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Updated on: Saturday, January 15, 2022, 12:10 PM IST

Indian startup funding landscape continues to evolve rapidly despite pandemic

Startup landscape is changing very quickly, with syndicates, angel investors and networks, and micro VC funds, contributing as significant assets../Representative image |

Startup landscape is changing very quickly, with syndicates, angel investors and networks, and micro VC funds, contributing as significant assets../Representative image |

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India's rise in the startup industry began almost a decade ago--way back in 2008. Today the country is dominating the startup market by inhabiting the third-largest ecosystem behind China and the USA.

In fact, India witnessed the most prosperous fiscal year in 2021 in the country's startup history with 33 startups gaining a value of 1 billion dollars and above. There are 66,000 more startups that attracted global capital in 2021.

The country’s massive economic influx had major contributions primarily from big cities like Bangalore and Delhi NCR, which gained 76 percent to 78 percent of the country's total capital flow. The pattern is bound to continue, with the progression of new startups that will result in more funding from investors.

Overall, the landscape of startups is changing very quickly with syndicates, angel investors, networks, and micro VC funds, contributing as significant assets. But what caused the sudden change of activities taking place in this sector?

Here are a few reasons:

Rapid digitalisation of the world

When the entire world experienced a massive shutdown due to the COVID-19 pandemic, a very unprecedented situation arose for business owners. Several deemed it well to quickly opt for the online world as an interface to deliver their services and offers to recipients--sponsors or potential clients, delivering services through virtual or physical means thus becoming the primary goal. This resulted in an accelerated adoption of digital media amongst many individuals and startup groups alike with many investors able to have better access to their business models.

Increasing local investors with high equities

Local individuals were much more upfront about making investments and saving their money as equities since last fiscal year. Therefore, the Indian stock exchange surged as the highest equity market in the world. Millions of individuals from average income class took part in it and thus is being witnessed a huge transition of investments from traditionally big cooperation stocks to other potential startups at their initial Seed stage. This indicates that many middle-class Indian families are acknowledging the potency of a good startup model by shifting their funding from conventional choices such as gold, real estate and cash.

More private markets going public

Many tech startups successfully initiating initial public offerings (IPOs) also helped increase the primary market activities. About 150 leading private companies are on track to go public within the next 4 to 5 years. This will make India the fifth0largest public market in the world in terms of public cap. As more tech companies head for IPO, Indian equity will witness a crucial manifestation of new economic sectors like media, e-commerce and the internet.

Private equity funds in tech companies

Today, several tech companies are catching the eye of investors with PE funds. This increases the investment activities in the startup industry significantly. Additionally, substantial wealth for founders as well as employees has been created by ESOPs and exits. Therefore, the money flows back into the ecosystem, as they become limited partners in the venture capitals or may directly invest in tech startups again as Angels.

Government officials taking initiatives for Startups

The Reserve Bank of India (RBI) has officially decided not to change the rep rate and repo reverse, and in fact, will keep them at moderate levels. It was primarily done to improve India‘s liquidity in the economy, but it will also help small businesses and startups deal with a financial crisis. Furthermore, the Monetary Policy is helping in accommodating the MSMEs, which were severely affected during the pandemic.

This entire initiative was first launched in 2016 by the Government of India. Their primary goal is to uplift India's startup culture and encourage the entrepreneurial spirit among the youth. However, it also assisted young startups to grow financially as well, by giving them easier access to funds.

Key takeaways

India's rise in the startup industry has proven that even through the pandemic the country is bound to make opportunities. In the upcoming years, startups can possibly bring more solutions to the table that may change the way we operate the market, through consumption and communication.

India's startup companies are predicted to see a record growth by 2025 when India has created over 100 unicorn companies.

(Neeraj Tyagi- CEO & Founder, We Founder Circle- startup investment platform)

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Published on: Saturday, January 15, 2022, 11:59 AM IST
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