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Unlike China, Indian startups remain immune to economic slowdown as investment hit all-time high

India has 6,400 funded startups which are only 8 per cent of overall around 80,000 startups in the country.

The economic slowdown in India and globally is not having any impact on the Indian startup ecosystem. Investors poured in $10 billion in 2019 in Indian startups — highest amount ever and around 55 per cent higher than 2018 even as the deal volume also increased by 30 per cent in 2019 from the preceding year, said a report by Bain & Company and IVCA. “Despite the global economic climate, India’s start-up and VC ecosystems continue to thrive as investors take a long-term view based on the country’s growth potential. They see the current slowdown as more cyclical than structural,” the report noted. This assumes importance since investors are left with $7 billion from 2019 to invest in startups “indicating likely continued investment activity in 2020” but “counter-balanced with caution and an underlying optimism in the long-term potential for the ecosystem”

This is unlike China’s VC investments in startups that went down by 51.5 per cent year-on-year in the fourth quarter amid its economic slowdown. It started plummeting in around November 2018, as according to KPMG Venture Pulse Q2 2019 report funding in China declined, from around $45 billion in Q2 2018 to around $6 billion in Q2 2019. In India, around 750 investments were made in 2019 up from 571 in 2018 — around 30 per cent increase. Despite the increase in deal volume and size, the $7 billion dry powder left with investors is also the all-time high. In fact, the deal size across stages — seed to late-stage –has increased. 

From around 71 per cent for seed deals to around 31 per cent for Series A and B deals, around 16 per cent for Series C deals and a whopping around 130 per cent for Series D and beyond deals, the increase has been significant. 80 per cent of the VC investments were attracted by four sectors in 2019 — consumer tech, fintech, software/SaaS, B2B commerce and tech, and others.

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However, when it came to fundraising by VC investors, 2019 value was slightly lower than in 2018. According to the report titled Indian Venture Capital Report 2020, $2.1 billion were raised by investors from their limited partners in 2019 across 20 funds with $107 million being average fund size vis-a-vis 28 funds raised worth $2.7 billion with $96 million of average size. This dip was “result of marquee funds that had already raised large sums and hence did not go to the market in 2019,” the report read. Nonetheless, the fundraising outlook this year is “largely positive among both Limited Partners (LPs) and General Partners (GPs), despite the global uncertainty.”

India is currently the third-largest startup ecosystem globally after the US and China. In terms of the number of unicorns the US has 203, China has 206, and India is home 20 startups valued at $1 billion or above. While in terms of the number of funded startups, there are 6,400 startups in India, while China has 9,000 and the US has a whopping 57,000. Importantly, the 6,400 funded startups in India are only 8 per cent of the total around 80,000 startups in the country.

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