Five startup trends that will define the unicorns of 2023 and beyond

Following the funding winter and inflationary corrections, startups will now operate in a more mature market where lasting trends will determine their trajectory in the years to come.

Despite minting the highest number of unicorns in 2021 and 2022, India’s startup economy saw a definitive hit in terms of investor confidence over the last year. Funding shrunk from $42Bn in 2021 to $25Bn in 2022, and average ticket size reduced by $4Mn. While investors maintained interest in seed rounds, raising capital at the later stages became difficult over the last year.

While there is continuing confidence in sectors like ecommerce, fintech, SaaS, and enterprise tech, startups will now operate in a more mature market – where consolidating trends will shift their focus to what matters more. Here are some of the key trends to keep an eye on over the course of the coming year.

#1: Premiumization and sustainability will unlock new opportunities in established segments

The 2020s will be a period of expansion of India’s middle class. By 2030, 140Mn new households are expected to join nearly 300Mn existing households in the middle income bracket, which will unlock a bounty of opportunities in key sectors like fintech, retail, entertainment, and ecommerce.

However, within this mid-income bracket, affluent Indians are now showing interest in premium and sustainable products – and they are willing to pay more in return for better experiences and environmentally-friendly processes. The success of niche premium brands is a testament to this consolidating trend.

Startups that are able to capitalise on this opportunity will set themselves on a path of rapid growth over the course of the decade.

#2: Digital investments will be crucial to help startups do more with less

2022 recorded the highest increments in the salaries of employees with in-demand skills like software engineering, AI, and cloud computing. The average cost of an employee to a company is on the rise as the hunt for top talent intensifies. Despite mass layoffs, salary increments are still likely in the coming year.

For startups, this will represent a crucial challenge in the midst of mid and late-stage funding challenges. Hiring new employees will make it difficult to scale, and most will be forced to accomplish more with fewer people on board. This challenge, however, could be a boon in disguise for startups that play their cards right.

Investments in technologies like AI, automation, and other digital platforms will enable lean teams to navigate growing workloads. This will give rise to the super-lean startups of the future, which will leverage their digital-native foundations to rewrite the benchmarks of operational efficiency across sectors.

#3: The end of blitzscaling will bring focus back to fundamentals and profitability

It is not a coincidence that the demerits of blitzscaling became evident in the same year in which raising capital grew harder. Startups that take the blitzscaling path to growth tend to focus on raising large amounts of capital in short periods, and prioritise valuations over profitability. A number of startups gave out prematurely in 2022, as they consumed their funding over a relatively short runway.

In 2023, startups will be forced to bring their focus back to the fundamentals. This includes the ability to ensure a longer runway for the company, and prioritising profitability over market share and valuations. Seed-stage optimism will therefore test startups on their ability to turn into scale-ups with solid fundamentals.

#4: Maturing digital infrastructure will pave the way for glocal business models

India’s digital infrastructure is maturing at breakneck speeds, and if projections are anything to go by, internet users will grow to 1.3Bn by 2030. In the context of decreasing cost of data and resilient digital financial and governance railroads, India will constitute one of the largest digital markets by the end of this decade.

This spells an explosion of opportunities for digitally-driven glocal business models both within and beyond the country. AI-driven customization, and phygital strategies will support growth runways for startups that aspire to build glocal businesses.

#5: Next-gen networking will unlock new opportunities in deep tech and other sectors

While 5G rollout is underway in India, the evolution of networking technology will mark a turning point for startups across sectors. 5G and Wifi6 technologies are expected to enable complex and demanding network topologies both inside and outside the physical walls, for customers and businesses alike.

This will unlock new value propositions in sectors like deep technology, agritech, healthtech, edtech, and fintech. The ability to keep employees and customers connected via blazing-fast networks will turn seamless internet connectivity into a given, and help startups deliver mission-critical services across their geography of operations.

Summing it up

The past three years have been a tumultuous period for startups. Economic instability and the pandemic injected uncertainty into the viability of vetted business models, and this was followed by funding challenges in 2022.

Over the coming year, the aforementioned trends will shape the market for the long haul. One of the key themes that connects each of these trends is the growing importance of technology for new businesses. As such, investments in core technologies will be crucial for startups to succeed in this maturing market over the coming decade.