‘2021 will be a watershed moment for India’s tech ecosystem’ — here are the startup sectors that VCs are betting on

‘2021 will be a watershed moment for India’s tech ecosystem’ — here are the startup sectors that VCs are betting on
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  • In 2021, Indian VCs (venture capitalists) believe that the investment deal flow will continue as global funds too jump in for a pie of the Indian startup ecosystem.
  • Indian investors say they will continue to bet on sectors like e-commerce, edtech, fintech and SaaS, while there’s room for sectors like SpaceTech and Agritech to grow.
  • The year ahead could see consolidation in India’s tech ecosystem as well. Investors believe more mergers and acquisitions are on the cards in 2021.
India’s tech ecosystem is riding into the new year with a lot of enthusiasm. There are multiple startup IPOs on the cards, investments are flowing in, and the spirit of recovering in a post-pandemic era is high.

In 2020, despite the coronavirus pandemic PE-VC (private equity and venture capital) deals hit $39 billion across 814 deals led by the onslaught of deals by Mukesh Ambani’s Jio Platforms and Reliance Retail.

And in 2021, Indian VCs (venture capitalists) believe that the investment deal flow will continue as global funds are eyeing a slice of the Indian startup ecosystem.

“2021 will be a watershed year for the tech economy in India. While foreign investors have been extremely bullish about it, domestic investors and even large corporates have been largely bystanders past 10 years waiting for the change to reach a certain critical mass. They will now jump in or be left out of the handsome gains that will be accrued in the next 10 years, by participating in the tech economy,” said Anup Jain, Managing Partner at Orios Venture Partners.

India’s internet ecosystem in numbers
Internet SubscribersSmartphone devicesSocial media usersDaily mobile time
749 million500 million376 million4.8 hours
Source: HDFC Securities report dated December 17, 2020

And to ride this internet growth of India, here are the sectors that Indian VCs are betting on in 2021.

Edtech will continue to shine

2020 was the year of edtech in India. With schools and colleges shut due to the COVID-19 pandemic, India’s educational technology startups stood at the forefront of online transition of schools. In 2020, edtech startups raised a total of $2.2 billion, and VCs believe that the money will continue flowing into the sector.

Fintech is the next big bet

As the internet penetrates India's hinterlands, the adoption of digital payments, financial tech instruments will increase across the country. And VCs believe that fintech cos will drive the growth. "If 2020, the year of the pandemic, was all about edtech and health tech, 2021 will be the year of Fintech in India. Consumers and businesses alike have made substantial changes to the way they lead their lives and businesses and set new goals and practices for saving, investing and spending," said Jain.

Jain lists that financial services or neo-banking ecosystem, wealth creation and management will reign big in fintech along with "the use of tech by consumers, just like in e-commerce, will be reflected in discovery and purchase of financial products and services."

E-commerce boom to linger

With the coronavirus pandemic, offline retail was hit in a big way, which also led to India's e-commerce firms' boom along with grocery retail, which saw their numbers multiply. From Amazon and Flipkart seeing the number of sellers grow on their platform to JioMart, BigBasket, Grofers, saw their average order volumes and app downloads grow during the pandemic.

This e-commerce boom will continue to linger in the new year, believe VCs. The durable shift to online has gone well beyond just the top 50 million users, and all incumbents brands have embraced it and are providing a good experience. The sector will keep expanding, and new retail (formats+omnichannel), Social commerce, warehousing, etc should see innovation," said Deepak Gupta, Founding Partner, WEH Ventures.

Within e-commerce, Direct to Consumer or DTC brands that sell directly from their websites saw massive growth in 2020. And that has seen investor appetite also grow, with brands like boAt raising over $100 million in funding already in 2021.

SaaS to ride on the benefit of digitization

One of India’s best performing bets has been in the SaaS (Software as a Service) sector with unicorns like Freshworks, Zoho, Druva, Zenoti, Icertis. And experts believe that the offerings in SaaS are far from over. “We expect adoption of SaaS (software-as-a-service) products to become more widespread as people realized the benefits of digitization during the COVID 19 pandemic. Cyber Security companies would have tailwinds as data leaks / data thefts have made sure people take this aspect into cognizance,” said Jatin Desai, Managing Partner at Inflexor Ventures.

Space, agri and electric vehicle infra are among other sectors to watch out for

Here are the other sectors that VCs are betting on

  • SpaceTech
  • AgriTech
  • InsurTech
  • Electric Vehicles Infrastructure
Pankaj Makkar, MD of Bertelsmann India Investments, sums it up that sectors like e-commerce, e-commerce logistics, direct-to-consumer, Edtech, HealthTech, and some portions of FinTech will do well in the new year. But he also sees consolidation in India’s tech ecosystem. “We will also see Mergers and Acquisitions happening as competitors may join hands because there is less space to grow,” he said.

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