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Indian Startups Raised $5.85 Bn Funding In First Half Of 2019

Indian Startups Raised $5.85 Bn Funding In First Half Of 2019

Indian startup ecosystem recorded 360 deals in H1 2019

Startups in Tier 1 cities combined accounted for over 95% of all deals

Fintech (57), enterprise tech (52) and consumer services (40) were the top sectors in terms of funding deal count

As we enter the second half of 2019, with all-new Union Budget announcements, there’s a palpable sense of excitement in the air in the startup ecosystem. The next six months will be crucial for the Indian ecosystem as the government will be initiating regulations that are likely to affect taxation, ESOPs, differential voting rights and more. In particular, the issue of angel tax has been clarified to a large extent by the government during the budget, which should give the ecosystem the much-needed funding boost. Secondly, the government’s focus on rural entrepreneurship is also likely to drive plenty of investments towards Tier 2 and Tier 3 startup ecosystems.

This impetus to the ecosystem in the second half of the year means the startup industry is poised to surpass the numbers it achieved in H1 2019. The start to the year was however a slow one in the context of the Indian startup ecosystem, with the total funding deal count in the first quarter of 2019 coming in 15.24% lower in comparison to the average quarterly deal count of 210 between 2014-2018.

The investment cycle however sped up in the second quarter of 2019, and went on perform better-than-usual. As per DataLabs by Inc42 estimates, the total recorded funding in H1 2019 ($5.85 Bn) was 16.64% higher than the median half yearly funding amount of $5.01 Bn (2014- H1-2019). But if seen in a Y-o-Y comparison, this is only a slight bump in an otherwise declining trend for funding amount since 2017.

In H1 2019, a total of $5.85 Bn was invested across 360 deals.

Ecommerce ($1.03 Bn), fintech ($1.01 Bn) and transport tech ($800 Mn) emerged as the top sectors in terms of the total funding amount. The share of the top three sectors in the total funding raised by Indian startups in H1 2019 was 48.83%. In terms of the total number of deals, fintech (57), enterprise tech (52) and consumer services (40) were the top sectors. These three made up 41.39% of all funding deals in the first half of the year.

In terms of mergers and acquisitions, enterprise tech (11), media and entertainment (7) and healthtech (7) witnessed the highest number of startup M&As.

Half-Yearly Trends: Inflow of Funding Amount and Deal Count

Looking at the historical trend of funding inflow in the Indian startup ecosystem from 2014 to H1 2019, we can observe that although the total funding in H1 2019 is 16.64% higher than H1 2018 ($5 Bn), it pales in comparison to the total funding recorded in H1 2017 ($6.89 Bn). Incidentally, that’s also the historical peak in startup funding on a half-yearly basis.

In the context of deal count, a downward trend in the number of funding deals in H1 2019 can be observed, the deals were 26.23% less in comparison to H1-2017 (488 deals) and 16.47% lower in comparison to H1 2018 (431 deals).

Top Performing Sectors and Startups Hubs in H1-2019

The top three sectors in terms of investment deal counts — fintech, enterprise tech and consumer services — made up 41.39% of the total number of deals in H1 2019, which is 360.

Among the fintech startups funded in H1 2019, investment deals in lending tech startups were the driving force behind fintech leading the deal count — 52.63% of the total 57 deals in fintech startups was contributed by investment in lending tech startups such as Aye Finance, ZestMoney, Kinara Capital and others.

In the case of enterprise tech, SaaS products dominated the scene — 48% of the total deals in enterprise tech startups were in SaaS products, out of which HR tech was one of the most prominent areas.

For the consumer services sector, the first half of 2019 was “business as usual” given that the funding in this sector is dominated by heavyweight sub-sectors food and hyperlocal services — investment deals in startups in these sub-sectors made up 70% of the total deals in the sector which stood at 40 for the first half-year of 2018.

Top Startup Hubs

Unsurprisingly, Bengaluru emerged as the startup hub with the highest number of deals in H1-2019. Out of the total 360 funding deals recorded in the first half of 2019, the contribution by Bengaluru-based startups was 41.39% (149), followed by Delhi-NCR at 25% (90) and Mumbai at 18.89% (68). The top three hubs combined made 85.28% of the total recorded deal count in H1 2019. The skewed investment towards startups in the big cities is even more apparent when you consider that out of the total recorded deal count, that 343 out of the 360 (95.28%) deals was recorded into startups in Tier 1 cities. This could change in the months to come with the government’s push for rural entrepreneurship as well as improving internet and digital penetration in Tier 2, 3 cities and rural areas.

It’s clear that funding and investment deals in H1 2019 reflect the overall state of the ecosystem. Fintech, ecommerce, consumer services and transport tech continue to be investor favourite. Secondly, the skewness of venture capital inflow toward Tier 1 cities is also evident when you look at the state of the ecosystem overall.

The slow down in the overall funding scenario of the Indian startup ecosystem can be linked to the number of socio-economic factors such as policy uncertainty in top startup sectors such as ecommerce, with the pending ecommerce data localisation bill and fintech, which is also under a data localisation cloud.

Additionally, ineffective execution of the startup-related government schemes such as Digital India and the issue of tax related to angel investments in the first few months of the year made it difficult for startups to scale up, which would have definitely had a rolling effect in terms of bringing in more investments.

As already seen in previous DataLabs by Inc42 reports, the saturation of startups in certain sectors has also had a negative impact on the investment outlook for India. For example, India has a handful of startups in sectors such as deeptech.

A detailed explanation of all the insights from the Indian startup ecosystem for H1 2019 along with its implications in the near future will be presented in an upcoming report by DataLabs by Inc42 titled under “Indian Tech Startup Funding Report H1 2019”.

CHECKOUT DATALABS BY INC42

Author

Sandeep Singh

Inc42 Staff

Sandeep is a research analyst at Inc42 DataLabs. As a market researcher, he has a keen interest in blockchain and public policy.

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