Opportunities and unique challenges lie ahead for the Indian startup ecosystem

If we are looking for a moment in time to mark the before and after of two distinct phases of growth of the startup sector, it is the third week of July.

The third week of July marked an epochal moment – Zomato’s IPO and Paytm's filings of its draft red herring prospectus have signalled the coming of age of the Indian startup ecosystem. The multiplier effect – both financial and emotional – of these two events and their impact on our Indian psyche will be immense. If we are looking for a moment in time to mark the before and after of two distinct phases of growth of the startup sector, it is that week.

Two independent and unrelated industry events also occurred recently: the Reserve Bank of India (RBI) barred Mastercard from adding any new customers for not complying with data storage regulations and Google extending the deadline for phasing out third-party cookies on its Chrome browser.  These four developments have laid bare the opportunities and challenges ahead of us. While the two landmark IPOs foretell the promise of the sector, the RBI-Mastercard tussle points to the policy challenges for the nascent industry and the Google Chrome-third-party cookies development portent the threat of monopolisation powers of Big Tech. Exciting times lie ahead – ones that bring along their own share of opportunities and unique challenges. 

What the IPOs herald

The Indian startup ecosystem is at a cusp and is steadily entering into the next phase of growth. What we as an ecosystem have managed to achieve in the first phase – spanning 12-15 years – is nothing short of phenomenal. The Zomato & Paytm IPOs will usher in the next wave of talent and capital into the sector. What we are witnessing is a genuine inflection point in terms of wealth creation by first-generation entrepreneurs in the country. It further speaks to the aspirational Indian and will trigger the next wave of entrepreneurship. What we are also seeing is the ascent of startups as an asset class. The aspirational Indian now wants to invest in startups rather than in land or gold. What we can expect going forward is more character, more audacious bets being made by founders and founder angels, more India-first products and services, and more global brands from the country. The sector is poised to spearhead the transition of our country from services to a wealth-creation economy.

The big shift

The hallmark of the startup sector is digitisation and democratisation, which have resulted in upending traditional ways of doing business. Nowhere is it more visible than in how we discover, produce and consume content. TikTok and Instagram influencers are replacing the traditional media in the discovery of everything from news to information to entertainment. The impact of this shift on both business and society will be monumental. The pandemic will drive this digital shift further and turn out to be the biggest democratization force that we are to witness. While the RBI-Mastercard tussle plays out, let it be noted that large swathes of our population from across the country – those deemed unworthy by credit card companies – are joining and participating in the digital economy in droves. The majority of them would have never visited a bank and nearly all of them would never want to visit one in the future. Credit cards are a relic of a different era and in today’s digital-first world, what needs to be understood and appreciated is that the paradigm has shifted. 

The policy challenge 

For the startup sector to deliver the riches, it's imperative that access remains fair, the internet remains free and markets remain competitive. On the other hand – as can be observed in the case of Chrome and third-party cookies – we are facing monopolisation or gatekeeping practices by some of the dominant players. At about 10-15 years, the startup sector is still nascent and policies are yet to catch up. It is the choices that we make as a market and as a country that will set the stage for the course forward, and will also end up serving as a blueprint for nations around the world as everyone transitions into a digital-first economy and society. This crucial time calls for imagination and leadership.

This article originally appeared on Business World.