As Amit Gupta, co-founder and CEO of electric bike-sharing platform Yulu, explains, each of these problems presents an opportunity for startups to tackle:

“In India, as you know, everything is broken; everything is an opportunity. Regardless of your class, creed, financial status, colour or religion, you have to deal with [these] problems.”

This was the case for Khatabook. The seed for this digital ledger company sprung from a desire to help small shops and businesses in India migrate from unwieldy paper account books to a portable digital platform they can access at any time.

Hence, its founders Ashish Sonone, Dhanesh Kumar, Vaibhav Kalpe, Jaideep Poonia, and Ravish Naresh developed Khatabook, which started as a simple cash management app. It later expanded to include other solutions like business analysis and staff management.

To date, Khatabook has raised a total of $190 million in funding, bringing its total valuation to an estimated $600 million.

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India is strengthened by its “failure is not an option” philosophy

India is renowned for its austere attitude towards failure, which is channelled through its startup scene. Startup founders here are versatile, resilient, intelligent, and hardworking, which helped them tide over the challenges that COVID-19 posed to their businesses.

The pandemic also drove startup founders to adopt automation and online media. Technology-focused sectors such as edtech, online communication, digital health, enterprise, and software as a service (SaaS) flourished as a result.

Hans Tung is impressed with Indian startup founders’ propensity to adapt to volatile situations.

“It’s amazing to see Indian founders always wanting to learn, always thinking about how to innovate. When it comes to grit and intelligence, India is always ahead.”

The ability to adapt is reflected very well in Turtlemint’s response to COVID-19. This insurance company has always been focused on digitalising its services, which paid off very well when the pandemic hit.

According to co-founder Dhirendra Mahyavanshi, Turtlemint responded to the first wave of COVID-19 by training its advisors to do video calls in place of physical meetings. Although it experienced an initial decline in business in the first week of April 2020, it could slowly recover over the next few weeks.

In the first quarter of the fiscal year 2021, Turtlemint saw a 110% growth in health insurance compared to 2020. It also experienced a 3.1% increase in the number of lives covered per policy – a significant jump from the 1.9% it saw a year ago.

And in November 2020, GGV Capital led a financing round for Turtlemint, where it successfully raised $30 million. As Mahyavanshi shared, this was in line with increased consumer awareness and demand for health and term life insurance.

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Loved by one and all

It is clear that investors worldwide have sufficient reason to place their money in India. India is a hub for startups, with at least 20 of these becoming unicorns alone in the past three years. 

And with so many Indian startups centred around the adoption of technology, the country’s economy looks set to flourish. Hans Tung reaffirms his confidence in India’s worth as a hub for startups:

“You need several iconic companies to make an impact and build things that will help the national economy grow. You need a generation of founders being inspired by successes like Flipkart. You need engineers to build things, and India has all of that.”

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