With just one quarter to go in 2019, it’s time to look back at the year and understand how far the startup ecosystem has come. Here’s the macro picture: In 2019, the Indian startup ecosystem has witnessed a capital inflow of $9 Bn+ across 553 deals.
The contribution of Q3 to the investment for the year in terms of funding amount was 35.2% ($3.2 Bn) whereas in terms of the deal count, it was 34.9% (193). Fintech emerged as the top sector in Q3 2019 in terms of the total number of funding deals, just as it had done in Q1.
Enterprise tech sector continued its great run and was present in the top-three spots for yet another quarter this year. In terms of the value of the funding amount, the combined contribution of these two sectors was 27% — 19% by fintech and 8% by enterprise tech startups.
Fintech: Lending Tech Continues To Drive Funding Inflow
The fintech sector which comprises of sub-sectors such as payments tech, lending tech and investment tech had emerged as the top sector in terms of deal count in six out of 23 quarters between 2014 and Q3 2019. Till date (Q3 2019), a total of $1.7 Bn has been raised by 86 unique fintech startups.
A total of 34 unique fintech startups raised the sum of $688 Mn, and interestingly, 56% of the total startups funded were lending tech startups. The combined funding raised by lending tech startups in the third quarter was $125 Mn.
The financial gaps between the MSME sector and the formal financial institutions have opened up new opportunities for startups to thrive on. As per a recent report by BCG, nearly 40% of the credit in the Indian MSME sector is still provided through informal channels. This translates into gaps for existing startups to grow into, and opportunities for newer players to enter the market.
Enterprise Tech: AI/ML-Based SaaS Products Leading The Wave
In the past few years, Indian businesses have transitioned from traditional to digital. In addition to the market-driven changes, a proactive push towards digitalisation from the government’s end has catalysed the digital leapfrogging of both the formal and informal economy. The greater mergers and acquisitions opportunities in this sector have also driven investors towards enterprise tech startups.
In Q3 2019, a total of $409 Mn in funding was raised by 25 unique enterprise tech startups. Al/ML-based SaaS products and marketing automation tools made 32% of the total funded startups in Q3 2019. The rising customer conversions through digital tools is one of the primary reasons behind the prevalence of deeptech-based enterprise solutions in India.
Ecommerce: Marketplaces Fall; Private Labels Rise
From a sector point of view, ecommerce recorded the highest surge in funding amount compared to the previous quarter (Q2 2019). The value of funding amount in the ecommerce sector surged 4.5x from $84 Mn to $381 Mn in Q3 2019.
Eight out of 20 unique ecommerce startups funded in Q3 2019 were private labels. This high proportion can be attributed to the prevalence of higher profit margins for ecommerce private labels in comparison to classic inventory model, which turns out to be an expensive affair for investors as well as startups. The same applies to the marketplace model as well.
More insights from the investment activity in the Indian startup ecosystem in Q3 2019 can be found in DataLabs by Inc42’s latest release titled “Indian Tech Startup Funding Report Q3 2019”DOWNLOAD THE FULL REPORT