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2IVCA Bain India VC report 2018_PPTBOS
Context
• This report is a comprehensive assessment of the Indian VC industry – includes key trends shaping the industry with
respect to VC investment landscape, India’s start-up ecosystem and the supporting regulatory framework
• The primary sources used for this report include Bain Deals Database, AVCJ, Venture Intelligence, VCCEdge, Tracxn,
NASSCOM, WorldBank Data and Euromonitor
• For the purpose of this report, we define a VC investment as follows:
o Investments with deal size <$20M at Seed/Series A/Series B/Series C round of investment
o Investments with deal size between $20-100M at Seed/Series A/Series B/Series C/Series D round of investment by typical VC firms (such
as Sequoia, Lightspeed, etc.) as well as other companies that typically engage in VC activity (such as Softbank, Naspers, Tiger, etc.)
3IVCA Bain India VC report 2018_PPTBOS
Summary
• India Venture Capital landscape
– Fund-raising environment in India is positive with ~$10B worth India-focused funds raised since 2014; momentum to continue and expected to be stronger in
future, with multiple global LPs viewing India as an attractive VC investment destination
– VC deal value grew 5x in last 10 years with 2017 deal value at ~$3.4B; the VC investment ecosystem in India is now maturing with focus shifting to a few high
quality deals vs. larger volume of deals
– Multiple trends that affected the Indian VC landscape over the last few years are expected to continue being relevant in the future as well. These include increasing
focus of larger VCs on late stage investment deals, increasing quantum of investment by corporate VCs and diversification of investment in terms of industry
segments (albeit within consumer technology)
– VCs in India have seen some early success with 5-15% of start-ups funded by the larger VCs going on to raise >$100M; exit momentum has also picked up in the
last few years - ~$4B worth of exits in 2017 with the industry seeing multiple, recent big ticket exits
– With increasing maturity of start-up ecosystem - exits are expected to increase in future with ~80% start-up founders expecting investor exits by 2024
• Startup ecosystem in India
– India is among one of the top startup ecosystems in the world - housing ~3.5K+ funded start-ups growing rapidly at 30%+
– Multiple drivers that have been at play in building a flourishing start-up ecosystem in India – 1) Access to abundant, high quality talent (e.g. second highest number
of annual engineering grads), 2) Strong underlying macroeconomic growth (e.g. growing internet users), 3) Holistic ecosystem enablers (e.g. co-working spaces,
incubators, global initiatives, etc.) and 4) Supportive regulatory framework - are expected to drive further growth in future
– While Bangalore is the startup capital of India followed by Delhi-NCR and Mumbai, smaller cities such as Hyderabad, Pune and Chennai are emerging hubs
witnessing a lot of recent start-up activity - indicating maturity of the overall start-up ecosystem
• Regulatory framework
– Regulatory Framework in India has been increasingly conducive to the start-up ecosystem with multiple government policies and initiatives launched over the last
few years committed to the success of start-ups in India
– Initiatives such as Startup India, SIDBI Fund-of-Funds, Atal Innovation Mission, Make In India, SEBI AIPAC recommendations for VC funds, expected to
continue to foster the ecosystem in India over the next few years; more initiatives such as ease of closing a company are though needed to further turbocharge growth
4IVCA Bain India VC report 2018_PPTBOS
A G E N D A
India Venture Capital landscape
Startup ecosystem in India
Regulatory framework
5IVCA Bain India VC report 2018_PPTBOS
Venture Capital – Key Messages
VCs in India are Well Funded with ~$10B capital raised over the last 4-5 years by a mix of large and small VCs – 80-85% total capital raised by 10-15 large
VCs, while the rest has been raised by smaller, domestic VCs (fund-raising by smaller VCs significantly increased over this period)
VC landscape in India is moving from its Scale-up Phase to Maturing Phase with shift in focus from quantity of deals to quality of deals - secular increase
in round sizes across investment stages over the past 3-4 years; future outlook for investments in India is positive
Number of VCs with investments in India grew rapidly from ~130 in 2013 to ~270 in 2018; additionally, bigger funds are increasingly focusing on later stage,
higher ticket size deals (largest 10 VCs account for ~50% of all Seed B/ C/ D deals in 2017 vs. 30% in 2012) while multiple, smaller funds are dominant in the
seed/ series A stages
Investment by Corporate VCs has increased 4x over the past 4-5 years; expected to increase further in future given traction from funds set-up by
mature start-ups such as Flipkart/ PayTM as well as from top international corporate VCs such as Google Ventures
Consumer Technology accounts for ~60% of total VC investments in India with SaaS accounting for another ~20%; most large funds have presence across
segments (consumer tech./ IT accounting for 60-80% of the portfolio) with very few funds having any vertical-specific focus
Investments within Consumer Technology have diversified (more verticalized/ niche vs. horizontal investments) over the past few years - trend is expected to
continue in future with emergence of new verticals in e-tailing and rising prominence of vernacular web content; IT investments also expected to be increasingly focused
on SaaS/ Analytics B2B Products (vs. services focus till a few years ago)
VC investments is India have seen reasonable success - 5-15% of start-ups funded by large funds have gone on to cumulatively raise >$100M; 30% of
VC seed investments and ~50% of VC Series A+ investments have raised follow-up capital in subsequent rounds
Exit Momentum in India has been picking up over the past few years (~$4.2B net VC exit value in 2017, vs. ~$1.3B in 2014), and is expected to acceleratein the future as the start-up ecosystem matures; ~80% of start-up founders expect exits by 2024
1
2
3
4
5
6
7
8
6IVCA Bain India VC report 2018_PPTBOS
Quantum of fund-raising for focused Indian VC investments has increased
significantly since 2014
Note: (*) Only includes funds that are earmarked for India – whether raised by Indian or global VCs Source: Venture Intelligence
Number of
funds raised
Value of funds raised in 2017 considerably
lower because (a) Highest quantum of funds
raised in 2016 (vs. previous years), (b) 40%
drop in investments in 2016 vs. 2015 leading to
higher than expected availability of funds , (c)
Smaller seed/ series A focused funds led fund-
raising in 2017 → low value raised per fund
1 . F U N D I N G F U N D S E A R M A R K E D F O R I N D I A
7IVCA Bain India VC report 2018_PPTBOS
~$10B capital raised by VCs for India-focused investments over the past 4 years
Others includes smaller, domestic
funds raised by VCs such as Prime
Venture Partners, Pi ventures and
Fireside that primarily focus on
seed/early stage startups
1 . F U N D I N G
Multiple smaller series/ seed A
focused raised capital in 2017,
while participation of larger VCs in
fund-raising was limited
Note: (*) Only includes funds that are earmarked for India – whether raised by Indian or global VCs Source: Venture Intelligence
F U N D S E A R M A R K E D F O R I N D I A
~20% of total funds raised
by Sequoia deployed ex-
India in SEA
8IVCA Bain India VC report 2018_PPTBOS
Significant fund-raising activity also seen by smaller, seed/ series A focused VCs
11 . F U N D I N G
VC Firm
Funds raised
(’14 -’18, in
$M)
Prime Venture Partners 109
IvyCap Ventures 100
SRI Capital 100
Ventureast 83
Fireside Ventures 79
DSG Consumer Partners 75
Pi Ventures 58
IIM-A-CIIE 57
Saama Capital 57
Alteria Capital 55
Lightbox 54
Indus Age 50
Montane Ventures 50
VC Firm
Funds raised
(’14 -’18, in
$M)
Stellaris Ventures 50
Unitus Seed Fund 46
Exfinity Fund 45
Lok Capital 40
Omnivore Partners 40
Blume Ventures 30
Kae Capital 30
Ganesh Ventures 30
Trifecta Capital 30
Zodius Capital 30
Endiya Partners 26
Indian Angel Network 26
Note: (*) Includes all funds above $50M raised from 2014-18
Source: Venture Intelligence; Bain Analysis
9IVCA Bain India VC report 2018_PPTBOS
VC industry in India has evolved to a more “mature” phase in the last couple of years
Source: Venture Intelligence; AVCJ; VCCEdge; Bain Analysis
• Scale-up Phase for VCs in India with multiple new VCs setting up funds to benefit from a
booming start-up environment
• Focus on doing more deals given high number of start-ups seeking investment and aggressive
competition among VCs
• Maturing Phase for VCs in India as VCs now
more focused on placing select bets on fewer
investments - given their initial portfolios are
already in place
Scale-up Phase Maturing Phase
2 . I N V E S T M E N T S
10IVCA Bain India VC report 2018_PPTBOS
Focus has shifted to fewer, higher quality deals
Number of Deals Average Deal Size
Source: Venture Intelligence; Bain Analysis
Scale-up Phase(VC focus on doing more
deals and building initial
portfolio)
Maturing Phase(VC focus on doing select deals
to holistically grow portfolio)
2 . I N V E S T M E N T S
Scale-up Phase(VC focus on making
multiple, smaller
investments)
Maturing Phase(Focus on placing select bets
on fewer investments)
11IVCA Bain India VC report 2018_PPTBOS
With increasing focus on quality – number of deals has declined and deal size has
increased across all investment stages
Number of Deals per Round Round Size
2 . I N V E S T M E N T S
Source: Venture Intelligence; Bain Analysis
Classification of rounds
as Seed/ Series A/
Series B/ Series C per
investment
announcements
Classification of rounds
as Seed/ Series A/
Series B/ Series C per
investment
announcements
12IVCA Bain India VC report 2018_PPTBOS
India is well positioned to attract high quantum of investments in future
Source: Coller Capital’s Global Private Equity Barometer, 2018; EY Report; Bain Analysis
India VC Market Attractiveness – LP Perspective
Key Drivers
“Better growth opportunities, more exits taking place and improved choices in fund managers make India very attractive”
EMPEA 2018 Global Limited Partners’ survey
“We believe that the strong exits seen in the past 3 years
have played a material role in ‘rerating’ the India VC sector in
the eyes of Global LPs. These exits have underlined the ability
of the Indian market to return foreign capital to LPs”
PE/VC Agenda 2018, EY
Strong
exits in
the last
3 years
Positive
macro
outlook “Limited Partners are attracted to the Indian market because it’s
relatively young and because of the sheer volume of consumer demand that the country generates”
Former AVP, Sequoia Capital
“Limited partners are more positive today about India’s macroeconomic environment than they were in the past.
Partner, Indian Fund manager
2 . I N V E S T M E N T S
13IVCA Bain India VC report 2018_PPTBOS
Number of active VCs have grown significantly from 2013 but have plateaued out
recently
Source: Venture Intelligence; Bain Analysis
Decreasing annual deals per
VC given focus on quality deals
vs. quantity of deals post 2015
3 . V C F I R M S
14IVCA Bain India VC report 2018_PPTBOS
Bigger VCs have shifted their focus to late investment stages with smaller VCs
dominant in the seed/ series A stages
Investment Break-Down of Large Funds Seed/ Series A VC Examples
VC Fund
Year
Founded Investments
Pi Ventures 2016
Exfinity
Ventures2013
Unitus
Ventures2012
Omnivore
Ventures 2011
2015,Series A
2018, Seed
2016,Seed 2016, Seed
2018,Series A
2017, Series A
2016, Series A
2017, Series A
Note: Top 10 funds include Sequoia, Accel India, Nexus, Matrix, IDG, SAIF, Kalaari, Lighspeed, Lightbox, Saama Capital
Source: Tracxn; Venture Intelligence; Bain Analysis
3 . V C F I R M S
Top 10 based on
funds raised
between ’14 and ‘18
15IVCA Bain India VC report 2018_PPTBOS
Investment by Indian corporate VCs has grown 4x since 2013 – quantum of
investment expected to further increase in future
Corporate VC Investments in India Drivers of Future Growth
Source: CBInsights; Bain Analysis
Increasing
number of
mature start-ups
expected to start
own funds
Leading Global
CVCs doubling
down on
investments in
India
• Flipkart and PayTM are active VC investors
• Aim to further integrate in the start-up
ecosystem, and strengthen own presence
through VC investments
• Global Corporate VCs such as Google, and
Intel increasing direct investments in India
• Google made first direct investment in India in
Dunzo in ’17, second investment in Fynd in ’18
4 . C O R P O R A T E V C S
Investment include
Blackbuck, and Tinystep
Investments include Jugnoo
and Big Basket
16IVCA Bain India VC report 2018_PPTBOS
Consumer Technology has dominated VC investments over the past few years
VC Investments ($) in India by Industry Segment
VC Number of Deals in India by Industry
Segment
5 . S E G M E N T S
Source: Venture Intelligence; AVCJ; VCCEdge; Bain Analysis
Average deal size of ~$7M
for Consumer Technology
Investments; ~ $5.5-7M for
other segments
17IVCA Bain India VC report 2018_PPTBOS
Most funds have diversified portfolios with only a few having vertical focus
Consumer Technology and IT/ ITeS dominate investments of large funds Funds with vertical-specific focus
8 investments in
Healthcare
30 investments in
BFSI
18 investments in
BFSI
10+ investments in
Consumer Goods
10+ investments in
Consumer Goods
5 . S E G M E N T S
15 investments in
Healthcare
Source: Venture Intelligence; AVCJ; VCCEdge; Bain Analysis
Investments of all large funds are diversified across sectors almost mirroring the
market mix - all funds have exposure to consumer technology/ IT
18IVCA Bain India VC report 2018_PPTBOS
Even within Consumer Tech., VC investments have diversified - shifting away from
General e-tailing/ OTAs
Sub-segments Sample Companies
EdTech
HealthTech
FoodTech
FinTech
Verticalized e-tailing
Online Travel
Aggregators (OTAs)
Horizontal e-tailing
Top Consumer Tech investments
T O P 5 0 0 C O N S U M E R T E C H D E A L S
Diversification of Consumer Tech Investments
6 . D I V E R S I F I C A T I O N
Source: Venture Intelligence; AVCJ; VCCEdge; Bain Analysis
19IVCA Bain India VC report 2018_PPTBOS
Going ahead - multiple new areas within Consumer Technology expected to gain
traction
Source: Forrester; Bain Analysis
Multiple categories within e-tailing that are sizeable globally are likely to see traction
in India over the next few years (such as Beauty, Sports, Toys, Auto Parts, etc.)
New verticals in E-tailing Vernacular Content
• Rapid increase in web
only and vernacular
content driven by growth
in consumers spending
more time online to be
another theme of growth;
Models emerging across
text, messaging, music,
gaming and video
6 . D I V E R S I F I C A T I O N
20IVCA Bain India VC report 2018_PPTBOS
Investments in IT also expected to evolve to be more SaaS/ analytics focused (vs. IT
services)
• Enterprise/ SMB-focused SaaS companies with an easy-to-use horizontal
offering (both business software like CRM and infra software like middleware)
1
(AI)
(Sales marketing platform
and data management
platform for pharma)
(Cyber Security) (Cyber Security)
(AI)
• Vertical-specific software product companies focused on high-growth
verticals like Fintech, government, healthcare, education
• Firms with differentiated capabilities/ offerings in high-growth niche
segments like cyber-security, IoT and AI
• Analytics firms with own differentiated products/ solutions/ IP in focus
verticals/ niches
(IOT)
(Video Analytics)
(Big Data Analytics)
(HC)
(HC)(Agri)(Ed)
(HC)
2
3
4
Source: Bain Analysis
Key Investment Themes Recent Investments
6 . D I V E R S I F I C A T I O N
21IVCA Bain India VC report 2018_PPTBOS
VCs in India have seen reasonable success - 5-15% portfolio companies of large
funds went on to cumulatively raise >$100M funding (1/3)
VC Name
Funds
raised,
2014-18
(in $M)
# of deals
participated
2014-18 (total
deal value)
Typical investment
Partners
% Portfolio
companies
that raised
further
funding1
% of Portfolio
companies with
total funding
>$100M
Portfolio
companies
with total
funding
>$500M
Exits
(2006)~3000
~190
(~$5.4B)
• 80-85% deals in
partnership
• Frequent Partners:
Accel, Lightspeed,
Matrix, SAIF, Nexus
~80% 15-16%
3/190 • 40-50 exits in last 5 years (total
exit value2 of ~$3B)
• Marquee exits (company
valuation >$500M) include Star
Health Insurance, Freecharge
(2008)~800
~150
(~$3.8B)
• 80-85% deals in
partnership
• Frequent Partners:
Sequoia, IDG, SAIF
~70% 6-7%
2/150 • ~20 exits in last 5 years (total
exit value of ~$2B)3
• Marquee exits (company
valuation >$500M) include
Flipkart, Myntra, Ola
(2006)~750
~85
(~$1.3B)
• 80-85% deals in
partnership
• Frequent Partners:
Sequoia, Blume, Helion
~65% 5-6%
1/85
• 10-12 exits last 5 years (total
exit value of ~$0.2B)
• Top 2 exits (by total exit value)
include Mezi.com, What’s on
India
7 . P E R F O R M A N C E
Note: (1) Further funding also includes subsequent rounds raised/participated by the same funds; (2) Total exit value includes combined exit value for all participating firms
Source: Tracxn, Venture Intelligence; Bain Analysis
22IVCA Bain India VC report 2018_PPTBOS
VCs in India have seen reasonable success - 5-15% portfolio companies of large
funds went on to cumulatively raise >$100M funding (2/3)
VC Name
Funds
raised,
2014-18
(in $M)
# of deals
participated
2014-18 (total
deal value)
Typical investment
Partners
% Portfolio
companies
that raised
further
funding1
% of Portfolio
companies with
total funding
>$100M
Portfolio
companies
with total
funding
>$500M
Exits
(2006)
~700~70
(~$1.1B)
• 75-80% deals in
partnership
• Frequent partners:
Sequoia, Nexus, Tiger
~60% 10-11%
1/70
• 15-16 exits in last 5 years (total
exit value2 of ~$0.4B)
• Top 3 exits (by total exit value)
include ItzCash, TCNS Clothing,
Quikr
(2006)
~420~90
(~$0.9B)
• 95-100% deals in
partnership
• Frequent Partners:
Accel, Kalari, Inventus
~70% 6-7% ---
• ~16 exits in last 5 years (total
exit value of $1.1-1.2B3)
• Marquee exits (company
valuation >$500M) nclude
Myntra, Lenskart
(2000)
~350~100
(~$1.1B)
• 65-70% deals in
partnership
• Frequent Partners:
Accel, India Quotient
Fund, Sequoia
~70% 11-12%
1/100
• ~15 exits in last 5 years (total
exit value of ~$1.0B)
• Marquee exits (company
valuation >$500M) include
PayTM, Just Dial
7 . P E R F O R M A N C E
Note: (1) Further funding also includes subsequent rounds raised/participated by the same funds; (2) Total exit value includes combined exit value for all participating firms
Source: Tracxn, Venture Intelligence; Bain Analysis
23IVCA Bain India VC report 2018_PPTBOS
VCs in India have seen reasonable success - 5-15% portfolio companies of large
funds went on to cumulatively raise >$100M funding (3/3)
VC Name
Funds
raised,
2014-18
(in $M)
# of deals
participated
2014-18 (total
deal value)
Typical investment
Partners
% Portfolio
companies
that raised
further
funding1
% of Portfolio
companies with
total funding
>$100M
Portfolio
companies
with total
funding
>$500M
Exits
(2006)
~290~90
(~$1.0B)
• 80-85% deals in
partnership
• Frequent Partners:
IDG, Accel, India
Quotient Fund
~70% 4-5%
1/90• 7-8 exits in the past 5 years
(total exit value2 of ~$0.3B)
• Top exits (by total exit value)
include Embibe, VisionaryRCM
and Zivame
(2007)
~290~40
(~$2.4B)
• 85-90% deals in
partnership
• Frequent Partners:
Sequoia, Matrix, Helion,
Nexus
~70% 13-14%
1/40• 3-4 exits in the past 5 years
(total exit value of $0.2-0.3B)
• Top 2 exits (by total exit value)
include ItzCash, India Energy
Exchange
7 . P E R F O R M A N C E
Note: (1) Further funding also includes subsequent rounds raised/participated by the same funds; (2) Total exit value includes combined exit value for all participating firms
Source: Tracxn; Venture Intelligence; Bain Analysis
24IVCA Bain India VC report 2018_PPTBOS
Overall, ~30% of all VC seed investments in India and ~50% series A/ B/ C
investments continued to raise subsequent rounds of capital
Funding post Seed stage Funding post Series A Funding post Series B Funding post Series C
7 . P E R F O R M A N C E
~30%
~47% ~49%~50%
Note: Classification of rounds as Seed/ Series A/ Series B/ Series C per investment announcements
Source: Bain Analysis
Classification of rounds
as Seed/ Series A/
Series B/ Series C per
investment
announcements
Includes start-ups that
directly raised Series A
funding
25IVCA Bain India VC report 2018_PPTBOS
Exit momentum in India has been strong with increasing exit value per deal
Note: Exits with undisclosed deal amounts have not been included
Source: Venture Intelligence; AVCJ; VCCEdge; Bain Analysis
~$16B Walmart-
Flipkart deal
contributes ~80%
to exits in 2018
High Transaction Value per deal
driving higher total VC Exit value
even as the number of annual exits
is consistent at 100-150
8 . E X I T S
Increasing % of strategic exits driven
by higher number of exits from
consumer technology deals (~25%
of all exits in 2018 vs. 1% in 2013);
these deals are almost all primarily
top-line growth driven - need further
seasoning pre-IPO (especially in
terms of profitability)
Exits in early 2010s were from
primarily from IT deals done in
late 2000s – more IPO exits given
more mature investment profile
26IVCA Bain India VC report 2018_PPTBOS
Multiple big ticket exits in recent years have contributed to a stark increase in
average exit value per deal
Startup/Asset VC/Investor name Year
Exit Value
(in $M)
Kalaari Capital, Tiger Global, IDG Ventures India, Accel India, SoftBank Corp, Greenoaks Capital,
Naspers, Others
Tiger Global
2018
2017
16,000
800
Tata Capital, Sequoia Capital India, ICICI Venture, Apis Partners, Tata Capital Growth Fund, Others 2018 930
Tiger Global2017 500
Sequoia Capital, Sofina Societe, Tybourne Capital, Valiant Capital, ru-Net,2015 450
SAIF Partners2017 400
SAIF Partners
Reliance Capital Ventures Ltd., Saama Capaital (SVB), SAP ventures
2017
2017
400
250
Citi Venture Capital, Infrastructure Development Finance, Baring Asia Private, Samara Capital2015 340
Kalaari Capital, IDG Ventures India, Accel India; Tiger Global, Others2014 240
Sequoia Capital India, Saama Capital, Madison India 2018 240
Source: Venture Intelligence; Tracxn; Bain Analysis
8 . E X I T S
27IVCA Bain India VC report 2018_PPTBOS
Exits are expected to further accelerate - 80% founders expecting exit by 2024
“Going ahead, number of strategic exits are likely to grow given
increasing corporate interest in startups in adjacent spaces. For
instance, TVS might be interested to acquire an electric scooter
company, which has seen significant VC investments in the past.”
- Former Investment Lead, Accel Partners
“The number of buyers in the market has increased. It is not
difficult to find a buyer in the industry even for a moderately
attractive asset.”
- Former AVP, Sequoia Capital
80%550+ deals due for
immediate exit based on
investments before 2013
(assuming 5 year holding
period)
Multiple impending exits Founders’ expectation
• 35% of founders expect an exit between
2019 and 2021; a further 41% expect exits
by 2024
Source: Innoven Start-up Outlook Report; Bain Analysis
8 . E X I T S
28IVCA Bain India VC report 2018_PPTBOS
A G E N D A
India Venture Capital landscape
Startup ecosystem in India
Regulatory framework
29IVCA Bain India VC report 2018_PPTBOS
Start-up Ecosystem – Key Messages
India is among one of the top startup ecosystems in the world housing 50K+ total start-ups and 3.5K+ funded start-ups
Start-up ecosystem in India has been recording rapid growth with number of total start-ups and funded start-ups growing at ~30% CAGR;
multiple factors have contributed in building this flourishing start-up ecosystem in India - key factors include:
Access to abundant, high quality talent – India has the largest young (i.e. age group 20-39 in the world) working population (~440 M), second highest
college enrollments in the world (~32M), and a healthy mix of STEM and Business graduates; also boasts of more than 1M annual engineering graduates -
second only to China
Strong underlying macroeconomic growth - Disposable income & consumer expenditure per capita have grown at ~10% CAGR over past 5 years
leading to increased consumer demand, while rapid growth (20%+ CAGR) in number of internet users and high smartphone penetration has increased access
Holistic ecosystem enablers – Access to (1) Sprawling base of co-working spaces simplifying start-up setting up process (both domestic & International
companies), (b) ~140 private and government incubators (across different models) providing funding/ networking/ knowledge-exchange opportunities, and (c)
multiple global partnerships with other start-up ecosystems such as France (French Tech ticket) & UK (London’s IE20 Program) leading to increased exposure
Supportive Regulatory framework - Multiple government schemes and initiatives such as Startup India, SIDBI Fund of Funds, initiatives by NITI Aayog
fostering the entrepreneurial ecosystem in India by providing financial (e.g. reduced tax burden) and operational (e.g. procedural simplification) benefits
Bangalore is the startup capital of India housing 800+ funded tech startups, followed by Delhi-NCR and Mumbai with 700 and 450 start-
ups respectively; Bangalore’s lead driven by access to large talent base and lower cost of living (commercial rent lower vs. Mumbai/ NCR)
With increasing maturity of the ecosystem – smaller cities such as Hyderabad, Pune and Chennai (each housing 100+ funded tech
startups) are seeing increased start-up activity, primarily driven by their cost advantage and growing talent base
30IVCA Bain India VC report 2018_PPTBOS
India houses 50K+ total start-ups, of which ~3.5K+ are funded – growing rapidly at
~30% CAGR
Number of startups
Note: Startups are companies founded post 2005; as reported by Tracxn
Source: Tracxn
Number of funded startups
28%33%
31IVCA Bain India VC report 2018_PPTBOS
India is considered among one of the top startup ecosystems in the world
Total funded tech startup*
base (2017), Growth (2013-
2017)
Total number of unicorns
(2018)*
Source: NASSCOM; Tracxn; Euromonitor
Total engineering grads
(2017, M)
Total number of incubators
(2017)
~20100, 19% ~4800, 48% ~2800, 39% ~3000, 26% ~1150, 23%
126 77 18 15 3
0.25 4.5 1.1 0.07 0.007
~240 ~740 ~399 ~59 ~6.5
~1500 ~2400 ~140 ~50 ~130
8 46 77 9 49Ease of doing business
rank (2018)
Total number of internet
users (M) (2018)
US China India UK Israel
32IVCA Bain India VC report 2018_PPTBOS
Availability of tech talent and a strong macroeconomic base are top factors
contributing to India’s startup boom
Availability of talentStrong underlying
macroeconomic growthRegulatory push
Other ecosystem
enablers
1 2 3 4
• Significant presence of both
International (e.g. - WeWork,
SpacesWorks) and domestic
(Awfis, 91-Springboard, etc.) co-
working spaces
• Multiple Incubation programs
across sectors and segments
• Global partnerships with other
mature startup ecosystems like
Israel, France UK and S. Korea
• Multiple schemes and initiatives
to give boost to start-up
ecosystem such as Startup
India, SIDBI Fund of Funds,
initiatives by NITI Aayog
• Financial and operational
benefits for VCs investing in
India facilitated by SEBI’s recent
revamping of regulations for
VCs
• Disposable income &
consumer expenditure per
capita have grown at ~10%
CAGR over past 5 years
• Access to consumer tech
products and services has grown
- rapid growth in number of
internet users and high
smartphone penetration
• Largest young (i.e. age group
20-39 in the world) working
population (~440 M)
• 50% of India’s college graduates
are STEM and business
students
• More than 1 million annual
engineering graduates
Covered in detail in the
next section
33IVCA Bain India VC report 2018_PPTBOS
India is one of the largest base for quantity and quality of talent
Largest young, working population
Second highest annual college
enrollments
Healthy mix of STEM and Business
graduates
Note: STEM education degrees in includes, Science, Technology, Engineering and Mathematics
Source: World Bank Data
1
34IVCA Bain India VC report 2018_PPTBOS
India produces more than 1M engineering graduates each year - second only to
China
Annual engineering graduates in India Comparison vs. other countries
CAGR
(’13’-17)
Note: Engineering graduates include Construction and Manufacturing graduates too
Source: Euromonitor
1
35IVCA Bain India VC report 2018_PPTBOS
Growing consumer demand and increased tech penetration are top macro factors
driving growth in India’s start-up ecosystem2
Disposable income & consumer expenditure per capita Internet users and smartphone penetration
Source: Euromonitor; Bain Analysis
DEMAND ENABLERS
36IVCA Bain India VC report 2018_PPTBOS
There are multiple ecosystem enablers that have contributed immensely to India’s
startup story
Incubation centers Co-working spaces Global Programs
Source: Indian Tech Start-up ecosystem, NASSCOM;
N O N E X H A U S T I V E
3
37IVCA Bain India VC report 2018_PPTBOS
Incubation programs have delivered successful startups in India
Corporate Government University Social Private
• Bangalore (2017) • Hyderabad (2015) • Chennai (2013) • Delhi (2011) • Bangalore (2015)
• Advanced Tech- IoT,
Cloud, Virtualization,
Analytics, Machine
learning
• FoodTech, EdTech,
HealthTech, Finance
• Biotech, HealthTech,
Hardware and Software
start-ups
• AgriTech • ConsumerTech, FinTech,
Deep-tech, HealthTech,
Enterprise solutions
• Financial: Equity-free
grant of $15,000
• Access: Technology
and business
mentorship
• Support System:
NetApp platforms/ tools,
co-working space, HR,
marketing, legal and
tech support
• Access: Extensive
network of CXOs, serial
entrepreneurs, senior
executives
• Support System:
Financial advisory, legal
and HR/recruiting services
• Financial: Connections
with angel investors/VCs
for funding
• Access: Extensive alumni
network & industry
connects
• Operational: Access to
R&D infrastructure
• Financial: Up to $50,000
equity investment in 1 to 3
businesses of each cohort
• Access: 4-month
workshops with mentors
followed by investor
showcase
• Financial: Seed funding
for early stage start-ups;
Initial investment of up to
$450-500K
• Access: 50+ VCs, 200+
founders in Axilor’s
network
Source: Indian Tech Start-up ecosystem, NASSCOM
Location
Key Offerings
Focus Area
3
38IVCA Bain India VC report 2018_PPTBOS
Co-working spaces have simplified setting up process for startups
Inception Year• Launched in 2015 in Delhi NCR • Launched in 2013 in Delhi • Entered India in 2017
• 55 facilities with 25,000 seats
• Present in 9 cities – Delhi,
Bangalore, Mumbai, Hyderabad,
Gurgaon, Noida, Pune, Kolkata
• 19 facilities
• Present in 8 cities - Bangalore,
Delhi, Goa, Gurgaon, Hyderabad,
Mumbai, Navi Mumbai and Noida
• 9 facilities in India with 12,000 seats
• Present in 3 cities- Mumbai, Bangalore and Gurgaon
• Raised ~50M till date from
Sequoia and InnoVen
• Raised ~$20M till date from
Sandway Investment, AMA
Holdings, 33 Investments etc.
• Raised $4.4B from Softbank in 2017, out of which $1.4B
would go into Asia Pacific subsidiaries
No. of facilities
Funding
Indian co-working spaces International co-working spaces
3
Source: Indian Tech Start-up ecosystem, NASSCOM
39IVCA Bain India VC report 2018_PPTBOS
India has forged collaborative programs with other top global startup ecosystems
Overview
Israel France South Korea United Kingdom
India Israel Global
Innovation challengeFrench Tech ticket
K start-up Grand
Challenge
Mayor of London’s IE20
Program
• Collaboration between
Start-up India and Israel
Innovation
• Focus Area: Agriculture,
Water and Digital Health
• Initiative to attract entrepreneurs
to create tech start-ups in France
• Initiative to invite foreign start-
ups to Korea and cooperate
with VCs and
• Initiative to discover 20 of
India’s most innovative and
high-growth start-ups that are
considering international
expansion
• INR 2-5 lakh cash prize;
additional INR 10-25 lakh
cash prize in water-tech
• Cross-border mentorship
and incubation/acceleration
support
• Connection to
investors/corporates to
explore piloting solutions
• €45,000 per team; French
residence permit
• 1 year incubation; Office space
and mentoring in France
• Networking events, demo days
with investors
• Access to early tech
adopting Korean population;
Govt. support for launch in S.
Korea
• $11,300 funding support
• 3.5 months accelerator
program
• Free office space in Seoul;
Corporate support and
sponsorship
• Opportunity to set up or
expand business in London
• 6 months free office
membership
• Expert advice on marketing,
access to finance and local
market analysis
• 18 Indian start-ups selected• 11 Indian start-ups won (Total 70
winners)
• 10 of the 80 start-ups selected
from India
• 20 Indian start-ups out of 300
applications selected
Key Offerings
Impact
3
Source: Indian Tech Start-up ecosystem, NASSCOM
40IVCA Bain India VC report 2018_PPTBOS
Bengaluru is the startup capital of India, followed by Delhi NCR and Mumbai
Bengaluru Delhi NCR Mumbai
~840 ~710 ~450
~320 ~180 ~270
• Talent – 24 universities, ~135
engineering colleges; abundant tech
talent given proximity to IT campuses
and captives (highest in India)
• Low cost of commercial real estate
for grade A rentals compared to NCR/
Mumbai (INR 70 sq. ft vs. INR 80-100
sq. ft.)
• Supportive state government:
Launched a dedicated startup cell aimed
to provide mentorship, regulatory advice
and corporate exposure to startups
• Talent – 26 universities, 34 engineering
colleges
• One of the fastest growing urban
centers of India – highest vacant grade
A commercial real estate stock (~30
MSF) and as well as upcoming supply
(~42 MSF) across all metros
• Rising number of
incubators/accelerators set up by
govt., corporates & educational
institutions
• Talent – 14 universities, 46 engineering
colleges
• India’s commercial capital – highest
contribution to India’s GDP and
highest share of disposable income
• Highest number of VC headquartered
in Mumbai vs. other hubs
Number of funded tech
startups
Number of
Co-working spaces
Top funded startups
headquartered in locations
Key growth drivers
Note: Includes only funded companies founded after 2005 – excludes deadpooled startups
Source: NASSCOM; Tracxn; Euromonitor
41IVCA Bain India VC report 2018_PPTBOS
In addition to the 3 hubs, Indian startup ecosystem has expanded to newer cities
Hyderabad Pune Chennai
~150 ~120 ~110
~110 ~90 ~30
• Talent – 15 universities, ~42
engineering colleges
• House captives of global tech giants
like Microsoft, Facebook & Google –
attracts top tech talent
• Very low cost of grade A commercial
real estate rentals @ INR 50 sq. ft
• Proactive state government – set up
“T-Hub” (India’s fastest growing
incubation center) and launched
Innovation Policy – offering tax
incentives to startups & incubators
• Talent – 17 universities, ~129
engineering colleges
• Low cost of grade A commercial real
estate rentals @ INR 60 sq. ft
• Presence of major IT hubs like Infosys,
TCS, Wipro, Accenture leading to large
pool of IT resources
• Abundant product engineering/
design talent given proximity to
automotive/ manufacturing captives
• Talent – 25 universities, ~29
engineering colleges
• Low cost of grade A commercial real
estate rentals @ INR 55 sq. ft
• Large number of Special Economic
Zones (~20)
Number of funded tech
startups
Number of
Co-working spaces
Top funded startups
headquartered in locations
Key growth drivers
Note: Includes only funded companies founded after 2005 – excludes deadpooled startups
Source: NASSCOM; Tracxn; Euromonitor
43IVCA Bain India VC report 2018_PPTBOS
Government’s recent programs and policies aim to boost the Indian startup
ecosystem by benefiting both Start-ups and Venture Capital firms
Policies and Schemes benefitting Startups Policies and Schemes benefitting VCs
• Securities and Exchange Board of India
(SEBI) constituted a standing committee
‘Alternative Investment Policy Advisory
Committee’ (AIPAC)
• Aim of committee is to at help domestic
financial institutions access appropriate
investment opportunities to earn risk-
adjusted returns
• Since setting up of AIPAC, SEBI observed:
– >3x growth in total capital raised by VC firms
(AIF category 1 funds)
– ~33% growth in total registered VCs with SEBI
• Flagship initiative by govt. of India aimed at promoting
growth of startups and generate large scale job opportunities
• Key initiatives include setting up incubation centers, tax
exemptions for startups, easier patent filing, etc.
• Intent of supporting startups at different stages of their
lifecycle – incubation, seed funding and growth
• Key initiative is setting up of a INR. 10,000 Cr. fund of
funds – capital to be deployed in startups through VCs
• Founded by NITI Aayog, key initiative is setting up of Atal
Incubation Centers (AICs) for support to startups across
sectors
• Launched in 2014 to encourage companies to manufacture in
India and increase investment in manufacturing sector
• Key initiatives include making collateral-free credit available
to Micro and Small Enterprises engaged in manufacturing
activities
1
2
3
4
5
Source: Bain Analysis
44IVCA Bain India VC report 2018_PPTBOS
Startup India is the government’s flagship initiative to extend operational and
financial support to startups
“Startups, technology and innovation will be effective and exciting instruments for India’s transformation.”
Shri Narendra Modi, Prime Minister of India
Procedural Simplifications
for setting of entities
Providing tax relaxation
to financially incentivizestartups
1
2
3Providing incubation
and funding assistance
MA
IN F
OC
US
AR
EA
S
1
45IVCA Bain India VC report 2018_PPTBOS
Since its inception, Startup India has mobilized multiple govt. institutions to
implement favorable regulations for startups 1
N O N - E X H A U S T I V E
Source: IVCA; Bain Analysis
Ministry of Finance, Department of Revenue
• Exemption from angel tax provided to startups receiving investments from specified investors
• Exemption from tax on capital gains arising out of sale of residential unit if the amount of net consideration is invested in equity shares of startups
for utilizing the same for purchase of specified asset
• Exemption provided to eligible start-up for any 3 consecutive assessment years out of 7 years beginning from the year in which such eligible
start-up is incorporated (earlier 3 out of 5 years)
Securities and Exchange Board of India (SEBI)
• Lock in period for investments made by an Angel Fund reduced to 1 year from 3 years
• Angel funds allowed to invest up to 25% of their corpus in overseas start-ups
• Upper limit for number of angel investors in an angel fund increased to 200 from 49
• Minimum investment made by angel fund in a start-up reduced from INR 50 lakhs to INR 25 lakhs
Ministry of Corporate Affairs
• Exemption from providing Cash Flow statement as part of financial statements
• Removal of limit on acceptance of deposits from shareholders for startups for first five years
• Exemption from procedural compliance for raising deposits from shareholders
Reserve Bank of India
• Startups allowed to raise External Commercial Borrowing (ECB) up to USD 3 million
• SEBI registered foreign VCs can invest in Indian startups under automatic route
• Indian startups with overseas subsidiaries are allowed to open foreign currency bank account outside India
46IVCA Bain India VC report 2018_PPTBOS
• Small Industries Development Bank of
India (SIDBI) aims to provide
government support to the VC
ecosystem of India
• An initiative by NITI Aayog, the policy think
tank of government of India, AIM acts as an
umbrella organization that aligns innovation
policies between central and state
governments
• Make in India was launched in 2014 with
the objective of job creation and "to
transform India into a “global design and
manufacturing hub“
• Establishment of a Fund of Funds for
Startups (FFS) with a corpus of INR.
10,000 Cr. to be deployed through
SEBI registered VC funds
• ASPIRE Fund of corpus INR. 200 Cr.
focusing on rural and agri-based
startups
• Atal Incubation Centers (AIC): Provides a
grant-in-aid of INR. 10 Cr. for a maximum
period of 5 years
• Atal Tinkering Labs (ATL): Dedicated work
spaces aimed at imparting additional
skillset to school students – computational
thinking, adaptive learning, etc.
• Credit Linked Capital Subsidy Scheme
assists in technological and machinery
upgradation of manufacturing startups
• Stepping up of credit line for Small and
Medium Enterprises (SMEs)
• INR 600 Cr. of funds already deployed
by SIDBI across 75 startups in India
• 13 AICs approved across India with INR. 10
Cr. grant each
• 2441 schools across the country selected for
setting up ATLs
• Procedural simplifications like complete
digitization of Industrial Entrepreneur
Memorandum (IEM)
Several other government schemes have created tangible impact for startups
Overview
Key Initiatives
Impact
2 3 4
Source: Bain Analysis
47IVCA Bain India VC report 2018_PPTBOS
SEBI AIPAC: SEBI has recommended easier financial regulations for VCs5
SEBI constituted AIPAC supports domestic financial institutions
with capital to deploy
AIPAC recommendations have catalyzed the
number and total fundraising of registered VCs
Ove
rvie
wK
ey r
eg
ula
tory
re
vis
ion
s
• Alternate Investment Policy Advisory Committee (AIPAC) was constituted in
March, 2015
• AIPAC has submitted 4 sets of recommendations to SEBI to ease regulations for
Alternate Investment Funds (includes VC funds)
• Introduction of tax pass-through for VC funds
• Allowance to consider income from transfer of unlisted shares for VC funds
as ‘Capital Gains’
• Angel Fund regulations relaxed (reduced lock-in period, upto 25% corpus
investment overseas, etc.)
• Banks permitted to invest in VC funds
• Equity/debt investment made by foreign VCs into Indian startups now
categorized under automatic route
• Exclusion for VC funds in the notification for exemption on long-term capital
gains
• Tax withholding for foreign investors in VCs at ‘rates in force’
• Encourage AIFs to locate in the International Financial Services Centers
(IVCA recommendation)
• Daughter funds of EDF can now avail funding from other fund of funds
including FFS (IVCA recommendation)
• Provision to inform CCI if acquirer has >5% stake in similar enterprises repealed
(IVCA recommendation)
First set of AIPAC recommendations
Note: AIF Category I funds include Venture Capital Funds, SME Funds, Social Venture Funds and Infrastructure Funds
Source: SEBI; Bain Analysis
48IVCA Bain India VC report 2018_PPTBOSSource: World Bank Data
Ease of doing business: India jumped 23 places globally on World Bank’s Ease of
Doing Business Index in 2018 – highest rank in last 10 years
49IVCA Bain India VC report 2018_PPTBOS
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cooperation with Indian Private Equity and Venture Capital Association (“IVCA”), over a limited time period to provide a
perspective on the VC Industry in India.
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