SUMMARY
The total funding raised by Delhi NCR startups is $15.83 Bn between 2014 to 2018
Delhi recorded a higher average ticket size and funding growth rate than Bengaluru
Startup funding in tier 1 cities make 97% of the total funding raised by Indian startups
As modern India’s capital, Delhi is in a unique place due to its influence on the rest of the country. And we aren’t just talking about the role of the central government’s role in this. Delhi’s culture of innovation can be traced back to the 14th century when Muhammad Bin Tughlaq who was widely known as a “Man of Ideas” introduced token currency and the concept of a central capital for a kingdom. Over the years, Delhi has been home to a number of innovations and improvements in the way of life of Indians. And these days, it’s the heart of India’s startup ecosystem. Home to 13 unicorns, today, Delhi NCR plays host to 8,500 startups, including some of the biggest in the country such as Paytm, Snapdeal, Shopclues, Zomato among many others.
The advantages of being the national capital are obvious but there are a number of factors that have gone into making Delhi a startup hub. These include high-speed connectivity, per capita income (NSDP) of $4,686 which is 2.63x higher than the average per capita income of other Indian states. According to StartupBlink’s startup ecosystem index, Delhi jumped up five slots in 2019 (compared to 2018) to grab the 18th rank among 1,000 cities overall.
Insights On The Delhi Startup Ecosystem
Rising High With Startup Investments
While it’s already a major hub for Indian startups, according to Inc42 DataLabs’ recently released Indian Tech Startup Funding Report Q1 2019, 782 Delhi NCR based startups picked a total investment of $15.83 Bn across 1,213 deals from 2014 to 2018. In comparison to Bengaluru which is known as the Silicon Valley of India, the total funding raised in Delhi NCR is 29.43% lower, but that’s not the full story.
If we look at the growth percentage, the funding amount secured by Delhi NCR startups has grown by 29.68% annually, which is much higher than Bengaluru’s 15.11% growth rate.
Top Fives Vs Overall Funding
If we look at the top five funded startups from 2014 to 2018 in Delhi NCR — ReNew Power, Paytm, Snapdeal, OYO and Zomato – their contribution towards the total funding recorded in the city stood at 53.76% ($8.51 Bn).
On the other hand, in Bengaluru, the top five most funded startups — Flipkart, Ola, Swiggy, BYJU’s and BigBasket combined contributed 61.19% ($12.53 Bn) to the total funding raised by startups in the city. This indicates that the density of funding is less in the top startups in Delhi NCR, in comparison to Bengaluru. Consequently, the opportunity for a new startup to raise a substantial amount of venture capital investment is higher in the more balanced startup ecosystem of Delhi NCR in comparison to the mature and top-heavy ecosystem of Bengaluru.
Best Vs Worst Performing Quarters
With total funding of $1.94 Bn, Q2 2017 stood as the best performing quarter for Delhi NCR, while for Bengaluru it was Q3 2017 with a total recorded investment of $2.76 Bn. Overall, to date, 2017 was the best year in terms of startup funding with $13.31 Bn being invested through the year.
Q1 2019: Is Funding On Track?
If we look at the YoY startup funding trend, investments have slowed down after 2017. This is highlighted by the startup ecosystem seeing the total funding of $11 Bn in 2018, a 13% decline in comparison to 2017.
Secondly, the average ticket size of funding deals for the Indian startup ecosystem is at the $19 Mn mark for both 2017 and 2018. This indicates a slow down in the frequency and volume of VC investment inflow from 2017. The primary reason for the slowdown in VC confidence is the disequilibrium between the number of startups that need funding and the amount of disposable capital available with investors in India. In fact, the total funding for Indian startups between 2015 and 2017 makes up 70% of the total funding from 2014 to 2018.
In the context of Delhi NCR, the total recorded funding in Q1 2019 was $943 Mn which is 19.16% higher than the quarterly benchmark amount ($791 Mn). Similarly, in comparison to the previous quarter Q4 2018 the total recorded funding this quarter was 54.34% higher.
In 2019, the total recorded funding in Q1 for Bengaluru startups was $1.43 Bn which is 40.3% higher than the benchmark funding amount ($1.02 Bn) or the quarterly average (2014-18) of the total funding inflow in Bengaluru represented as “Average Q”. In comparison to the previous quarter (Q4 2018), the funding recorded in Q1 2019 was 36.44% lower.
Although Delhi NCR and Bengaluru recorded startup funding above their respective benchmark amount or the “Average Q”, the trend looks more positive for Delhi NCR. This can be inferred from the fact that the CAGR (from 2014-2018) of startup funding in Delhi NCR is 29.68% whereas for Bengaluru is a mere 15.11%. Also, the four-quarter EMA line, represented above as “EMA(4)”, shows a downward trend in case of Bengaluru, whereas for Delhi NCR the trend is relatively upward indicating an expected rise in investment inflow.
Average Ticket Size Growth Highest In Delhi
Another positive indicator for the Delhi NCR startup ecosystem is the average ticket size for funding for startups in the capital region. The ticket size is growing at a rate of 5.43%, whereas for Bengaluru it is -7.68%, which is lower than the overall average for India of -0.42%. The positive CAGR for Delhi startups indicates that investment size is increasing on an annual basis much faster than Bengaluru and India overall, both of which are on a decline.
Inferring from the trends observed from the data, the investor confidence in Delhi NCR startups is higher than the much-celebrated startup capital of India — Bengaluru.
Overall, the startup ecosystem in Delhi NCR is performing better than Mumbai and Bengaluru in terms of CAGR of startup funding and the average ticket size.
This is all the more surprising considering that Delhi NCR does not have a native startup policy in place, whereas both Bengaluru and Mumbai have dedicated startup policy frameworks to facilitate the growth of entrepreneurship in the state.
Although the growth of the startup ecosystem in Delhi NCR, Bengaluru, Mumbai etc. is laudable, the fact remains that 97% of the total startup funding in India from 2014 to 2018 was in startups registered in metros and tier 1 cities, with a mere 3% was in Tier 2 cities. This indicates that there is an investment divide between India’s tier 1 cities and the tier 2 cities.
The long-term continuance of this divide will have a detrimental effect on the economy in the long term. With minimal exposure to VC funding, startups in tier 2 cities could have a tough time growing to the level of bigger startups in tier 1 cities. On a macro level, this would increase the divide in employment opportunities in tier 1 and tier 2 cities, hindering the optimal growth of the Indian economy. This is vividly represented in the case of Karnataka where the per capita income in Bengaluru ($3,865) is 2.31x higher than the average per capita income of the state ($1,808).
