How startup funding is consolidating in India
By Apoorv Ranjan Sharma
The Indian Startup ecosystem continues to remain a hot topic for all and sundry. After acquiring an unmatched level of funding, more than $9 billion, 2015 was perhaps the best year so far for the entrepreneurs. The year 2016 started with perhaps the biggest organized and mobilized event in the Indian startup domain, when PM Narendra Modi inaugurated the ambitious Startup India, Standup India campaign. From establishing a ‘Funds of Fund’ to tax exemption and a lot more, the Startup India campaign contained the boost Indian entrepreneurs needed to up the ante and achieve exponential success.
However, the recent reports of funding drying up in the economy caught everyone off-guard. It was speculated that since investors are already recovering from the extravagant burning of cash by the entrepreneurs, would now be treading carefully in the future. Although some of those concerns hold merit, 2016 still holds a lot of potential for our ambitious business owners in the making. But, with startup funding consolidating and the emergence of new, and perhaps improved, entrepreneurs and investors, the ecosystem is intriguingly poised for growth.
Improving Early Stage Investments for Startups
There were reports tainting the future of startup industry as bleak as possible. However, the first quarter of 2016 has already proven that wrong. In 2016 Q1, Indian startups have already raised $1.42 billion by closing a well over 300 deals. Last year, only 147 deals had been closed in the same quarter.
In addition, the early stage investments have been gaining steam ever since. As of now, 132 deals have been early stage investments, out of which Pre-Series A deals are 112. In simple terms, the figures convey that investors are readily backing up promising new startups at an early-stage.
As per the statement issued by Nexus, funds are available are focused on early stage startups deploying technology and model which can disrupt consumer retail, healthcare, education and financial services. Clearly, Artificial Intelligence, Internet of Things (IoT,) FinTech and food-aggregators are some of the most popular startups attracting early stage investments.
Consolidating Funds – Indigenous Mergers & Acquisitions
There are certain sectors that have enjoyed explosive funding in the past. Quite naturally, such sectors made the head turns and attracted a lot of players. We already have certain sectors which are overcrowded with marginally differentiated products and overfunded as well, and it is about time such sectors witnessed some major overhaul.
Consolidation in such sectors is only the next step in evolution of entrepreneurial ecosystem in India. It is important that investors proportionate the investments in such sectors with the available opportunity. As expected, investors are now more interested in the business models of the companies and it is safe to assume for layoffs.
An optimistic trend that came into light during the end of 2015 was the widespread acquisitions of Indian startups. As per the reports by NASSCOM, a total of 65 startups have been acquired by bigger companies from October onwards. Besides, most of these deals have taken place within the country, all with Housing.com acquiring Realty BI and Dwll.in being acquired by Livspace.
As of now, 41 startups have been acquired from the beginning of 2016. What is interesting to see is that startups themselves are the most acquisitive and out of the 41, only two acquisitions had the big companies like Mahindra & Mahindra and Godrej as buyers.
The statistics clearly testify how wonderfully the startups are growing in India, since they are now acquiring smaller startups. However, in addition to growing exponentially in terms of the availability of funds, these startups have also grown in terms of their passion, guts and ambition.
Continuing the line of thought, a lot needs to also be said about the size of some of these acquisitions. For instance, while Ola acquired Taxi For Sure for $200 million, FreeCharge’s acquisition at the hands of SnapDeal transpired at a whooping $400 Million.
These figures further help instill a VCs’ faith and confidence in the startup ecosystem. The size of exit of some of these startups allows VCs to invest and help expand the startups meticulously.
Government Support Further Consolidating Startup Funding
The current government policies have been favoring the business environment. With the Digital India campaign, government took the pivotal step of spreading digital awareness within the masses, especially to the rural, tier-II and III cities and towns. Owing to the sincere efforts, along with the increasing affordability of smartphones and the advent of superior Internet capabilities, India has already reached the magic mark of 20% Internet penetration. The same is working in the favor of Indian Startups, especially tech and e-commerce, and the industry is already witnessed nearly USD 8 billion invested in the past 1.5 – 2 years.
The Startup India campaign has further opened doors to hither to unavailable opportunities for the entrepreneurs. In terms of funding, the government shall create a ‘Funds of Fund’ worth Rs 10,000 crore to help in the growth of innovative startups. Furthermore, the Credit Guarantee Fund of Rs 500 crore offers further support of 4 years to these startups. Lastly, even the profits incurred by these startups would not be taxed for three years.
Besides, the policies also take care of the investors. In order to further encourage seed investment, government offers tax exemptions for investments beyond the fair market value meant to incubate early age startups. The same provision is available for venture capital funding as well.
Furthermore, with its Standup India initiative in particular, Government extends support to entrepreneurs from the suppressed sections of society. Under this scheme, it is a mandate for banks to provide loans at least applicable rates of interest to Scheduled Caste and Scheduled Tribe and women entrepreneurs.
The scheme further makes it necessary for every branch of the bank, including those that are privately owned, to provide loans Rs 10 lakh and 1 crore to the selected category of entrepreneurs. The scheme ensures that the institutional credit is made accessible freely to all sections of the society.
Synergies Thriving Startups
Given how the funding is consolidating in India, startups should strive to enhance their service offering and ride successfully on the digital wave. All the initiatives and the coming of age of Indian entrepreneurial ecosystem have initiated advantageous synergies that will continue to support startups in a long time to come.