With the number of Indian startups touching the 55K mark by the end of 2020, the country’s startup ecosystem has come a long way, recording $70 Bn ($69.9 Bn, to be precise) in funding across 5,985 deals between 2014 and 2020.
The year 2020 was a tough year for all industry segments, given the unprecedented outbreak of the Covid-19 pandemic across the globe and the consequent slowdown. And just like its global peers, the Indian startup ecosystem also felt the impact. The startups in India recorded more than $11.5 Bn in funding in 2020, 10% lower than the amount raised in 2019, but the number of deals in 2020 easily surpassed the previous year. The deal count stood at 924, 14% higher than what it was in 2019.
In 2020, fintech, enterprise tech, consumer services, edtech and ecommerce turned out to be the top five sectors in the Indian startup ecosystem in terms of capital raised.
On the other hand, fintech, enterprise tech, edtech, consumer services and ecommerce emerged as the top five sectors in 2020 in terms of funding deal volume.
The Annual Indian Tech Startup Funding Report 2020, recently released by Inc42 Plus, presents a detailed analysis of sector-wise investment trends and looks at new and emerging sectors and sub-sectors, which are likely to see innovations and investments.
Lending Tech Continues To Drive Fintech To The Top
Fintech startups recorded 131 deals in 2020, with $2.1 Bn in total funding. The capital raised was 21% lower than in 2019, and the number of deals declined by 1.5% compared to the previous year.
However, investor confidence in lending tech startups remained high in 2020 compared to other fintech sub-sectors. Lending tech startups accounted for 26.7% (35 deals) of the total fintech deal volume.
High investor confidence towards lending tech startups can be ascertained by large financing gaps between the MSME sector and formal financial institutions, thus opening up opportunities for new players in a market that has the potential to become a $1 Tn opportunity by 2023.
Pine Labs, Zerodha and Razorpay were the most prominent fintech startups which entered the much-coveted unicorn club this year.
Rise In Enterprise Tech Funding
The government’s proactive push towards digitalisation of the Indian economy, the growing digital presence of all businesses and greater M&A opportunities in the enterprise tech sector were the catalysts for fuelling growth.
With $1.7 Bn in funding across 128 deals in 2020, enterprise tech saw a 49.2% surge in total funding compared to 2019, and the deal count surged by 12.3% during this period.
With an 11.1% share in the total M&A count, enterprise tech startups recorded nine deals compared to 13 in the edtech space, 11 in ecommerce and nine in fintech.
Edtech: VCs’ Dark Horse In 2020
It was a big bang year for the edtech sector as the traditional education system closed its doors, and the new reality brought remote learning and edtech solutions to the fore.
According to Inc42 Plus estimates, edtech startups raised more than $1.43 Bn across 101 deals between Jan 1 and Dec 17, 2020, witnessing a whopping 223.2% rise compared to the previous year. Interestingly, edtech was not even considered among the top five segments a year ago when it came to fundraising or deal volume. Inc42 Plus estimates also reveal that edtech was among the least-funded segments in 2019, with 46 deals in its kitty.
Although edtech funding increased significantly, it largely involved industry giants. For instance, BYJU’S raised about 57% of the segment’s total funding, the latest unicorn Unacademy raised about 10.4% and Vedantu raised 9.5%.
Will Edtech Retain Its Momentum In 2021?
According to Inc42 Plus estimates, India has witnessed the launch of 5,353 edtech startups to date, but the number is bound to increase rapidly, thanks to investors’ and customers’ rising interest in this space. The year 2020 has been a golden year for this sector, however, momentum is expected to slow down in 2021 as schools open up. Also, the big challenge for the existing startups will be bridging the most glaring gaps, including the digital divide, equitable access to the internet, access to power and hardware such as computers or smartphones, and addressing the affordability quotient.
According to Inc42 Plus analysis, in 2021, the funding rounds may decline, and several startups may have to shutter their businesses. On the other hand, those with distinct value propositions in coding, virtual reality or extracurriculars will queue up to get acquired by bigger companies as they try to consolidate their market position.