Guest Post: State of Startup Funding in India

Guest Post: State of Startup Funding in India

Startups wave in India is a relatively new phenomenon and state of Startup funding in India is still going through pubescent stages. India is today undergoing a fundamental shift with entrepreneurship & innovation being primary catalysts in job creation and solving everyday problems. 10 years back; there used to be only a handful of Indian Start-Up success stories such as MakeMyTrip.com and Naukri.com. But now, with successes such as Flipkart, Quickr, Practo, Zomato, and InMobi, the Indian Start-Up Ecosystem has indeed come a long way.

As per the FICCI reports, “The total venture investment in startups during the period 2005-15 is estimated at ₹1117 billion (using 2015 as the base year). Between the years 2005-15, more than 10,000 startups have received funding.” With a growth of more than 16 percent in the no.of startups, Indian start-up landscape looks very vibrant as seen by the number of companies founded. In some of the sectors, the number of businesses established in India is close to the number of enterprises based globally.

  Angel Funding in India

  • Angel investments in Tier 1 and two cities
    Companies in Tier 1 cities are getting funded earlier and obtaining larger amounts of funding. Average deal sizes for companies in Tier 1 cities are about 62 percent higher than that of deals in Tier 2 cities. Investment rounds are more than 40 percent higher in Tier 1 cities as compared to that of Tier 2 cities.
  • Growth in angel investments
    Angel deals have shown an annual average growth rate of 124 percent during the period 2008 – 15. The estimated investment amount through angel deals has grown at an annual growth rate of 205 percent during 2008-15. The number of angel investors also has grown at an annual average of 107 percent during the above period. While the number of first-time angel investors has grown at a rate of 98 percent, the growth rate of investors who are reinvesting has been 105 percent.
  • Age of startups at the time of receiving angel investment has consistently decreased
    There has been a steady decrease in the average age of the start-up at the time of receiving angel investment from 4.77 years in 2008 to 0.54 years in 2015, indicating that age of the start-up at the time of investment has reduced by about 27 percent annually. However, the average investment amount has increased.
  • The rise of angel networks
    A noteworthy development in the last few years has been the evolution of the angel networks. While many of the angel networks are organized around cities (such as The Chennai Angels, Mumbai Angels, and so on), there are other forms of networks as well. The annual growth rate of the number of investments by angel networks made during the 2009-15 period has been about 75 percent. In a span of 7 years, the number of networks has increased 20 times.
  • Average investment amounts made by angels have consistently increased
    The average investment received from an angel round by a start-up has grown from ₹10.63 million in 2009 to ₹46.76 million in 2015 indicating an annual growth rate of 27 percent. The average investment made by an individual angel investor has increased from ₹2.16 million in 2009 to ₹16.95 million in 2015, indicating an annual growth rate of 34 percent. Individual investments made by angels in a networking platform are lower. For example, data from Let’s Venture indicates that the average investment per investor was about ₹11 million. The number of investors is the highest for the average commitment amount of ₹500,000, followed by ₹1 million. Beyond that, there is a sharp fall in the number of investors, indicating that the sweet spot for investors in an angel networking platform is between ₹0.5 – 1 million.

 Venture Funding in India

  • Contours of start-up funding differ from that of SME’s
    The geographical spread of SMEs and startups show interesting variations. Tamil Nadu and Gujarat has the highest number of SMEs, but they are not the top states regarding venture funded startups. On the other hand, Karnataka and Maharashtra, which account for the highest number of venture funded startups do not occupy the top slot regarding the number of SMEs. This indicates that the ecosystem for development of SMEs and startups could be different.
  • Venture funding is concentrated in Tier1 cities
    The 6 Tier 1 cities of India received the largest chunk of investment of ₹661.29 billion, accounting for about two-thirds of the angel and venture funding. Tier 2 cities received 31% of the total investment (about ₹306 billion) and startups in Tier 3 cities accounted for only ₹19.74 billion, which is about 2 percent of the total investment. There exists a big gulf in investment flow between startups in Tier 1 cities and the other two tiers.
  • Comparison of funded and non-funded startups Maturity index of startups that have received funding are higher
    Maturity index of startups was calculated based on the lifecycle stage of the start-up. The average maturity index of startups that have received funding was 3.54 whereas those that did not get any funding was 3.00. Startups that were a part of incubation or accelerators also had a higher maturity index (3.4) as compared to those that did not receive any incubation or acceleration support (3.0).

In the overall sample, only 8.3 of the startups are successful in getting external funding. But among those who have been a part of an incubator or accelerator, 24 percent have been able to get external funding. Thus incubators and accelerators have been able to increase the chance of getting funded by about three times.  IncubatSimilarly, 5 percent of those who have been with an incubator or accelerator have been able to get funding on the LetsVenture platform, while the proportion of those getting funded on the platform for the overall sample is only 1.1 percent.ors and accelerators have thus been able to increase the chances of getting funded on the LetsVenture platform by five times.

References:
https://doms.iitm.ac.in/index.php/india-venture-capital-and-private-equity-report

Guest Author:
Karan Verma
Co-founder & Director
Faad Network Pvt Ltd
One stop solution for all your entrepreneurial needs.
www.faad.in