Dec 26, 2021
Valiantly Predicting 2022
Yeah, it’s already 2022
We all thought that 2021 would be the end of the weirdest time in our living history. Instead, the year got weirder. Another wave is on the rise, after a wave in the middle of the year.
The silver lining is that we may finally be nearing the end.
The craziness in the real world got even crazier in the digital world. Web3 became the hottest new thing that nobody understood. Facebook became Meta to capture the Metaverse. India had a mind-boggling 43 unicorns, becoming the world’s 3rd largest startup market.
What’s crazy is that the year does not feel like 12 months, since we published our last predictions
With the year at the end, we can look at our predictions. Like a judge taking his own case, we will also score ourselves.
Agritech Will Cross $500M in Funding in 2021: Agritech raised $430M of funding till early December, and with a few large rounds in yet to be announced our prediction was prescient. DeHaat, a full stack agricultural services platform raised $115M alone, previously unheard of for an agritech firm. Our piece on Agritech talks about the future of this market. (9/10)
SaaS will be India’s Most Funded Sector: SaaS in 2021 almost 3x that of 2020, reaching a $4.5B number from $1.7B. It alone accounted for more than 15% of India’s funding for the year. But it was beaten by funding in fintech, which reached an incredible $8B this year. Nevertheless, it was a crazy year for SaaS, which saw Freshworks doing a memorable IPO. We didn’t get the ranking right, but were very right about the sector (7/10)
EdTech will Consolidate: It’s as if the EdTech firms played by our predictions. India’s two largest EdTech firms went on an M&A binge. BYJUs acquired almost a company a month, deploying billions in acquisitions. More than 21 EdTech acquisitions happened. The large edtech firms did almost all of these, and took 75% of the funding raised. Funding to other startups predictably declined, as investors doubled down on the winners and nobody else. The cycle turned. (10/10)
Everything will Go Social: No one would have expected the Web3, community led fever that would grip the global ecosystem. Not only did business models go social, entire organizations were modeled on communities like no one expected. Fuelled by tokenization and the ability to participate and own new technologies, social was everywhere. Social investing, recruiting, building all picked up. The world feels like a game (9/10)
Healthtech will Rebound in 2021: 2020 was a collapse for healthtech, reaching a very low $500M from the earlier go-go years where it had billions of dollars raised. 2021 was a big rebound from 2020, as Healthtech hit its stride. As we had predicted, Pharmeasy won the e-pharma battle, becoming a unicorn and gobbling up older larger players. Pristyn Care also became a unicorn, capping off a record $2Bn going into the sector, 4x that of 2020 (10/10)
Logistics will go niche: We saw a crazy boom in this new category called quick commerce. Solving just one part of the grocery supply stack, with one use case, these hyperlocal quick grocery companies have broken out. Delhivery is going for an IPO, while many other logistics focused businesses have broken out. That said, logistics still has a long way to go, and remains yet to be verticalized (5/10)
We scored a crazy 9/10, which means we should be crazy enough to predict the next year.
Predictions
#1 2022 will have 2x more IPOs
While 2021 was the year when the term unicorn became commoditized, it would also be remembered as the year when the young guns suited up to jazz up the public listing parties.
Zomato was the flag bearer and its listing would be remembered as fondly and lovingly as probably the Flipkart purchase by Walmart in 2018- seminal and era-defining!
Zomato’s eventual success on listing and performance to date has enabled a bunch of startups to prepare and take the public plunge in 2021.
8 tech startups IPO-ed in 2021, Zomato, Policybazaar, Nykaa, Nazara Games, Paytm, Freshworks, RateGain, MapMyIndia and listing gains/ losses.
An encouraging fact for most startups looking to IPO would be that largely the public markets have embraced the new tech startups. The largely pessimistic outlook that these startups will be cash guzzling with weak unit economics and no profits insight was a misconception for most of them that listed (most being the crucial word :P)
And analysts/ public market experts have tried to devise new ways to measure and recommend a buy/hold/ sell on these startups from pushing out their DCF models till FY28/29E to arrive at fair value to valuation gurus like Damodaran giving their take on the favourite tech stocks listed (Zomato & Paytm)
All of this has led to a lot of fruitful discussions and debates on how to value these new-age beasts, how much corpus to allocate on these stocks, are these stocks only for high-risk investors and so on. These discussions are expected to continue in 2022 further adding depth and maturity to tech startups listing and return potential in public markets.
We foresee 2x IPO’s in 2022 from the nine listed ones in 2021. Already 2 have received SEBI approval while 5 more have filed their DRHP (prospectus)
As these startups list, it will create a virtuous cycle for the investors, entrepreneurs and early employees who will re-deploy capital in the tech ecosystem which allowed them this wealth creation opportunity in the first place.
Let the ‘Should I buy X startup IPO’?’ discussions continue. Win win for India and the startup mania!
#2 D2C Brands will Consolidate in 2022 with 20+ acquisitions
Our last piece on Thrasio models in India led to two fundamental insights.
The first is that it’s the best time to be a D2C entrepreneur. If you have built a brand with some brand recall/ equity in your target segment and scaled to $5-10M ARR with close to cash flow break even you are a ripe acquisition target for these new upstarts.
The second is the fact that given the current nascency of the D2C market in India as compared to US, China in terms of purchasing power and market sizing it might be a lot better to have a roll up play where a holding company derives synergies from multiple related brands and makes them more efficient while leveraging cost, supply chain and branding economies of scale.
This means that the battle will heat up in 2022 as multiple Thrasio models look to pick the best emerging winners in their target segments. As the nimble D2C brands get acquired, a lot more will be born attempting to replicate their acquisition success.
India has 800+ D2C brands with the sector worth $45B in 2021. This is expected to more than double to $100B market by 2025.
All this is going to be driven by a consolidation in the D2C brands space, as the big guys gobble up the small ones.
Smaller brands will be acquired from the roll ups, larger FMCG giants as well as mature D2C brands (like Licious, Boat, Mamaearth) who look to expand their portfolio and turbocharge for their next phase of growth.
The pandemic and the on and off restrictions on movement will also make people habituated to buying online and shift a lot of their consumption patterns to digital. Already major FMCG brands that had e-commerce sales of 5-8% of total sales in May ‘21 are seeing it grow to double digit figures now (up at 12-15% of total sales in Nov ‘21)
Newer models on social commerce will continue to penetrate deeper into Bharat while revenue based financing models will provide an alternate financing option to equity dilution conscious smaller D2C brands. At the same time, consumers will demand frictionless post-checkout journey (auto filled card/ customer details, RTO predicts, one step checkout). Startups providing shovels in the gold rush (Shiprocket, GoKwik) will have the potential to reap big wins.
Personalization through tech solutions, unified data view that provides customer insights across various sales channels, ability to provide customer delight by crashing last mile timeline through quick-commerce will be other interesting trends to watch out for in this space.
It's an exciting time to be building, funding or working with D2C brands.
#3 The Creator Ecosystem will see $100M+ funding in 2022
Growing up when someone asked us what we wanted to become in life, Engineer, Doctor or Teacher used to be the most common dreams.
Fast forward to the current age, when the same question was asked in 2020 in the US, ~30% of children wanted to become Youtube stars aka influencers aka creators. Welcome to the new world!
Web 3.0 and the rise of blockchain has only accelerated the creator economy after the pandemic. Another surprising fact has been the ‘Great Resignation’ post the pandemic where employees globally are leaving their ‘soul crushing’ meaningless jobs to really find their ikigai and find work with ‘purpose and passion’. That in turn is leading them to explore their hobbies, their passion and childhood interests.
You were a great artist but now an IT employee, you were an avid gamer but now work as a bartender. No sweat, there are millions of platforms now where you can monetize your hobbies and actually ‘love what you do’. You can create your favorite artwork to sell as NFT’s or you can use your gaming prowess to ‘play to earn’ in the metaverse.
At present, the creator economy is worth over $100B with 50m people globally working as creators. However, of the 50m, only 4% make a liveable wage of their content. That stark gap is expected to narrow down slowly.
The startup ecosystem around this has also received limited funding in India, with companies not even crossing $10M.
The incredible amount of innovation happening in the creator economy is already on shore in India and things are expected to dramatically scale up in 2022.
Bullish predictions estimate the NFT market to grow by 1000%+ in 2022 and we would not disagree. By controlling access to what they create, creators can leverage new, technologically relevant revenue streams (tips, subscription fee, social tokens etc.) to engage with users and fans.
In India, creators can become D2C brand founders like Nikhil with 3.7m Youtube subscribers with his brand LabelMN on Shopify. Business models that help creators start up (HustlePost Academy) or provide a platform to monetize their talent (Qohoo, ReadyJetSet, YourQuote, PepperContent) will be interesting to watch.
There are also creator funds being created by short-form video players that can be leveraged.
The entry of popular celebrities, sports stars into this sphere will only accelerate market awareness and adoption.
Quality social networks built on open-source data which provide recommendations within minutes, play to earn gaming, NFT platforms, B2B infra for creator economy, rise of Defi and metaverse (virtual words) will be the most interesting spaces to watch in the creator economy.
All in all, the creator economy will be the most exciting space to keenly watch out for in 2022. As creators finally get power to build and get rewarded, train and mentor the next cohort of younger guns, the momentum to truly shine lies with the creators.
#4 2022 will have lesser unicorns than 2021 but more than 2020
In 2019, India minted 9 new unicorns.
In 2020, that number increased an impressive 22% to 11.
2021 blew both those years out of the park, with 42 new unicorns created so far (a 281% increase, for you numerophiles out there).
And the key drivers of that investment boom are here to stay.
The infrastructure for Indian startups has never been better, with innovations like UPI creating the digital rails for new companies.
COVID-19 has had a clear effect on consumer preferences when it comes to digitisation, tech adoption, and the efficiencies of work-from-home. Whether you look at delivery startups like Zomato and Swiggy having higher AOVs and more repeat customers, logistics companies like Delhivery or payments startups like Razorpay and Pine Labs, the benefits of the pandemic have been widespread.
Finally, as we mentioned in a previous prediction, Indian startups are finally making a presence on the public markets. And more acutely, at a time when the other large market for global investors (hint: rhymes with “Shina”) has taken a more hostile approach towards domestic and international companies in their arena.
More cases of venture-backed companies having successful IPOs gives investors a clear path to exit, and improves the tangibility of their return profile at the time of investment.
2021 was the perfect storm of events, local and international, that caused a tsunami of unicorns to be created in India. We predict that in 2022 we won’t see the same velocity of unicorns being created as in 2021, but are confident that a new normal has been reached and that the unicorn-creation rate will be considerably higher than 2019 and the preceding years.
#5 Deep tech startups will raise more than $1Bn in 2022
While the biggest story of 2021 may be the splashy public debuts of Paytm, Zomato and Nykaa and buzzy sectors like Fintech and Edtech, we believe that 2022 will be the year that deep tech comes to the fore.
With the amount invested in Indian deep tech startups tripling in 2021 vs 2020, investors are beginning to realise the value of startups that are solving longer-term, capital intensive problems rather than chasing the often momentum driven worlds of consumer apps and enterprise software.
Key areas like biotech, robotics and drones will receive investment as mega trends like delivery and logistics continue to bear fruit and companies look to increase efficiencies in their production, engineering and transportation functions.
A resurgence of interest in the space race (and the near-term value of geospatial data) will keep India’s burgeoning space tech cadre top of mind, and we wouldn’t be surprised if we saw a few more giant funding rounds in that layer of the atmosphere.
There is also a huge expectation of India to take up some slack from Eastern Asia in manufacturing semiconductors.
We expect deeper innovation and investments, especially in space tech, biotech and semiconductor technologies this coming year.
#6 Fintech will Correct in 2022 from 2021 Highs
$8Bn funding into fintech made it the most funded sector in India, driven by huge macro digitization of finance.
India is a global leader in enabling finance. The India stack of Aadhar, UPI, eSign has been an incredible boost to the ecosystem. As a giant economy gets financialized, fintech has seen record amounts of funding go into it this year.
Fintech also had a unicorn parade as we saw Acko, Digit, CRED, OfBusiness, Groww, BharatPe explode to being unicorns. These companies were funded due to the pandemic induced growth. Crypto exchanges like Coinswitch and CoinDCX also scaled, resulting in rapid adoption of crypto in India.
These companies are now flush with money, and investors will want to wait and watch. We expect funding into fintech to reduce from 2021, while also driving M&As. This is very similar to what happened in EdTech, which had a blockbuster 2020, and then corrected in 2021
We expect Fintech to raise lesser in 2022 than it did in 2021
Our overall expectation is that the printing and fiscal boost to avoid the pandemic pain will come to an end. This era of never seen before money has resulted in abnormally high levels of inflation and spiked asset prices.
This is likely to correct in the coming year, with most central banks seeking to rein in increased prices. China’s decoupling from the world is also expected to continue, but India’s benefit from that will only slowly creep in.
The India story, though, is strong and will remain robust for the coming year. With investors finally getting an exit route, the private markets have never been more attractive. The dark horse in India’s startup explosion may just have been SEBI.
We didn’t expect 2021 to be so good, and we hope 2022 will be better for the world
By Keshav, Shiraz, Omkar and Aviral