AI to be the key driver in India’s startup ecosystem, says experts
In an interview with CNBC-TV18, Mohapatra emphasised, “When capital was easy to raise and deploy, there was a lot of capital around the world. Now that it is harder to raise capital and deploy capital, there’s a flight to quality in all dimensions of our business.” This flight to quality is not merely confined to the calibre of companies; it extends to business models, management teams, and even the investors themselves.
Mohapatra also pointed out a significant trend emerging in the investment landscape—artificial intelligence (AI). He noted that AI is now prevalent across various categories, driving a resurgence in consumer technology. “Consumer tech has gone through a bunch of ups and downs over the last few years,” he observes, “but now there is a wave of new consumer tech companies, new modalities, and new behaviours that AI is enabling.” This renewed interest has prompted Lightspeed to actively invest in companies innovating within this space.
Karthik Reddy, Partner at Blume Ventures, reinforced Mohapatra’s observations by emphasising the clarity of the IPO pathway for Indian companies. He noted, “If you have a domestic company that’s actually trying to build value within the boundaries of this country, eventually whether someone’s acquiring it or trying to buy a secondary in a unicorn, they all approximately look the same.” Reddy pointed out that the standards for investment have evolved, with private equity players now assessing companies as if they were already IPO-ready.
Looking ahead, Reddy envisions a robust future for Indian startups, suggesting that if the momentum continues, India could see a significant number of IPOs—upwards of 100—across various market segments by the end of the decade. He states, “If we end the year with 12 to 15 IPOs, and we can keep this momentum going for the rest of the decade, suddenly we’ll have 100 plus companies listed across small, mid and large cap in Indian tech.”
Below are the excerpts of the discussion.
Q: What would you signify as the big takeaway for the Indian startup ecosystem in 2024 outside of the fact that we’ve seen the spate of IPOs? And I think it would have been unimaginable even a couple of years ago that India would have been the IPO nation versus the US market, for instance.
Mohapatra: When capital was easy to raise and easy to deploy, there was a lot of capital around the world. Now that it is harder to raise capital and deploy capital, there’s a flight to quality in all dimensions of our business. There’s a flight to quality in businesses and business models, teams, and even investors. So we are seeing that happen across all the geographies Lightspeed operates in. So that is a theme you’re seeing in the capital markets globally.
From a thematic perspective, I would say, AI is looming large in every single category out there. We are seeing AI leading to a resurgence of consumer tech. And I know consumer tech has gone through a bunch of ups and downs over the last few years, but now there is a wave of new consumer tech companies, new modalities, new behaviours that AI is enabling. That is making it a very interesting category for us to invest in. We’ve done a bunch of those this year.
We’re also seeing a resurgence of hard to build companies, hard to build technologies. And you can call it deep tech. I can call it frontier tech, we can call it infrastructure tech in software, but we are starting to see a lot of net new companies coming up and attracting a lot of high quality capital that are building hard to solve problems globally, especially coming out of India as well, which is a net new thing for us and a theme that we are digging in a lot more now.
Q: Give us examples of the kinds of companies that you’ve invested in and what those cheque sizes look like at this point in time?
Mohapatra: As a fund we have been pretty active in what you could call frontier tech and deep tech, but maybe just zooming out from there, there are companies that are hard to build in different ways. We are investors in a company called Zepto that is hard to build in a very different operationally intensive way and requires a lot of capital to prove a business model out. And then we have companies like Pixxel Space that needs to get heads down for three to four years in the lab and prove the science and the engineering risks behind their approach before they come out in the market to raise more and more money. So we have looked at both of these categories. And like I said before, the capital is now flying towards companies that have built businesses of high quality, whether they are operationally intensive and require a ton of capital to prove the business model out, they are attracting a lot more capital now once they have gone through that needle hole. And companies like Pixxel Space that have actually spent three to four years building world-class net new to the world technologies, and now they are kind of reaching commercialisation stage, they’ve also gone out and raised a lot of capital globally. So we are seeing a bit of both happen in the India market.
Q: What to your mind has been the biggest takeaway of 2024 for India’s startup so far?
Reddy: I think predominantly the IPO sort of journey and the route has become very clear that India will have to pursue that. If you have a domestic company that’s actually trying to build value within the boundaries of this country, eventually whether someone’s acquiring it, someone’s trying to buy a secondary in a unicorn or whether someone actually thinks this is a sustainable business, they all approximately look the same.
If you ask a private equity player to come and buy into a large digital company, they want to know whether it makes money, whether it’s going to get to EBITDA, not right away, but in two, three years. I think they were more adventurous in 2021-2022. They’ve gone back into the same mode of judging a company as if it were IPO ready. So, I think the learning for at least the Indian lot, where we’re building for the market opportunity that is India, is that you have to build within the constraints of what the profit pool in India demonstrates, and then you’re judged by the public markets relative to what else is out there. So, if you are Mamaearth, then it’s Unilever and Marico. If it is Paytm, then it is an NBFC or a bank, and so on and so forth. I think it’s great that we have that momentum now building up.
If we end the year with 12 to 15 IPOs, and we can keep this momentum going for the rest of the decade, suddenly we’ll have 100 plus companies listed across small, mid and large cap in Indian tech. And I think that’ll be a watershed moment to welcome the next decade.
I know I’m talking very far out, but I feel what we started this year with is going to become a consistent trend line over the rest of the decade.
Watch accompanying video for entire discussion.
