10 years and 31,000 startups later, India’s startup ecosystem is banking on deep tech and AI for its next phase of growth

Completing a decade of its existence with an impressive $70 billion in equity funding and building a club of over 90 unicorns, India’s 31,000-strong technology startup ecosystem is focusing on its next phase of growth driven by deep tech and generative AI.

Out of nowhere, the country emerged as the third largest startup hub after the US and China, creating over 10.50 lakh jobs. The fact that around 1,000 startups were added in 2023 alone, including 400 from emerging areas, shows the strength of the ecosystem, despite funding winters over the past few years.

“This growth has made India the third largest startup ecosystem in the world, with over 950 new technology startups founded in 2023 alone. Key sectors like Enterprise Tech, Health Tech and FinTech led this growth, contributing to over 70 per cent of the technology startups in 2023, up from 60 per cent in 2014,” said Kritika Murugesan, Director, Nasscom 10,000 Start-ups Initiative.

“One of the most significant developments in the Indian technology market has been the 15-fold increase in the number of technology start-ups, which now exceeds 31,000,” she added.

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This growth has positioned India as the third largest startup ecosystem in the world.

She added that the country’s startup ecosystem has also shown resilience, weathering challenges such as the COVID-19 pandemic, global economic uncertainty and a funding slowdown.

The rise of Indian tech startups has not only disrupted traditional industries but also inspired a wave of innovation and entrepreneurship. Unicorn success stories, valued at over $1 billion, have emerged across sectors including e-commerce, fintech, and enterprise software. These unicorns have attracted significant investment and solidified India’s position as a global technology hub.

Challenges

However, issues like funding depth continue to pose challenges for the startup ecosystem. While India boasts a growing number of unicorns, it lags behind the US and China in terms of the number of these valuable startups.

Murugesan says it’s not just about the numbers but also the impact these tech startups are making, pointing out that 15 tech IPOs have raised over $2.4 billion on Indian stock exchanges between 2019 and 2023, reflecting the continued interest from the investor community.

Asked where the next phase of growth will come from, she said the focus is shifting towards deep tech startups that are leveraging AI and emerging technologies to address global challenges.

“With over 3,000 high-tech startups and growing investment in AI, India is poised to become a leader in this space,” she added.

Next phase of growth

Welcoming the decision to abolish tax on startup investments, Ashish Agarwal, vice president and head of public policy, Nasscom, urged the government to implement the 2018 SEBI recommendation that allows listing of ordinary shares of startups registered outside India on Indian stock exchanges.

“There is a growing interest among overseas-based Indian startups to relocate to India. These startups have chosen to set up operations abroad for a variety of reasons, including investor mandates, greater acceptance of newer business models abroad, ease of compliance and lower capital gains taxes,” he said.

“These start-ups are considering public listing in India to raise capital and build the next level of growth. This can lead to capital and wealth creation in India and further expand India’s capital market infrastructure,” he said, citing the examples of the US and Hong Kong, which have allowed direct listing of foreign companies on their domestic stock exchanges.

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M Srinivasa Rao, CEO, T-Hub, said the rise in women-led startups was an achievement for the ecosystem. “Women entrepreneurship has also seen a rise with the number of women-led startups increasing from 10% in 2017 to 18% in 2022, supported by initiatives like Fund of Funds for Startups Scheme,” he said.

Despite these achievements, challenges remain, including access to finance, regulatory obstacles and infrastructure gaps, making it imperative to continue supporting sustainable growth, he added.