After two years of windfalls, several experts warned that the world’s third-largest startup ecosystem was heading towards a slowdown in funding during 2015. This year, they said, investors would ask some tough questions and take stock before writing cheques.
But Indian startups have proved all pessimists wrong.
In 2015, technology startups in India raised over $7 billion (Rs46,199 crore) in private funding, according to startup tracker, Tracxn. This is 40% more than approximately $5.4 billion that startups had raised in 2014.
Fear of missing out
Even though industry analysts questioned the insanely high valuations and business models of India’s unicorns in 2015—most of them are far from registering any profits—it did not stop the investor community from pouring in more money.
The reason: FOMO, i.e. the ”fear of missing out.” Given India’s large internet user base and growing middle class, neither investors nor entrepreneurs want to lose out on any opportunity that could turn out to be a multi-billion-dollar business.
These were the top five investors in the Indian startup ecosystem in 2015, according to Tracxn:
|Investor||Number of startups invested in during 2015|
The Indian startup ecosystem did not see any major down-rounds, and in fact, the big boys saw their valuations rise even more. Flipkart, for instance, was valued at $11 billion in its last funding round of 2014. By July, the company was valued at $15 billion. And rival Snapdeal was valued at $5 billion in August, significantly higher than the $1 billion tag it carried in May 2014.
Second half was off the charts
After no signs of a slowdown in the first six months of 2015, media reports suggested that investors were perhaps thinking of stepping back. However, data tells a different story.
During January-June, there were 341 funding rounds totalling $3.17 billion, according to Tracxn. Between July and Dec. 15, the number of funding rounds rose to 448 and the total money raised was also higher at $4.05 billion.
In the second half, the heavyweights headed out to tap the market. In July, Flipkart raised $700 million, and music streaming service Saavn and online furniture retailer PepperFry raised $100 million each. In September, Paytm raised $500 million and mobile advertising firm InMobi raised $100 million.
Ola, which was on a fund-raising spree this year, raised money twice—in April and in September.
Here are the month-wise details of funds raised by Indian startups during 2015:
|Month||Number of deals||Amount ($ million)|
|December (till Dec. 15)||47||88.4|
Flipkart—with its close to $2 billion funding in 2014—had emerged as the star startups last year. But 2015 belonged to private transportation technology startup, Ola, which raised the maximum funds among Indian startups in 2015.
|Company||Funding in 2015 (in $million)|
Ola’s success during the year was not limited to fund-raising. The company also made an acquisition—no small feat for a four-year-old startup—and entered into a landmark pact with global players.
On March 2, Ola announced that it had acquired competitor TaxiForSure for $200 million (Rs12.4 billion) in cash and stock. On Nov. 18, Ola said it had raised $500 million (Rs3,306 crore) from a clutch of investors including China’s leading taxi-hailing company, Didi Kuaidi. The announcement was seen as a big win for the Bengaluru-based startup, as Didi Kuaidi has far greater scale than Ola and is valued three times higher.
While observers were still studying this deal, Ola entered into a ride-sharing agreement with Didi Kuaidi, US-based Lyft, and GrabTaxi in December. The four companies will allow users to book cabs through any of their apps, in all the regions where they operate.
The new year
The year 2016 looks upbeat for big startups, but small and medium-sized companies may not be able to attract too much money too easily, according to industry observers.
“VCs have understood that the tier-I startups have now found a viable business that is unlikely to go bust, so they want to park their money there. It will be interesting to see if smaller startups are able to raise a second or third round of funding because I think investors’ appetite for risk in that segment may be lower,” Yugal Joshi, practice head at Everest Group, told Quartz.
Global events, such as China’s economic slowdown and the US federal rate hike, may have some impact on VCs investing in India, Joshi added.
And the number of funding rounds in 2016 will likely be higher than this year.
“The Indian ecosystem has become quite strong and I don’t think there will be any drop in investments. Whether the amount that is raised during 2016 is higher than this year or lower, will depend on the large startups and if they do any big rounds,” Harish HV, a partner at consultancy firm Grant Thornton, told Quartz.