The year 2021 was a record year for the Indian startup ecosystem as venture capital (VC) investments reached $38.5 billion — which was 3.8x growth over 2020 with addition of 44 new unicorns, according to a report.
The Bain & Company’s annual ‘India Venture Capital Report 2022’, in collaboration with Indian Venture and Alternate Capital Association (IVCA) said the exponential surge in investments was driven by a dual impact.
This dual impact was both in deal volume (1,545 deals in 2021) and average deal size ($24.9 million per deal in 2021) — which was double to that of 2020.
“Investing momentum in India was driven by a pivotal convergence of tailwinds several years in the making”, said Arpan Sheth, Partner at Bain & Company and an author of the report.
The year also witnessed a record upswing in “mega rounds” of $100 million-plus investments, as global and domestic VCs led 92 large-ticket rounds across market leaders in ecommerce, online food delivery, fintech, edtech, and gaming.
According to this report, early-stage deals also saw a dramatic shift as Series A rounds breached the $10 million plus mark in average deal size. India added 44 unicorns, surpassing China’s 42 unicorns in 2021 and leapfrogging to third place in terms of total active unicorns globally (after the US and China), it noted.
As Arpan noted, “Maturing digital infrastructure fundamentals, ranging from access to cheap and ubiquitous data to UPI-led payment rails in confluence with increasing depth in the startup ecosystem and growing investor confidence as capital, saw exits through public IPO and private secondary routes led to an exceptional year for the Indian ecosystem.”
The segments which accounted for the highest funding were consumer technology, fintech, and software-as-a-service (SaaS) garnering 75 percent of the overall deal value.
The report stated that emerging sectors also saw growing interest as evidenced by a sharp rise in investments in online B2B marketplaces with four new unicorns created, while Web 3.0 or crypto and blockchain linked technology startups saw upwards of $500 million in total funding.
“Web 3.0 and vrypto/blockchain-based technologies witnessed growing interest as 40+ early-stage deals crossed $500 million+ in overall investments,” said Sriwatsan Krishnan, Partner at Bain & Company and co-author of the report.
The year 2021 was also a defining period for exits as the total such value reached north of $14 billion across secondary transactions and initial public offerings (IPOs).
Rajat Tandon, President of IVCA, said, “Public market listings for tech companies in India saw a tectonic shift as the SEBI eased regulatory norms and retail investor appetite for tech listings peaked.”
On the outlook for 2022, the report notes the global headwinds may affect the funding outlook for the rest of the year. While dry powder availability is a driver for continued investments, the pace and quality of deal making may shift with more focus on later stage deals and companies with leaner unit economics.
Edited by Kanishk Singh