Why Corporate Innovation Should Leverage India’s Startup Ecosystem?

India is the third largest startup economy(1) in the world. From 2014 to February 2023, the Indian startup ecosystem saw a jump from just 350 startups to 92,000 startups. These startups raised a total capital of USD 141 billion, including 110+ unicorns; the trend is only looking up.

Amongst these, 1,000+ startups from various sectors have brokered mergers and acquisitions (M&A) deals with corporations. These corporations have spent millions of dollars to acquire the startup fully or purchase a significant stake. Corporate innovation is on the rise in India, and these startups are solving deep problems for corporations.

So, what is attracting the corporate sector towards startups in India?

Startup Ecosystem and Disruptive Technologies

Most startups in the Indian startup ecosystem, like Zomato, PhonePe, or Netmeds, have based their business models on technology. These disruptive technology-based startups have entirely revolutionised the market.

Corporations adopt newer technologies and partner with startups to develop technologies related to the products/services they offer. Such a partnership will enable corporate innovation by getting more profound insights into experimental tech. Not only that, it also allows faster and cheaper product/service development. Corporate innovation through startups helps companies stay ahead of the curve, remain competitive, and strengthen their market position.

Working in a startup ecosystem offers the benefit of using its agile, fast-paced work to the corporation’s advantage. Such a work environment provides faster development time when compared with hierarchical business models.

Increased Focus on Greentech through CSR

Corporations stand to gain by collaborating with Greentech startups regarding Corporate Social Responsibility (CSR) and corporate innovation. It helps make a positive social impact and an economic one. The Greentech industry could generate USD 212 billion(2) in revenue by 2030.

Greentech startups employ AI, ML, and IoT to find solutions to the 17 Sustainable Development Goals (SDGs) as listed by the United Nations in the Decade of Action, 2020. Indian startups focus on waste management, e-vehicles, water treatment, and renewable energy production.

The Indian startup ecosystem of Greentech includes the unicorns ReNew Power, Chakr Innovation, Cleanmax, GPS Renewables, Greenjoules, Nepra, etc. These startups develop ideas to protect ecosystems and enhance sustainable lifestyles, reducing environmental harm.

Thus making collaboration with Greentech startups a pragmatic business decision.

But how can corporations connect with the right startups? Business incubation centres are the connecting link between the startup innovation ecosystem and corporate companies.

Portfolio Diversification

Portfolio diversification is another strategy through which a corporation can leverage the startup ecosystem. Startups are innovative and disruptive, operate on a high-risk–high-reward matrix and always look for funding to grow. However, there is no way to know which startup will gain prominence and make a profit.

That’s why an established corporation should invest in various sectors and companies to balance its risk-to-reward ratio. For instance, a Japanese tech investor, Softbank, invested over USD 10 billion in Indian startups. Some startups include Paytm, Flipkart, FirstCry, Swiggy, Ola, Oyo, Delhivery, Lenskart, and InMobi. In FY 2022(3), they reported a loss of nearly USD 600 million against their investment in Paytm, but at the same time, they gained USD 402 million from their investment in Policybazaar.

Therefore, a diverse investment portfolio can help a corporation stay abreast of the latest trends, maintain a market position and minimise risks.

Growth Via Mergers and Acquisitions (M&A)

Mergers and Acquisitions are another brilliant way to drive corporate innovation by leveraging the Indian startup ecosystem. They allow corporations to:

  • Bring startup operations in-house
  • Unite everyday products (if applicable)
  • Expand to new territories
  • Grow revenues with reduced risk

Startups also go for such deals as they offer a scale of synergy and economy, increased market share, talent, technology, and funds to grow.

India has recorded 1088 M&As in the last eight years, many of which have also included startups acquiring other startups. For example, Flipkart acquired Myntra, PhonePe, and Liv.ai. Quickr acquired Zefo, India Property, and Babajob. Zomato acquired Ubereats, Blinkit, and Runnr.

But is it that easy to find startups that are driving innovation to merge with? T-Hub, India’s largest startup incubator, enables innovation in all sectors.

Work Culture and Agility of the Startup Ecosystem

A corporation works with a hierarchical structure and in a slower-paced environment. It delays decision-making to drive corporate innovation, resulting in more extended Research and Development(R&D) phases. Corporations can partner with startups, which follow flexible, creative, communicative, and fast-paced operations that lead to growth.

Startups and Value-Adding

A startup focuses on technological advancement and growth, simplifying consumer issues and making it more accessible. All of this while making it affordable. For example, Netmeds or Zepto have eased online purchasing of medicines and groceries.

Moreover, many startups are prevalent in two-tier or three-tier cities, including agritech startups like Fyllo, Agrostar, and Poshn. Such startups are ideal for corporate innovation to expand market share in underserved areas.

Space tech and defence tech startups are pursuing high-risk ventures, but these ventures are instrumental in helping an economy like India develop. Despite the risks, startups look for value propositions to the consumers or the country, encouraging forward-thinking and innovation.