The Indian government is emphasising and celebrating its tech startups as an important component of its economic development policy. Prime Minister Modi recently pointed out that the number of Indian ‘unicorns’—technology startup companies with a valuation of US$ 1 billion or more—has doubled since 2021. Some sectors within these startups, such as climate tech, do demonstrate strong promise. On the other hand, though India has emerged as the third largest ecosystem for startups, funding is becoming a growing problem, with the number of unicorns dropping by half in 2022. One of the sectors that appear to be not doing very well is the Indian online tech startups.

With the dramatic increase in work-from-home (WFH) office interactions, online consulting for various services but especially heathcare, online classes at schools and colleges and other educational centres, and other online services and platforms proliferate.

These Indian tech startups did very well during the two-year-long pandemic. With the dramatic increase in work-from-home (WFH) office interactions, online consulting for various services but especially heathcare, online classes at schools and colleges and other educational centres, and other online services and platforms proliferate. Overnight, technological solutions and electronic communications using virtual platforms, digital payments system, video consultations and edtech all became popular. But with the pandemic now relatively under control and people returning to normal lives, the future of Indian startups that provided online services is beginning to look bleak. Going by recent media reports, the future of such tech startup companies is not so bright. Funds are drying up and not all startups are going to survive. Further, issues like the Russian invasion of Ukraine, a spike in global inflation rates, and fears of a possible recession have also brought down the prospects for many startups in general. Shortage of capital that is critical for the startups to sustain has led to cost-cutting measures with layoffs, mergers and consolidation and even complete shutdowns of some of them. According to Inc42, a tech media platform, eight startups shut shop in 2022. These include Matrix Partners-backed SaaS startup, Protonn, which closed its operations in January 2022 since it was unable to find the right product-market fit. Protonn was a Bengaluru and San Francisco-based startup, focused on providing its platform to professionals such as lawyers, graphic designers and nutritionists “to launch their businesses online, create videos, conduct live sessions, generate payment links, and track their business’s financial performance.” The company had raised US$9 million in seed funding. The company, founded by former Flipkart executives, Anil Goteti and Mausam Bhatt, returned US $ 9 million to its investors. Similarly, another startup engaged in edtech, Udayy ended its operations in April this year. The Gurgaon-based startup had difficulties finding ways to stay in business in the post-pandemic world. The startup co-founder, Soumya Yadav stated that the company was “witnessing the post-pandemic world for the first time.” She added that “as the kids went back to school, we faced roadblocks in growing the original model of online, live learning. We evaluated multiple different strategies and adjacent pivots however none of them were promising enough.” After compensating its employees for the shutdown, the rest of the capital was returned to the investors. Udayy founder, however, clarified that it was not a financial crunch that led to the shutdown but growing the business in the post-pandemic scenario was proving to be a challenge. Udayy is the second edtech startup after Lido Learning that shut down its operations. Ronnie Screwvala-backed Lido Learning ended its operations in January. Several employees took to social media to talk about either delayed payments or no salaries for a couple of months before the startup founder Sahil Sheth announced that the company was facing financial issues and that it was shutting its operations.

Shortage of capital that is critical for the startups to sustain has led to cost-cutting measures with layoffs, mergers and consolidation and even complete shutdowns of some of them.

Other edtech startups such as Vedantu and Unacademy are also facing severe financial crunch, leading to hundreds of layoffs or shutting down certain verticals. Earlier in the year, Vedantu, for instance, laid off around 620 employees. Unacademy, earlier in the year, shut down its medical test preparation vertical, USMLE. As of November, Unacademy has done three rounds of layoffs, starting with 600-800 employees from its sales and marketing team in April, followed by another 150 in June and another 350 in November. Byju’s—a rival of Unacademy—has also felt the pinch and is reported to have laid off close to 2,500 employees. Another startup in the education sector, a Bengaluru-based SuperLearn, shut its operations in June because of “a dearth of funds and diminishing investor confidence.” Similar to Udayy, SuperLearn found it difficult to grow or even sustain the market once lives returned to near-pre-pandemic normalcy. Another startup, Crejo.Fun supported by Matrix Partners ended its operations in June for lack of funds. The startups’ co-founders in a townhall announced their decision to end the business operations. Subsequently, Ankit Agarwal and Vikas Bansal, informed their employees that this was “precipitated by a lack of finance and the subsequent reopening of schools.” Yet another edtech startup, a Noida-based Qin1 became one of the latest victims of the non-availability of funds and had to  close its operations. Other parts of the tech sector have also been hit. Among the e-commerce ventures, Nandan Nilekani-supported B2B platform ShopX ended its operations in August “as it could not generate enough cash flow and is in default of multiple loans that it took from its investors, including Infosys co-founder Nilekani and Singapore-based Fung Group’s investment arm, FSX PTE LTD.” Similarly, Bhavish Aggarwal-led OLA closed three of its verticals – Ola Dash, Ola Play and Ola Foods. Several international companies stopped their India operations, due to the uncertainty. Some of the major players that shut the India operations include Singapore-based e-commerce company Shopee; Amazon’s three verticals – Amazon Academy, Amazon Foods, and Amazon Distribution were shut down; and Chinese phone company, Xiaomi, took out its fintech (financial technology) apps – Mi Pay and digital lending app Mi Credit from Play Store.

Several startups gained from the inadequacy of the Indian healthcare system and thus phenomena like online pharmacy, healthcare-at-home services, and fitness and wellness companies have sprung up and they are likely to stay.

While the edtech is possibly the worst hit, startups in the biotech and healthcare sector and e-commerce and fintech may not be as badly affected in the coming year. Several startups gained from the inadequacy of the Indian healthcare system and thus phenomena like online pharmacy, healthcare-at-home services, and fitness and wellness companies have sprung up and they are likely to stay. Healthcare startups reportedly received funds of around US$2.2 billionn across 131 deals. They also appear to have found an appealing business model that might help them pull on with reasonable success in the coming years. Nevertheless, there is a likelihood that after seeing a boom and a significant spike in the demand in these sectors in the last two years, there may be some balancing in the next two years. Another possible way that startups will deal with the financial crunch, lack of adequate response is to consolidate the several different edtech and e-commerce platforms and so, one could expect a few merger and acquisition to come through in the coming years. Enterprisetech sector saw some of this playing out already. Startups, at least within a few exclusive sectors, have gained fair amount of prominence and appears that they are here to stay despite the possibility of a rough couple of years until issues around funds and market are evened out. Overall, therefore, Indian tech startups suggest a mixed picture. Strong government support is a positive, though support at the policy levels do not always translate when dealing with the Indian bureaucracy. But the biggest problems facing India’s tech startups may be their business models and market competition than state interference.

• Media and Internet
• Cyber and Technology
• India
• biotech
• Climate tech
• Edtech
• healthcare
• startups
• technology
• unicorns
• virtual platforms

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