10 years and 31,000 startups later, Indian startup ecosystem bets on deep tech, Gen AI for next phase of growth

As it completed a decade of its existence, with an impressive $70 b in equity funding and building a 90-plus unicorn club, the Indian tech startup ecosystem, with 31,000 startups, sets its eyes on the next phase of growth driven by deep tech and Generative AI.

From almost nowhere, the country has become the third biggest hub for startups after the US and China, creating over 10.50 lakh jobs. That about 1,000 startups, including 400 from emerging areas, were added in 2023 alone shows the strength of the ecosystem, notwithstanding the funding winters over the last few years. 

“This surge has positioned India as the third-largest startup ecosystem globally, with over 950 new tech startups founded in 2023 alone. Key sectors such as enterprise tech, health tech, and fintech have been at the forefront of this growth, contributing over 70 p.c. of tech startups in 2023, up from 60 per cent in 2014,” Kritika Murugesan,  Director of Nasscom 10,000 Start-ups Initiative, has said.

“One of the most significant developments in India’s tech landscape has been the fifteen-fold increase in the number of tech startups, now surpassing 31,000,” she said.

• Also read: Coal India interested in participating in auctions to secure lithium block, says Chairman

This surge has positioned India as the third-largest startup ecosystem globally.

She said the country’s startup ecosystem has also demonstrated resilience, weathering challenges such as the COVID-19 pandemic, global economic uncertainties, and funding slowdowns. 

The rise of Indian tech startups has not only disrupted traditional industries but has also inspired a wave of innovation and entrepreneurship. Success stories of unicorns, valued at over $1 billion, have emerged across diverse sectors, including e-commerce, fintech, and enterprise software. These unicorns have attracted significant investments and have solidified India’s position as a global tech hub.

Challenges

However, issues like the depth of funding continues to pose a challenge to the startup ecosystem. While India boasts a growing number of unicorns, it lags behind the US and China in terms of the sheer quantity of these high-value startups.

Murugesan argues that the focus should not solely be on numbers but also on the impact created by these tech startups. She pointed out that  15 tech IPOs raised over $2.4 billion on Indian stock exchanges between 2019 and 2023, which reflects continued interest among the investor community.

Asked where the next phase of growth would come from, she said the focus was shifting towards deep tech startups, leveraging AI and emerging technologies to address global challenges.

“With over 3,000 deep tech startups and growing investments in AI, India is poised to become a leader in this space,” she added.

Next phase of growth

Welcoming the move to remove the angel tax on investments into startups, Ashish Agarwal, Vice-President, and Head of Public Policy of Nasscom, appealed to the government to implement SEBI’s 2018 recommendation to allow the listing of equity shares of start-ups incorporated outside India on Indian stock exchanges.

“There is a growing interest among Indian start-ups headquartered overseas to move to India. These start-ups had chosen to incorporate overseas due to various reasons, including investor mandates, higher acceptance of newer business models overseas, ease of compliance, and lower capital gains taxes,” he said.

“These start-ups are considering public listing in India to raise capital and build for the next level of growth. This could lead to the creation of capital and wealth in India and would further augment India’s capital market infrastructure,” he said, citing the examples of the US and Hong Kong that allowed direct listing of foreign companies on their domestic stock exchanges.

• Also read: Futureproofing Indian Mobility: TKM’s 25- year journey in India

M Srinivasa Rao, Chief Executive Officer of T-Hub, said the growth of women-led startups was an achievement of the ecosystem. “Female entrepreneurship also rose, with women-led startups increasing from 10% in 2017 to 18% in 2022, supported by initiatives like the Fund of Funds for Startups Scheme,” he said.

Despite these achievements, challenges remained, including access to funding, regulatory hurdles, and infrastructure gaps, necessitating continued support for sustained growth, he said.