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One of the few shining lights since the onset of the pandemic within the Indian economy has been the performance of the country’s startups. 2021 has seen the amount of funds raised by startups in India exceed that of any of the previous years, dating back to 2014 when the tech media company Inc42 began recording deals. In fact, the figure was surpassed in just the 3rd quarter alone, where $17.1 billion have been raised.

The total funding raised for the year so far amounts to $28 billion. To put this figure into context, the record amount for a single year prior to this was $13.2 billion, in 2017. There are still 3 months to go in 2021 which means that the total funding for the year could be in the $35-$40 billion range.

The increase in funding was not a result of an increased number of deals, but rather an increase in the average size of each deal. This has also resulted in a record number of unicorns this year. Currently, there are 26 startups in the country who have crossed the $1 billion valuation mark in 2021 alone. All in all, India is home to 68 unicorn startups whose cumulative valuation exceeds $212 billion.

The next goal for these firms is to aim for decacorn status. This refers to startups whose valuation exceeds $10 billion. Presently, there are only 3 startups in India who have reached this level – Byjus ($16.5 billion), Paytm ($16 billion), and Flipkart ($25 billion). Flipkart, however, is no longer considered to be a startup by most observers as it has crossed the threshold for sustainability and profitability to have become a mid-sized enterprise.

What explains the success of India’s startup ecosystem?

With over 70,000 startups, India is the worlds 3rd largest startup ecosystem after the US and China. There are a number of reasons as to why startups do so well in this country. We must first look at the education system. There has always been a push towards degrees such as engineering and medicine in our country, and the level of competitiveness at the university level is amongst the highest in world, and sometimes dangerously so. The system however produces a large number of capable personnel, who have the skillset required to build companies in the tech space.

Next, we need to look at the socio-economic disparity that is prevalent in our country. This issue creates the need for solutions across a number of sectors, and tech industry has identified an opportunity that present the potential for both change and profit. If we look at what sectors are doing well in the startup world, they are primarily within EdTech, HealthTech, FinTech, and AgriTech. Lack of accessibility, information gaps, infrastructural issues and so on mean that there is a huge gap to be filled in these sectors and technology is helping to bridge that gap.

Finally, credit must be given to the governments in charge as well. At the national level, there are various programmes such as ‘Startup India’, ‘Venture Capital Scheme’, etc. which aim to promote and encourage the startup ecosystem in the country. In addition to this, every state in India has its own set of policies and initiatives to help the development of startups. Adjacently-run programmes that have to do with the digitisation of the country, internet connectivity, etc. have also played their part in bringing the ecosystem to where it currently is.

With respect to funding, India ranks 4th in the world for total number of angel investments made, which stood at 387 deals in 2019. Angel investors and venture capitalists are extremely bullish with respect to the Indian startup economy and as such do not hesitate to invest their funds. Even if only 10% of their portfolios are successful, this in itself would more than make up for whatever losses they may have incurred elsewhere. The profits also far exceed what they might earn in the equity markets.

A part of the reason as to why investors are so bullish at this moment in time has to do with COVID-induced factors. As mentioned before, EdTech and HealthTech are amongs the top performing sectors within the ecosystem. Technology has had to play a big part in education as COVID forced people to stay at home, but learning still had to go on. This was the period where firms like Byjus really took off, as it showed that EdTech had a role to play not only during the pandemic, but will likely continue to do so after as well.

People have also become a lot more health conscious, as you would after an event such as the pandemic. As a result, companies like PharmEasy, Practo, and so on have gained in this period with more startups in the space rising as well.

The future of the startup ecosystem continues to look bright as there is no indication of things slowing down just yet. India is well on its way to host the largest ecosystem in the world, and funding appears to be easily available. Optimism is as high as its ever been.

For feedback write to pavan@bclindia.in

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