Mega Funding Rounds Surged In 2019 As Late-Stage Investments Flourished

As we launch the DataLabs by Inc42 Annual Indian Tech Startup Funding Report 2019, presented by Dell, here’s a look at the key highlights from the detailed analysis of the investment trends, big-ticket rounds, mergers & acquisitions (M&As), startup policies and macroeconomic factors that influenced the Indian startup ecosystem from 2014-2019. Read all articles in this series

The transition of the Indian startup ecosystem from the growth stage to maturity is quite evident when you look at the year-on-year funding growth from 2017 to 2019. While the amount has grown, it has not shot up by much. This incremental growth is expected to continue into 2020 as well as seen in the DataLabs by Inc42 Indian Tech Startup Funding Report 2019 released this week.

Among other indicators of this maturity, the higher incidence of ‘mega rounds’ or large ticket size funding deals (equal to or greater than $100 Mn) in Indian startups.

Between 2014 to 2019, we recorded 126 such mega rounds with a total funding amount of $34 Bn invested in these rounds. Naturally, established startups earned the bulk of this. Startups in ecommerce and fintech sectors combined have contributed 50% ($17 Bn) to the funding amount in mega rounds or 39% (49 deals) of the deal count in the six years.

Mega Funding Deals On The Rise In India

Going back a couple of years, the value of mega funding rounds in 2017 had surged exponentially in 2017 from $2.2 Bn (in 2016) to $9.4 Bn (in 2017). In the same year, the deal count surged nearly doubled from 13 (2016) to 21 (2017).

Since then, the value of capital inflow has witnessed a downfall which can be termed as a market correction. Given the fact that 2017 was also the year when the overall funding amount reached its historical peak, the surge in mega rounds was to be expected. Since then, the funding amount for mega rounds has fallen in 2018 and picked up slightly in 2019.

The deal count of mega rounds, on the other hand, is on an upward streak even after the highs of 2017, recording a historical peak of 34 by the end of 2019, which is a 21% surge compared to the previous year.

Late Stage Confidence Driving Big Ticket Rounds

The fact that mega funding rounds only takes place across late-stage investments in established Indian startups indicates that the investor confidence towards the sustainability of these startups is high. In order to get a more vivid understanding in this context, we will be analysing the startup sectors which have been attracting a majority share of the mega funding rounds in Indian startups.

Among the investors leading these mega rounds, Japan’s Softbank, US-based investment firm Tiger Global and marquee tech VC Sequoia Capital have the highest participation in mega funding rounds of Indian startups. Between 2014 to 2019, the three leading VCs accounted for approximately 47% of the total mega funding deals. Surprisingly, the share of Indian-origin VC firms is relatively low compared to their international peers.

The concentration of mega funding rounds in the Indian startup ecosystem is increasing over time. The increasing participation of top international VCs indicates that India is closing the maturity gap (in terms of venture capital inflow) between its startup ecosystem and international counterparts such as the United States and China.

Ecommerce Sector Dominates Mega Funding Deals

Between 2014 to 2019, a total of 32 mega funding rounds worth $11.7 Bn plus have been poured into ecommerce startups. From 2014 to 2018, a major proportion of the capital inflow was into ‘traditional’ ecommerce startups such as Flipkart, Snapdeal, Myntra, Paytm Mall Jabong and others, but in 2019, new-age ecommerce models such as social commerce (Meesho et al), private labels, vertical ecommerce and automobile marketplaces also recorded significant number of mega funding rounds in the sector.

In 2019, the startups based in these sub-sectors combined to account for 43% of the total mega rounds funding amount, and 56% of the total mega funding deal count.

Fintech, which recorded a total of four mega funding rounds worth $1.1 Bn in 2019, was second in line after ecommerce. Compared to 2018, the value of funding amount recorded an exponential surge of 2X from $472 Mn to $1.1 Bn, whereas the deal count witnessed a minor uptick by a single deal.

In 2019, $100 Mn-plus investments in startups such as Paytm, DMI Finance and PhonePe fuelled the growth in funding amount for the fintech sector compared to 2018.

In the near future, DataLabs by Inc42 expects ecommerce and fintech startups will continue to attract more mega funding rounds due to the fact that the adoption rate of ecommerce and fintech products and services is relatively higher due to their sector maturity. This makes scaling up easier for startups in this domain, which in turns proves to be a decisive factor for investors.

More such predictions for 2020 and beyond are presented in DataLabs by Inc42’s latest Indian Tech Startup Funding Report 2019, presented by Dell.

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