India has long been recognized as home to the largest developer ecosystem in the world, stemming from the global trend of outsourcing software development to India’s pool of skilled and cheaper developers. But what started as a move by Western companies to reduce development costs has now evolved into a thriving and dynamic tech hub of its own. India has given rise to large standalone software companies like Freshworks and Zoho.
India’s role as an outsourcing hub will have to redefine itself in the age of AI, where the shift toward automation will lower the world’s need for low-cost developers. However, fascinating opportunities are emerging from Indian start-ups who are building solutions for India’s rapidly evolving domestic market. “India for India” is fast overtaking “India for the World.”
This dynamic resembles the market in China two decades ago and is driven by several key factors:
- The sheer scale of the country with a population of over 1.4 billion people and growing!
- A rapidly growing middle class with spending power: brands can expect massive surges in consumption
- The “China Plus One” strategy adopted by many Western companies to diversify manufacturing operations beyond China has created a large domestic manufacturing sector within India
- An incredibly entrepreneurial culture: for example, approximately 76% of the employed population in India was self-employed in 2021; compared to anywhere from 10-30% (depending on the study) of the American workforce
- A digital infrastructure that is easy to build on and encourages innovation (e.g. the Unified Payments Interface, an open protocol that everyone can build upon)
While some Indian start-ups copy business models invented in North America and adapt them for India, the vast majority of Indian start-ups are focused on creating products and solving problems unique to India. One of the most striking examples is the rise of quick commerce, where start-ups promise to deliver groceries and other everyday essentials within minutes thanks to a dense network of dark stores and delivery drivers. Anyone who has been to a large Indian city knows the traffic congestion all too well. The ability to receive deliveries quickly becomes a game-changer. And quick commerce companies like Zomato, Blinkit, Swiggy and Zepto have become true household names in India.
Quick commerce is just one example of how Indian start-ups are innovating by adapting to local conditions. Other innovation waves include:
- New fintech and banking products (often built on top of UPI)
- Healthcare and education platforms that leverage learnings from serving international markets to now serving domestic needs
- Innovations in manufacturing and supply chain (often as a result of the China Plus One movement)
- And a growing number of deep tech start-ups
After three trips to India over the past 1.5 years, my impressions of the country have evolved from curiosity to deep conviction. I didn’t know much about the country before my first visit. Now, I want to focus much of my investment activity over the next few years on the “India for India” opportunity. To date, Version One has made three investments in the country (Headout, Bolt.earth plus one unannounced) but we are planning to aggressively double down in the near future.
