Management consulting firm Praxis Global Alliance and IVCA have conducted a market analysis of India’s startup ecosystem, finding that the innovative players are drawing tens of billions in investments from around the world.
Between 2016 and 2020, more than $60 billion has flown into well over 50,000 Indian tech startups, making India the third largest tech startup hub in the world. Investments are only expanding with time, with 2019 alone accounting for $34 billion in funds flowing in. This year, around $17 billion had already come in between January and May – exceeding investment volumes for all of 2016.
The steadily upward trajectory depicts a vibrant startup ecosystem, with a variety of tech-enabled industries playing a vital role. Up until this year, the online services segment – including aggregators, ecommerce platforms and other services – have dominated the tech startup landscape. Also at the forefront is the business and financial services (BFSI) sector, where technology has become the source of competitive advantage.
In 2020, telecom has taken centre stage, driven by Reliance Jio. The company has been in the spotlight in recent years for its low-cost high-penetration data services, but was propelled to global prominence earlier this year through a $5 billion plus deal with global tech giant Facebook. Such large deals undoubtedly boost deal value each year, although Praxis Global Alliance reports that most investments are helping startups scale their business.
For instance, only around a third of all investments flowed into later stage funding – where the business has at least broken even and might already be profitable. The rest – around 65% of funds – is flowing into startups at various stages of their growth journey.
This ranges from seed funding, where entrepreneurs source capital to get their startup off the ground, to Series D funding – financing a major growth move such as a merger or acquisition. Interim funding rounds – Series A, B and C – are aimed at taking a startup through various stages of growth, from optimising products and services to scaling up the business, all the way to driving aggressive expansion.
These funding stages combined dominate the capital flowing into India’s startup landscape. In fact, tech-focused startups actually account for most of the early stage funding coming into India. Home to a large base of digitally skilled professionals, India has long been positioned as a future startup hub that could rival the likes of Silicon Valley. Regulators and private players in the country have been engaged in efforts to make this happen, and the result is a budding environment where all means of tech is being explored.
Since 2017, more than $600 million has flowed into startups working in the Software as a Service (SaaS) or artificial intelligence (AI) space. Dominating this segment has been financial technology (FInTech), followed with some distance by tech startups that work on Internet of Things (IoT) solutions, logistics technology, analytics and human resource services, among others.
As mentioned, online services has also been a prolific market segment, with new platforms emerging for FinTech, Real Estate Tech, FoodTech, Agriculture Tech and Apparel Tech, among a range of others. Including EdTech, and media & entertainment platforms, the online services market as a whole has drawn nearly $1 billion in early stage funding since 2017.
Healthcare & life sciences is another sector drawing significant early stage investments, particularly as India’s eHealth market lifts off. So far, the sector has drawn nearly $250 million since 2017, although the Covid-19 crisis is likely to accelerate this trend. Consumer products and energy are some other areas where tech startups are making strides.
Who’s who in the scene?
The big picture is that India’s startup ecosystem is solving problems across industries. Examples abound of companies that have emerged in the last 5-10 years, and are now dominant not only across the Indian market but around the world as well. Peppered across sectors, these companies have drawn billions in funding. Praxis Global Alliance lists a number of these success stories.
An example is food delivery platform Swiggy, which has raised well over $1.5 billion in funding in just half a decade of existence. HealthTech firm PharmEasy is another example. The firm connects pharmacies to diagnostic centres, while also using proprietary tech to verify prescriptions. Since launching in 2015, the company has raised more than $300 million.
Also on the list is learning app Byju’s, which simplifies complex learning concepts that emerge in the K-12 curriculum. In less than a decade, the app has raised more than $2 billion. Notably, the firm has now expanded globally, as have a number of other firms such as food aggregator Zomato, SaaS firm Freshworks and gaming company Dream 11.
The upshot of these efforts is that India is now a bright spot in the global tech landscape. With the country placing among the top five startup hubs across the world, Indian business and tech hubs such as Bengaluru, Delhi and Mumbai feature regularly among the top 10 startup cities in the Asia-Pacific.
India is home to more than 1,000 active institutional investors and well over 300 accelerators and incubators. In 2019 alone, there were 27 ‘Unicorns’ – a startup valued at more than $1 billion – in India and another eight have emerged since the start of this year. Nearly half of these unicorns operate in a global market, signaling the scale of efforts in India.
What’s driving growth?
According to the researchers, there are five key factors that have combined to make India the bright spot that it is today. For one, the government is heavily involved in promoting startups in the country. Campaigns such as ‘Make in India’ or ‘Startup India’ are all aimed at facilitating more entrepreneurship in the country. Leading on from this is the fact that global tech players are now looking to establish research & development add delivery centres in India – the second factor contributing to India’s appeal.
Regulatory backing combines with the numerous success stories emerging out of India to present the third success factor – the changing perception towards entrepreneurship in India. Stable professional jobs are no longer considered more prestigious that entrepreneurial activity. The third and fourth factors relate to the sheer size of India’s population. Not only does India have a sizeable pool of digital talent, but it also has a consumer market that exceeds 1 billion people – always an appealing feature for investors.