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Unicorn Herd Grows In India As Venture Investment Takes Off, Outpaces China 

India is not new territory for venture capital investors, but the country has seen an escalation in dollars invested in the last year-and-a-half. The growth doubled its unicorn count from last year and made it the leader in funding in Asia last quarter.

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Those who invest in the world’s second-most populous country say there are a few reasons for the funding surge. One is that the country’s maturing startup ecosystem has moved well beyond just consumer apps. Another is a booming domestic stock market that has shown investors a path to liquidity that has not always been there.

“I think you are finally seeing the loop close of investments, exits and wealth creation,” said GV Ravishankar, managing director at Sequoia Capital India.

For the second time in the last six quarters, total investment in India in the third quarter outpaced that seen in China—with $16.2 billion coming into the startup ecosystem in Q3 compared to $12 billion in China, according to Crunchbase data.

Overall, the country is on pace to surpass the record level of total investment it saw last year when venture funding totaled $33.8 billion. Indian startups received $26.7 billion in the first three quarters of this year, putting the nation on track for well more than $35 billion in investment by the end of 2021.

That funding also birthed a record number of new unicorn startups for India. Just so far this year, 17 companies have been newly minted—including PharmEasy with a $4 billion valuation and Digit Insurance at the $3.5 billion mark—more than the total from last year and 2019 combined.

India’s moment

The reason for the spike in venture investment is multifaceted, but one can certainly start with a booming domestic public market that has become much more welcoming to high-growth tech companies than in the past.

While investors like putting money into successful companies, they also like to know they will see that money multiplied in a large exit. For years, some investing rules and the pervading investment environment kept many tech startups—especially unprofitable ones—on the sidelines.

However, the investment environment has changed at the same time that many of the country’s largest tech companies have reached a size where going public is a viable option. That led to food delivery service Zomato’s IPO this summer, with fintech giant Paytm following the next month. Other notable Indian companies, including ride-hailing startup Ola and e-commerce firm Flipkart, also appear in the pipeline for an offering in the near future.

“A lot of these companies have become large and can now list domestically,” said Shwetank Verma, co-founder of New Delhi-based Leo Capital. “This is just the start—much like China—and it will not be stopping.”

Just last month, Goldman Sachs reportedly predicted in a note that India’s public market could grow to more than $5 trillion, making it the fifth largest in the world, within three years–the country just recently passed the $3.5 trillion threshold. The note also reportedly said 150 private companies could potentially list on the market within the next three years.


Not just consumer

Along with the tech sector’s increasing footprint in the public market, investors say the growth beyond just the consumer application wave that began about a decade ago also is an important driver for the venture capital markets growth in the country.

“SaaS is a very large part of our portfolio and the inbound interest we see,” Verma said.

India-based SaaS companies got somewhat of a spotlight last month when SaaS customer engagement developer Freshworks raised $1 billion from investors during its IPO on the Nasdaq.

“India will likely be the next exporter of software products, not software services,” Ravishankar said.

Fintech is another sector leading the venture capital charge, investors say. Ravishankar said a handful of years ago the country started to implement a unified payment interface for banks and customers to more easily make payments. That has driven innovation in the fintech startup sector and led to the creation of very large payment providers.

Just last quarter, fintech firm BharatPe raised a $370 million round led by Tiger Global—making it a unicorn—and Digit Insurance raised $200 million from Faering Capital, Sequoia Capital India, IIFL Alternate Asset Management and others.

Interestingly, the advancements in fintech have helped with the current interest in the public markets. Retail investors—typically those that are younger and more enamored with tech—are increasingly entering the investment market. Many are doing so through fintech platforms, which makes sense in a country where it’s estimated nearly 750 million people have smartphones.

Other areas to watch in the country include edtech, crypto and even the deep-tech space, investors said.

“The tech disruption here has become very broad-based,” Ravishankar said.

Heated VC market

With interest picking up in a variety of sectors, investors say trying to get in on funding rounds has become more difficult—and expensive.

“I would say every segment (of investment) is competitive,” Ravishankar said. “The markets are very buoyant.”

Verma agreed all rounds are attracting more interest. That is especially true of seed, which due to its lower price threshold has become more appealing to investors finally interested in the venture market—something that also has changed over the decade.

“Ten years ago, no one even knew what a term sheet was,” he said with a laugh.

Even as wealth has grown in the country, Ravishankar said, the vast majority of venture dollars still come from outside of India, especially when it comes to the large rounds led by firms like Tiger and TPG. However, that could eventually change as more successful entrepreneurs in the country become part of the venture capitalist world, he added.

That foreign money likely will continue to increase—especially as China has ramped up regulations which may cause investors to reevaluate positions there and look for other Asian markets.

“The change in regulations may benefit India,”  Ravishankar said. “India stands out as an emerging market.”


India venture capital fundings include angel, pre-seed, seed and all venture rounds that follow after. It also includes technology growth rounds that are a private-equity round raised by a company that has previously raised a “venture” round.

Illustration: Dom Guzman

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