Annual Indian Startup Funding Report 2019

2019

A N N U A L

R E P O R T

Indian Tech Startup

Funding Report

P R E S E N T I N G PA R T N E R

Table of

Contents Scope Of The Report Executive Summary Introduction To The Report Indian Startup Funding Landscape

Stage Analysis

Business Model Breakdown

Sectorwise Analysis

Demography: Top Startup Hubs Of India

Investor Participation Analysis & The Top 10 VCs

Mergers And Acquisitions

Market Parameters

Economic Parameters

Economic Indexes

Transactional Volume

Trade Inflow Outflow & FDI Trends

Impact On Jobs

Emerging Technologies

The Government Intervention & Policies

Growth In Per-Capita Income & Diaspora

Gender Analysis

India As A Startup Hub: A Comparison

Impact Of Indian Startup Economy: An Analysis

Funds Launched in 2019 Roadblocks For Indian Startup Ecosystem Indian Startup Funding Predictions 2020 & 2021 Methodology Glossary Bibliography

01 02 04 05-107

108-116

117-131

132 135 139 145 146 147

Scope Of The Report

The startup funding landscape in Indian startup ecosystem has changed significantly over the past few years. In the past decade, the Indian startup economy observed the adverse effect of the funding bubble of 2016 to the funding crunch of 2018 (40% drop in seed stage deals). However, the startup economy has undergone a revival in 2019.

In this edition of DataLabs by Inc42’s flagship report — “Annual Tech Startup Funding Report 2019”, we analyse the health of our Indian startup ecosystem from the lens of funding. The rise and fall of funding has a significant role in shaping startups, so this is a key indicator about the state of the ecosystem. Funding enables business to build, grow and scale to be able to generate revenue and capital gain for its stakeholders. This in turn boosts employment and contributes to the GDP of the country, which is why investments are an integral part of any tech ecosystem, particularly startups.

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The report will provide readers with an in-depth analysis of

1

the funding landscape of India in 2019 and what can be expected for 2020 and 2021. Among other aspects of the ecosystem, the report will present: Funding trends and projections Opportunities created for startups in 2019 Funding analysis and trends in startup hubs and sectors Analysis of rising sectors Impact of funding on the Indian economy Investor outlook and intent Top investors in India Government policies and their impact Comparison of India with global startup hubs Emerging tech for 2020 Challenges and opportunities for next decade

Executive

Summary $12.7 Bn Funding raised Indian startups across 766 deals 22% Share of 2019 to the total funding amount invested in Indian startups in the last 5 years

34 Deals over $100 Mn in Indian startups B2C Became the most preferred business model by Indian investors Fintech & Ecommerce Bagged most funding in 2019 20%

2

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Contribution of top 5 VCs in the total deal count

Sequoia Capital Dethroned Accel Partners to become the most active VC of 2019

9% Startups funded in 2019 had women founders 111 M&A Deals were recorded, a 10% fall compared to 2018

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7 Startups entered the unicorn club

3

Introduction To The Report

The last few years of the past decade showed that India has great appetite for technology, data and the internet. From having a handful of tech companies to hundreds and then thousands of innovative new ventures, India’s startup ecosystem has grown immensely over the past decade and is on the verge of reaching a new level of maturity.

From 29K startups in 2014, the numbers grew exponentially from 2015 to 2018 and touched 49K. In less than half a decade (2014-2019) startups and the enabling ecosystem have flourished with the support of the government’s ambitious Startup India, Make in India and Digital India programmes.

Thanks to this favourable environment, Indian startups have created a combined value of about $130 Bn with overall funding skyrocketing to touch $58 Bn from 2015-2019.

Moreover, apps developed by Indian companies surpassed their Chinese counterparts in terms of downloads in 2019 — 41% of the top 200 apps downloaded in 2019 were made by Indian developers — which is another sign of the market maturing.

The last five years hold a series of historic milestones for the Indian startup economy. From a funding standpoint, the ecosystem has grown immensely with over 5,011 deals by 2,984 startups. With $12.7 Bn funding in 2019 and 766 deals, Indian startup ecosystem saw the entry of seven startups into the unicorn club.

However, the preference of late-stage investments rather than risking capital in seed or early-stage startups is growing, which indicates that over the years Indian startup investors are turning more and more risk-averse. This is likely to hamper the growth of innovation in the ecosystem in the long run.

Like in the past, sectors such as enterprise tech, ecommerce, fintech, consumer services and healthtech banked the most funding. These five sectors combined accounted for 63% (3,177) of the total deal count in Indian startup ecosystem between 2014 and 2019.

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India’s tech capital, Bengaluru, continued to lead the hubwise funding charts with a total investment of $5.3 Bn.

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Indian Startup Funding Landscape

5

$12.7 Bn

5%

The total funding raised by Indian startups across 766 deals

Drop in count of unique startups funded compared to 2018

664

$21 Mn

Unique startups funded

Average ticket size of funding amount

15%

Surge in total funding amount compared to 2018

Paytm

Renew Power

Udaan

Ola

Delhivery

6

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Top Funding Grossers Of 2019

Indian Startup Funding Overview Startup Funding Trends Startup funding amount grew by 15%, while deals plunged 8% in 2019 $15 Bn

1250

$10 Bn

750

500 $5 Bn

250

0

$0 Bn

2014

2015

2016

2017

Year

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Funding Amount

7

Deal Count

2018

2019

Deal Count

Funding Amount

1000

Outliers Take Over A Quarter Of The Total Funding Without the outlier funding rounds, the total amount raised stood at $9 Bn, the highest in the past five years $10.0 Bn

1250

1000

750 $5.0 Bn 500

Deal Count

Funding Amount

$7.5 Bn

$2.5 Bn 250

$0.0 Bn

0 2014

2015

2016

2017

2018

2019

Year Funding Amount

Deal Count

Lowest Number Of Indian Startups Funding In Past 5 Years

The count of unique startups funded fell for the third straight year as investors backed growth and late stage startups

750

500

250

0 2014

2015

2016

2017

2018

2019

Year 8

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Unique Startups Funded

1000

Key Trends Observed The transition of the Indian startup ecosystem from the growth stage to maturity is quite evident from the fact that trends of both funding amount and deal count have stabilised from 2017 to 2019.

The count of unique startups funded declined by 5% in 2019 compared to the previous year. The investor preference of backing existing startups over new ventures has been the primary factor behind this drop, over the years.

Without outliers, the value of funding amount recorded a historical peak ($9 Bn) in 2019. While in 2018, the percentage share of outliers in total funding was 36%, in 2019, the share stood at 27%.

The negative growth rate in deal count of 6% indicates the slowdown in the frequency of deals in the ecosystem.

Due to the increased failure rate of startups over the years, investors have become more risk averse in terms of funding startups. As a result a preference towards the rising popularity of syndication over individual venture capital investments is a primary reason behind the downward trend in the deal count.

Median Funding Amount & Average Ticket Size Median Funding Amount Hits A New High With a CAGR of 36%, median funding amount created new benchmark in 2019 $4 Mn

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Median Funding Amount

$3 Mn

$2 Mn

$1 Mn

$0 Mn 2014

2015

2016

2017

2018

Year Median Funding Amount 9

Median Funding Amount (W/O)

2019

Late Stage Deals Benefit Average Ticket Size The spike in late stage investments helped Indian startups grow average ticket size to $21 Mn, a 15% jump from 2018 $25 Mn

Average Ticket Size

$20 Mn

$15 Mn

$10 Mn

$5 Mn

$0 Mn 2014

2015

2016

2017

2018

2019

Year Average ticket size

Average ticket size (W/O)

Key Trends Observed Median funding amount and average ticket size recorded historical peaks in 2019. The median funding amount and the average ticket size stood at $4 Mn and $20 Mn respectively.

The median funding amount and average ticket size recorded 2x and 15% surge compared to the previous year.

The growing popularity of late stage investments over seed and growth is the primary reason behind the soaring value of funding ticket size.

10

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38% and 19% CAGR of median funding amount and average ticket size between 2015 to 2019.

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Stagewise

Analysis

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Bridge & Growth Funding Amount Record Growth With the fall in seed funding, Indian investors scouted for bridge and growth stage investments, leading to a 30% and 12% hike respectively for the two stages

2014

2015

Year

2016

2017

2018

2019

0%

25%

50%

100%

75%

Funding Amount Bridge Stage

Growth Stage

Late Stage

Seed Stage

Seed Funding Crunch Intensifies

India's seed-stage startups struggled to attract investors for the third year in a row since 2016

2014

2016

2017

2018

2019 0%

25%

50%

75%

100%

Deal count Bridge Stage

Growth Stage

Late Stage

Seed Stage

12

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Year

2015

Seed Stage 44%

Decline in total seed stage funding amount compared to 2018

Unique startups funded at seed stage, 17% lower compared to 345 in 2018

-15%

$763K

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CAGR of count of unique startups funded at seed stage between 2015 to 2019

13

288

Median funding amount for seed stage

*Based on Indian startup funding data for 2019

5 Point Summary: Seed Stage

2014

2015

2016

2017

2018

2019

Max

$65.8 Mn

$25 Mn

$7.5 Mn

$8.2 Mn

Q3 $1.6Mn

$5.6 Mn

Q3 $108K

$2 Mn

Q3 $726K

Q3 $750K

Q3 $766K

Q3 $782K Median $763K Median $496K

Median Q1

Median

$360K

Q1

$160K

Median

$376K

Median $389K

Q1

$224K $148K

Q1

$147K

Q1

$240K

Q1 $235K

$153K

$16K $10K

$7.3K $4K

$1.4K

14

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Min

$8K

Seed Funding’s Third Straight Drop With just $252 Mn in funding, India’s seed funding startups recorded 19% and 44% decline in deals and amount respectively in 2019 compared to 2018 $500 Mn

800

$400 Mn

$300 Mn 400 $200 Mn

200 $100 Mn

$0 Mn

0 2014

2015

2016

2017

2018

2019

Year Funding Amount

Deal Count

Fewer Startups Funded At Seed Stage Compared to 345 startups funded in 2018, 2019 saw 17% decline with 288 startups getting funded

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Count Of Unique Startups Funded

800

600

400

200

0 2014

2015

2016

2017

Year

15

2018

2019

Deal Count

Funding Amount

600

Seed Stage Share In Total Deals Declined In 2019 The seed stage deals had 40% share in total deals in 2019, compared to 46% in 2018

Deal Count At Seed Stage/Total Deal Count

80%

60%

40%

20%

0% 2014

2015

2016

2017

2018

2019

Year

Key Trends Observed Seed funding in the Indian startup ecosystem is showing signs of a slowdown. This can be ascertained by looking at the growth rate of three primary indicators— funding amount, deal count and count of unique startups funded.

Both, the count of funding deals and startups funded are diminishing rate of 15% (20152019) whereas the funding amount recorded a minimal CAGR of 1% in this time.

The shift in investor preference towards latestage investments over seed stage can be attributed to the high failure rate of startups and wider syndication opportunities for startup investments.

Hubwise, Delhi NCR and Bengaluru recorded the most number of seed funding deals.

Enterprise tech and ecommerce recorded the most seed funding deals.

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The share of seed deals in total deals declined in 2019. While, the median amount stood at $502K compared to $491K in 2018; the percentage share of seed funding in total deals was 6% lower than 2018.

Bridge Stage 68%

67

Surge recorded in total funding amount at bridge stage in 2019 compared to 2018

12%

CAGR of count of unique startups funded between 2015 to 2019

Unique startups were funded in bridge funding in 2019, a 22% spike compared to 2018

$1.3 Mn

Median funding amount in 2019 at bridge stage

Bridge Funding Amount Record Historical Jump Bridge funding amount and deal count grew at a CAGR of 30% & 12% respectively during 2015-2019 $100 Mn

125

100

75 $50 Mn 50

$25 Mn

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25

$0 Mn

0 2014

2015

2016

2017

Year Funding Amount 17

Source: Indian Tech Startup Funding Report 2019 © 2020, Inc42 Media

Deal Count

2018

2019

Deal Count

Funding Amount

$75 Mn

Unique Startups Funded Records Surge Compared to 55 startups funded in 2018, 67 startups secured bridge funding in 2019 125

Unique Startups Funded

100

75

50

25

0 2014

2015

2016

2017

2018

2019

Year Source: Indian Tech Startup Funding Report 2019 © 2020, Inc42 Media

After 2017 Decline, Bridge Funding Contribution Record Hump After falling in 2015 and 2017, bridge funding has been picking pace since 2018 in terms of contribution to total deals

30%

20%

10%

0% 2014

2015

2016

2017

2018

2019

Year Source: Indian Tech Startup Funding Report 2019 © 2020, Inc42 Media

18

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Bridge Funding To Total Deal Count Ratio

40%

Key Trends Observed As per DataLabs analysis, 97% of the bridge funding deals are recorded at Pre-Series A. While the rest 3% are recorded at Pre-Series B and C stage.

The need for scaling up the business operations is the primary factor for the growth of bridge funding in the country.

All three indicators — funding amount, deal count and number of unique startups funded — have recorded a positive growth rate of 30%, 12% and 12% respectively.

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As per historic data (2015-2019), maximum bridge funding deals were recorded in sectors like enterprise tech, consumer services. While sectors like adtech, agritech had very few deals.

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Growth Stage

Surge recorded in growth stage funding amount in 2019 compared to 2018

-1%

CAGR of count of unique startups funded at growth stage between 2015 to 2019

234

Unique startups were funded at the growth stage in 2019, a 2% higher compared to 2018

$7 Mn

Median funding amount at growth stage in 2019

20

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62%

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Min

21

$30K $50K Q3 $14.2 Mn

Median $6 Mn

Q1 $2.5 Mn

$127K

$15.8 Mn

$7 Mn $3.7 Mn

$311 Mn

Q3

2018

Median

2017

Q1

$13 Mn

$5.9 Mn

$2.4 Mn

Q3

$15.5 Mn

Median

$5.1 Mn

$1.8 Mn

Q3

2016

Q1

Median

$16 Mn

Q3

2015

Q1

$7.7 Mn

$3 Mn

$12 Mn

$143 Mn

Median

$4.8 Mn

$2.2 Mn

Q3

2014

Q1

Median

Q1

Max

5 Point Summary: Growth Stage 2019

$500 Mn

$289 Mn

$180 Mn

$100 Mn

$500K $352K $70K

Growth Stage Funding Grew Exponentially At $4 Bn, growth stage funding amount recorded a 62% spike in 2019 compared to 2018

$5 Bn

300

200 $3 Bn

Deal Count

Funding Amount

$4 Bn

$2 Bn

100

$1 Bn

$0 Bn

0 2014

2015

2016

2017

2018

2019

Year Funding Amount

Deal Count

Source: Indian Tech Startup Funding Report 2019 © 2020, Inc42 Media

Unique Startups Funded Stagnant Despite the huge growth in funding amount, the number unique startups funded at growth stage grew only by 2% compared to the previous year 250

Unique Startups Funded

200

150

100

0 2014

2015

2016

2017

2018

2019

Year Source: Indian Tech Startup Funding Report 2019 © 2020, Inc42 Media

22

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50

Growth Stage Contribution On The Rise Growth stage carved a greater share in total deals with 34% in 2019, much higher than the 28% average annual share in total deals from 2014-2019

Growth To Total Deal Count Ratio

40%

30%

20%

10%

0% 2014

2015

2016

2017

2018

2019

Year Source: Indian Tech Startup Funding Report 2019 © 2020, Inc42 Media

Key Trends Observed The growth stage investments which consists of Series A and Series B rounds of funding witnessed a major uptick in the growth of funding amount.

Sectors like fintech, enterprise tech recorded most deals at the growth stage with 40% share in total deals recorded in growth stage.

Total funding amount of growth stage startups reached its historical peak $4 Bn in 2019, which is a surge of approximately 2x compared to the $2.6 Bn in 2018. On the other hand deal count witnessed a minor setback of 3%.

Mature hubs like Bengaluru, Delhi NCR with 105 and 64 deals respectively stood at the top in terms of growth-stage funding.

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Overall, there is a minor slowdown in the deal count and unique startups funded as indicated in CAGR between 2015 to 2019, -2% and -1% respectively.

23

Late Stage

Decline in total funding amount in 2019 compared to 2018

11%

CAGR of count of unique startups funded between 2015 to 2019

98

Unique startups were funded at the late stage in 2019

$30 Mn

Median funding amount for late stage in 2019

24

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7%

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Min

25

$1 Mn

$253K $1 Mn

$70 Mn

$21.55 Mn $10 Mn

$701 Mn

Q3

$1000 Mn

Median

$103 Mn

2018

Q1

$24.7 Mn

$9.8 Mn

Q3

$100 Mn

$1000 Mn

Median

$32 Mn

$13.7 Mn

Q3

2017

Q1

Median

$72 Mn

$39.2 Mn

$14.2 Mn

2016

Q1

Q3

Median

$90 Mn

$31 Mn

$15 Mn

2015

Q1

Q3

Median

$75 Mn

$23 Mn

$11.7 Mn

2014

Q1

Q3

Median

Q1

Max

5 Point Summary: Late Stage 2019

$1500 Mn

$669 Mn

$300 Mn

$1 Mn

$401K $216K

Late Stage Deals Reached Historical Peak While the funding amount fell for the second year in a row, the deals grew by 6% compared to 2018

$12.5 Bn

150

100 $7.5 Bn

$5.0 Bn 50

Deal Count

Funding Amount

$10.0 Bn

$2.5 Bn

$0.0 Bn

0 2014

2015

2016

2017

2018

2019

Year Funding Amount

Deal Count

Source: Indian Tech Startup Funding Report 2019 © 2020, Inc42 Media

Unique Startups Funded At Growth Stage Remained Stagnant

The late stage startups reported an 11% CAGR between 2015 to 2019

75

50

25

0 2014

2015

2016

2017

2018

2019

Year Source: Indian Tech Startup Funding Report 2019 © 2020, Inc42 Media

26

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Unique Startups Funded

100

Late Stage Contribution To Total Deals Grows On an average, the late stage deals have 12% contribution in the total deals, but the same was at 17% in 2019

Late Stage To Total Deal Count Ratio

20%

15%

10%

5%

0% 2014

2015

2016

2017

2018

2019

Year Source: Indian Tech Startup Funding Report 2019 © 2020, Inc42 Media

Key Trends Observed In contrast to seed and growth stage all three major indicators of the startup economy — funding amount, deal count and unique startups funded have recorded a positive growth rate between 2015 to 2019, 6%, 14% and 11% respectively.

Fintech, consumer services recorded the most number of deals, while ecommerce and fintech had the most funding amount in 2019 at the late stage.

The preference of late stage investments over seed and early can be linked to the fact that late stage investments in established startups is relatively safer compared to investment in new and emerging ventures.

Fintech recorded the most number of deals by sector at the late stage.

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Top 5 startups had a 23% share in total funding amount at the late stage.

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Business Model

Breakdown

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B2B-B2C Startups Face Funding Crunch In 2019, the funding in B2B-B2C startups stood lowest in the last six year

Funding Amount

100%

75%

50%

25%

0% 2014

2015

2016

2017

2018

2019

Year B2B

B2B-B2C

B2C

Source: Indian Tech Startup Funding Report 2019 © 2020, Inc42 Media

B2C Startups Reported Maximum Deals With 23% rise, B2C startups recorded high jump in funding deals whereas B2B and B2B-B2C startups recorded 2% and 44% lower funding compared to 2018 100%

Deal Count

75%

50%

0% 2014

2015

2016

2017

2018

2019

Year B2B

B2B-B2C

B2C

Source: Indian Tech Startup Funding Report 2019 © 2020, Inc42 Media 30

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25%

B2C Startups Rocked The Funding Charts In 2019 With largest share in deals (425) and amount ($6.23 Bn), B2C startups recorded a high jump in funding in 2019 B2B 23.1%

49.0% B2C

27.8% B2B-B2C

Source: Indian Tech Startup Funding Report 2019 © 2020, Inc42 Media

Business Model Wise Split Of Total Deal Count With largest share in deals (425) and amount ($6.23 Bn), B2C startups recorded a high jump in funding in 2019 B2B 20.6%

55.5% B2C

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23.9% B2B-B2C

Source: Indian Tech Startup Funding Report 2019 © 2020, Inc42 Media

31

Key Trends Observed B2B startups recorded the highest CAGR i.e.

21% in the funding amount between 20152019.

The median funding amount amongst B2B and B2B-B2C startups stood at $4 Mn. A 29% surge in the unique startups funded was recorded in 2019 compared to 2018.

B2C the most preferred business model in 2019, increased addressable market for consumer internet products due to wider penetration of internet and smartphone among the Indian population is the reason behind the increased investor confidence towards B2C startups.

Enterprise tech, Consumer services and Fintech startups recorded maximum deals in B2B, B2C & B2B-B2C business models.

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Across all the business models B2B, B2BB2C and B2C Bengaluru based startups recorded the maximum number of deals in 2019.

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Sectorwise

Analysis

33

Fintech

Logistics

Emerged as the most preferred startup sector of 2019

Had the highest median funding amount ($22 Mn) in 2019

Ecommerce

50%

Recorded maximum funding amount in 2019

Contribution of ecommerce, fintech and transport tech to the total funding in 2019

Funding In Consumer Services Faces Decline With just $993 Mn in funding, the contribution of consumer services to the total funding dropped by 12% in 2019, compared to 20% contribution in 2018

2014

2016

2017

2018

2019

0%

25%

50%

75%

100%

Year Ecommerce

Fintech

Enterprise Tech

Others

Consumer Services

Transport Tech

34

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Funding Amount

2015

Top 3 Sectors Had 43% Share In Total Deals

Enterprise tech, ecommerce and fintech recorded a total of 2,134 deals to make 43% of the deal count 2014

Deal Count

2015

2016

2017

2018

2019

0%

25%

50%

100%

75%

Year Enterprise Tech

Ecommerce

Healthtech

Others

Fintech

Consumer Services

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35

Fintech Enterprise Tech Ecommerce Consumer Services Healthtech

Top 5 (2014-2019)

Top 5 (2014-2018)

How The Top 5 Sectors Stack Up Against Each Other Enterprise Tech Ecommerce FinTech Consumer Services Healthtech

Top Two Sectors Secured 41% Of The Total Funding Ecommerce and fintech together bagged $5.2 Bn funding. While the next top three sectors just have 26% share in the total funding Ecommerce Fintech Transport Tech

Sectors

Enterprise Tech Consumer Services Logistics Media and Entertainment Healthtech Edtech Others

$0

$1 Bn

$2 Bn

$3 Bn

Funding amount Funding Amount

Deal Count

36

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The popularity of fintech, enterprise tech and ecommerce among investors remained intact throughout the year.

Fintech Emerged As The Top Funded Sector With 125 deals & 106 unique startups funded, fintech became the undisputed leader in 2019

125

Fintech

106 114

Enterprise Tech

105 93

Ecommerce

80

Consumer Services

75 61 62

Sectors

Healthtech

52

Media and Entertainment

57 52 46 43

Edtech

43 42

Deeptech

34

Real Estate Tech

28 30

Transport Tech

21 87

Others

74 0

25

50

Deal count Unique Startups Funded

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Source: Indian Tech Startup Funding Report 2019 © 2020, Inc42 Media

37

75

Deal Count

100

125

Key Trends Observed In the context of funding amount between 2014 and 2019, ecommerce continues to remain at the top by the end of 2019. The growing investor confidence towards sub sectors such as vertical ecommerce and private label is a major reason behind the growing volume of capital inflow in the sector.

Fintech, on the other hand, jumped one spot above in the ranking table to become the second most funded sector. In 2018 it was in third place in terms of value of funding amount. Growth in investments into lending tech startups due to the wider market opportunity fuelled the growth of high-ticket investments in this sector.

Consumer services slipped one spot in the ranking from 2018 to third spot in 2019. The capital inflow in this sector has become highly skewed towards startups in the late stage. The high operational costs and lower profit margins in this sector can be linked to decline in venture capital interest in the sector.

Transport Tech sector has usurped travel tech from the third spot in 2019. The growing investor confidence towards the electric mobility startups has played a crucial role in the surge in capital inflow towards this sector. The government’s push toward EVs has also been a major catalyst.

38

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Enterprisetech retains the fifth spot, with a surge in demand for digitalisation of business operations and transactions in the country opening up new business opportunities. In addition to this, a greater probability of M&As in the enterprise tech sector over others is also a driving factor behind the growth of enterprise tech funding in India.

Enterprise Tech $1.2 Bn

105

Total funding secured by startups in 2019 across 114 deals

$2 Mn

Unique startups funded

15% CAGR of funding amount between 2015-2019

Bengaluru

The median funding amount in 2019

Emerged as the top startup hub with 46 deals

Top Funding Grossers Of 2019

Freshworks

Druva

Icertis

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Five Year Performance

39

$3.8 Bn

804

Funding Amount

Deals

Zenoti

Clevertap

Enterprise Tech Record 49% Hike In Funding Amount

While the deal contribution witnessed a slight growth, the funding amount contribution saw 2% hike, taking total contribution to 9% compared to 7% in 2018 $1250 Mn

200

$1000 Mn

$750 Mn 100 $500 Mn

Deal Count

Funding Amount

150

50 $250 Mn

$0 Mn

0 2014

2015

2016

2017

2018

2019

Year Funding Amount

Deal Count

Source: Indian Tech Startup Funding Report 2019 © 2020, Inc42 Media

Enterprise Tech's Contribution To Total Funding Record Jump While the deal contribution witnessed a slight growth, the funding amount contribution saw 2% hike, taking total contribution to 9% compared to 7% in 2018 25%

15%

10%

5%

0% 2014

2015

2016

2017

2018

2019

Year Funding amount Source: Indian Tech Startup Funding Report 2019

Deal count

40

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% Share Of The Total

20%

Average Ticket Size Reaches All-Time High

With $12 Mn as the average ticket size, a 40% higher compared to 2018, enterprise tech funding saw exponential growth

Median Funding Amount

$2.0 Mn

$1.5 Mn

$1.0 Mn

$0.5 Mn

$0.0 Mn 2014

2015

2016

2017

2018

2019

Year

Average Ticket Size Stood All Time High In 2019 With $12 Mn as the average ticket size, a 40% higher compared to 2018, enterprise tech funding saw exponential rise $12.5 Mn

© Inc42 Media | not for distribution

Average Ticket Size

$10.0 Mn

$7.5 Mn

$5.0 Mn

$2.5 Mn

$0.0 Mn 2014

2015

2016

2017

Year

41

2018

2019

Key Trends Observed The enterprise tech sector which consists of a wide array of sub sectors such as SaaS (software as a service), HRTech (human resource technology), marketing automation etc. recorded a total funding of $1.15 Bn across 114 deals in 2019. The compounded annual growth rate of funding amount and deal count in this sector between 2015 to 2019 was 15% and -12%.

With the funding amount secured by late stage startups growing at 37%, the average ticket size & median funding amount record 40% & 33% jump respectively.

Proactive push of the government towards digitalisation of Indian economy, growing digital presence of business and wider M&A opportunity in this sector are the catalyst fueling the growth of enterprise sector in India.

42

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Similar to the overall startup ecosystem, preference of late stage investments over seed and growth evident in enterprisetech.

The funding amount in late stage startups is growing at a rate of 37% (2015-2019) compared to 3% and -14% in growth and seed stage respectively.

Ecommerce $2.6 Bn

80

Total funding raised by startups in 2019 across 93 deals

-0.3%

Unique ecommerce startups funded

CAGR of funding amount between 2015-2019

Delhi NCR

$3.1 Mn

Median funding amount in 2019

Emerged as the startup hub for ecommerce startups

Top Funding Grossers Of 2019

Udaan

Firstcry

Lenskart

© Inc42 Media | not for distribution

Five Year Performance

43

$15.6 Bn

700

Funding Amount

Deals

Cardekho

Paytm Mall

Ecommerce Deals Lowest In The Past 4 Years

$4 Bn

200

$3 Bn

150

$2 Bn

100

$1 Bn

50

$0 Bn

Deal Count

Funding Amount

While the funding amount surged by 10% in 2019 compared to 2018, deals have been falling consistently — 48% lower compared to the 2016 which recorded the most deals

0 2014

2015

2016

2017

2018

2019

Year Funding Amount

Deal Count

Ecommerce Contribution To Total Funding Goes Stagnant

While there has been a slight jump or fall in funding amount, the deals have remained more or less around the same mark in the last three years

40%

20%

0% 2014

2015

2016

2017

2018

2019

Year Funding amount

Deal count

44

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% Share Of The Total

60%

Median Funding Amount Records 12% Jump After falling in 2017, the median funding amount in ecommerce has grown consistently. In 2019, it stood at $3.1 Mn, 45% higher than 2018 $5 Mn

Median Funding Amount

$4 Mn

$3 Mn

$2 Mnt

$1 Mn

0 2014

2015

2016

2017

2018

2019

Year

Average Ticket Size Recovering After 2018 Decline Reporting a 36% rise compared to 2018, ecommerce startups recorded $36 Mn as the average ticket size in 2019 $80 Mn

Average Ticket Size

$60 Mn

$40 Mn

© Inc42 Media | not for distribution

$20 Mn

$0 Mn 2014

2015

2016

2017

Year

45

2018

2019

Key Trends Observed Between 2014 and 2019 the share of ecommerce startups to the total funding amount and deal count in the Indian startup ecosystem is 27% ($15.6 Bn) and 14% (700) respectively — highest among other sectors.

In recent years the investment activity in this sector is witnessing a slowdown primarily due to the saturation of the market and high operational cost, which are hampering the financial performance of startups in this space.

After a steep decline of 36% in total funding amount, the capital inflow in the sector seems to be recovering. At $2.6 Bn, the total funding amount in 2019 was 10% higher than the previous year.

The deal count has witnessed a decline of 14% from 2017 to 2019. The growing popularity of sub-sectors such as vertical ecommerce, social commerce and private label are the driving forces behind the recovery of the Indian ecommerce sector.

The growth in both the median funding amount and the average ticket size of funding is a result of investors focussing more on late stage investments than seed and growth stages.

46

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As per our analysis, ecommerce funding deals and amount for ecommerce stood at 38, $21.7 Mn for seed stage — the former remain unchanged from 2018 while funding amount fell by 53%, In the growth stage, ecommerce saw 26 deals bringing in $677 Mn in funding, which is 24% lower than 2018 for the deals and a 33% growth for the funding amount compared to 2018. With 24 deals and $1.9 Bn in funding amount for late-stage ecommerce startups, 2019 was a mixed bag as the deal count was 23% lower and funding amount 5% higher in 2018.

Fintech $2.6 Bn

106

Total funding raised by fintech startups in 2019 across 125 deals

Unique fintech startups funded

13%

$8.3 Mn

CAGR of funding amount between 2015-2019

Median funding amount in 2019

Delhi NCR

Lending tech The fintech sub-sector with the most deals in 2019, followed by payments and insurance tech

Takes the crown of India’s fintech hub in terms of value of funding amount in 2019

Top 5 Funding Grossers Of 2019

Paytm

DMI Finance

Phonepe

© Inc42 Media | not for distribution

Five Year Performance

47

$9.8 Bn

630

Funding Amount

Deals

Incred

Okcredit

Fintech Deals Fell For The First Time In 5 Years But the capital inflow was 71% higher in 2019 compared to 2018 $4 Bn

150

100

Deal Count

Funding Amount

$3 Bn

$2 Bn

50 $1 Bn

0

$0 Bn

2014

2015

2016

2017

2018

2019

Year Funding Amount

Deal Count

Deal Share Dropped In Total Funding Deals Between 2014 and 2019, the average share of fintech to the total funding amount & deals was 15% & 13% respectively 25%

15%

10%

5%

0% 2014

2015

2016

2017

2018

2019

Year Funding amount

Deal count

48

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% Share Of The Total

20%

Median Funding Amount At All-Time High The median funding amount for fintech startups grew at the rate of 29% between 2015 and 2019

Median Funding Amount

$10.0 Mn

$7.5 Mn

$5.0 Mn

$2.5 Mn

$0.0 Mn 2014

2015

2016

2017

2018

2019

Year

Average Ticket Size Continues To Fluctuate

Reporting a 97% jump in 2019 compared to 2018, the average ticket size for fintech stood at $25 Mn in 2019 $40 Mn

Average Ticket Size

$30 Mn

$20 Mn

© Inc42 Media | not for distribution

$10 Mn

$0.0 Mn 2014

2015

2016

2017

Year

49

2018

2019

Key Trends Observed Among the other startup sectors this is the most impactful sector in the context of economic disruption. The dream of digital India can only be successful if the adoption of fintech products in the country is steady over a prolonged period. $2.6 Bn in total funding was poured into fintech startups across 125 deals in 2019, the funding amount was 71% higher compared to 2018 whereas the deal count plunged by 9% compared to the previous year.

Lending tech and payments tech startups are the primary factors responsible for the positive trend behind this sector.

The median funding amount and average ticket size of investments into fintech startups stood at $8.3 Mn and $25 Mn in 2019. Both were significantly higher compared to the previous years.

In terms of deals, with 61 deals, Growth stage reported highest peak compared to 2018, while Seed stage deals reported 34 deals showing a downfall.

50

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Deals poured in lending tech and payments startups made 79% of the total deal count in fintech (2019).

Consumer Services $993 Mn

61

Total funding raised by fintech startups in 2019 across 75 deals

Unique startups funded in consumer services

4%

$5 Mn The median funding amount in 2019

CAGR of funding amount between 2015-2019

Delhi NCR

Foodtech The sub-sector with the most deals in 2019, followed by hyperlocal

The hub with maximum deals in 2019

Top Funding Grossers Of 2019

Grofers

Bigbasket

Zomato

© Inc42 Media | not for distribution

Five Year Performance

51

$5.6 Bn

602

Funding Amount

Deals

Urbanclap

Dunzo

Consumer Services Deals Continue To Plunge On a yearly basis, funding amount in the sector is growing at 4% whereas the deals are slowing down at 16% $2.5 Bn

200

$2.0 Bn

$1.5 Bn 100 $1.0 Bn

Deal Count

Funding Amount

150

50 $0.5 Bn

$0.0 Bn

0 2014

2015

2016

2017

2018

2019

Year Funding Amount

Deal Count

Share Of Consumer Services In Total Deals Drop The average share of consumer services to total funding amount and deals was 9% and 12% respectively between 2014 and 2019 25%

15%

10%

5%

0% 2014

2015

2016

2017

2018

2019

Year Funding amount

Deal count 52

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% Share Of The Total

20%

Median Funding Amount Records 50% Jump Historic rise for consumer services with $5 Mn as the median funding amount in 2019

Median Funding Amount

$5 Mn

$4 Mn

$3 Mn

$2 Mnt

$1 Mn

0 2014

2015

2016

2017

2018

2019

Year

Average Ticket Size Dropped By 82% For Consumer Services Compared to 2018's $35 Mn, in 2019, the average ticket size for consumer services was $17 Mn in 2019 $40 Mn

Average Ticket Size

$30 Mn

$20 Mn

© Inc42 Media | not for distribution

$10 Mn

$0 Mn 2014

2015

2016

2017

Year

53

2018

2019

Key Trends Observed Consumer services sector which primarily consists of foodtech and hyperlocal startups seems to be struggling in the context of capital inflow. Funding data for 2019 showcases that the amount and deal count in the sector declined by 59% and 17% respectively.

Fading investor confidence towards this sector can be linked to high failure rate of consumer services startups due to lower profit margins and high operational costs.

Between the primary subsectors in this domain — foodtech and hyperlocal, the investor confidence towards foodtech startups is likely to be higher given the growing demand for online food delivery in the country.

Contrary to the deal and funding amount slowdown, the average ticket size witnessed a steep decline of 52% in 2019 compared to the previous year. On the other hand, the positive trend in the median funding amount can be linked to the higher concentration of late stage deals in recent years.

54

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In terms of funding stages, startups in the late stage reported a 67% hike in deals.

While seed-stage deals plunged by 45% compared to the previous year.

Healthtech $512 Mn

52

Total funding secured by healthtech startups in 2019 across 62 deals

Unique startups funded in 2019, compared to 66 of 2018

12%

$4 Mn Median funding amount for healthtech in 2019

CAGR of funding amount between 2015-2019

Bengaluru

46% Contribution of capital poured into Cure.fit and 1mg in 2019 to total funding amount

Became the startup hub with maximum Bdeals

Top Funding Grossers Of 2019

Cure fit

1mg

Medlife

© Inc42 Media | not for distribution

Five Year Performance $2 Bn Funding Amount

55

441 Deals

Carestack

Healthkart

Healthtech Funding On The Decline

Both deals and amount for healthtech dropped by 17% and 4% in 2019 compared to 2018 $600 Mn

125

$400 Mn

75

50 $200 Mn

Deal Count

Funding Amount

100

25

0

$0 Mn

2014

2015

2016

2017

2018

2019

Year Funding Amount

Deal Count

Healthtech Share In Total Funding Going Flat Overall, the average share of healthtech investments in total amount and deals stood at 3% and 9% respectively between 2014 to 2019 13%

8%

5%

3%

0% 2014

2015

2016

2017

2018

2019

Year Funding amount

Deal count 56

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% Share Of The Total

10%

Median Funding Amount At Its Peak As per the historic data, the median funding amount for healthtech is growing at a rate of 64%

Median Funding Amount

$4 Mn

$3 Mn

$2 Mn

$1 Mn

0 2014

2015

2016

2017

2018

2019

Year

Average Ticket Size Stood 28% Higher Than 2018 Continuing growth for the third year in a row, average ticket size for healthtech was $11 Mn in 2019 $12.5 Mn

Average Ticket Size

$10.0 Mn

$7.5 Mn

$5.0 Mn

© Inc42 Media | not for distribution

$2.5 Mn

$0.0 Mn 2014

2015

2016

2017

Year

57

2018

2019

Key Trends Observed As per the economic survey 2017-18, the private consumption expenditure towards healthcare is growing at a CAGR (FY’12 to FY’16) of 13% higher than other primary commodities. This is a crucial indicator of the growing demand towards healthcare products and services in the economy.

Between 2018 to 2019 both the funding amount and deal count had plunged by 4% and 17% for healthtech.

The policy uncertainty towards epharmacy played a crucial role in depleting the investor confidence towards this sector. Online pharmacy was also a major sub-sector in this domain spearheading the growth of the overall sector. Although the overall funding capital inflow in this subsector surged almost 2.7x in 2019, compared to the previous year.

This was primarily due to high value funding rounds in established names like 1mg and Medlife.

Despite a downfall in the funding amount and deal count between 2018 to 2019 the median funding amount and average ticket size of funding deals in these sectors is showing a positive trend, indicating higher probability of increased volume of capital inflow in the coming years.

58

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In terms of stages, late stage recorded 6 deals and $294 Mn funding amount recording a 40% and 1% fall compared to 2018. While for growth and seed, the deals stood at 24 and 27 in 2019 respectively.

The Next-In-Line Sectors New-Age Tech Startups Attract Big Investments In Urban India Among the emerging sectors, the fastest growth rate for capital inflow (2014-19) is seen in edtech (46%), logistics (24%) and media and entertainment (14%) $2.0 Bn

Funding Amount

$1.5 Bn

$1.0 Bn

$0.5 Bn

$0.0 Bn

2014

2015

2016

2018

2017

2019

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Year

59

Media and Entertainment

Deeptech

Edtech

Logistics

Transport Tech

26%

3x

The share of the sectors outside the top five sectors in total funding raised in 2019 was 7% higher than the previous year

Surge in the funding amount of transport tech startups compared to 2018, explained by high value funding rounds in electric mobility and ride-sharing startups

Deeptech Startups Attracting More Deals The growing demand for AI/ML in enterprise tech, consumer services, transport and other sectors is fuelling the high CAGR in funding deals for deeptech startups 100

50

25

0

2014

2015

2016

2017

2018

2019

Year Media and Entertainment

Deeptech

Edtech

Logistics

Transport Tech

60

© Inc42 Media | not for distribution

Deal Count

75

Demography © Inc42 Media | not for distribution

Top Startup Hubs Of India

61

77%

Bengaluru

Share of Delhi NCR & Bengaluru in total funding raised in 2019

Pune

Secured a total funding of $5.3 Bn across 267 deals to become the top hub in 2019

$25 Mn

Recorded highest growth in funding amount amongst other hub

Chennai

Average ticket size of funding deals in Bengaluru

Witnessed 31% drop in funding deals

Bengaluru Keeps The Crown Bengaluru startups secured the most funding in 2019 with $5.3 Bn across 267 deals, compared to 226 deals recorded by Delhi NCR startups 2014

2016

2017

2018

2019

0%

25%

50%

75%

100%

Year Bengaluru

Delhi NCR

Mumbai

Pune

Chennai

Others 62

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Funding Amount

2015

Bengaluru Grabs Over Half Of The Total Deals

With 1,745 deals, the share of Bengaluru in the total deals recorded between 2014-2019 stood at 35% 2014

Deal Count

2015

2016

2017

2018

2019

0%

25%

50%

75%

100%

Year Bengaluru

Delhi NCR

Mumbai

Chennai

Hyderabad

Others

$11 Bn Secured By Top 3 Hubs In 2019 Bengaluru, Delhi NCR, & Mumbai grabbed 87% of the total funding secured in 2019 Bengaluru

Startup Hubs

Delhi NCR

Mumbai

Pune

© Inc42 Media | not for distribution

Hyderabad

Others

$0 Bn

$2 Bn

Funding amount

63

$4 Bn

$6 Bn

Top 3 Hubs Had 84% Share In Total Deal Count Bengaluru, Delhi NCR & Mumbai together recorded 644 deals and had 84% share in total unique startups funded in 2019

267

Bengaluru

226 226 194 151

Mumbai

136

Pune

28 25

Hyderabad

25 23 69 60

Others

0

100

200

300

Number Of Deal Count And Unique Startups Funded Unique Startups Funded

Deal Count

64

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Startup Hubs

Delhi NCR

© Inc42 Media | not for distribution

65

Bengaluru $5.3 Bn

226

Total funding raised by Bengaluru startups in 2019 across 267 deals

Unique Startups Funded

Fintech

$25 Mn Average ticket size of funding amount in 2019

Seed Funding

With 49 deals, fintech recorded maximum investment in Bengaluru in 2019

10%

CAGR (2015-2019) of funding amount

420

Unique investors participated in startup funding

Hit all-time low

Top Funding Grossers Of 2019

Udaan

Ola

PhonePe

Byju’s

BigBasket

$26 Bn

1,745

Funding Amount

Deals

66

© Inc42 Media | not for distribution

Five Year Performance

$5.3 Bn Secured By Bengaluru Startups As per 2015 to 2019 data, the CAGR of the funding amount recorded 10% growth, while the deals have been diminishing by 4% $8 Bn

500

400

300 $4 Bn

200

Deal Count

Funding Amount

$6 Bn

$2 Bn

100

0

$0 Bn

2014

2015

2016

2017

2018

2019

Year Funding Amount

Deal Count

Average Ticket Size Record 13% Growth Thanks to the rise in late-stage investments, the average ticket size of funding deals rose to $25 Mn for Bengaluru in 2019 $40 Mn

Average Ticket Size

$30 Mn

$20 Mn

© Inc42 Media | not for distribution

$10 Mn

$0 Mn 2014

2015

2016

2017

Year

67

2018

2019

Bridge Funding Records 40% Growth With a 9% raise in funding deals in 2019, Bengaluru recorded 40% CAGR in funding secured at the bridge stage from 2015-2019 50%

30%

20%

Bridge Stage

Growth Stage

1%

30%

10%

40%

CAGR (2015-2019)

40%

-9%

0%

-10%

Late Stage

Seed Stage

Funding Stage

Seed Funding Crunch Hits Bengaluru Hardest Going below the average of 135 unique startups funded at seed stage (2014-2019), Bengaluru recorded funding of just 90 seed stage startups, a 33% fall 40%

17%

0%

10%

22% Bridge Stage

Late Stage

Growth Stage

0%

-10%

-20%

Seed Stage

Funding Stage

68

© Inc42 Media | not for distribution

-15%

CAGR (2015-2019)

20%

Unique Startups Funded At Seed & Growth Stage Report Decline Bengaluru's seed and growth ecosystem record decline in the unique startups funded in 2019 with just 90 and 86 startups getting funded respectively 40%

13%

10%

22% Bridge Stage

Late Stage

-14%

0%

-2%

CAGR (2015-2019)

20%

Growth Stage

Seed Stage

-10%

-20%

Funding Stage

Key Trends Observed Between 2014 and 2019 the Bengaluru startup ecosystem made 45% ($26 Bn) and 35% (1,745) of the total funding amount and deal count in India.

A robust startup ecosystem and wider adoption of tech products in the city has made Bengaluru the startup capital of India.

However, from 2018 onwards, the funding activity in the city looks stable with minimal fluctuations in both funding amount and deal count.

© Inc42 Media | not for distribution

Looking at the growth rate of funding amount, deal count and unique startups funded, it can be ascertained that the seedstage ecosystem in the city is struggling. The slowdown of seed-stage investments is not exclusive to Bengaluru, but also noticeable in other Indian startup hubs.

Interestingly, the growth stage recorded the highest growth in 2019 for Bengaluru, with 105 deals and $2.4 Bn amount being recorded compared to 2018’s 98 deals and $1.3 Bn. In terms of sectors, fintech reported maximum deals in Bengaluru with $856 Mn being invested.

Highest number of deals recorded at the seed stage were for enterprise tech startups.

While fintech and consumer services sectors proved to be popular at growth and late stage.

69

Health Of Bengaluru’s Startup Ecosystem

The opportunity for investment into new ventures is shrinking in Bengaluru. This is apparent when looking at the CAGR of unique startups funded at the seed stage in comparison to bridge (primarily Pre-Series A) and late (Series C and beyond) stages. In the case of the seed stage, the CAGR from 2015 to 2019 was -14%, whereas for bridge and late-stage investments were 22 and 13% respectively. Also, the number of seed-stage funded startups went below 100 for Bengaluru for the first time since 2015.

In the seed stage, the confidence towards enterprise tech startups in Bengaluru continues to remain high, as this was the top sector in terms of startup funded at seed stage in the city in 2018 as well.

Deeptech ended up in the second spot in terms of startups funded at the seed stage in 2019 fuelled by the growing demand for AI/ML-based solutions.

On the other hand, fintech, which was second in 2018, came down to fourth in 2019, as the count of unique startups funded at seed stage plunged by 41%.

Bengaluru Worst Hit By Seed Funding Crunch Going below the average of 135 unique startups getting funded at seed stage between 2014-2019, Bengaluru recorded lowest funding with just 90 startups getting funded, a 33% fall

Unique Startups Funded

300

200

100

0 2014

2015

2016

2017

2018

2019

Year Bridge Stage

Growth Stage

Late Stage

Seed Stage

The average annual count of unique startups funded for the city between 2014 to 2019 was 246

Seed 393

Late 47

70

© Inc42 Media | not for distribution

Growth 198

© Inc42 Media | not for distribution

71

Delhi NCR $4.5 Bn

194

Total funding raised by startups in 2019 across 226 deals

$25 Mn

5%

Unique startups funded in 2019

Ecommerce

The average ticket size of funding amount in 2019

Recorded highest deal count in 2019

CAGR of funding amount recorded between 2015 to 2019

358

Unique investors participated in funding in 2019

Top Funding Grossers Of 2019

Paytm

Renew Power

Delhivery

Lenskart

DMI Finance

$20 Bn

1,442

Funding Amount

Deals

72

© Inc42 Media | not for distribution

Five Year Performance

Delhi NCR Funding At All-Time High Despite 8% fall in funding, the funding amount recorded a 5% jump in funding in 2019 $5 Bn

400

$4 Bn

$3 Bn 200 $2 Bn

Deal Count

Funding Amount

300

100 $1 Bn

$0 Bn

0 2014

2015

2016

2017

2018

2019

Year Funding Amount

Deal Count

Delhi NCR Matches Bengaluru In Average Ticket Size

With a 2% spike in average ticket size in 2019, Delhi NCR had an average funding ticket size of $25 Mn

© Inc42 Media | not for distribution

Average Ticket Size

$30 Mn

$20 Mn

$10 Mn

$0 Mn 2014

2015

2016

2017

Year 73

2018

2019

Growth Stage Funding Faces Downfall In Delhi Despite growth in bridge (24%) and seed (5%) rounds, growth-stage funding faced 4% downfall in funding for Delhi NCR in 2019

20%

5%

8%

10%

24%

CAGR (2015-2019)

30%

-4%

0%

-10%

Bridge Stage

Late Stage

Seed Stage

Growth Stage

Funding Stage

Late Stage Funding In Delhi NCR Picks Up Pace With overall fall in seed funding, seed stage startups in Delhi NCR recorded 97 deals, 16% lower compared to the previous year 15%

Late Stage

Growth Stage

-5%

-10%

-15%

Funding Stage

74

© Inc42 Media | not for distribution

Bridge Stage

-14%

Seed Stage

0%

-6%

0%

5%

13%

CAGR (2015-2019)

10%

Seed Stage & Growth Stage Crunch Hits Delhi NCR In terms of deals and unique startups funded, Delhi NCR faces downfall; CAGR stood at -15% and -2% for seed and growth stage from 2015-2019 respectivly 15%

Bridge Stage

-15%

Late Stage

0%

-2%

0%

5%

12%

CAGR (2015-2019)

10%

Growth Stage

Seed Stage

-5%

-10%

-15%

Funding Stage

Key Trends Observed The advantages of being the national capital are obvious but there are a number of other factors pushing Delhi NCR to the top and closer to Bengaluru. These include highspeed connectivity, high per capita income (NSDP) of $4,686 which is 2.63x higher than the average in other Indian states.

From 2014 to 2019 both the funding amount and deal count witnessed moderate change year-on-year with a total of $20 Bn being invested across 1,442 deals.

© Inc42 Media | not for distribution

Established startups in the city is growing, the total deal count in late-stage startups for 2019 was 43, 5% increase compared to the previous year.

Overall, in terms of funding stages, seed rounds had the most number of deals (16% fall compared to 2018). Enterprise tech and fintech accounted for 34% of the total seed stage deals in 2019.

Looking at sectors, real estate tech startups recorded the biggest surge in funding deals with a 60% jump, while travel tech recorded the biggest downfall in terms of deals.

75

Health Of Delhi NCR’s Startup Ecosystem Even as late-stage funding grew with the likes of Paytm, Renew Power and Delhivery raising funds, seed funding fell. Just like across most hubs, the crunch in seed-stage investment in Delhi is evident from the count of unique startups funded at seed stage diminishing at -15% (CAGR 2015 to 2019) contrary to the positive growth rate of 12% for late-stage startups.

In the case of the year-on-year growth of funding, the amount is similar, with funding amount for late-stage rounds growing at 8%, which is relatively higher than seed-stage funding which has CAGR of 5%.

For Delhi, the count of unique startups in enterprise tech, ecommerce and fintech were the highest at seed stage in 2019. When it comes to average ticket size, Delhi with $20 Mn was ahead of Bengaluru ($19.85 Mn) and Mumbai ($8.6 Mn). This also indicates funding predominantly for late-stage startups. Among latestage startups, the count of funded startups in ecommerce, real estate tech and fintech sectors was higher than others.

Seed Funding Crunch Hits Delhi NCR

Even as late-stage funding grew with the likes of Paytm, Renew Power and Delhivery raising funds, seed funding fell by 14% compared to last year

Count Of Unique Startup Funded

200

150

100

50

0 2014

2015

2016

2017

2018

2019

Year Bridge Stage

Growth Stage

Late Stage

Seed Stage

The average annual count of unique startups funded for the city between 2014 to 2019 was 207

Seed 581

Late 71

76

© Inc42 Media | not for distribution

Growth 225

© Inc42 Media | not for distribution

77

Mumbai $1.25 Bn

136

Total funding raised by startups in 2019 across 151 deals

$11 Mn

4%

Unique startups funded

Fintech

Average ticket size of funding amount in 2019

Recorded highest deal count in 2019

Enterprisetech

CAGR of funding amount recorded between 2015 to 2019

249

Unique investors participated in startup funding in Mumbai in 2019

Recorded downfall in deals moving from second spot in 2018 to fifth in 2019

Top Funding Grossers Of 2019

InCred

Acko

Clevertap

Instarem

Eruditus

$5.7 Bn

964

Funding Amount

Deals

78

© Inc42 Media | not for distribution

Five Year Performance

Mumbai Outpaces Metros In Funding Growth With a 27% rise in funding amount (2018-2019) Mumbai startups record the highest growth in funding amount among the top three metro cities $1.5 Bn

200

$1.0 Bn

100

Deal Count

Funding Amount

150

$0.5 Bn

50

0

$0.0 Bn

2014

2015

2016

2017

2018

2019

Year Funding Amount

Deal Count

Average Ticket Size Surges In Mumbai But Still Relatively Small Mumbai startups had $11 Mn average ticket size in 2019, which is less than half of Delhi NCR & Bengaluru — $25 Mn $12.5 Mn

© Inc42 Media | not for distribution

Average Ticket Size

$10.0 Mn

$7.5 Mn

$5.0 Mn

$2.5 Mn

$0.0 Mn 2014

2015

2016

2017

Year 79

2018

2019

Late Stage Funding Amount Dropping In Mumbai Between 2017 and 2018, the CAGR of late stage funding recorded a negative growth rate of 11%

10%

19%

20%

36% 0%

-11%

CAGR (2015-2019)

40%

-20%

Bridge Stage

Growth Stage

Seed Stage

Late Stage

Funding Stage

Seed Stage Funding In Mumbai Falling Quickly Compared to the other three stages, seed stage CAGR stood at -17% for 2015 to 2019 for Mumbai startups 20%

19%

3%

5%

Bridge Stage

Growth Stage

Late Stage

0%

-17% -10%

-20%

Seed Stage

Funding Stage

80

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CAGR (2015-2019)

10%

Mumbai’s Seed Stage Unique Deals Record Negative CAGR Just 54 unique startups were funded at seed stage in Mumbai last year compared to 71 of 2018 20%

19%

4%

4%

Bridge Stage

Growth Stage

Late Stage

0%

-17%

CAGR (2015-2019)

10%

-10%

-20%

Seed Stage

Funding Stage

Key Trends Observed The advantages of being the national capital are obvious but there are a number of other factors pushing Delhi NCR to the top and closer to Bengaluru. These include highspeed connectivity, high per capita income (NSDP) of $4,686 which is 2.63x higher than the average in other Indian states.

In 2019, the funding amount in Mumbai surged by 27% in 2019 compared to the previous year. On the other hand, the deal count witnessed a moderate decline of 11%.

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Similar to Bengaluru, the investment activity in the seed stage startups of Mumbai seems to be slowing down.

46% of the total funding deals were Series A and above rounds in 2019 showing that investors prefer backing mature startups rather than Pre-Series or seed-stage startups.

While seed funding has fallen in all metros, Mumbai has shown a steep 22% decline in count of startups funded at this stage compared to 2018. On the other hand, startups that have passed through this stage previously are reaping the rewards with 14% surge bridge funding in 2019 year-on-year.

81

In terms of sectors, ecommerce startups grabbed the most number deals at the seed-stage, while the fintech sector recorded the most number of deals overall and had the biggest share of the funding amount in 2019.

Health Of Mumbai’s Startup Ecosystem In comparison to Delhi and Bengaluru, Mumbai seems to have a lesser disparity in the ratio of startups in latestage to startups in the seed-stage over the past five years (2014-2019).

While Bengaluru seems to be seed-stage dominant as far as deal count is concerned over the past five years, Mumbai has a lesser degree of skewness in its funnel.

However, this could be down to the fewer deals in Mumbai startups in comparison to Bengaluru.

Even though the funding amount went up in 2019, the average ticket size of $11 Mn shows that the funding is reserved largely for bridge stage deals. Late stage and growth stag had moderate growth, but the lack of seed deals in 2019 has really hurt the overall growth of the Mumbai startup ecosystem.

Count Of Unique Startups Funded In Seed Stage Lowest In 2019 Between 2015 to 2019 24% decrease in count is the higher than both Bengaluru and Delhi NCR

Count Of Unique Startups Funded

125

100

75

50

25

0

2014

2015

Bridge Stage

2016

Year Growth Stage

2017

Late Stage

2018

2019

Seed Stage

The average annual count of unique startups funded for the city between 2014 to 2019 was 142

Seed 393

Late 47

82

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Growth 198

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83

Chennai $299 Mn Total funding raised by startups in 2019 across 24 deals

$14 Mn

23

-9%

Unique startups funded

Fintech

Average ticket size of funding amount in 2019

Recorded highest deal count in 2019

CAGR of funding amount recorded between 2015 to 2019

44

Unique investors participated in funding rounds in 2019

Top Funding Grossers Of 2019

Freshworks

Uniphore

Vue.ai

Waycool

Vivriticapital

$1.5 Bn

184

Funding Amount

Deals

84

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Five Year Performance

Chennai Reports Downturn In Funding

$500 Bn

50

$400 Bn

40

$300 Bn

30

$200 Mn

20

$100 Mn

10

0

$0 Bn

2014

2015

2016

2017

2018

2019

Year Funding Amount

Deal Count

Average Ticket Size Grows For Chennai Startups Rising by 18%, the average ticket size for Chennai's startups stood at $14 Mn

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Average Ticket Size

$15 Mn

$10 Mn

$5 Mn

$0 Mn 2014

2015

2016

Year

85

2017

2018

2019

Deal Count

Funding Amount

After a splendid 2018, the funding amount and deal count reported 20% and 31% decline in 2019

Chennai's Bridge Funding On The Fall

Based on 2015-2019 data, the bridge funding recorded negative CAGR of -44% for Chennai

-1%

-3%

-22%

0%

Late Stage

Seed Stage

Growth Stage

CAGR (2015-2019)

-10%

-20%

-30%

-40%

-50%

Funding Stage

Chennai's Seed Funding Takes A Hit As per 2015 to 2019 data, the CAGR of seed funding deal count reported -18% growth rate

-10%

-13%

-18%

0%

Growth Stage

Late Stage

Seed Stage

-10%

-15%

-20%

Funding Stage

86

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CAGR (2015-2019)

-5%

Unique Startups Funded Fall Across Stages In Chennai The growth rate of unique startups funded, seed recorded -17% growth rate while for growth and late stage it stood at -10%

-10%

-17%

-10%

0%

Growth Stage

Seed Stage

Late Stage

CAGR (2015-2019)

-5%

-10%

-15%

-20%

Funding Stage

Key Trends Observed Among the other top hubs of Indian startup ecosystem, the investment activity in Chennai’s startup ecosystem is falling at a faster rate. This can be ascertained from the fact that both the value of funding amount and count of funding deals are diminishing at a negative rate (2015-2019) of 9% and 14% respectively.

As a result, both the funding amount ($299 Mn) and deal count (24) plunged 20% and 31% in 2019 compared to the previous year.

Although the average ticket size of investments is soaring due to higher concentration of outliers.

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A negative trend is evident across all funding stages for Chennai’s startup ecosystem, as seen in the recorded growth rates of various indicators.

46% of the total funding deals were Series A and above rounds in 2019 showing that investors prefer backing mature startups rather than Pre-Series or seed-stage startups.

87

95% ($285 Mn) of the total funding amount was in Series A and above rounds in 2019.

While seed stage recorded a 49% decline in funding amount, late stage had a 17% surge in 2019 compared to 2018.

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Hyderabad $154 Mn

23

Total funding raised by startups in 2019 across 25 deals

$7 Mn

Average ticket size of funding amount in 2019

37%

Unique startups funded

Enterpriset Tech Had the highest deal count in 2019

CAGR (2015-2019) of funding amount

47

Unique investors invested in Hyderabad based startups in 2019

Top Funding Grossers Of 2019

Zenoti

Bulbul Apps

Darwinbox

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Five Year Performance

89

$1.2 Bn

171

Funding Amount

Deals

Subk

WhistleDrive

After Rough 2018, Hyderabad Funding Charges Up Despite fall in deal count, Hyderabad startups garnered $154 Mn in funding, a 67% rise from 2018 $400 Mn

50

40

30 $200 Mn 20

Deal Count

Funding Amount

$300 Mn

$100 Mn 10

$0 Mn

0 2014

2015

2016

2017

2018

2019

Year Funding Amount

Deal Count

Average Ticket Size Continues To Decline For Hyderabad

With $7.7 Mn average ticket size, Hyderabad reports decline of 8% in 2019 compared to 2018 $20 Mn

$10 Mn

$5 Mn

$0 Mn 2014

2015

2016

2017

2018

2019

Year 90

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Average Ticket Size

$15 Mn

Late Stage Shows Phenomenal Performance In Hyderabad

The CAGR for late-stage funding amount showed 112% growth rate between 2015-2019 with about $80.5 Mn going into late stage in 2019 alone in Hyderabad 125%

75%

50%

26%

25%

112%

CAGR (2015-2019)

100%

Late Stage

Growth Stage

-1%

0%

-25%

Seed Stage

Funding Stage

Late Stage Deals Skyrockets For Hyderabad

With a 32% CAGR for 2015-2019, Hyderabad's late stage ecosystem flourishes

15%

20%

32% Late Stage

Growth Stage

0%

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-20%

CAGR (2015-2019)

40%

-20%

Funding Stage

91

Seed Stage

Hyderabad’s Seed Stage Ecosystem In Hot Water The -18% CAGR in unique startups funded from 2015-2019 shows Hyderabad's seed stage ecosystem is going through a major crunch 20%

15%

19% 0%

-18%

CAGR (2015-2019)

10%

-10%

-20%

Late Stage

Growth Stage

Seed Stage

Funding Stage

Key Trends Observed 2016 and 2017 were the best year for Hyderabad based startups in terms of capital inflow. The funding amount and deal count poured during this interval made 57% of the total investments in the city between 2014 to 2019, whereas in case of deal count the contribution was 46%.

Being one of the prominent IT hubs of India alongside Bengaluru. The availability of quality tech workforce can give the startup ecosystem of the city a much needed boost.

Although several government initiatives like T-Hubs are already in place but a more proactive approach is required from the government side. In order to take the startup ecosystem of the city at par with its metro peers— Bengaluru, Delhi NCR and Mumbai

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Healthtech with approximately $13 Mn in total funding was the top sector at seed stage whereas, enterprisetech topped the chart at both growth and late stage.

Indian Startup Hubs Tier 1 Vs Mid-Tiers

87% Contribution of Bengaluru, Delhi NCR and Mumbai to the total funding amount

31%

Decline in total funding amount poured in startups based out of mid-tier cities in 2019 compared to 2018

Ecommerce & Agritech

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Sector with maximum deals in mid-tier cities

93

$243 Mn Funding secured by mid-tier startups across 32 deals in 2019

Info Edge Most active investor in mid-tier cities

21

Deals secured at seed stage

Mid-Tier Cities Outpace Tier 1 In Capital Inflow Against 8% CAGR of funding amount in Tier 1 cities, mid-tier cities reported 12% growth rate between 2015 and 2019

12

12%

8%

8

CAGR (2015-2019)

10%

6%

4%

2%

0%

Tier 1 Cities

Mid-Tier Cities

Tiers

Unique Startup Funding Shoots Up For Mid-Tier Cities Mid-tier cities showed signs of growth with 3% CAGR between 2015-2019 compared to -6% growth rate for Tier 1 cities

3

4%

-2%

-6%

-6

-4%

Mid-Tier Cities

Tier 1 Cities

Tiers 94

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-17%

0%

19%

CAGR (2015-2019)

2%

Tier 1 Cities Still Dominate Funding

Based on 2014-2019 data, Tier 1 cities took away $57 Bn, a whopping 98% of all funding secured by Indian startups Mid-Tier Cities 1.7%

97.9% Tier 1 Cities

Mid-Tier Cities Carve Out Tiny Share In Total Deals According to 2014-2019 data, mid-tier cities recorded mere 196 deals of the total 5,011 deals recorded during the said period Mid-Tier Cities

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3.9%

95

Abroad 0.7%

95% Tier 1 Cities

Going Beyond The Top 3 The startup ecosystem in Bengaluru, Delhi NCR and Mumbai have always enjoyed bigger socio-economic perks than any other startup ecosystem in the country.

The primary factors responsible for the thriving startup ecosystem in these three cities are — availability of adequate venture capital, higher spending power of the inhabitants and a robust tech infrastructure. The dominance of these three hubs of Indian startup ecosystem can be ascertained from the fact that the investment activity in Bengaluru, Delhi NCR and Mumbai makes up 89% ($52 Bn) of the total funding, 84% of the total deal count between 2014 to 2019.

Top 3 Hubs Accounted For Most Of The Total Funding From 2014-2019, Bengaluru, Delhi NCR and Mumbai took away $52 Bn of the total $58 Bn raised by Indian startups 100%

50%

25%

0%

2014

2015

2016

2017

2018

2019

Year Bengaluru, Delhi NCR & Mumbai

Others

96

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Funding Amount

75%

Top 3 Hubs Contributed Majority To Total Deals Despite initiation of several new policies and activities to boost the startup ecosystem, cities beyond the top three recorded just 827 deals between 2014-2019 100%

Deal Count

75%

50%

25%

0%

2014

2015

2016

2017

2018

Year Others

Bengaluru, Delhi NCR & Mumbai

Key Trends Observed Although high value venture capital inflow is still largely cornered by the top three hubs, the frequency of investment activity is rising in the three other city hubs — Pune, Hyderabad and Chennai.

The median funding amount for Pune stood at $6.5 Mn in 2019.

With 76% CAGR recorded between 2015 to 2019 in median funding amount, Ahmedabad outpaced Bengaluru, Delhi NCR and Mumbai.

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With $1.3 Bn funding, Pune, Hyderabad and Chennai recorded 2x growth in 2019 compared to 2018.

97

2019

Pune, Hyderabad & Chennai: The Next In Line Pune & Hyderabad's Growth Rate Outpaces Other Hubs With 45% CAGR, Pune had the highest growth rate compared to other hubs during 2015-2019

37

40%

45

30%

-17%

20%

10%

7

7

7

Hyderabad

Chennai

0%

-9

CAGR (2015-2019) Of Funding Amount

50%

-10%

Pune

Hubs CAGR (2015-2019)

Median CAGR of other hubs

98

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*other hubs include top 8 startups hubs of India

Pune, Hyderabad & Chennai Had 8% Share In Total Funding Between 2014 and 2019, startups in these 3 hubs recorded $4.5 Bn in funding $2.0 Bn

Funding Amount

$1.5 Bn

$1.0 Bn

$0.5 Bn

$0.0 Bn

Pune

Chennai

Hyderabad

Hubs

Pune, Hyderabad & Chennai Had 10% Share In Total Funding Amount In 2019, the three hubs recorded $1.3 Bn in funding amount, 2x higher than 2018 Pune and Hyderabad

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0.7%

99

89.7% Others

Pune

Chennai

Dea l Cou n t

Hyderabad 33%

-31%

Un i qu e S t a r t u ps Fu n ded

47%

100

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Yea r

Growth From 2018 To 2019 35%

25%

-26%

Investor Participation Analysis

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& The Top 10 VCs

101

892

2 Deals taken per investor in 2019, compared to 1.6 in 2018

Unique Investors participated in startup funding in 2019

71%

20%

Decline in unique angel investor participation in 2019 compared to previous year

Contribution of top 5 venture capital firms to total deal count in 2019

Unique Investor Participation At All-Time Low In India (2015-19)

2500

2.5

2000

2.0

1500

1.5

1000

1.0

500

0.5

0

Deal Taken Per Investor

0.0 2014

2015

2016

2017

2018

2019

Year Total Investor Participation in Deals

Total Unique Investors

Deal taken per investor

102

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Deal Participation And Unique Investors

Compared to 993 investors participating in startup funding in 2018, 2019 had 892 investors who participated in startup funding

Angel Investor Participation Falls Drastically

From 42% share among total investors in 2018, the angel investor participation was just 13.5% in 2019, the lowest since 2014 Total Unique Angels 13.5%

86.5% Total Unique VCs & Corporates

Angel Investor Share Among Investor Base At Its Lowest In 2019, angel investor participation in startup funding was lowest in the recorded period, with just 120 angels participating in funding deals 100%

% of Investors

75%

50%

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25%

0%

2014

2015

2016

2017

Year Angel Investors 103

Other Investors

2018

2019

Consumer, SaaS

23

B2B, Fintech

20

20

Healthtech, Fintech

20

19

Consumer, B2B

17

13

B2B, Healthttech

16

15

Education, New Economy

15

13

Consumer, Media & Content

15

13

Data & AI, Consumer

14

14

Consumer, Ecommerce

104

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26

36

Consumer, Healthtech

Notable Startups

38

45

Key Sectors

53

Startups Funded

Number of Deals

VC Name

India's Most Active VC Firms Of 2019

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Mergers And Acquisitions

105

23%

629

Total M&As recorded between 2014 to 2019

Decline in M&A activity in enterprise tech startups in 2019 compared to 2018

35%

Bengaluru Recorded the most number of M&As

Share of enterprise tech and media & entertainment in total M&As recorded in 2019

M&As At 5-Year Low In 2019 With just 111 deals, Indian startup ecosystem recorded lowest M&As in the last five years

111

124

M&As Count

100

117

128

149

150

0 2015

2016

2017

2018

2019

Year

106

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50

Enterprise Tech Record Highest M&As With 138 deals and 21.9% share in total M&A deals between 2014-2019, enterprise tech took the lead Enterprise Tech 21.9%

38.2% Others

15.7% Consumer Services

7.3% Deeptech 7.9% Fintech

8.9% Ecommerce

Top 3 Hubs Accounted For 70% Of The Total M&As Bengaluru, Delhi NCR & Mumbai alone recorded 442 M&As, occupying the majority share in the 629 M&As recorded between 2014-2019

Bengaluru 27.0%

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29.7% Others

17.6% Mumbai 25.6% Delhi NCR

107

India As A Startup Hub

108

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A Comparison

In 2019, India became the 5th most startupfriendly economy in the world based on five parameters:

Top networks/platforms that invested in 2018 Human Capital Investment Research And Development Entrepreneurial Infrastructure Technical Workforce Policy Dynamics

Despite trailing the USA, the UK, Canada and Israel, India has come a long way with the support of several homegrown and international venture funds, conglomerates and enterprises, government-backed measures such as Startup India, Make in India, Digital India and more, and domain-focussed initiatives which in turn have helped foster a culture of entrepreneurship and innovation in India.

In 2019, India has 31 unicorns with seven startups joining the club in the year. Amid all this fervour, it is important to take a step back and reflect on the growth factors — market and economic — that are driving or deterring the startup economy in India.

In short, India’s startup economy has been booming.

Market Parameters

India is often described as the poster child of emerging markets for its vast commercial potential for tech products and services. In a country with a population of nearly 1.3 Bn people, even niche products can have a significant addressable base.

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Market Parameters At A Glance

109

C o unt r y

India

Population (Bn)

1.35

Population Below 24 Years Of Age

44.77%

Median Age

28.1

Population Growth

1.14%

Urban Population

34.50%

Urban Population Growt

2.37%

Internet Users

560 Mn

Smartphone Users

345.92

India is one of the fastest-growing economies in the world and is perceived as being capable of offering an abundance of opportunities for tech companies.

As the Indian economy continues to grow, disposable income and purchasing power are increasing steadily.

This rising consumption is driven by the growth of upper-middle income and high-income segments of the population, both of which are expected to grow from one in four households today to one in two households by 2030.

Along with this, the population demography is another advantage. Half of the country’s population is below the age of 25 years with a median age of 28 years. In terms of urban population growth, internet user base and smartphone user base, India is second in the world among all nations. Understandably, this has made companies and startups gravitate to India.

Canada 10

8

United States

China

6

4

2

United Kingdom

Germany

0

India

Japan

Israel

Indonesia

Population (Mn)

0-24 age poppulation

Median Age

Poppulation growth

Urban poppulation

Urban poppulation Growth

Internet Users (Mn)

Smartphone Users (Mn)

India’s huge diversity in culture, language, ethnicity and religions is both a curse and a blessing for startups. On the one hand, a startup’s understanding of customers or consumers is often limited to specific regions, with their unique local languages and local customs. This makes it hard for startups to scale their tech products to customers across the country.

While there is a huge need for innovative solutions, particularly those that alleviate poverty and improve the inclusion metrics, India needs to be infrastructure-ready for innovations to flourish.

Given the scale of the Indian market and its resource constraints, low-cost, high-impact solutions are the need of the hour. This requires a huge push from the government in making Indian economy ready for its market to reach full potential.

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Economic Parameters

Economic Parameters At A Glance C o un t r y

India

GDP (Billions, PPP)

$9,459

GDP Growth Rate (%)

6.7

5 Year GDP Growth Rate (%)

7.2

GDP per Capita (PPP)

$7,183

Unemployment (%)

3.5

Inflation (%)

3.6

FDI Inflow (Millions)

39,916.10

Tariff Rate (%)

6.3

Income Tax Rate (%)

30.9

Corporate Tax Rate (%)

32.4

While India undoubtedly has the potential, it still trails other countries in terms of key economic indicators such as GDP per capita (PPP), inflation, tariff rates, and corporate tax rate. These indicators are the worst amongst countries India’s economy is being compared tol, including Canada, China, Germany, India, Indonesia, Israel, Japan, UK and the US.

Canada 10

8

United States

China

6

4

2

United Kingdom

Germany

0

India

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Japan

Israel

111

Indonesia

GDP (Billions, PPP)

GDP Growth Rate (%)

5 Year GDP Growth Rate (%)

GDP per Capita (PPP)

Unemployment (%)

FDI Inflow (Millions)

Inflation (%)

Tariff Rate (%)

Corporate Tax Rate (%)

Income Tax Rate (%)

Economic Indexes

supposedly the fifth most startup-friendly economy globally, this is a poor rank and highlights the slow growth rate of the tech economy despite the ripe consumer market. This lack of innovation is clearly depicted by India’s relatively low expenditure on research and development.

Research firm Heritage.org ranks various countries on 4 parameters: Rule of Law: Degree of a country’s legal protection of private property rights Limited Government: How free is a country from tax burden and government expenditure

The Narendra Modi-led government that assumed power in 2014 has put digital transformation at the centre of its plans. The central government has recognised startups as one of the most important engines for economic growth.

Moreover, startups are expected to create jobs that will narrow the high unemployment rate in the country.

Regulatory Efficiency: How free is a country from legal regulation Open Markets: A country’s independence from government control and interference

Yet in 2019, India hit the highest unemployment rate seen in the last 3 years i.e 8.5% (September 19). In 2019, for ease of doing business, India moved to 63rd rank out of 190 countries climbing only 14 points in the ranking compared to 23 points in 2018.

As per the Global Innovation Index 2019, India stood at the 52nd position out of a total of 129 countries for capacity and success in innovation. For a country that is

Canada 8

United States

China

6

4

2 United Kingdom

Germany 0

Japan

Israel

Rule of Law

Limited Government

Indonesia

Regulatory Efficiency

Open Markets 112

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India

India is ranked as “worst” when it comes to open market and regulatory efficiency despite having China in comparison, as per Heritage.org.

Besides infrastructure another deterrent to the growth of startup economy is expenditure to R&D. India’s expenditure on R&D continues to be as low as 0.6% - 0.7% of the GDP, much lower than countries like South Korea at 4.3%, Israel at 4.2% and Japan at 3.4%. The worst part is that this low spending D has been stagnant at 0.6%-0.7% for the last two decades.

Top 5 Countries R&D (as a % of GDP)

3.2%

3%

3.2%

3.4%

4.2%

4%

4.3%

5%

Switzerland

Finland

2%

1%

0%

South Korea

Israel

Japan

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The lack of quality research is evidenced by the fact that many of Indian startups are imitations of successful global ideas fine-tuned to serve local needs.

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Uber

Ola

Spotify

Gaana

Amazon

Flipkart

Zoho

Salesforce

Ichef/Holachef

Blue Apron

Razorpay

Stripe

Healthifyme

MyFitnessPal

Lenskart

Warby Parker

Naukri.com

Monster

RedBus

GotoBus

Zoomcar

Sixt

CarDekho

TrueCar

Grofers

Instacart

Ikea

Urban Ladder

Mswipe

Squareup.com

Google Maps

MapmyIndia

All these foreign companies were established way before their Indian counterparts were being built. One cannot deny that India has become a startup hub with a total of 49,000+ startups being launched (as of September 2018), however, the reality is that the number of these startups were formed out of ideas that originated elsewhere.

Global Entrepreneurship Index 2018 Rankings 100

GEI Rank 2018

75

50

Indonesia

India

China

Japan 25 Israel

Germany United Kingdom

Canada

United States

0

Country

114

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The global startup economy has achieved great heights with a total economic value of nearly $3 Tn in 2019, a 20% increase from the prior two periods. This growth is largely driven by hightech startups in the fields of advanced manufacturing and robotics, blockchain, agritech and new food, and artificial intelligence. However, startups and investment in startups from these sectors are yet to become prominent in India.

Transactional Volume One of the most celebrated emerging markets, India’s economic growth has proved resilient in global slowdown events. However, in 2019, the Indian economy has suffered from the point of GDP growth, consumer spending and NBFC crunch.

While the GDP expected to grow by 7.3% for the full fiscal year of 2018-19, reports in the first week of 2020 suggest that India will miss this target. Ratings agency Moody’s cut its forecast for India growth in FY20 to 4.9% owing to weak consumer sentiment.

While the economic success in past years has been attributed to prudent fiscal policy, the introduction of the goods and services tax (GST), socioeconomic factors as well as less-than-stellar foreign investor sentiment have driven growth down.

With an estimated quarter of its population living below the poverty line, there remains much work to be done.

China

India

US

UK

Business to consumer ecommerce market value

$1.2 Tn

$1.2 Tn

$744.1 Bn

$232.05 Bn

Mobile commerce market value

$873.2 Bn

$873.2 Bn

$282.8 Bn

$118.3 Bn

Mobile commerce % of e-commerce market size

76%

76%

38%

51%

Bank account penetration

80.20%

80.20%

93%

96.40%

Card penetration per capita (Debit + Credit)

5.26

5.26

4.45

2.48

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When it comes to digital penetration too, a lot needs to be done. Online shopping or ecommerce — often considered the Indian startup ecosystem’s flag bearer — only represents 2.9% of total Indian retail sales. The average annual per capita spend is also low at $338.24. This is among the lowest spends per capita among countries that India is compared to.

As banking penetration increases, bank transfers are expected to rise quickly. Currently used for one in five ecommerce transactions, this method is expected to increase at a compound annual growth rate of 84% till 2021 to take a 30.2% share of the transaction market.

Currently, with just 0.66% card penetration per capita (debit + credit cards) and 0.02% for credit cards India is still a majorly cash transactional economy.

115

Trade Inflow Outflow & FDI Trends

Foreign direct investment in India increased by $2,155 Mn in October 2019. It reached an all time high of $8,569 Mn in August of 2017 and a record low of $1,336 Mn in November of 2017.

Foreign institutional investors (FIIs) have been aggressive on Indian equities in the first six months of 2019 despite increased volatility and uncertainty around the elections, and the economic downturn since August.

FIIs bought net local equities worth $11.41 Bn between January and June, the most since the corresponding period of 2014, when they had invested forex worth $9.91 Bn. In the six months ended December 2018, FIIs saw an outflow of $3.78 Bn. The outflow in January to June 2018 was $681 Mn.

Trade Inflow Outflow & FDI Trends

7000

8000

4676

4000

2155

Mar’19

1704

Feb’19

1824

2444

2000

2370

3008

3034

3673

3691

$ Mn

6000

0

Dec’18

Jan’19

Apr’19

May’19

Jun’19

Jul’19

Aug’19

Sep’19

Oct’19

Month

The inflows, however, did not start off on a strong note. FIIs sold net Indian equities worth $75.35 million in January. The pace of foreign money inflows started picking up from February and, over the following five months, FIIs invested $11.5 Bn. In June alone, FIIs were net buyers of $231.45 Mn in equity.

Annual FDI inflows in the country are expected to rise to $75 Bn over the next five years, as per a report by UBS. The government of India is aiming to achieve $100 Bn worth of FDI inflows in the next two years.

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*Source: tradingeconomics.com, Reserve Bank of India

Impact Of Indian Startup Economy

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An Analysis

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Impact On Jobs According to the government of India, the Startup India initiative has helped create an estimated 187K direct jobs since its inception in 2016 and the number of related indirect jobs is currently at 560K. This job growth has come at a rough cost of more than INR 2,500 Cr disbursed by the government to fund startups.

In 2016, the centre had established an INR 10K Cr fund of funds under the Small Industries Development Bank of India (SIDBI) to meet the financial needs of the startups.

Average Jobs Created By Startups In India Figures In Lakh 8

4.49

4.37

Feb’19

Mar’19

Apr’19

May’19

4.6

4.50

4

4.52

4.90

5.65

6.11

6

2

0

Dec’18

Jan’19

Jun’19

Month

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Nov’18

The major contributor to this job creation is the gig economy.

Food delivery startup Swiggy said it employs around 210K delivery boys and intends to increase the number to 500,000 in the next 18 months. Scores of others such as Swiggy’s rival Zomato, on-demand delivery service Dunzo and cab-hailing companies Uber and Ola together employ millions of workers who are not considered ‘traditional employees’ and are paid per order or ride.

While the gig economy has been frowned upon by corporates, startups have been the early adopters of it, and now large corporates are driving the demand.

Job Profiles Created In 2018-19, the job created by startups had plunged by 18% 45%

Professional Services

30% 27%

Large Corporates

22%

19%

Startups

37%

8%

Development Sector

9%

1%

Other Sectors

2%

0

10

20

2016-17

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*Source: EPFO

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30

2018-19

40

50

Emerging Technologies While not quite ready for deployment, 5G will soon enter the Indian market, offering high-speed data transfers and information processing in real-time to make machine-tomachine communication faster than ever before. It is expected to redefine network and communication infrastructure as we know it. However, with such a huge investment ($70 Bn) and infrastructure requirement, uniform implementation of the technology across the country will likely extend beyond 2021.

On the other hand, the world is moving towards being more and more connected becoming a ‘smart’ ecosystem. This comprises connected devices, communication channels, and AI-driven data processing which has enabled the newest opportunities.

As predicted last year, spacetech, internet of things (IoT), 3d printing and electric vehicle battery management technology has come a long way in 2019.

Internet of Everything (IoE) Representing a more advanced stage of IoT (Internet of Things), IoE includes people and processes as an important part of the whole system. IoE will enable hyper-connectivity and vision of connected, collaborated, and intelligent systems powered by smart devices and data-driven management.

IoT, in its broadest conceptualisation, includes any type of physical or virtual object or entity that can be made addressable and given the ability to transmit data without human-to-machine input. Things are often items that would not have been networked in the past; with this, automation of communication is also central to the IoT concept. The IoE, on the other hand, includes user-generated communications and interactions associated with the global entirety of networked devices as well.

According to DataLabs By Inc42 analysis, here are the technologies which will dominate the tech ecosystem in 2020:

Meaning to value and action

People People to People (P2M)

Connected Context Subject

Data

Sensing Sending Analyzing

Data To Meaning

Process

People to machine (P2M)

Things Endpoints IP Address Objects

Machine To Machine

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Machine To Data

Artificial Intelligence-As-A-Service (AIaaS) Similar to SaaS, enterprises can leverage artificial intelligence (AI) without investing much money to make data-driven decisions. Major cloud providers have started offering comprehensive AI stacks that can be used without deploying any cognitive computing or machine learning provisions.

In the past, companies needed a lot of resources and capital, as well as time to build up infrastructure and technical systems, know-how for AI applications.

Now, AIaaS has minimised the development and deployment time. So, basically, startups and businesses can get an AI application or model off-the-shelf as per their needs. AIaaS enables everyone, regardless of how much knowledge they possess, to take benefit of AI. For the developers clean APIs are being provided, the users get coding skills graphical user interfaces together with detailed instructions in order to ensure data processing pipeline.

Few internet companies have already started providing AIaaS. Amazon’s in-house expertise in predictive analytics is available on Amazon Web Services by means of machine learning services. Amazon is also coming up with open source software DSSTNE - Deep Scalable Sparse Tensor Network Engine.

Cryptocurrency

Drug Maker

CRO Laboratory

Omics Data

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SOP’s Validation

Researcher

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Lifestyle Advice

Patient Stratification

Diagnostics

AI

Rediogist MRI/Images

Clinical Decision Support Predictive Analystics

Patient

Unstructured Data

Physician

Space-As-A-Service (SPaaS) The common definition of space-as-a-service is the change in the real estate model from asset ownership to monetisation of access to the space and services. Yet, space as a service is more than just about real estate. It is a model that facilitates a change in management’s beliefs about the design and function of real estate. This new thinking proactively enhances productivity and experiences within a company’s real estate portfolio.

Co-working, co-living, and now a retail concept called “brandboxing” are all examples of the SPaaS business model, in which landlords essentially provide a suite of services that enable tenants to easily utilise the space. That entails everything from digital connectivity to furniture, fixtures and even the staffing required to operate their businesses.

While WeWork, the largest lessee of commercial office space in New York City, did not invent the idea of space-asa-service, its tremendous success has undoubtedly been an impetus for changing the way the industry looks at the tenant-landlord relationship. Indian companies such as

Data Security Protecting digital data of users is the first thing enterprises will need to ensure. People become aware of their privacy concerns, making enterprises to take serious action towards data security in 2020.

In August of 2017, the Supreme Court of India decided that the “right to privacy is protected as an intrinsic part” of the constitutional rights to life and personal liberty. This paved the way to Personal Data Protection Bill, 2018 (PDPB).

The PDPB is modeled after the GDPR (General Data Protection Regulation), but there are significant differences between the Indian legislation and European law.

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With clear legislation in place, Indian corporations are taking the steps to implement privacy and data security for their organisations. This has created a huge market for data security services and products in India. India’s cybersecurity market is expected to register an annual growth of 15.6 per cent and rise to $3.05 Bn (about INR 21,600 Cr) by 2022 from $1.97 Bn (about INR 14,000 Cr) in 2019.

Microservices & Cloud Cloud has reshaped entire infrastructure and will continue to do so. The usage of the cloud continues to reach greater heights because of flexibility, costeffectiveness, and scalability it does offer. 2020 will see more microservices architecture that makes it easier to develop complex systems faster and with great efficiency.

Microservices (or microservices architecture) are a cloud native architectural approach in which a single application is composed of many loosely coupled and independently deployable smaller components, or services. These services typically: Have their own stack, inclusive of the database and data model

While much of the discussion about microservices has revolved around architectural definitions and characteristics, their value can be more commonly understood through fairly simple business and organisational benefits: Code can be updated more easily.

Teams can use components.

different

stacks

for

different

Components can be scaled independently of one another, reducing the waste and cost associated with having to scale entire applications because a single feature might be facing too much load.

Communicate with one another over a combination of REST APIs (Representational State Transfer), event streaming, and message brokers Are organised by business capability, with the line separating services often referred to as a bounded context.

Microservices Identity Provider

Services

Remote Service

Services

Client

API Gateway

Services

Services

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CDN

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Static Content

Management

Service Discovery

The Government Intervention & Policies Angel Tax Abrogation Much of the criticism directed to finance minister Nirmala Sitharaman is largely due to her predecessors’ moves. To her credit, though, are the abrogation of angel tax and recent GST reforms.

“To mitigate the genuine difficulty of startups and their investors. It has been decided that Section 56(ii)(viib) shall not be applicable to DIPP registered startup.” - N Sitharaman

Along with angel tax, the I-T orders and notices which have haunted startup founders in the past badly. Dozens of startup founders confirmed that harassment by I-T AOs was one of the main reasons that led them to shut down their offices.

The government has constituted a dedicated cell under a member of CBDT for addressing the problems of startups. The Central Board of Direct Taxes has so far exempted 1,658 startups ( November, 2019) under Section 56 (2) (vii) of the Income Tax Act, 1961. “All notices will be disposed of within three months from the date of reply. No assessee will have do anything after three months once he has given the reply,” Nirmala Sitharaman had averred in August, this year.

While the late Arun Jaitley who was the former finance minister showed little interest towards tax complaints, it took a long time to the former commerce minister Suresh Prabhu to minimise the tax harassments of startups under Section 56(2)(viib) of the I-T Act, Sitharaman in her short span as finance minister has responded rather quickly with initial reforms.

The DPIIT-recognized startups are now exempt from tax under Section 56(2)(viib) of the Income Tax Act when such a startup receives any consideration for issue of shares which exceeds the Fair Market Value of such shares.

A startup has to file a duly signed declaration in Form 2 to DPIIT {as per notification G.S.R. 127 (E)} to claim the exemption from the provisions of Section 56(2)(viib) of the Income Tax Act. Introducing Section 54EE in the Income Tax Act, 1961, exemption from tax has also been made on long-term capital gain (For up to INR 50 Lakhs) if such long-term capital gain is invested in a fund notified by central Government. The condition of minimum holding of 50% of the share capital or voting rights in startup is relaxed to 25%.

Relief form enhanced surcharge on Long-term /Short-term Capital Gains

In order to encourage investment in the capital market, it has been decide to withdraw the enhanced surcharge levied by Finance (No.2) Act, 2019 on Long/Short term capital gains arising transfer of equity shares/units referred section 111A and 112 A respectively.

Withdrawal of Angel Tax provisions for Startups and their investors

To mitigate genuine difficulries of startups and their investors, it has been decide that section 56(2)(Viib) of the Income-tax Act shall not be applicable to startup registered with DPIIT. It has also been decided to set up a dedicated cell under member of CBDT for addressing the problems of startups. A startup having any income-tax issue can approach the cell for quick resolution of the same.

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Measures to Boost Economy Taxation Measures

GST Reforms Filing GST forms and getting refunds have been tedious since the goods and services tax (GST) was announced on July 1, 2017. Despite hundreds of reforms carried out over the last two years, GST continues to haunt MSMEs and startups.

Measures to Boost Economy Banks/NBFCs/MSMEs GST Refund to MSME within 30 days

All pending GST refund due to MSMEs shall be paid within30 days.

In future all GST refunds shall be paid within 60 days from the date of application.

MSME Bill Discounting

TReDSto use GSTN system in medium term to enhance market for bill discounting for MSMEs.

MSME Defination

Amendment to MSME act to move towards single defination to be considerd.

UK Sinha Committee Recommendations

Decisions to Recommendations such as on ease of credit, Marketing, Technology, delayed payments etc. within 30 days.

Besides GST, startups have also had to deal with the angel tax terror, which resulted in a steep decline in seed stage funding in the Indian startup ecosystem.

DataLabs by Inc42 data shows that the total capital inflow into Indian startups between 2014 till the first half of 2019 was more than $51 Bn across 4,554 deals which are growing YoY.

less number of forms. The refund process I must underline has almost become automatic. The refund should be going through a process of free flow. Even this Sunday, I am holding a meeting with GSTN people to make sure to identify where the glitches are, in terms of the flow of refunds. So, it does not affect people.”

However, the number of startups funded at the seed stage plunged by 39.74% to 329 in 2018, when compared to the pre angel tax era of 2017, where around 546 seed stage startups were fundGST registration if his turnover from supply of goods or services. And 2019 was no different than last year.

The count of startups funded at seed stage in H12019 was 38.92% lower than the half-yearly average of 219 from 2014-2018.

“To mitigate the genuine difficulty of startups and their investors. It has been decided that Section 56(ii)(viib) shall not be applicable to DIPP registered startup.” - N Sitharaman

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The minimum turnover from supply of goods GST registration limit has been doubled from previously INR 20 Lakhs to INR 40 Lakhs. Further, barring North-east states, the threshold limit on gross turnover in previous financial year to avail of the composition scheme were increased from INR 1 Cr to INR 1. 5 Cr. In a big relief to the EV sector, the GST rate on electric vehicles was reduced from 12% to 5% and GST on chargers for e-vehicles was reduced to 12% from 18%. Further, those buying electric vehicles have been given additional income tax deduction of INR 1.5 lakh on the interest paid on loans taken to buy EVs. Addressing the GST forms issues, Nirmala Sitharaman stated, “The number of forms is really being worked upon. I surely assure you that sooner the GST will come up with even more simplified with

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The government has constituted a dedicated cell under a member of CBDT for addressing the problems of startups. The Central Board of Direct Taxes has so far exempted 1,658 startups ( November, 2019) under Section 56 (2) (vii) of the Income Tax Act, 1961. “All notices will be disposed of within three months from the date of reply. No assessee will have do anything after three months once he has given the reply,” Nirmala Sitharaman had averred in August, this year.

A startup has to file a duly signed declaration in Form 2 to DPIIT {as per notification G.S.R. 127 (E)} to claim the exemption from the provisions of Section 56(2)(viib) of the Income Tax Act Introducing Section 54EE in the Income Tax Act, 1961, exemption from tax has also been made on long-term capital gain (For up to INR 50 Lakhs) if such long-term capital gain is invested in a fund notified by central Government. The condition of minimum holding of 50% of the share capital or voting rights in startup is relaxed to 25%.

Fund Of Funds Disbursal The Government of India in June 2016 had set up a Fund of Funds for Startups (FFS) wirth a corpus of INR 10K Cr to provide a much needed boost to the Indian startup ecosystem and enable access to domestic capital.

On Fund of Funds disbursal, commerce ministry has notified the Parliament that as on 21st November, 2019, SIDBI has committed INR 3123.20 Cr. to 47 SEBI registered Alternative Investment Funds (AIFs). These funds have raised a corpus fund of INR 25,728 Cr. INR 695.94 Cr has been drawn from the Fund of Funds for startups. And, a total of INR 2,669.83 Cr has been invested into 279 startups.

The ministry informed that 2,85,890 jobs are reportedly created by 23,657 DPIIT recognized startups, as on 4th December 2019.

Personal Data Protection Bill

However, the Bill tabled in the Lower House has made some changes in the original draft prepared by Justice BN Srikrishna Committee. A chapter reduced, the new draft bill has dedicated one whole chapter to how personal data could be used without consent. The controversial Bill has raised several questions.

The Bill treats personal data as a matter of trust and not as property as defined in GDPR. The Bill digresses from data protection by design and default, as established in GDPR. Despite the fact the governments as well as public authorities, except the proposed Data Protection Authority of India, are the biggest data fiduciaries, under Section 35 of the Bill, ‘reasonable’ exemptions have been given to the state and authorities. Recently, we saw how ‘reasonable classification’ of Article 14 of the Indian Constitution were used to amend the Citizenship Act which has created ruckus in North-east states.

Section 35 of the PDP Bill, 2019 allows government authorities power to exercise surveillance against any citizen.

The Bill lets the government define

critical personal data which will be essentially processed in India only.

Sensitive personal data which could be health related data, sex life etc can be transferred outside India but such sensitive personal data shall continue to be stored in India.

The burden of proof will be on fiduciaries that they have the consent of data principals.

Interestingly, the Bill introduced in the Parliament has omitted ‘passwords’ from the data listed/recognised as sensitive personal data. The Srikrishna Committee had recognised passwords at the top of the sensitive data list.

Will Data Protection Authority which has been tasked to regulate the Bill have the capability to effectively implement the law, is also a matter of concern for many.

Justice Srikrishna is not apparently happy with the Bill. He said, “They have removed the safeguards. That is most dangerous. The government can at any time access private data or government agency data on grounds of sovereignty or public order. This has dangerous implications.”

Meanwhile, the government has also constituted a Committee of Experts headed

by Infosys cofounder Kris Gopalakrishnan on non-personal data uses.

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After a long hullabaloo on data privacy, the Indian government has finally introduced Personal Data Protection Bill in the Lok Sabha, Lower House of the Parliament. The Bill is now being sent to a Joint Parliamentary Committee for further examination bypassing the traditional route of sending such Bills to Standing Committee, as the Committee which is currently headed by a Congress MP Shashi Tharoor.

Banning Cryptocurrency

National Policy On Electronics

The Inter-Ministerial Committee led by Subhash Chandra Garg, former secretary, Department of Economic Affairs (DEA) had submitted its report, earlier this year. The report recommended a complete ban on cryptocurrency in India.

In February this year, the cabinet gave nod to the National Policy on Electronics 2019 which has made some cosmetic changes into National Policy on Electronics 2012.

The IMC had also submitted a draft Bill named Banning of Cryptocurrency & Regulation of Official Digital Currency Bill 2019 to the finance ministry. The committee was however agnostic about exploring the idea of RBI-backed digital currencies and has welcomed the ongoing innovations happening around the underlying technology, known as blockchain.

The Bill has not been introduced in the Parliament and hence has given a fresh air to the crypto exchanges and startups. However, due to the RBI notice which has banned banks from offering any services to crypto entities, dozens of crypto startups have already shut their shop since last year.

State Policies This year, the Indian government also released the National Policy on Software Products-2019 with a vision to create a robust Indian software product development ecosystem, thereby enabling IP driven holistic growth of the IT Industry.

With the policy the government aimed to promote tech entrepreneurship in India and help make Indian software product startups to scale to become $70-80 Bn market by 2025. MeitY also set up a MeitY Startup Hub as the coordination, facilitation and monitoring centre that will integrate all the incubation centres, startups and innovation related activities of MeitY. MeitY has also been mulling to create a Software Product Council which will work on implementing a software product mission. The council will include members of the government, academia and industry.

As part of the policy, the government will initially outlay INR 1,500 Cr to implement the programmes for software development and research, for over a period of seven years.

Extending the deadline of the NPE 2012 which aimed for a turnover of $400 Bn in domestic electronics manufacturing by involving a 100 Bn investment in Electronic System Design & Manufacturing (ESDM) and creating employment for 28 Mn people by 2020, the new NPE 2018 aims to achieve a turnover of $400 Bn by 2025. This will include targeted production of 1.0 Bn mobile handsets by 2025, valued at $190 Bn, including 600 Mn mobile handsets valued at $110 Bn for export.

Interestingly, while the draft does mention that 4.5 Lakh direct and indirect employment created in the last three years by 118 mobile manufacturing units, the NPE 2018 does not set any objectives, as far employment and investments are concerned.

Aimed to encourage industry-led R&D and Innovation in all sub-sectors of electronics, the draft NPE 2018 plans to create a comprehensive startup ecosystem in emerging technology areas such as 5G, IoT, artificial intelligence (AI), machine learning, etc, and their applications in areas such as defence, agriculture, health, smart cities and automation, with a special focus on solving real-life problems.

The draft NPE 2018 skips the NPE 2012 objectives that aimed to achieve a turnover of $55 Bn in very large scale integration (VLSI), embedded chip design and embedded software industry by 2020. The draft NPE 2018 also skips the 2012 objective of building a strong supply chain of raw materials, parts, and electronic components to raise the indigenous availability of these inputs from the-then 20-25% to 60% by 2020.

There is no update on the ESDM sector exports. The NPE 2012 aimed to increase exports from the-then $5.5 Bn to $60 Bn by 2020.

The draft NPE 2018 promises a lot and has laid out its strategies to achieve its ambitious vision, mission, and objectives. However, it doesn’t seem to have identified the loopholes in the NPE 2012 strategies or come up with a robust strategy of its own. Merely skipping the key objectives of NPE 2012 which also aimed the Indian electronics industry to be the global hub by 2020 specifying certain targets, won’t help.

Prohibition of Electronic Cigarettes

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The Prohibition of Electronic Cigarettes (Production, Manufacturing, Import, Export, Transport, Sale, Distribution, Storage, and Advertisement) Act, 2019 prohibits the production, trade, storage, and advertisement of electronic cigarettes.

According to the law, any person who contravenes this provision will be punishable with imprisonment of up to one year, or a fine of up to INR 100K, or both. If repeated the offence, the person will be punishable with imprisonment of up to three years, along with a fine of up to INR 500K.

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According to the law, the owners of existing stocks of e-cigarettes will have to declare and deposit these stocks at the nearest office of an authorised officer.

Such an authorised officer may be a police officer (at least at the level of a sub-inspector), or any other officer as notified by the central or state government.

On a smaller scale, yet many of the states took a slew of steps that helped shape the startup ecosystem in the state. Meghalaya approved the Meghalaya Startup Policy 2018 which aims to help budding entrepreneurs and create employment opportunities.

As part of the policy, the state government will develop a startup portal and app which will aggregate all information related to the policy, its benefits and the procedure to avail them. The government has also proposed to develop quality infrastructure across the state with all necessary facilities made available for entrepreneurs. Approved institutions will be eligible for a one-time grant of 75% of capital cost (cost of building, equipment, connectivity etc.) up to a maximum of INR 5 Cr to set up an incubator.

The Nagaland government too had issued a notification pertaining to Nagaland Startup Policy 2019. The policy aims to create a conducive atmosphere and opportunity for local entrepreneurs.

Issued by the Department of Industries and Commerce, the Nagaland Startup Policy 2019, like most of the other state startup policies shall be effective for a period of five years since the date of notification.

While Karnataka has released a new state IT policy, Madhya Pradesh has launched a new scheme for small businesses that focuses on attracting investment and encouraging job creation among MSMEs in the state.

According to reports, under the scheme Madhya Pradesh MSME Protsahan Yojana, 2019, the government would provide 40% grant for setting up businesses in the state along with a provision of acquiring cheap land by providing 70% of employment to locals and representation of STs, SCs, and OBCs.

Policies That Failed To Get The Cabinet Nod Among the policies and guidelines which were expected to come into effect in 2019 but have failed to get the cabinet nod are ecommerce policy, Drone Regulations 2.0 and Intermediary Guidelines under the Information Technology Act, 2000.

Amid big ongoing war between local vendors and US giants Amazon and Flipkart, the government is now expected to come into effect early next year. Having released the draft earlier this year, the government will reportedly also include the recommendations to be made by Kris Gopalakrishnan committee.

The draft Information Technology (Intermediary Guidelines (Amendment) Rules) 2018 was released in December 2018. However, upon receiving wide criticism as well as humongous feedback on the draft, the fresh Guidelines is now expected to be released in January, 2020.

Drone Regulations 2.0 was supposed to be released in March, this year. The DGCA however, has failed to build the platform -- Digital Sky -- essential for the drone operations. The Digital Sky has been running in beta form for the last one year and is limited to very basic tasks such as registration.

There is no update from the DGCA on when Drone Regulations 2.0 will now be released.

Looking at the importance of AI, the MeitY had also constituted four Committees on AI: Committee on platforms and data on AI led by PP Chakraborty, IIT Kharagpur

Maharashtra set up Mumbai FIntech Hub to bridge the gap between investors and fintech startups in the country with respect to funding. For the same, it has already onboarded 50+ marquee investors including venture capital firms, family offices, and international investors including Blume Ventures, Indian Angels Network, SAIF partners, Kae Capital and others to help startups make direct connections with the investor community.

Committee on Leveraging AI for identifying National Missions in Key Sectors, led by Rajeev Sangal, IIT BHU

Kerala, Karnataka, Maharashtra and a few other states continued to make a number of international collaborations to promote startups, investments and innovation in the state.

All the four committees have submitted their reports to the ministry. If implemented, this opens a huge market for Indian startups who are leading the AI game in the Indian market.

Committee on mapping technological capabilities, led by R Chandrasekhar, NASSCOM, Committee on cybersecurity, safety, legal and ethical issues, led by Rajat Moona, IIT Bhilai

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State Policies

Major Initiatives And Implementation Timeline January Assam launches a state-backed Incubation Centre as part of its state policy

RBI removes NEFT, RTGS charges to boost digital payments

Tamil Nadu launches Startup Policy, creates a fund of funds with a corpus of INR 250 Cr

Meghalaya launches Startup Policy, to develop 500 startups in 5 years

SEBI releases startup listing guidelines

February Commerce Ministry amended FDI rules In Ecommerce: no more vendor exclusivity, US-India Strategic Partnership Forum (USISPF) calls it regressive

September Central Board of Direct Taxes (CBDT), issues a circular asking income tax officers to handle startup-related issues with “utmost care”

Govt announces National AI Programme

Karnataka announces a Vision Group for startups to provide insights on strengthening the startup ecosystem in the state

Digital Village Mission announced - To create 1 lakh digital villages

Tamil Nadu launches its own EV policy, 100% motor vehicle tax exemption to EVs

National Policy on Software products gets cabinet node National Policy on Electronics gets cabinet nod Nagaland Startup Policy launched

March Aadhaar and Other Laws (Amendment) Ordinance gets President Kovind’s approval

April Garg Committee proposes ban on cryptocurrencies, submits draft Banning of Cryptocurrency & Regulation of Official Digital Currency Bill 2019

May SEBI proposes framework for accreditation of startup investors Telangana releases draft blockchain policy © Inc42 Media | not for distribution

June

DPIIT prposes to formulate National Retail Policy

October DPIIT launches L2Pro India, an IP online learning platform to educate startups, MSMEs and innovators on protection and enforcement of their IPs Madhya Pradesh MSME Protsahan Yojana, 2019, launched, provides 40% grant for setting up businesses in the state

November DPIIT announces National Startup Awards 2020 Defence ministry proposes INR 500 Cr for defence startups Rajasthan releases draft startup and innovation policy

December Prohibition of Electronic Cigarettes (Production, Manufacture, Import, Export, Transport, Sale, Distribution, Storage and Advertisement) Bill, 2019 enacted PDP Bill introduced in lower house

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Growth In PerCapita Income & Diaspora The country’s per-capita income is estimated to have risen by 10% to INR 10,534 a month during the financial year ended March 2019, government data on national income showed Friday.

In 2017-18, the monthly per-capita income had stood at INR 9,580.

Net National Per Capita Income

Per capita income doubled in seven years from ₹63.5K to ₹1.25 lakh 13

11.9

11.1

Annual Growth (%)

11.5

9.5

9.3

9.6

8.6

6 2013

2014

2015

2016

2017

2018

2019

The per-capita income is a crude indicator of the prosperity of a country.

of the fiscal year ended March 2018-19, mainly due to poor show in the farm and manufacturing sectors.

The gross national income (GNI) at current prices is estimated at INR 188.17 lakh crore during 2018-19, as compared to INR 169.10 lakh crore during 2017-18, rising by 11.3%.

The growth in gross domestic product (GDP) was slowest since 2014-15. The previous low was 6.4% in 2013-14.

India’s gross domestic product is estimated to have slowed to a five-year low of 5.8 per cent in the last quarter

For full year 2018-19, the economic growth is estimated at 6.8%, compared to 7.2 % in the previous year.

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Year

Gender Analysis

The low rates of women entrepreneurship are reflected in a dismal score in the Index of Women Entrepreneurs, where India is ranked 52nd out of the 57 surveyed countries. The fact that few women own companies is part of a larger phenomenon of weak engagement of women in business. This further relates to a low female labor force participation rate as well as women having fewer opportunities to become business leaders, professionals and technical workers.

Indeed, despite high economic growth rates as well as an increase in the proportion of working-age women in the population, the participation in the workforce has decreased from 35 percent in 2005 to just 26% in 2018.

It is hardly a surprise, therefore, that the World Economic Forum’s Gender Gap Report finds India’s gender gap to be particularly prevalent in the indicator group “economic participation and opportunity,” where the country is ranked 142nd out of 149 countries. India’s overall rank is 108th.

Unequal education is an issue holding women back, and it is not a coincidence that states with relatively higher literacy rates also have more women entrepreneurs. The top five states with the highest percentage of women entrepreneurs are Tamil Nadu, Kerala, Andhra Pradesh, West Bengal, and Maharashtra.

Gender Bias In Funded Startups Of 2019

9%

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share of female in founders of funded startups in 2019

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91%

share of male in founders of funded startups in 2019

Corporate

Nabard

VC Fund

Omnivore

Corporate

Pioneering Ventures

Undisclosed

November

Fintech, Technology, Ecommerce, Consumer Services

AngelList-India focused fund

F und N a me

July

Sector Agnostic

Sequoia Capital India Seed Fund I

Sector Agnostic

Fluid Ventures Fund I

$99.6 Mn

May

Agritech/Agriculture

NABARD-Venture Capital Fund I

$97 Mn

April

Fintech

Omnivore Partners India Fund II

VC Fund

$70 Mn

June

Foodtech

Rural Impact India Fund

MTR Foods

Corporate

$7 Mn

May

Ecommerce, Consumer Services

Seed Fund

Indian Angel Network

VC Fund

$63 Mn

September

Healthtech

Indian Angel Network VC Fund India Quotient 3

India Quotient

Corporate

$60 Mn

November

Fintech

3one4 Capital Rising I

3one4 Capital

VC Fund

$6.5 Mn

December

Artificial Intelligence, Consumer, EdTech, Enterprise, Enterprise Software, FinTech, Information Technology, Internet, Internet of Things, SaaS

Unicorn India Ventures

VC Fund

$58.3 Mn

July

SaaS, fintech, healthtech, Unicorn Venture Fund III robotics, gaming and digital content

Multiples Alternate Asset Management

Corporate

$560 Mn

November

Consumer Goods, Multiples Private Equity Healthtech, Enterprise Tech Fund III

Accel India

VC Fund

$550 Mn

October

Consumer Services, Enterprise Tech

Accel India VI Fund

Apis Partners

VC Fund

$550 Mn

November

Technology

Apis Growth Fund II

Indian Angel Network

VC Fund

$53 Mn

November

Deeptech

Indian Angel Network Maiden Fund

Inventus Capital Partners

VC Fund

$51 Mn

October

Sector Agnostic

Inventus-III

*Launched *To be launched

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Fluid Ventures

Undisclosed

April

F o cus S ecto rs

VC Fund

Undisclosed

La unch Mo nth

Sequoia Capital India

VC Fund

F und S ize ( I n Mn, U S D)

F irm N a me

AngelList

F und Typ e

Funds Launched in 2019

VC Fund

AET Fund

VC Fund

SoftBank

VC Fund

Venture Catalysts

$50 Mn

September

Continuum I 3one4 Capital

Sector Agnostic

Strategic Ventures Fund II

F und N a me

September

Consumer Internet, EdTech, FinTech, Enterprise Tech, Deeptech

F o cus S ecto r s

Strategic Ventures Fund II

$50 Mn

February

La unch M o nth

VC Fund

$50 Mn

F und S ize ( I n M n, U S D)

Frontline Strategy

VC Fund

F und Ty p e

F ir m N a me © Inc42 Media | not for distribution

3one4 Capital

Technology

SVFII

$50 Mn

April

Media and Entertainment

Proprietary Capital Fund

$5 Bn

March

SoftBank Innovation Fund

SoftBank Innovation Fund

Corporate

$43.41 Mn

August

Fintech

9Unicorns Fund

AdvantEdge

Corporate

$42 Mn

January

Fintech, Enterprise Tech

AdvantEdge Founders Fund-II

Endiya Partners

Corporate

$40 Mn

May

Traveltech, Logistics

Endiya Partners Fund II

India Quotient

VC Fund

$40 Mn

November

Enterprise tech, Deeptech Fintech, Social Networking

India Quotient opportunities fund

Warburg Pincus

VC Fund

$4.3 Bn

June

Consumer Services, Healthtech, Real Estate, Fintech, Media and Entertainment

Warburg Pincus China-Southeast Asia II

A91 Partners

Corporate

$350 Mn

May

Consumer Internet, Healthtech, Fintech

A91 Partners- Fund I

021 Capital

VC Fund

$32 Mn

January

NA

021 Capital Fund I

Matrix partners India

VC Fund

$300 Mn

January

Consumer Internet, Ecommerce, Healthtech, Fintech, Edtech,Logistics, Media and Entertainment

Matrix Partners India Fund III

Avataar Capital Management

Corporate

$300 Mn

September

Enterprise tech, Deeptech

Avataar Venture Partners I

DSG Consumer Partners

Corporate

$30 Mn

April

Consumer Internet

DSG Consumer Partners III

Windrose Capital

VC Fund

$30 Mn

November

Healthtech, Logistics

Windrose Capital Fund I

ZNL Ventures

VC Fund

$3 Mn

November

Deeptech

ZNL Ventures Fund I

Artha Venture

VC Fund

$29 Mn

June

Fintech, Technology

Artha Venture Fund I

*Launched *To be launched

133

Corporate

InnoVen Capital

VC Fund

Chiratae Ventures

VC Fund

Norwest Venture Partners VC Fund

$21 Mn

April

Sector Agnostic

F und N a me

September

Consumer Goods, Consumer Internet, Telecomunication, Edtech, Fintech

Norwest Venture Partners XV

India-focused fund IV

Fintech

Accion Venture Lab - Seed Fund

$200 Mn

July

Fintech

Alteria Capital India Fund I

$20 Mn

February

Technology

Alfa Ventures Capital fund

$2 Bn

December

Sector Agnostic

Stride Ventures Fund I

May

Ecommerce, Consumer Internet

STRIVE III Investment Limited Partnership Fund

Chiratae Ventures

VC Fund

$150 Mn

September

Ecommerce, Media

Good Capital Fund I

Accion Venture Lab

VC Fund

$15 Mn

July

Fintech, Enterprise Tech

SoftBank Vision Fund II

August

FinTech

Fireside Ventures Maiden Fund II

Alteria Capital

VC Fund

$140 Mn

Dhianu Das

VC Fund

$14.06 Mn

March

Fintech

Anthill Ventures Fund

Stride Ventures

Corporate

$14 Mn

January

Real Estate

Meenakshi Multiples

GREE Ventures

VC Fund

$130 Mn

July

Gaming

Fund I

Good Capital

Corporate

$12 Mn

October

Fintech

Varanium NexGen Fund

SoftBank

VC Fund

$108 Bn

November

Renewable sources

Fireside Ventures

VC Fund

$100 Mn

September

Fintech

Environmental Sustainability Fund Accion Venture Lab LP

Anthill Ventures

VC Fund

$100 Mn

January

Enterprise tech, deeptech Tamil Nadu Startup Fund of

Meenakshi Group

Corporate

$10 Mn

May

Fintech

Debut Fund

Winzo

Corporate

$1.5 Mn

September

Sector Agnostic

Chiratae’s Fund IV

Funds

*Launched *To be launched

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Tamil Nadu Govt

$23 Mn

F o cus S ecto r s

Corporate

$27.9 Mn

November

La unch M o nth

Accion Venture Lab

VC Fund

$28 Mn

F und S ize ( I n M n, U S D)

Procter & Gamble India

Corporate

F und Ty p e

F ir m N a me

Varanium Capital

Roadblocks For Indian Startup Ecosystem According to the government of India, the Startup India initiative has helped create an estimated 187K direct jobs since its inception in 2016 and the number of related indirect jobs is currently at 560K. This job growth has come at a rough cost of more than INR 2,500 Cr disbursed by the government to fund startups.

In 2016, the centre had established an INR 10K Cr fund of funds under the Small Industries Development Bank of India (SIDBI) to meet the financial needs of the startups.

Skewed development of startup ecosystem Fading investor confidence towards early stage startups Policy myopia of the government

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Skewed Development Of The Startup Ecosystem In India In most socio-economic cases like infrastructure, electricity etc, the dominance of top metro cities is quite evident. In the case of the startup ecosystem, Bengaluru, Delhi NCR and Mumbai have had an upper hand since the beginning of the startup era compared to the rest of the startup hubs.

The share of these three cities to the total capital inflow into Indian startups between the interval of 2014 to 2019 was 89% or $52 Bn out of $58 Bn. In addition to this, the availability of venture capital in Bengaluru, Delhi NCR and Mumbai is also relatively higher than others. For instance

135

the count of total unique investors who participated in startup funding beyond the top three startup hubs (Bengaluru, Delhi NCR and Mumbai) for the year 2019 was 211 compared to the top three hubs’ 681.

Investor Participation In 2019 Highly Skewed Towards The Top Three Startup Hubs

In 2019, only 211 out 892 unique investors partcipated in funding rounds of startups beyond Bengaluru, Delhi NCR and Mumbai

Others 23.7%

76.3% Bengaluru, Delhi NCR and Mumbai

Implications: Disparity in development between two hubs in any economy is toxic in the long term, in the case of Indian startup ecosystem the scenario is no different. In India, the startups has always been the beacon of tech adoption, if the development of startup ecosystem only remains limited to the top three hubs, so would be the adoption of new age technology.

As a result the development of the overall consumer internet market in the country would be limited only to a handful of cities.

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Fading Investor Confidence Towards Early Stage Startups Since 2017, there is a downward trend in the number of unique startups funded at seed stage in contrast to late and growth. The primary reason behind the fading confidence of Indian investors towards seed stage ventures or new ventures is the high failure rates of startups due to lack of sustainability on the business front.

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Also, with the growing syndication opportunities the participation in funding rounds of late stage for any investor with a decent ticket size has become relatively easier compared to earlier. Henceforth, the investor attention towards new venture opportunity is fading with the passing of time.

Seed Funding Dwindles For seed stage startup funding plunged by 44% between 2018-2019

10%

8%

6% 5%

3%

1%

Funding Amount CAGR (2015-2019)

12%

13%

0%

Growth Stage

Late Stage

Seed Stage

Funding Stage

Late Stage Funding Shoots Up While seed and growth record negative CAGR, late stage funding showed 11% CAGR between 2015-2019

11

10%

3%

5%

19% 0%

-17%

-1 -6%

-5%

-15%

Late Stage

Growth Stage

Seed Stage

Funding Stage

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-10%

-15

Startups Funded CAGR (2015-2019)

15%

Implications: The seed stage ecosystem is the foundation of the overall, so a revival of seed stage funding in H1 2020 would have a big positive impact and be a shot in the arm for the overall startup ecosystem. At the same time, a further delay in this context can impact the overall spirit of entrepreneurship in the country, pushing back the Indian startup ecosystem’s progress.

Policy Myopia Of The Indian Government In the context of mapping policy which would act as an catalyst for new age industries the Indian government has always been a late bloomer. Few known cases to justify this statement is the impact of fiasco created due to governments short sightedness in emerging segments such a cryptocurrency or the draconian Angel tax (policy uncertainty of a long period), epharmacy (disagreement among various states) and many more.

The degree of short sightedness which the Indian government has in these matters always end up hampering both the investor confidence and business development / further growth of the market.

Angel Tax Had Hit The Seed Funding Worst The growth of angel tax cases in early 2018, had an immediate impact on seed funding. The funding at this stage started to dwindle in H1 2018 itself with the deal count being 30% less than H2, 2017 400

Seed Stage Deal Count

300

200

100

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0 H1-2017

H2-2017

H1-2018

H2-2018

H1-2019

H2-2019

Halves Implications: While finalising an investment, the policy framework governing the market plays a crucial role. If the policy changes by the government towards startups related sectors continue to be such then growth of the startup ecosystem will be hampered drastically in the long run, primarily due to decreased investor participation towards the specific segment/sector of the ecosystem.

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Indian Startup Funding Predictions

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2020 & 2021

Looking at the average annual growth of funding amount from 2014 to 2016 and from 2017 to 2019, we can see the growth and subsequent stabilisation.

Between 2014 and 2016, the average annual growth in the capital inflow was 18%, whereas in the second period, the growth rate was approximately -1%.

According to DataLabs by Inc42 estimates, 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.

We categorise the pre-2017 period as the growth stage of the Indian startup ecosystem’s life cycle, whereas the post-2017 era can be called the transition period between growth and maturity. As the Indian startup ecosystem heads towards maturity, capital inflow is poised to stabilise along with the frequency of deal count.

In the Indian Tech Startup Funding Report in Q3 2018, DataLabs by Inc42 had predicted that the funding amount in Indian startups would hit the $12 Bn mark with 748 deals for the calendar year of 2019. With a total capital inflow of $12.7 Bn across 766 deals, the startup ecosystem growth in India was more or less along these predicted lines. And the growth for 2020 will be incremental, at best as per our projections.

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. Similarly, the count of funding deals is estimated to be in the range of 750 to 800.

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 cashburn to acquire users, and the rising popularity of syndication in investments due to growing risk of startup failures.

This trend of evolutionary growth has been playing out since 2017, the year when the funding amount in Indian startups reached its historical peak of $13 Bn. Since then, the capital inflow in Indian startups has remained more or less stable.

YoY Trends: Estimated Funding Amount And Deal Count By 2021 Funding amount is estimated to reach $17 Bn across 799 deals by 2021 $20 Bn

1250

1000

750 $10 Bn

500

$5 Bn

250

0

$0 Bn

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2014

2015

2016

2017

2018

2019

Year Funding Amount

140

Deal Count

2020

2021

Deal Count

Funding Amount

$15 Bn

Seed Funding Amount Set To Rise In 2020 While we do not expect the state of seed stage investments to improve drastically in terms of unique startups funded or overall deal count by 2020 end, seed funding amount will bounce back.

Seed Stage Funding To Show Recovery In 2020 According to projections, seed funding amount will grow by a whopping 41% in 2020 $50 Mn

800

Funding Amount

600

$30 Mn

400 $20 Mn

200

Startups Funded And Deals

$40 Mn

$10 Mn

0

$0 Mn

2014

2015

2016

2017

2018

2019

2020

Year Deal Count

Unique Startups Funded

Deal count and count of unique startups funded will continue to diminish at a rate of -13% (2015-2020).

On the bright side, the value of funding amount is expected to witness an uptick of 41% ($35.6 Mn) compared to the $25 Mn mark reached in 2019.

The growth in value of funding amount in seed stage investments will primarily come from the overall ticket size of investment increasing with time. The median funding amount of startup investments for the year 2019 was $4 Mn which is a 3.4x surge compared to $1.16 Mn in 2015. Similarly, the median funding amount in seed stage surged 2x from $359K in 2015 to $764K in 2019.

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Funding Amount

Healthtech Startups In For A Bounty

In terms of emerging sectors, in our 2018 report, we had expected the rise of IoT, blockchain, cybersecurity as well as space tech. The latter, in particular, has grown in stature — even if not in funding amount — thanks to the launch of India’s Chandrayaan-2 mission and the buzz around the Indian space sector.

For 2020, DataLabs by Inc42, expects healthtech and fintech startups to shine in terms of deal count and funding. Finance and healthcare are two of the most significant aspects of the Indian economy. The fact that startups operating in fintech and healthtech develop products or services that are so vital to life means that the consumer and business demand for improved functionality and more innovation is always going to be high, which is what investors will eventually look at.

Startups Funded In Fintech Expected To Historical Reach Peak In 2020 The count of unique startups funded in fintech and healthtech is expected to surge 14% and 8% in 2020 compared to

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Number Of Unique Startups Funded

125

100

75

50

25

0

2014

2015

2016

2017

2018

Years Fintech

142

Healthtech

2019

2020

In case of fintech, the value of total funding amount in 2020 is estimated to be approximately $2.01 Bn which is a decline of 22%, but this downfall is a simple market correction of capital inflow in the sector, as the trend of alternative year downfall is quite clear in fintech since 2014.

From 2015-2020, the capital inflow in this sector is growing at a CAGR of 5%.

On the other hand, the count of unique fintech startups funded is estimated to be 121 compared to 106 in 2019, growing at a compounded annual growth rate of 12% For 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.

In 2021, provided that the market conditions are favourable, DataLabs by Inc42 estimates the annual capital inflow in the Indian startup ecosystem to reach a new historical peak, much higher than the $13 Bn invested in 2017, the peak funding year so far.

In August of 2017, the Supreme Court of India decided that the “right to privacy is protected as an intrinsic part” of the constitutional rights to life and personal liberty. This paved the way to Personal Data Protection Bill, 2018 (PDPB).

The PDPB is modeled after the GDPR (General Data Protection Regulation), but there are significant differences between the Indian legislation and European law.

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With clear legislation in place, Indian corporations are taking the steps to implement privacy and data security for their organisations. This has created a huge market for data security services and products in India. India’s cybersecurity market is expected to register an annual growth of 15.6 per cent and rise to $3.05 Bn (about INR 21,600 Cr) by 2022 from $1.97 Bn (about INR 14,000 Cr) in 2019.

As per DataLabs estimates the funding amount and deal count in 2020 is not going to be much different from 2019. The funding amount is estimated to be $12.6 Bn(1% decline from 2019) whereas deal count is estimated to be 778(2% increase compared to 2019).

In 2021 we expect the investment activity to rise, making the total funding amount $17 Bn a new historical peak. Whereas, the deal count is estimated to be 799. The growth rate(2015-2021) of funding amount is estimated to be 11%.

YoY Trends: Estimated Count Of M&As By 2021

The merger and acquisition activity is showing a downward trend in the near future

101

2019

2020

86

111

124

M&As Count

100

117

128

149

150

50

0 2015

2016

2017

2018

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Year

144

2021

Methodology The investment activity recorded in the report for the year 2019 is dated from 1st January to 26th December.

The default base year for calculating growth rate(CAGR%) is 2015, unless mentioned otherwise. The segregation of funding stages in this report is done on the following basis— seed stage(before pre series A), bridge(transition funding rounds like Pre series A,B C), Growth Stage(Series A and B) and Late Stage(Series C and beyond).

The median is calculated using quartile two of the data set. Forecasting of funding amount and deal count is done using exponential smoothing on annual trend of capital and deal inflow. The Top 5 technologies to look out for in 2019 based on the problems these technologies are capable of solving in context of the Indian economy.

We arrived at this list by considering the social and economic problems these technologies will be able to solve better than their contemporaries. The top sectors and startup hubs are based on the number of deal counts poured in the respective sector/hub between 2014 to 2019.

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The roadblocks section has been formulated analysing the impact of these policy changes on the investment activity post and pre implementation. Our definition of tier 1 cities include— Delhi NCR, Bengaluru, Mumbai, Chennai, Hyderabad, Pune, Kolkata and Ahmedabad.

Whereas the “top three startup hubs” in the report is referred to Bengaluru, Delhi NCR and Mumbai, derived from their dominance in overall startup investment activity since 2014.

Glossary

© Inc42 Media | not for distribution

Tech Startup

146

Technology enabled or technology driven, highly scalable businesses driven towards rapidly creating massive impact

CBDT

Central Board of Direct Taxation

YoY

Year-on-Year

QoQ

Quarter-on-Quarter

MoM

Month-on-Month

Seed Funding

Funding raised in pre-seed, seed, and angel funding rounds

Bridge Funding

Funding raised in transition investment rounds like (Pre series A,B C)

Mn

Million

Bn

Billion

Growth-Stage Funding

Series A and Series B considered as growth stage

Tn

Trillion

Late-Stage Funding

Funding raised in Series C, Series D rounds and beyond it

B2B

Business To Business, Business To Consumer

Delhi-NCR

Delhi and its adjoining areas like Noida, Gurugram, Faridabad, etc

B2B/B2C

Business To Business/Business To Consumer

Unicorn

A unicorn is a startup valued at over $1 Bn

B2C

Business To Consumer

H1

Half yearly January-June,

Soonicorns

Startups that have a high chance of joining the unicorn club

H2

July-December

Average Ticket Size

Funding amount/disclosed number of deals

H1-2018

Duration January-22 June

$XXK

XX Thousand USD

$XXM

XX Million USD

are

VC

Venture Capital

$XXB

XX Billion USD

DCF

Discounted Cash Flow

4W

4W 4 wheelers

DIPP

Department of Industrial Policy & Promotion

2W

2W- 2 wheelers

B2C:

Bibliography https://ceoworld.biz/2019/01/02/most-startup-friendly-countries-in-the-world-2019/ https://www.heritage.org/ https://knowledge.wharton.upenn.edu/article/three-waves-tracking-evolution-indias-startups/ https://www.orfonline.org/research/the-indian-startup-ecosystem-drivers-challenges-and-pillars-ofsupport-55387/ https://thepangean.com/A-Global-Perspective https://tradingeconomics.com/india/unemployment-rate https://economictimes.indiatimes.com/news/economy/indicators/india-jumps-to-63rd-position-in-world-banksdoing-business-2020-report/articleshow/71731589.cms?from=mdr https://www.businesstoday.in/current/economy-politics/growth-in-rd-expenditure-to-be-targeted-2-of-gdp-by2022-pm-economic-panel/story/367312.html http://psa.gov.in/sites/default/files/pdf/RD-book-for-WEB.pdf https://www.jpmorgan.com/merchant-services/insights/reports/china https://www.ibef.org/economy/foreign-direct-investment.aspx https://www.livemint.com/market/stock-market-news/fii-inflows-in-first-six-months-of-2019-at-highest-in-fiveyears-1561749708898.html https://tradingeconomics.com/india/foreign-direct-investment https://www.livemint.com/politics/policy/india-s-per-capita-income-rises-10-to-rs-10-534-a-month-infy19-1559318636062.html https://economictimes.indiatimes.com/jobs/the-economic-times-india-dialogues-gig-economy-not-best-modelfor-job-creation/articleshow/71750416.cms?from=mdr https://www.workdesign.com/2019/04/space-as-a-service-its-time-to-break-the-norm/ https://medium.com/startup-grind/https-medium-com-startup-grind-the-big-bang-theory-of-startup-india515544f4a17c https://static.toiimg.com/img/67464173/Master.jpg https://www.orfonline.org/research/women-entrepreneurs-in-india-what-is-holding-them-back-55852/ https://inc42.com/buzz/women-account-for-only-a-fifth-of-indias-startup-workforce-report/ http://egazette.nic.in/WriteReadData/2019/214523.pdf https://meity.gov.in/writereaddata/files/constitution_of_committee_of_experts_to_deliberate_on_data_governanceframework.pdf

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https://meity.gov.in/writereaddata/files/Draft_Intermediary_Amendment_24122018.pdf

Inc42 is a leading Indian media and information platform, known for its end-to-end coverage of the Indian startup ecosystem. We work with the mission to empower, connect & grow the Indian Startup Ecosystem by providing a deep understanding of the startup economy through data-backed news and analysis.

Inc42 is the authoritative voice of the Indian Startup Ecosystem and it has brought to light the amazing stories of thousands of startups, entrepreneurs, technological innovations, businesses and many other constituents of the startup ecosystem.

Starting 5 years ago, Inc42 has now become the gateway to the Indian startup ecosystem, having published more than 20,000 stories and touching the lives of more than 20 Million people in India every month.

www.inc42.com

www.datalabs.inc42.com

Credits

DataLabs

The research wing of Inc42 Media, DataLabs specialises in producing comprehensive data-

driven and insightful reports about the ballooning Indian

startup

economy.

Since

its

launch,

DataLabs has produced over 35+ reports — covering diverse sectors such as Blockchain,

Agritech, Foodtech along with regular coverage of investments and the overall health of the Indian startup ecosystem.

EDITED & COMPILED BY Ankan Das Sandeep Singh Naga Jayadeep Akula Nikhil Subramaniam

DESIGNER Manash Pratim Ashish Vasdev

DataLabs reports are aimed at bridging the

INFOGRAPHIC

information & data gap about the Indian startup

Naushad Alam

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economy. In the last few years, DataLabs has produced comprehensive & insightful reports to help readers make more informed decisions at work, in investments, and more. It is responsible for producing detailed reports covering the

diverse industries of the Indian startup ecosystem spread across 29 states and 7 Union Territories of India.

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public and private sources. We have made every attempt to ensure that the information presented in this report is accurate and free from any discrepancies. Ideope Media Pvt Ltd, the parent company of Inc42 Media and Inc42 DataLabs, is not responsible for any inaccuracy in the information presented or for any damages caused by the use of information provided in this report. In case of any discrepancy or errors in the data, you can contact us at editor@inc42.com and we will try our best to update the information in the digital version of the report. We are constantly updating our database of startups. Due to new startups from various domains being updated, previously reported deals and amounts might vary.

This report has been prepared in good faith on the basis of information available at the date of publication without any independent verification. Ideope Media Pvt. Ltd. does not guarantee the accuracy, reliability or completeness of the information in this publication. Readers are responsible for assessing the relevance and accuracy of the content of this publication. While this report talks about various individuals and institutions, Ideope Media Pvt. Ltd. will not be liable for any loss, damage, cost or expense incurred or arising by reason of any person using or relying on any information in this publication.

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Disclaimer

The data provided in this report has been obtained from