ANNUAL REPORT Indian Tech Startup Funding 2018 Report Note from the Analyst Ankan Das Head | DataLabs | Inc42 The last year — 2018 — was a milestone year for the Indian startup ecosystem. While the irrational exuberance of 2015 and 2016 — which led to the valuation bubble in the ecosystem — seems to have waned, there is a clear funding gap that was observed last year. According to Inc42 DataLabs, Indian startups received $11 Bn in funding through 743 deals in 2018, with an overall decline in both deals and funding as compared to 2017. Further, 48% of the total funding was lapped up by just 1.4% of the startups that raised funding — a trend Beyond these challenges, there lies an immense observed in 2017 as well, when 52% of the funding was opportunity for the right business idea backed by smart raked in by just 1% of the startups. execution. However, such hurdles are leading to an outflow of businesses to other countries with favourable Clearly, over the last 2 years, Indian startup funding seems business infrastructure. Nineteen out of 26 unicorns in to have been led by a handful of unicorns and soonicorns. India have entities in foreign countries, primarily because Add to this the dip in investor participation in funding of the ease of funding, regulation, and taxation norms in (angel participation fell by 30% and VC by 10% as those countries. compared to 2017) and a 40% drop in seed deals, both clear indicators of a funding crunch. The startup sector now finds itself on the precipice of a new era. New technologies such as blockchain, GAN, 3D Although the Indian startup ecosystem churned out 11 printing, deep tech, etc, have magnified the scope for more unicorns in 2018, the percentage of unicorns in innovative business models to address real and present India is nowhere close to that of the US or the UK. Indian problems. This makes entrepreneurship and startups more sustainable on their home ground, but the Understandably, startups in India have to deal with lack of clear-cut, supportive policies and infrastructure is challenges their contemporaries in other countries are not holding back the ecosystem’s potential and leading to the faced with. For instance, comprehending the sheer size startup exodus as observed in 2018. of the country and its cultural diversity, the lack of a skilled talent pool, the angel tax dilemma, an uncertain In this edition of the Indian Tech Startup Funding Report ecommerce policy, the data surveillance order, etc. Some 2018, we take a look at the landscape of funding in the of these factors have made investors wary of investing in startup sector in 2018 and address the whys of the fall of the startup ecosystem, leading to the fall of FDI inflow. key funding metrics of the Indian startup ecosystem. Table of Contents Scope Of The Report 1 Executive Summary 2 Introduction To The Report 5 Indian Tech Startup Funding Overview 7 Stagewise Analysis 10 Business Model Breakdown 19 Sectorwise Analysis 25 Demographic Breakdown 64 Investor Participation In Funding 86 The Game Of Consolidations 98 Top 5 Technologies To Look Out For In 2019 99 India & The Other Startup Ecosystems 107 Indian Startup Ecosystem & Impact 115 Startups & Jobs Impact 122 Roadblocks 126 Predictions For 2019 130 Methodology 133 Bibliography 135 Scope Of The Report Funding is an integral part of any startup ecosystem. The Apart from funding trends and patterns, the report offers a rise of fall of funding has a significant role in shaping and detailed analysis of the shift in startup business models, the helping evaluate a startup ecosystem. For the Indian startup performance of the top sectors, and the emergence of new ecosystem, 2018 was a year of late- and growth-stage technologies in the year gone by. Apart from sectors, we funding. The ecosystem witnessed some of its biggest have also talked about the leading startup hubs in the investments, along with the entry and exit of numerous country, with Hyderabad and Pune being the new, emerging players. However, there was a decline in the number of ones. The impact of new, state-specific startup policies on deals and the amount of funding as compared to 2017. Last the future of their respective startup ecosystems has also year, we witnessed a steep rise in seed and bridge funding been analysed. amounts, which is reflective of the rising interest of investors in young startups and the opportunities they are creating. The Indian startup ecosystem’s efforts to carve out a leading position among the top economies of the world and The aim of this report is to provide readers with an in-depth to compete with other emerging startup nations merits a analysis of the changes in the funding scenario in the Indian comparison on an international scale. Hence, in this report, startup ecosystem in 2018 as compared to the past four we have compared the Indian startup ecosystem with its years. It provides a trend analysis of funding by stages over counterparts. the past five years. The report also delves into how investor interests are changing and why M&A is the new game in the Overall, the report showcases the milestones achieved by ecosystem. the Indian startup ecosystem in 2018 along with the roadblocks and predictions for 2019. 1 © Inc42 Media | not for distribution Executive Summary $11 Bn was raised across 743 deals 25% of the total funding in startups in 2018 since 2014 was made in 2018 Bengaluru secured the top slot with Late-stage funding increased by 247 deals and $4.75 Bn in total 18% in comparison to 2017 funding 40% drop in seed stage funding was The number of deals and investment reported in comparison to 2017 in 2018 plunge by 20% and 16% respectively compared to 2017 A total of $2.4 Bn was raised across 232 deals in growth stage 11 Indian startups entered the unicorn club in 2018 In late stage, $8 Bn was raised across 106 deals Accel partners with 28 deals emerged as the most active VC of Enterprisetech and fintech witnessed 2018 followed by Sequoia Capital the maximum number of M&As with (24) and Blume Ventures (18) 30 deals and 18 deals respectively © Inc42 Media | not for distribution 2 The hybrid business model, For healthtech segment, total B2B-B2C emerged as the most investment surged by 45.06 % from favourable model in 2018 $0.34 Bn in 2017 to $0.50 Bn in 2018, however, the number of deals Fintech startups secured $1.4 Bn, decreased by 40.51% making it the top funded sector of 2018 Investment amount in deeptech surged by 20.68% from $ 120 Mn in Edtech sector witnessed 85.29% 2017 to $ 150 Mn in 2018 increase in funding in comparison to 2017 Ecommerce investments fell by 41.37% in 2018 Investment in consumer services startups surge by 324.14% in 2018 3 © Inc42 Media | not for distribution © Inc42 Media | not for distribution 4 Introduction To The Report Unicorns were the flavour of the year in passing — 2018. India witnessed the entry of 11 startups into the much-celebrated Unicorn club. While it may not have been the best year in terms of the number of deals or funding compared to the previous year (2017), it marked several milestones, including the biggest acquisition in India’s startup history — Flipkart’s takeover by Walmart — new policies, and the entry of some of the biggest international players into the country. Startups such as Swiggy, OYO, and Paytm Mall, among others, achieved the coveted unicorn tag last year. And the deal that created the most buzz in India as well as abroad was Walmart’s acquisition of a whopping 77% stake in India’s largest ecommerce company — Flipkart — for $16 Bn. In 2018, a total of $11 Bn was invested in the Indian startup ecosystem. Giants such as Berkshire Hathaway and Walmart made their entry into the country by investing in Paytm and Flipkart respectively. Accel Partners India, Sequoia Capital India, and Blume Ventures remained the most active investors. Foodtech was on fire with the two biggest food delivery platforms — Zomato and Swiggy — crossing the $1 Bn mark last year. The duo raised massive rounds, made acquisitions, and introduced new services to strengthen their presence in the market. Meanwhile, home-grown cab aggregator Ola and hospitality chain OYO, armed with multi-million-dollar funding cheques, fuelled their international expansion. While ecommerce, fintech, and consumer services emerged as the top funded sectors of 2018, there were some startups that surpassed experts’ expectations. One such startup that left everyone surprised with its superlative growth is B2B ecommerce platform Udaan, which raised a total of $275 Mn in 2018, taking its valuation to $1 Bn and earning it the epithet of the fastest startup to enter the unicorn club in India (it was 26 months old when it achieved the feat). Coming to funding, the year wasn’t a great one for the Indian startup ecosystem — the number of deals declined by 21% and the total funding amount decreased by 16%. Even M&A deals reported a 3% fall in comparison to 2017. 5 © Inc42 Media | not for distribution © Inc42 Media | not for distribution 6 Overview 743 $11Bn Total Deals Total Amount 637 125 Unique Startups Funded Total M&As 416 283 Unique Angels Unique VCs Fintech Bengaluru Sector With Maximum Deals Hub With Maximum Deals 7 © Inc42 Media | not for distribution YoY Trend : Funding & Deals S FUNDING AMOUNT DEALS N 14 1400 ILLIO B 12 1200 N I Flipkart 10 Paytm Swiggy 1000 Ola OYO 8 PhonePe ReNew Power 800 BYJU’S 6 Flipkart 600 Paytm Mall 4 Zomato 400 Amazon India 2 Udaan 200 0 0 2014 2015 2016 2017 2018 In 2018, Indian startups received a total funding of $11 Bn across 743 deals, with over 637 startups raising funding.