With the unprecedented impact of the Covid-19 pandemic, numerous industries and markets around the world were forced to hit the reset button. The gap between early adopters of technology and the laggers shrank and the significance of the internet reached a historical high, pushing it into the essential category.
Amid prolonged mass hysteria, a liquidity crunch and growing unemployment in the country, the Indian startup ecosystem eventually became well equipped to deal with the pandemic and start recovery.
This can be ascertained from the fact that the Indian startups recorded a total funding of $11.5 Bn, which is 10% lower than 2019, but across 924 deals, which 14% higher than the previous year. As predicted in Inc42 Plus’ report — The State Of Indian Startup Ecosystem 2020 — in an optimistic scenario, the total funding amount this year would be around $11.3 Bn (11% lower than the previous year), but the startup ecosystem has performed slightly better than expectation. However, as we will see, the state of funding in 2020 was a story of two halves, with a big recovery in the second half of the year.
Incidentally, Schumpeter’s gale or wherein destruction fuels creation was in full play in 2020 as traditional industries and businesses were made obsolete by new-age tech. On the one hand, startups based in sectors like retail, automobiles, travel tech and transport tech struggled with zero cashflow, while on the other, ares such as edtech, ecommerce, hyperlocal delivery, enterprise tech and healthtech flourished, witnessing unprecedented surge in traction, engagement as well as investor confidence.
In terms of the number of funding deals and startups funded, fintech, enterprise tech and edtech were the top three sectors in the Indian startup ecosystem in 2020. While the first two are predictable given that they finished on top in 2019 too, the sudden surge in adoption of online learning products and services helped edtech usurp ecommerce from the third spot. In that sense, 2020 was most definitely the year of edtech. Let’s take a deeper look.
Indian Startup Funding Nears $70 Bn Mark
With the number of startups in India (launched to date) touching the 55K mark by the end of 2020, the Indian startup ecosystem recorded a total funding amount of $70 Bn ($69.9 precisely) across 5,985 funding deals from 2014 to 2020. During this period, the total number of funded startups was 3,436 or 9% of the total 38,815 active startups in India.
The year 2020 saw the most number of new unicorns in a calendar year, as 11 startups reached a $1 Bn-plus valuation.
900+ Funding Deals In 2020
Indian startups recorded over $11.5 Bn in funding in 2020, which is 10% lower than 2019, but in terms of the number of deals, 2020 easily surpassed the previous year. With 924 deals, the deal count was 14% higher than in 2019.
This is a largely positive sign as more startups raised capital in a crisis situation, however, it also indicates a drop in the average ticket size of investments. In 2020 the average ticket size of investments in Indian startups was $12.4 Mn, which is 21% lower than previous year’s $15.7 Mn.
The drop in the average ticket size of investments as well as the count of ‘mega-rounds’ (greater than $100 Mn) indicates that the investor confidence was relatively lower in 2020 compared to 2019.
The Revival Of Seed Funding
Contrary to growth and late-stage funding, the overall indicators of investment were positive for the early stage (seed and bridge) rounds. The total capital raised at seed stage was $403 Mn, which is close to double of the $255 Mn raised at this stage in 2019, whereas bridge stage funding accounted for $221 Mn in 2020, almost 3x the $98 Mn raised in 2019. These are great signs for the startup ecosystem, given the state of the market in 2020 and the fact that early stage startups have attracted funding in a tough time proves that even investors have seen the value in the innovation.
Enterprise tech and edtech were the most preferred startup sectors at the seed stage, once again indicating that investors invested in line with the most pressing needs of the market. The two sectors combined accounted for nearly a third (29%) of the total 380 funding deals at the seed stage. The addressable market of both sectors expanded rapidly due to the lockdown and the pandemic’s impact.
2020: The Year Of Edtech And Fintech
While fintech, enterprise tech and edtech were the top three sectors in the Indian startup ecosystem in terms of funding deals, in terms of the investment amount, the top three sectors were fintech ($2.1 Bn), enterprise tech ($1.7 Bn) and consumer services ($1.6 Bn), besides hot sectors such as ecommerce fuelled by India’s D2C rush.
The rise of D2C and ecommerce, as well as contactless payments, has widened the addressable market opportunity for fintech products, driving up investor confidence in the sector.
Bengaluru Continues To Rule The Roost
Fueled by the investor ecosystem and large tech-savvy population, the dominance of Bengaluru, Delhi NCR and Mumbai on the overall venture capital inflow remained intact in 2020. Together, these three hubs account for 90% ($63 Bn) of the total $70 Bn raised by Indian startups between 2014 and 2020, with Bengaluru itself accounting for over half of this amount.
“Unsurprisingly, even at the seed stage, the three hubs — Bengaluru, Delhi NCR and Mumbai — accounted for a majority share or 77% or 278 out of 361 funded startups in 2020. This clearly indicates the relative ease of starting a new venture in these hubs compared to any other city in India.”
The State Of Exits
While many expected consolidations to be the flavour of the year, given the pandemic’s impact on businesses, the mergers and acquisitions (M&A) count this year is the lowest in the past six years. The overall count of 81 in 2020 is 27% lower than the previous year (111), indicating that the pandemic may have chilled any mergers and acquisition talks this year.
The fact that the addressable market for edtech, ecommerce and fintech was expanded during the pandemic has fuelled the growth of M&As in these sectors.
The Investors That Dominated The Startup Funding Landscape In 2020
Just like last year, in 2020, Sequoia Capital India was involved in the most number of deals, with its investments in edtech unicorn Unacademy, BIjak, InVideo and other Surge accelerator startups making the headlines.
Edtech was a prominent target for all the investors in the top 10 list this year, while many also backed D2C startups as well as retail tech innovation.
In 2020, the startup ecosystem in India witnessed a fundamental shift from growth at any cost towards positive unit economics and profitability, even as a full-blown economic crisis rages on outside. This change is poised to have major implications in the coming year.
To get a better picture of the data behind these changes as well as our predictions for the new year, download our mini-report now:
Note: Startup Funding Data Till 17 December 2020 Has Been Used For The Analysis. And Investor Ranking Is Based On Data Collated From Publicly Disclosed Deals. The investor ranking data has been updated on 14 January 2021