AI, ML startups turn new favourite for investors as deeptech becomes backbone for businesses

India is moving from a services economy to a product-nation.

In business, regardless of whether one is an entrepreneur or an investor, every decision in favour of something is a decision against something else. B2C startups valuations had become inflated and these consumer-oriented startups required – and continue to demand – vast marketing and advertising resources to attract fickle consumers; B2B companies, on the other hand, were attractive, their business models targeted loyal, identifiable clients who could be prospected and converted with far lower spends; and the opportunity to work alongside these founders and help them scale up for international markets has turned out to be a rewarding challenge.

India is moving from a services economy to a product-nation. Along with an increasing focus on creating IPs, entrepreneurs are creating capital-efficient platforms, and this augurs well for the VC industry. India has made remarkable progress in the last three years and moved ahead of the UK to become the third-largest startup ecosystem. Data from Tracxn (an independent analyst firm) indicates a total of 31 unicorns as of September 2019, of which seven acquired this status this year alone. With one of the world’s largest pool of trained engineers and scientists, and a highly aspirational, career-oriented youth base, there is no dearth of talent in the country’s tech and startup hubs that are being further encouraged by international and home-grown accelerators and incubators.

Also read: Angel Tax: Whopping 1100% jump in number of startups exempted in FY20 so far under Startup India

According to a NASSCOM report, the B2B sector accounts for 71 per cent of the unicorns in India; 57 per cent are from emerging and nascent sectors such as gaming, supply chain, logistics and automotive. India has seen a 33 per cent growth in deeptech startups: 18 per cent of these are leveraging deeptech, up from a mere 8 per cent five years ago. Technologies like Artificial Intelligence (AI), Machine Learning (ML), Internet of Things (IoT), Robotics and SaaS (Software as a Service) are moving decision-making up the value chain from post-facto to preventive to predictive or enabling faster decision making or even adding efficiency in the process.

The growth in the economy is leading to multiple gaps that are best plugged by technology-driven services and products. Consequently, a new breed of entrepreneurs is focusing on enterprise-led opportunities with the backbone of deeptech platforms. AI, data analytics, and IoT are witnessing fastest adoption across Industry verticals. The same NASSCOM report states that there has been a 120 per cent YoY funding growth for AI startups (over $150 million invested in 2018) and a 500 per cent YoY ($2 million to $11 million) growth for blockchain funding (though on a smaller base). The advanced or deeptech startup pool has witnessed a 40 per cent CAGR since 2013. This is also confirmed by a recent TiE (The Indus Entrepreneurs) report that shows the largest share of investment is in these sectors. From an analysis of India’s unicorns, a definitive trend is also emerging. B2B startups are more capital efficient compared to B2C unicorns.

(Sunil Goyal is the Managing Director at YourNest Venture Capital and VC Council member at IVCA. Views expressed are the author’s own.)