Guest Article

Tips to Start Your Own Venture: The Top 5 Sectors That Are Attracting Venture Capitalists in India

Rahul Nainwal, Director & Head, UPES School of Business and CEO of Runway Incubator

India has the greatest number of startups added each hour (4 startups per hour), the third-largest number of startups, and the third-largest unicorn community, according to a report by Startup India. The government has exempted certain taxes for startups to grow and about 69,000 startups have been recognized by the Govt. of India. With these figures, it will not be wrong to say that it is a great time to start your own business but with proper research, guidance and mentoring.

Post-pandemic, some specific startup sectors have witnessed a surge in investment from Venture Capitalists (VCs). According to the Indian Private Equity and Venture Capital Association (IVCA) Report 2021, the IT & ITeS industry topped the industry table with an investment of $13.2 Billion, followed by BFSI. “The strong deal flow is expected to continue in the latter half of the year with movement forecast in the AI/ML, Edtech, and food tech space,” said the Indian Private Equity and Venture Capital Association (IVCA).

However, the biggest challenge for these sectors is the risk of being the new horses in the race. It can be challenging for entrepreneurs looking for funding to locate investors and venture capitalists who are prepared to take on the risks and offer some financial security. And when they find them, getting the right amount of money from them to invest in their companies can be even more challenging.

One of the reasons can be attributed to the fact that venture capitalists are careful with their investment funds for many reasons. Despite the inherent risks, investors continue to fund innovative businesses in the hopes that they will soon become the next big thing.

Here is a list of some of these sectors which are being focused on especially post-pandemic:

Edtech – Edtech is a sector that held a lot of potential in the Indian market given the incredible talent our country has, however, despite being a talented sector, it couldn’t reach its peak due to a lack of resources, knowledge, etc. Even though it continued to thrive even after physical classrooms were closed, the pandemic ended up being a turning point for the Edtech sector. Lessons were taught to students online while schools were closed for months. Powerhouses in edtech like Byju’s and Unacademy have received millions of dollars in funding and have gone on acquisition sprees to increase their dominance in this market over the past year. Unacademy, a Bengaluru-based company, raised USD 150 million during this time from Softbank and other investors, and it later joined the exclusive unicorn club.

Hard tech – Due to the need for businesses to change their strategies during the pandemic, artificial intelligence (AI) and machine learning (ML)-powered technology firms, particularly B2B, have seen a surge in interest from corporate clients. As a result, investing in these technology companies has become lucrative. A USD 54 million Series B financing round has been secured by Observe.ai, a company that creates AI-based transcription and analytics for contact centres. Other well-known conversational businesses with Series B and Series A funding include Yellow Messenger and Vernacular AI.

Online Gaming – The favourite sector of consumers in the pandemic phase, making it a favourite of investors. Indians’ use of screens has increased noticeably as a result of being confined to their homes for months during numerous lockdowns. A portion of this is made up of gaming applications. Additionally, the Indian government’s ban on 38 Chinese gaming apps, including PUBG, led local venture capital firms to concentrate on domestic gaming businesses. Delhi-based Winzo Games received USD 18 million in a Series B round of funding soon after the PUBG ban to expand its content pipeline and cater to mobile-first gamers. E-sports content platform AFK Gaming raised USD 200,000 in the pre-series A round. Fantasy gaming is now attracting more investors’ attention. The latter received the tournament’s title sponsorship. MPL and Dream11 each raised USD 90 million and USD 225 million, respectively.

Social Media Apps – This has garnered a lot of attention from all the age groups across India in the pandemic, furthermore, the restriction on TikTok, a popular short video platform, has benefited Indian app developers. There are a few platforms that have expanded quickly: Chingari, Mitron, and Roposo. Their “Vocal for Local” campaign has received support from the Indian government as well. Companies have rushed to invest in these native apps because of the high demand for them. Chingari raised an undetermined amount in three days, whereas Mitron and Trell raised USD 5 million and USD 11.4 million in Series A, respectively. The funds were to be used for hiring staff and developing new products. A Bengaluru-based platform for regional language networking, ShareChat, recently raised USD 40 million.

As we are approaching the Fourth Industrial Revolution, the growth of technology over the past few years has been exceptional. The venture capital’s inclination towards software companies will only increase post-pandemic, making it the preferred sector for the longest time.

Author Bio:  Rahul Nainwal is the Director and Head of UPES School of Business and CEO of Runway Incubator. He co-founded iVolunteer, the India Fellow Social Leadership programme, and Social enterprise incubator- UnLtd Delhi. He also started CashRelief.org-India’s first pilot on unconditional wealth transfer. His entrepreneurial experience spans over two decades where he started and exited multiple organisations. Rahul is also an active angel investor and mentors numerous start-ups.

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