The setting

As India's digital landscape undergoes rapid transformation, the country's data center industry is experiencing unprecedented growth, reshaping the technological infrastructure and positioning India as a major player in the global digital economy.

The country's digital economy is booming, with internet access becoming more widespread and the transition from 4G to 5G networks underway. This growth is reflected in the numbers: India currently has 759 million active internet users, a figure expected to reach 900 million by 2025. The scale of data consumption in India is particularly noteworthy. According to recent projections, India is set to lead global data consumption, with users expected to consume an average of 62GB per month by 2028. This outpaces even technologically advanced markets like the US, Western Europe, South Korea, and China.

The explosive growth of India's digital economy is driving an urgent demand for robust data center infrastructure to support this unprecedented digital transformation. Currently, India ranks as the 13th largest data center market globally, with 138 existing facilities. The sector is poised for significant expansion, with plans for 45 new data large centers to be developed by the end of 2025. These new facilities are expected to add 13 million square feet of space and 1,015 MW of capacity to the market.

Mumbai stands out as the primary hub for data centers in India, hosting 45% of the country's facilities. The city's dominance is attributed to high demand from sectors like banking, financial services, insurance, media, and IT. The Maharashtra government has implemented policies to support this growth, including offering incentives for integrated data center parks and categorizing data centers as essential services. While Mumbai leads, other cities are emerging as significant players: Chennai is rapidly growing as a data center hub, benefiting from its coastal location and relative distance from earthquake-prone zones and potential conflict areas; Bengaluru and Delhi-NCR each account for about 10% of the current data center stock, with Noida in the NCR region showing particularly fast growth.

The industry is also eyeing expansion into Tier 2 and Tier 3 cities, recognizing the untapped potential in these markets, particularly for edge data centers that can ensure smooth digital experiences in growing urban areas.

Can a ConTech startup capitalize on this opportunity? Let's dive in.

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The (potential?) opportunity

The answer is: maybe (more of why this is not an immediate yes below). There might be an opportunity for a company to operate as a turnkey digital general contractor, hyper-focused on building data centers.

Basically, said company would cover all aspects of the construction process, including civil work, electrical systems, HVAC, network infrastructure, security systems, and more. By serving as a single point of contact for clients, the company would take complete ownership of each project, managing the entire process, coordinating multiple vendors, and procuring necessary materials. By adopting a full-stack approach, the company would maintain precise control over project timelines and work quality, ensuring superior outcomes for its clients. However, it's an asset-light approach (hence "digital GC"): it's ultimately a supply chain orchestrator play, managing subcontractors and leveraging on a network of existing suppliers to source materials (more on this below).

Why am I not fully sold on this opportunity yet? One shortcoming of this model is that it faces significant challenges when applied to traditional, large-scale data centers (which, as far as I know, will be the main driver of new data center construction).

Indeed, the primary obstacle is the substantial working capital requirements associated with these massive projects: large data centers often require investments in the hundreds of millions of dollars, with complex infrastructure needs and long construction timelines. The sheer scale of these projects demands extensive upfront capital for materials, labor, and equipment. A digital general contractor, typically operating on a leaner model, will struggle to secure or maintain the necessary working capital to fund such enormous undertakings. Besides, at that size, there is no shortage of large players/builders in the market anyway.

However, this model shows promise for smaller-scale data centers or edge data centers. These facilities, which are typically less than 1 MW in capacity, require significantly less capital investment and have shorter construction timelines. The digital general contractor approach could streamline the development process for these smaller projects, offering efficiency gains and cost savings.

The question then becomes: how large is the opportunity here?

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Large enough?

I admittedly have not been able to find a clear answer to the above question yet, hence why I am not fully sure whether this can be a VC-backable opportunity (market-size-wise). I would love to chat with someone with a clear(er) perspective.

As pointed out earlier, it goes without mentioning that the data center construction market in India is experiencing significant growth, driven by increasing digital adoption, rising data consumption, and supportive government initiatives.

According to the IMARC Group, the market is projected to grow at a compound annual growth rate (CAGR) of 15.20% from 2024 to 2032. This growth trajectory reflects the broader expansion of the Indian data center market, which was valued at approximately $6.9Bn in 2023 and is expected to reach around $14Bn (which could, for some, still not be large enough) by 2029, growing at a CAGR of 12.46%. The sector has a whole attracted significant investment interest, with $14Bn flowing in over the past five years. Investment banking firm Avendus Capital anticipates that data centers will become the largest segment of real assets investments in India, projecting a 40 percent CAGR to reach a capacity of 1,700 MW by 2025. Industry players are even more optimistic, expecting demand to surpass 3,000 MW by that time.

The capacity of data centers in India is also on the rise, with the IT load capacity anticipated to grow from 2,014.5 MW in 2024 to 4,765.2 MW by 2029. This increase is complemented by a projected total raised floor space of 6.01 million square feet in 2024 and an expected number of installed racks reaching 710,993 units by 2029.

While the hyperscale data center market continues to grow, there seems to also be an emerging trend towards distributed computing and edge infrastructure driven by the increasing adoption of 5G networks, IoT devices, and low-latency applications. Additionally, as edge computing becomes more critical for various industries, from manufacturing to healthcare, the market for specialized, efficiently-built edge data centers is likely to expand. However, it is not clear how much share of the entire data center construction this takes.

So, perhaps, the market size is just too small. For now, it's tbd.

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Pre-fabrication: the way to go

In my opinion, this hypothetical company would need to focus on a specific type of construction: pre-fabrication. Why? Because you want to reduce complexity and the need of skilled labor, maximize standardization to minimize quality and rework issues, and build quickly and efficiently so as to avoid blocking too much working capital. Plus you want to have the freedom to be able to add more computing capacity (if needed). And prefabrication offers all of that.

Prefabricated data centers are constructed rapidly since modules are produced concurrently in a factory while site preparation is underway. Prefabricated construction can slash timelines by up to 60%, with modules made off-site and then shipped to the location, mitigating common delays related to weather and resource availability. As projects become more complex, the time savings enabled by prefabrication become greater. In a traditional or “stick-build” data center construction process, for example, a project will go through distinct engineering, site prep, construction, installation and startup phases, and developers deal with a changing team of contractors and vendors throughout the process.

Quality control is another key advantage, as prefabrication allows for stringent monitoring and inspection of modules in a factory setting, ensuring each component meets high standards before installation, resulting in superior build quality compared to traditional onsite construction, which can be affected by environmental factors and onsite challenges.

Standardization and consistency are also promoted through modular construction. Prefabrication ensures uniformity in design, materials, and construction methods, simplifying manufacturing processes and facilitating easier maintenance and upgrades. This consistency helps integrate IT equipment and infrastructure seamlessly, reducing compatibility issues and operational disruptions.

Cost efficiency is also achieved, despite potentially higher initial costs for prefabricated modules and assembly. The overall savings come from reduced labor expenses, faster construction timelines, and minimized material waste. The controlled factory environment also reduces rework and errors common in traditional construction, leading to long-term cost savings. This approach can save up to 20% in construction costs, offering additional resilience against extreme weather and natural disasters.

Last, prefabrication also provides scalability and flexibility, crucial for evolving data center requirements. Modular designs can be easily replicated or modified, allowing seamless expansion or reconfiguration to meet changing demands without significant disruptions or downtime.

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Beyond building: recurring service revenue

This is where it gets (potentially) very interesting. The opportunity expands beyond just building - ultimately, you want to become the single point of touch for all ongoing maintenance, compliance, expansion, and optimization operations. By expanding and owning maintenance-related services and workflows on top of new construction, you could build a more resilient business model. Moreover, you would be providing a very valuable service, to begin with: post-construction maintenance is crucial for ensuring the reliability and efficiency of data center operations.

One of the primary areas of focus is electrical infrastructure maintenance - for example, regular checks and servicing of UPS (uninterruptible power supply), routine testing of backup generators to guarantee power continuity, inspections of switchgear and PDUs (power distribution units), etc.

Mechanical infrastructure maintenance is another critical component - particularly HVAC. Regular maintenance of HVAC systems ensures optimal performance and energy efficiency, while the upkeep of CRAC (computer room air conditioning) units, chillers, and cooling towers is vital to prevent overheating and ensure proper airflow.

The IT components are the heart of data centers and require continuous monitoring and upgrades. Regular assessments of server performance and timely upgrades are essential to meet evolving customer needs. Storage systems must also be maintained to operate efficiently and securely, and continuous testing of network components is necessary to ensure low latency and high availability.

You get the gist. You could offer all those services as an ongoing/recurring fee, and lock customers to your solution. There's also some software that can be built and that can provide an additional source of recurring revenue - more of this below.

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The tech stack

Now, where does tech come into play in this model, you may ask? I think multiple software tools can be developed to streamline processes and enhance decision-making. Clearly, the costs vs benefits of building those needs to be evaluated.

First off, the most important piece of tech one should prioritize is the project + vendor + supply management piece - since the company is ultimately a supply chain orchestrator. You want to build an internal platform that streamlines information and communication sharing with suppliers and vendors, BOQ assignment, project planning with data-driven and optimized job schedules for reducing time and costs, resource allocation management and progress tracking (e.g. assign milestones to vendors and require them to submit proof of their work by specific deadlines), compliance checking, etc.. Furthermore, a financial management module can help track budgets and expenses, and generate financial reports, ensuring financial oversight.

More software can subsequently be developed, for example for intelligent site selection to support customers in identifying where to build the data center. The idea is to integrate multiple data layers (e.g. power grid maps, network infrastructure, natural disaster risk zones, and land use regulations) and build a geospatial analysis engine - automatically cross-referencing potential sites with local zoning laws and building regulations, ensuring adherence to all legal requirements. On top, a cost-benefit analysis tool would further enhance decision-making by calculating potential ROI for different locations based on factors such as land cost, electricity costs, and tax incentives.

Or, the company could build an automated testing and commissioning tool to streamline the final stages of data center construction. This tool would generate comprehensive test scenarios through a test case generator: a simulation engine would mimic various operational conditions to stress-test the data center infrastructure, while a performance benchmarking module would compare system performance against industry standards. An automated reporting system would generate detailed commissioning reports and identify areas for improvement, ensuring that all systems are functioning correctly before the data center goes live.

Another interesting piece of software that could be developed is an energy optimization and environmental condition monitoring SaaS (similar to a BEMS, building energy monitoring system). Indeed, monitoring environmental conditions is vital for operational stability: regular calibration of temperature and humidity control systems helps prevent equipment damage, while maintaining air quality systems is necessary to protect sensitive equipment from contaminants. This BEMS would integrate with the data center's infrastructure to monitor and control energy consumption, temperature, humidity, and other environmental conditions. It would then utilize AI and advanced analytics to process real-time sensor data, identify inefficiencies, and make recommendations for optimization - e.g., automatically adjusting systems like HVAC to maintain optimal conditions while minimizing energy waste. It could also generate detailed reports on energy usage, environmental conditions, and optimization measures for the client, providing access controls so the client can monitor the data center's performance. The company could offer this as a recurring SaaS, or bake it into the product and use it as a "marketing/GTM" value-adding tool.

But again, ultimately, this company is a SC orchestrator. The first piece of software is what you must have.

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Conclusion

Is there an opportunity to build a business in this space? Yes.

Can this business be a tech-first or tech-enabled one? Also yes.

Is the market large enough to make a VC case? TDB.

Well, that's it. Feel free to reach out if you want to share thoughts, or leave a comment - I'll be happy to get your perspective.

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Tags

#datacenter #infrastructure #startups #venturecapital #venture #technology #founders