Start Me Up
Some of the most promising sectors for start-ups in the United States.
Invention drives the U.S. economy, where constant innovation attracts some of the brightest minds and most aggressive investors in the world. In 2015, venture capital investors funded U.S. start-ups with a record $63.3 billion (Rs. 4,40,000 crores approximately), all hoping to strike it rich with the next “unicorn”—a privately-owned start-up that eventually grows to a valuation of $1 billion (Rs. 6,700 crores approximately) or more. Here are some U.S. business sectors projected to become the most profitable in the near future.
The sharing economy
Uber and Airbnb began as start-ups in the “sharing economy,” where two-sided online marketplaces helped connect the supply and demand sides of e-services. Today, they are two of the most valuable U.S. “unicorn” companies in the world, boasting valuations of $62 billion (Rs. 4,20,000 crores approximately) and $25.5 billion (approximately Rs. 1,70,000 crores), respectively, according to FORTUNE.com. Tomasz Tunguz, partner at Redpoint Ventures, a venture capital firm focused on investment in seed, early and growth-stage companies, estimates that two-sided marketplaces now command over 10 percent of all seed and Series A investments—the initial fundings for start-ups. “The astronomical growth rate and size of these businesses have seen investors pursuing new and novel categories,” he notes. Since the sector’s recent expansion, consumers have seen two-sided marketplaces pop up for pet-sitting, guided tours, equipment rentals, grocery shopping and personal couriers, just to name a few. With peer-to-peer e-services expected to grow to $335 billion (Rs. 22,00,000 crores approximately) by 2025, the sharing economy still has to explore plenty of innovative solutions.
The small unmanned aerial vehicles sector, which encompasses commercial, recreational and military drones, is estimated to be a $3.3 billion (Rs. 22,000 crores approximately) market in the United States. This manufacturing sector is on track for rapid growth as a result of a U.S. Federal Aviation Administration legislation, which has eased regulations for commercial drone use.
An economic report by the Association for Unmanned Vehicle Systems International in 2013 projected that 70,000 new jobs would be created in the United States during the first three years of drone integration, with a potential economic impact of more than $13.6 billion (Rs. 90,000 crores approximately). The intriguing uses for these commercial drones—disaster relief, scientific research, law enforcement and freight delivery—point to the sector’s incredible potential.
Virtual reality and augmented reality
Virtual reality and augmented reality have already begun to captivate global audiences with 360-degree simulated worlds and interactive spatial information. Investors are betting big on these technologies to disrupt several huge industries in coming years. Recent Goldman Sachs research has predicted that the virtual reality and augmented reality industry could soar to an $80 billion (Rs. 5,40,000 crores approximately) market by 2025, dramatically impacting industries like television and film production, video games, live music, sports, architecture, travel and education.
Facebook’s $2 billion (Rs. 13,300 crores approximately) acquisition of headset manufacturer Oculus in 2014 is an example of virtual reality’s exciting new possibilities. “This is a good candidate to be the next major computing platform,” Facebook founder Mark Zuckerberg explained in an interview with Bloomberg Businessweek. “It’s worthy of a lot of investment over a long period.”
Real estate tech
Real estate is the largest asset class in the United States, valued at an estimated $40 trillion (Rs. 27,00,00,000 crores approximately) according to the Federal Reserve Bank. However, many industry experts believe the sector could benefit from technological innovation, as many traditional workflows and processes have not been rethought in decades. Investors agree, as real estate tech start-ups have raised more than $1.8 billion (Rs. 12,000 crores approximately) in the first half of 2016—an 85 percent increase over the same period in 2015. There are opportunities for new software tools and platforms to streamline nearly every aspect of the sector, including brokerage, acquisition and disposition, investment, lending, property management and appraisal. With such a huge amount of money on the line, you can bet new productivity tools are just around the corner for this sector.
Jason Chiang is a freelance writer based in Silver Lake, Los Angeles.
The Bright Spots in India
By Deepanjali Kakati
Shailesh Vickram Singh is executive director at Seedfund, an Indian venture capital fund which has invested in more than 30 companies, including afaqs!, AxisRooms, Heckyl, Jeevanti, Jeeves, ThinkLabs and Vaatsalya. Singh has over 20 years of experience in investing, business operations and strategy, and takes active interest in grooming future entrepreneurs and business students.
Excerpts from an interview.
What are the most profitable sectors for start-ups in India at present? What do you think about their long-term prospects?
As the Indian economy evolves and marches toward a more digital, cashless and brand-focused mode, we are witnessing a surge in consumption as well as in consumer affinity for branded solutions. This emerging area has opened up huge opportunities for entrepreneurs.
The second pillar of growth is technology, which is helping to remove stumbling blocks and reduce costs, thus leading to a massive jump in consumption. Booking bus tickets online was one such opportunity—it allowed users to reduce uncertainty and book tickets, without worrying about availability of seats, at the last minute. Reduction of hotel room rates and standardization of hotels are other areas which are spurring consumption.
The other shift we are seeing in the economy is, of late, businesses, especially small businesses, are being more open to adopting technology and buying software tools to improve their productivity, reach and efficiency. This shift is opening up huge business opportunities in B2B (business to business) and SaaS (software as a service) products.
In every segment, there are always inefficiencies for which entrepreneurs can come up with solutions. As an investor, I look at those inefficiencies, my understanding of those markets, the entrepreneurs’ solution for those inefficiencies and their capability to implement those solutions. If all these are in sync, it creates a wonderful opportunity to build a great business.
Do you think new sectors would emerge in the next two to three years to overtake the currently profitable ones?
Yes, definitely. We have seen massive shifts in consumer behavior every three to four years. There are always some sectors which come up at the right time, some are ahead of their times and some are behind the times. SaaS was much talked-about around 2006, but it is clear now that it was too early then for this sector. Now is the right time for this sector to take off in India. E-commerce is no longer an opportunity as most of the pole positions have already been taken. Financial technology, also known as fintech, is emerging and will evolve in the next two to three years as we get more clarity in terms of regulations, user behavior and emerging technologies.
How easy or difficult is it for start-ups in emerging sectors to find a foothold in India? Are Indian customers ready for innovative offerings?
Indian users are quite mature and willing to experiment if the offering is right and helps them make their lives easier. In 2003-4, Indians were trying to do e-commerce transactions at 24 kbps speed at cyber cafes with unsecure computers and figuring out debit or credit cards, because these online transactions were helping them book a rail ticket and saving them from a six-hour wait at the railway ticket window. So, if the solution is right, people will lap it up. But if one assumes that something will work in India because it worked in China, the United States or some other country, then they would be in for a huge surprise, as India is a unique market.