The State Of Startup Funding In India: DataLabs’ Annual Indian Tech Startup Funding Report Decodes It All

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, mergers & acquisitions (M&As), startup policies and macroeconomic factors that influenced the Indian startup ecosystem from 2014-2019. Read all articles in this series

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As we step into a new decade, it’s evident from the year gone by that the startup ecosystem is well on its way to maturity. Keen observers of the startup funding landscape in 2019 would acknowledge that it has been one of the more remarkable years for startups. That’s not just in the Indian context, but also globally, where questions were raised about rampant funding for startups in light of the WeWork debacle and continued losses for ecommerce giants in India. But that does not mean that Indian startups did not raise noteworthy funding in 2019

According to DataLabs by Inc42’s Annual Indian Tech Startup Funding Report 2019, by the end of the calendar year of 2019, the total funding poured into Indian startups since 2014 stood at $58 Bn whereas the total count of funding deals crossed the 5K mark with 5,011 investments. But beyond that, we saw mid-tier cities grow in stature among startup hubs, seven new unicorns and a spate of big-ticket deals that grabbed the headlines.

Here are the key insights drawn from the data we have recorded over the past year, which have been compiled in the Annual Indian Tech Startup Funding Report 2019.

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Startup Funding Deals At A 5-Year Low

When discounting the outlier deals of the year, the value of funding amount actually recorded a historical peak in 2019, reaching $9 Bn in comparison to $8 Bn in 2018.

As the startup ecosystem moves from growth stage to maturity, the funding amount and deal count have both stabilised over the two years from 2017 to 2019. In 2019, the total funding raised by tech startups in India across 766 deals was $12.7 Bn, which is a 15% increase from 2018. In 2018, 697 unique Indian startups raised funding, while this figure fell to 664 in 2019, indicating that investors looked to invest more in funded startups, which were better poised for growth.

Another sign of investors largely backing growth startups is the fact that bridge funding and growth-stage funding achieved a high pace of growth, growing fastest at 30% and 12% respectively. With $252 Mn in funding, the seed-stage deal value fell by 44% (compared to 2018) as only 306 seed funding deals were recorded.

The report also shows that the median funding amount has been growing at 38% CAGR from 2015 to 2019 for startups in India. This indicates the growing popularity for late-stage investments over seed funding and growth-stage deals.

Click Here To Read More About Startup Funding Activity In The Last Five Years 

Seed Funding Crunch Hits Bengaluru Hardest

Among 24 active startup hubs, the top three hubs or cities — Bengaluru, Delhi NCR and Mumbai — have dominated the startup funding activity in India for five straight years (2014 to 2018) across all three major indicators. Bengaluru, Delhi NCR and Mumbai led in both funding amount and the deal count for 2019 as well with a collective 87% and 84% share respectively, as seen in the Annual Indian Tech Startup Funding Report, 2019.

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Bengaluru startups secured the most funding for the year at $5.3 Bn across 267 deals, narrowly beating Delhi NCR startups

Among the top three cities, though the deal count among Bengaluru startups fell slightly (4.3%), the city’s share of the overall deal count in India for 2019 actually increased. But when looking into stage-wise growth in each city, Bengaluru seems to have borne the biggest brunt of the seed funding decline.

The number of seed-stage funded startups went below 100 for Bengaluru for the first time since 2015.

Click Here To Read More About The State Of Seed Funding In India

Funding Boom For Enterprise Tech

Among the top-performing sectors, fintech, enterprise tech, ecommerce, consumer services and healthtech have continued to dominate on the basis of the number of funding deals and count of unique startups funded. However, this stronghold is loosening as these big 5 sectors combined made 61% of the total deal count in 2019 compared to 65% share in the previous year.

With total funding of $1.15 Bn across 114 deals in 2019, enterprise tech recorded 49% surge in total funding amount compared to 2018 whereas the deal count plunged by 10% during the same interval. With 21.9% share in the total M&A count, enterprise tech startups recorded 23 deals, compared to 5 deals for fintech and 9 deals for ecommerce.

Click Here To Read More About The Star Sectors Of 2019

Sequoia Tops VC List Thanks To Surge

DataLabs by Inc42 has noted that that number of unique investors in 2019 saw a minor fall as compared to last two years.  Indian startup ecosystem saw 275 unique VC, continuing to fall from the peak of 315 unique VCs in 2017 and 283 in 2018. In terms of ranking, the most active VC of 2018 — Accel Partners was dethroned by Sequoia Capital in 2019.

Sequoia recorded over 2X growth in investments compared to 2018 and this can be attributed to the launch of Sequoia Surge, the VC’s early-stage accelerator and incubation programme. Surge has committed to back 10–20 early-stage startups twice a year and invest around $1.5 Mn in each of them.

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Click Here To Know More About VC Participation In 2019

M&As Hit Five-Year Low

India saw just 111 M&A deals in the year, recording a 10% Y-o-Y fall. This is the lowest number of mergers and acquisitions deals between 2015 and 2019. With 2019’s tally, 629 M&A deals have been recorded in India between 2014 and 2019, with 2016 seeing the highest annual count at 149.

However, since then mergers and acquisitions deals have continued to fall. This is partly due to market correction after a peak year, but there are other factors, which DataLabs by Inc42 has seen in its analysis, such as the seed funding crunch, which has hit all major startup hubs in India. With fewer seed deals, the potential pool for acquisition is going down every year. Underfunded startups are less likely to prove themselves worthy of M&As.

Click Here To Know More About The M&A Activity In 2019

2020 Predictions: Stability And The Rise Of Healthtech

Finally, we have identified several emerging trends for 2020 and sectors that will see the most investment and innovation activity. To peer into the new year, we have taken stock of the ecosystem to deduce the trends, the funding amount and the deals expected for 2020.

In 2020, we expect the total capital inflow in Indian startups to remain in the range of $12 Bn to $13 Bn as witnessed in 2019. DataLabs by Inc42 estimates that by the end of 2020 the total value of funding amount is not going to be very different from 2019. At the end of 2020, the funding amount is expected to be approximately $12.6 Bn across 778 deals, taking the total funding raised by Indian startups between 2014 and 2020 to over $71 Bn. In terms of startups funded, the total count of deals for the six-year period will reach 5,789 in 2020.

Click Here To Know What 2020 Will Bring For Indian Startups

There are multiple factors at play which are enabling the transition of the Indian startup ecosystem. Among the primary ones are investors getting picky about early-stage deals, prioritisation of unit economics and business sustainability over addressable market opportunity and cash-burn to acquire users and the rising popularity of syndication in investments due to growing risk of startup failures.

Among the sectors that will emerge, healthtech, the value of capital inflow in the sector for 2020 is estimated to be $580 Mn, which is a surge of 14% compared to $519 Mn in 2019. The funding amount in this sector is growing at a rate of 12.4% (2015-2020), while the count of unique startups funded is estimated to reach 56, an 8% hike from 2019.

All our predictions for the Indian startup ecosystem for 2020 have been compiled in the DataLabs By Inc42 Annual Tech Startup Funding Report 2019.

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