The edtech sector was the most overhyped space in 2022 according to 29% of startup leaders polled by InnoVen Capital, a venture capital (VC) firm, which backs companies like Vedantu. That percentage has grown from 20% in 2021.At least over the past three years, edtech has continuously found a spot, among the top three, in the ‘most overhyped’ section of InnoVen’s polls. In 2020, a staggering 56% of those surveyed said edtech was the most overhyped space.
At the same time, agritech startups have earned a spot in the ‘most underhyped’ list for three successive years. In 2022, 11% of 120 who participated said agritech companies were underhyped, an increase from 7.3% who said the same in 2021. It was at 6.5% in 2020. Ashish Sharma, managing partner at InnoVen, said overhyped sectors are those where investors have exaggerated the attractiveness of an industry versus its fundamentals and vice versa for the underhyped space.
While it is still early days for the agritech space, capital infusion into startups in the sector has grown to $515 million across 49 deals in 2022, a 3.2X jump from $161 million in 2020, data from Venture Intelligence showed. The agritech space was recognised and various support measures were announced in the Budget on February 1. Finance minister Nirmala Sitharaman said the government would set up an Agriculture Accelerator Fund and help in improving efficiency and crop yield through use of technological inputs such as AI, internet of things (IoT), blockchain and drones.
Despite that, only 3% of 120 startup leaders who participated in the survey said the government’s efforts to improve the startup ecosystem were “excellent”. The others said the efforts were either ‘average’ (50%) or ‘good but more needed to be done’ (31%). Around 16% of those surveyed said the government’s steps to bolster the startups space were “poor” and “not helpful”. Those results were broadly unchanged from last year, InnoVen said. The e-commerce (33%) and the fintech (24%) industries were the most disappointed with the policies, the poll found.
This was likely because the government, in its latest Budget, did not announce steps to encourage startups to ‘reverse flip’ — a suggestion proposed even in the Economic Survey — or shift their domiciles back to India, from other countries.Several startups also expressed displeasure after the government took no steps to ease the taxation on employee stock ownership plans (ESOPs). The Centre currently levies a tax of 24% (LTCG tax rate) on exercising of these options as against 10% for listed equities, executives said.
Further, the startup ecosystem also feared that the ask to include foreign and non-resident Indians under the ambit of the contentious angel tax provision, applicable to early-stage startups, will keep investors away from pumping in money into Indian companies.Siddarth Pai, founding partner, 3one4 Capital and co-chair, regulatory affairs committee at IVCA, said that the inclusion of foreign investors under the ambit of angel tax in Budget “creates uncertainty and fear in the minds of Indian entrepreneurs”.
He added that it may infuse far-reaching implications for the Indian startup ecosystem as a majority of the funds are raised from overseas investors whose investments will now be subject to angel tax.