In this year marked by caution and correction, The outlook at Kinara Capital has always been centred on a sustainable approach to growth. With a balanced business strategy that prioritises both profitability and expansion, the company has effectively navigated unforeseen challenges in the past. Looking ahead, Kinara Capital remains committed to proactive growth while creating value for all stakeholders. This strategic focus aims to address the evolving needs of MSMEs and foster partnerships across various sectors.
In an exclusive conversation, Hardika Shah, Founder and Chief Executive officer, Kinara Capital shares their perspectives on key sectors such as fintech, edtech, and manufacturing.
With a thriving entrepreneurial spirit in India, what three factors, according to you, have played a significant role in India's growth story?
Buoyancy in the manufacturing sector: The manufacturing sector has been seeing strong and sustained growth. According to the Ministry of Commerce and Industry, the Index of Industrial Production expanded by 6.9 per cent during April-Oct 2023-24. In fact, the manufacturing sector has played a crucial role in job creation too. According to government data, the PLI scheme alone has created jobs for about 6,40,000 people. The growth in the manufacturing sector has had a ripple effect on the GDP, our real GDP has beaten market estimates and recorded 7.6 per cent growth for Q2 of FY24. The optimism is having a positive impact on the start-up ecosystem as well.
Robust digital infrastructure thrust: The government has been focusing on strengthening and expanding the ambit of digital public infrastructure in the country, which has supported the emergence and growth of startups riding this wave. Initiatives like Account Aggregator to ONDC opened up many new possibilities for businesses of all sizes and capacities to explore. It helped the startup ecosystem, particularly tech-driven companies, weather the tech slowdown we saw last year and has catapulted the country into the top five popular destinations for startups globally.
Innovation-driven ventures: The main differentiator for startups is the fact that they bring innovation to the table. They can remedy gaps in the existing landscape of an industry with a disruptive product that becomes a game-changer. We have witnessed this across industries like tech, healthcare, and financial services. For instance, even amidst the funding slowdown, the 70+ GenAI startups in the country have raised more than USD 440 million. This has brought Indian startups to the forefront and driven exponential growth for certain sectors, and in turn, the nation’s economy.
Given the current emphasis on profitability, how difficult is it to balance the pursuit of profitability and the ambition to grow, scale and become bigger?
At Kinara, we have adopted a harmonious equilibrium between growth and profitability since inception. We became profitable within 4 years of starting our operations. FY24 is our 9th year of being a profitable company. In the first half of this financial year (FY24), we have nearly achieved the same profit amount as we did in all of FY23. Further, in Q2 of FY24, we recorded over a 30 per cent year-on-year (YoY) increase with over Rs. 900 crores disbursed in MSME loans. Taking a balanced approach was a fundamental principle that we consciously laid out for ourselves.
Bringing about a shift in the approach is a challenging task. It calls for strategic agility, careful resource allocation, a clear understanding of your business's unique ecosystem and above all, constant, re-evaluation and course correction. Though it may sound like a daunting task, it offers the ability to build a sustainable business that is in it for the long haul.
List the top three must-dos for building a successful startup
1. Identifying a market demand or gap that needs addressing before setting out to build a solution. Very often, startups are more inclined to create a product and then try to find a place to plug it in. This approach simply doesn’t work. It’s imperative to do extensive research, and get down into the field, to figure out what issues exist and how to solve them.
2. Having complete conviction in the idea. Building a company means coming up against several challenging circumstances. From pitching your idea to establishing your brand, and eventually competing with other promising companies, the most important factor is to truly believe in the potential of your idea and business plan. It’s important to take advice and constructive criticism on board, but it’s also critical to not let it distract you from what you set out to achieve.
3. Finding mission-aligned investors. This can ensure long-term partnerships with like-minded investors, which is a great way to strengthen your bases. It also means that your investors can go beyond funding and provide strategic guidance and support since they share your vision.
Your comments on how was the year 2023 for startups/entrepreneurs? List prominent trends that you witnessed.
Shift towards profitability: This year marked a discernible shift in the startup ecosystem towards an emphasis on profitability. Investors are increasingly moving away from the idea of merely acquiring market share or users and prioritising businesses that demonstrate sustainable business models and a well-defined strategy for achieving profitability. Cautious optimism was the theme as corroborated by the recent Tracxn report which stated that funding declined by 72 per cent in 2023. ESG focus among investors: Environmental, social, and governance (ESG) considerations have become integral to the investment landscape. Investors have adopted an ESG mindset, prioritising companies and entrepreneurs who exhibit a commitment to social responsibility and sustainability. We have seen a particular focus on climate and gender lens investing. According to the Emerging Trends in Impact Investing, a report from the Global Impact Investing Network (GIIN), over 80 per cent of investors globally are targeting climate change mitigation and/or adaptation and resilience and applying a climate lens across their portfolio.
Value proposition remained key: Value proposition of a product or service has always taken precedence over the user experience for Indian customers. Brand loyalty is based largely on the value they can garner from a certain product or service provider. This trend persists, despite the focus of many brands on the UI/UX they offer to consumers, and my impression is that value will continue to trump experience-driven efforts going forward.
Make three predictions as to what will be the factors/trends that will drive the evolution of the startup ecosystem in India in 2024 and beyond.
Digital transformation across the board: Digital transformation has been unfolding across industries, and this shift is expected to ramp up driven by continued penetration of digital tech. We are already seeing startups providing solutions for digitalisation, automation, and data analytics across sectors like healthcare, manufacturing, and logistics, and this trend will continue. As more traditional companies make the digital shift, we are likely to see more collaborations between organisations, creating a more agile and adaptive landscape.
Exploring broader avenues for funding: 2023 saw a rise in the number of new-age companies moving to IPOs to secure funding. According to data from Inc42, unlike 2022, which saw only three companies getting listed on the bourses, 2023 witnessed over 5 being listed. This trend is expected to continue into 2024.
Continued tech-driven innovation: As technology continues to advance rapidly, the startup ecosystem in India is likely to see a surge in innovations in areas such as AL/ML and blockchain. This will drive significant disruptions across industries, as we are already seeing in sectors like finance. Government initiatives to bolster supporting infrastructure and provide policy support, as well as increased investor interest in supporting these innovations, will contribute to the strengthening of this trend going forward.
Focus on sustainability and social impact: Investors and consumers alike are showing an increasing interest in businesses that prioritise both profit and positive societal impact, making sustainability a key trend in the startup landscape. Even investors who were traditionally not inclined to consider these factors are now focusing on them. Going forward, the startup ecosystem is therefore expected to witness a rise in the dedication of startups to address ESG and how they’re giving back to society.
What is your vision for 2024 as an entrepreneur?
My vision for 2024 is defined by collaborative growth through industry partnerships, and an increasing focus on tech as a means of furthering the reach and efficiency of financial services. For this to take shape, a stable regulatory environment is a critical cornerstone. I’m hoping to see sustained policy support for co-lending partnerships and infrastructure support for tech-enabled initiatives like embedded finance.
However, the tide is expected to improve in 2024. The positive growth that our economy has been exhibiting is expected to have an impact on the startup sector. In light of this, I’m hoping for a funding summer in the coming years, which will turn things around for the landscape. Overall, my vision for 2024 is a positive one, given the robust growth of the economy and the leaps and bounds with which tech is progressing.
