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NASSCOM Tech StartUp Report reveals how Indian tech startups will grow in 2023

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India is a country that can boast of the remarkable skills and creativity of its citizens. In 2022, despite numerous hurdles including unfavorable market conditions, lengthy funding rounds, and deflated valuations; entrepreneurs remained undeterred in their efforts to succeed. This resilience has been greatly appreciated by investors who are confident about investing in India’s dynamic tech ecosystem. 

The NASSCOM Tech StartUp Report 2022 reveals how India has developed a robust tech start-up ecosystem, characterized by resilience to economic fluctuations and modernization through the growth of more innovative businesses. 

The Indian startup ecosystem in 2022 

Tech start-ups continue to be key drivers of India’s economic and social growth. With a revenue of over $8 billion in 2022, Indian Software as a Service (SaaS) startups expect to generate over $100 billion in revenues by 2026.  

  • Tech start-ups have been instrumental in catalyzing the adoption of Electric Vehicles across the country, playing a pivotal role in initiatives that support climate conservation and promote accessible clean energy to build sustainable communities.  
  • 60% of Indian B2B tech start-ups are channeling their efforts towards small and medium businesses, aiming to provide capital access, better customer outreach opportunities, improved compliance as well as methods for enhancing productivity and worker efficiency. 
  • 20% of India’s B2C tech start-ups are dedicated to aiding the low-income group, offering a range of services from financial inclusion and increased access to affordable healthcare, all the way through improved educational opportunities for better earnings. 
  • Startups in India have been robust despite the pandemic, with net job creation in 2022 and investment levels surpassing pre-pandemic highs. Although late-stage investments saw a significant decrease of 40%, early stages experienced growth beyond 20%. Additionally, M&A activities were sustained while IPOs declined sharply. An encouraging trend is that female entrepreneurs continue pioneering success across the technology industry’s start-ups. 
  • The Indian start-up scene has witnessed a dramatic expansion over the past year, with sectors such as BFSI, Retail and Retail Tech, Enterprise Technology, and EdTech raising significantly more investments than in 2019. Moreover encouragingly nascent industries like Agri-tech, Industrial/Manufacturing technologies have seen massive adoption due to their technology-enabled solutions that engage end customers across their respective value chains. 
  • India’s deep-tech start-up ecosystem is rapidly blossoming in response to market demands, comprising 12% of all start-ups and increasing at a faster rate than the total sector. This remarkable expansion can be attributed to exponential investment surges in seed and early-stage funding – which saw 3 times more investments than in 2020, and 2 times respectively as compared to last year. 
  • The potential unicorn club also grew with investments better distributed across different round sizes, leading to an increase in the number of start-ups with total funding higher than USD 50 million, creating a strong pipeline of potential unicorns. 
  • In 2022, large enterprises showed unwavering confidence in emerging Indian start-ups by investing and forming strategic partnerships.  

What tech startups can expect in 2023 

Tech start-ups anticipate 2023 to be a turbulent year.  

  • The downturn in funding is expected to continue in the next few months due to fears of a global recession. However, things like the availability of dry power, a strong funnel of seed and early-stage startups, expansion in customer spending on tech-led solutions, and improving business metrics will help the startup sector grow as the year goes on. 
  • There will still be an increase in mergers and acquisitions in 2023, but the return of IPOs may be delayed until the second half of the year. The reasons for this are that companies are still having a hard time finding enough qualified technical employees, and start-up valuations are more reasonable now. To have a successful IPO, a start-up company will need to show that it is still growing steadily. 
  • In a recessionary climate, investors will prefer companies that grow steadily. Technology stocks may not be under as much pressure because these companies are still doing well compared to other companies. This means that the value of technology stocks may get higher than it was before the pandemic, with a bigger difference between the best and worst performers. 
  • Technology innovation and deep-tech adoption are expected to keep increasing, especially in areas that need complex solutions. The speed of adoption may depend on how many people want the jobs versus how many jobs are available as more global MNCs expand their India R&D centers. Start-ups are likely to keep developing real-world applications in areas such as Quantum Computing, Web3, AI/ML, Cybersecurity, Robotics, Drones, Aerospace, and the Circular Economy. 
  • In 2023, we might see new areas for investment beyond the traditional favorites. Over the years, there has been a diversification of use cases and opportunities that start-ups are pursuing across 25+ industries. SaaS and B2B (business to business) are expected to become more prominent. Sectors like Agri-Tech, Environment Tech, Gaming, Automotive, Industrial & Manufacturing, Aviation, and Defence will see a higher share of investments. 

Recommendations by NASSCOM 

Recognizing the need for improving India’s start-up ecosystem, NASSCOM recommends taking immediate steps towards the same. These include: 

  • Parity on long-term capital gains tax for domestic investors 
  • Revising eligibility criteria for ESOP tax deferment 
  • Simplifying compliance for investments 
  • Allowing losses to be carried forward and set-off 
  • Accelerating momentum of Deep Tech start-up growth with deep initiatives
  • Accelerating revenue growth through structured and strategic interventions 
  • Additional and specific support for start-ups focusing on critical sectors 
  • Reducing the talent demand-supply gap for experienced and new professionals 

Source: NASSCOM 

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