Bain Report India Venture Capital 2021
Bain Report India Venture Capital 2021
Bain Report India Venture Capital 2021
Arpan Sheth is a partner in Bain & Company’s Mumbai office. He leads the firm’s Asia-Pacific
Technology, Vector and Advanced Analytics practices, as well as India Private Equity and Alternative
Investor practice.
Sriwatsan Krishnan is a partner and a member of Bain & Company’s Private Equity practice and is
based out of Mumbai.
Arjun Upmanyu is an associate partner in Bain & Company’s Private Equity practice and is based out of
New Delhi.
Contents
Executive summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4. Exit landscape. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6. Regulatory landscape . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Indian Venture Capital and Private Equity Association | Bain & Company, Inc.
Executive summary
The year 2020 was truly extraordinary for India, with the significant impact of Covid-19 on the
economy and healthcare systems in the country. GDP is expected to contract by 8% in 2020, with
more than 65% of the Indian economy at halt during the full lockdown, which ended only in June
2020 (see Figures 1, 2). However, latest forecasts by the International Monetary Fund (IMF) expect
strong rebound in 2021 with growth returning to the long-term trend of 7% to 8% over 2022 to 2025
(see Figure 3). Within the year itself, Covid-19 played an important role in accelerating digital trends
across sectors dramatically, which is reflected in venture capital (VC) money flows and emergence of
new, digitally founded business models across sectors.
Figure 1: India had multiple lockdowns during March–May due to Covid-19 and reopened in
June in a phased manner; new case counts have been declining since September
Number of monthly new Covid cases (in million)
3 Unlock 3.0
Nationwide Gyms and yoga centres opened;
Lockdown night curfews relaxed
Unlock 1.0
Malls, restaurants, hotels opened;
partial domestic air travel resumed Government-led
2 vaccination drive
started in January 2021 with
Lockdown extension Unlock 2.0 target of immunizing 300M
with relaxations Interstate citizens by August 2021
movement
allowed;
expansion of Unlock 4.0
1 21-day complete Metro services
domestic flights
lockdown imposed resumed; gatherings
of 100 people allowed
Unlock 5.0
Visa suspended
Cinemas and swimming
for foreigners pools opened
0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb
2
Indian Venture Capital and Private Equity Association | Bain & Company, Inc.
Figure 2: Covid-19 and the related lockdowns had a significant economic impact—India’s GDP
is expected to contract by 8% in 2020
Sources: International Monetary Fund; as estimated by Barclays from projecting one week’s economic loss due to shutdown of key industries (e.g. manufacturing,
utilities, mining); Tackling the COVID-19 youth employment crisis in Asia and the Pacific, International Labour Organization and Asian Development Bank,
August 2020; Covid-19 and the Antifragility of India Start-up Ecosystem, TiE Delhi, Zinnov, October 2020; Bain analysis
Figure 3: However, the latest IMF forecasts expect a strong rebound in 2021 for the Indian
economy, with growth returning to the long-term trend for 2022 to 2025
Real GDP growth (annual % change)
India, IMF world economic outlook, Jan 2021
8 India India’s GDP growth was already on a downward trend before 2020
Recovery in the later half of 2020 has been at a “faster pace than anticipated”
World
3 2021 11.5% growth predicted
IMF forecast assumes governments will have Covid under control in 2021
via vaccines
3
Indian Venture Capital and Private Equity Association | Bain & Company, Inc.
Despite Covid-19, we saw a few investment themes continue from prior years (see Figure 4).
These included
• Strong deal flow, with close to $10 billion in VC investments—higher than in all previous years
except 2019
• Significant fundraising activity with $3 billion raised by India-focused funds in 2020, 40%
higher than in 2019—marquee funds including Sequoia, Elevation Partners, Falcon Edge, and
Lightspeed, all closed new funds for India investments in 2020, despite the pandemic
• Growing number of start-ups (~7,000 new start-ups founded in 2020, with more than 10%
growth in seed stage deals) and unicorns (12 added in 2020 vs. 8 in 2019, to take India’s total
to 37 now)
1 2 3 4
Growth in deal volume VC investment value in $3B raised by India-focused India among top five start-up
continued, with a 7% increase consumer tech and SaaS VC funds in 2020 (40% growth ecosystems globally—
in 2020 over 2019— grew by 25% and 10%, over 2019) number of start-ups grew by
~810 deals in 2020 vs. ~750 respectively, in 2020 vs. ~7K in 2020, number of seed
in 2019 and ~550 in 2018 2019 ~520 active VC funds in India stage deals grew at ~13%
in 2020 vs. ~480 in 2019 in 2020
(and ~400 on average over
2017–18) Largest ever increase in
unicorns in a single year—
12 added in 2020, for a total
of 37 unicorns in India
4
Indian Venture Capital and Private Equity Association | Bain & Company, Inc.
At the same time, there were a few themes (see Figure 5) that were different—driven or accelerated by
Covid-19—such as
• Surge in investment activity in a select set of sectors within consumer tech, including edtech,
foodtech, gaming, and media and entertainment, with an average 4x increase in investment value
over 2019
• Slowdown in exits (70% lower exit value in 2020 vs. 2019), likely led by depressed valuations and
disruption to business models
1 2 3 4
Surge in investments
Lower in edtech, foodtech, Decline in B2B A lukewarm year
average deal size gaming, and M&E commerce and tech for exits
Average deal size in 2020 Compared to 2019, Given industrial lockdowns VC exit value declined by
declined by ~15% vs. 2019, investment value grew ~6x and decline in economic 70% in 2020 (vs. 2019)
driven by a higher number of in edtech, ~4x in foodtech, activity, B2B commerce due to lower valuations,
smaller deals (~500 deals ~2.7x in gaming, and ~2.4x and tech saw investment impact on operations—
<$5M vs. ~390 in 2019) and in media & entertainment, value declining by 50% expected to recover over
growth in seed stage deals signifying the role of Covid in 2020 the next 1–2 years as
in rapidly accelerating digital portfolios mature
trends
5
Indian Venture Capital and Private Equity Association | Bain & Company, Inc.
In terms of key sectors receiving investments, consumer tech, SaaS, and fintech continued to lead
the way, accounting for 75% of VC investments in 2020 vs. 65% in 2019, and 14 of 22 VC deals
which were more than $100 million in size. Key subsectors receiving investments included (a)
edtech, foodtech, gaming, and media and entertainment in consumer tech; (b) verticalised solutions
within SaaS; and (c) payments within fintech.
SaaS in particular saw clear signs of maturity, with average deal size increasing dramatically in 2020
over 2019—$14 million in 2019, growing to $25 million in 2020. Going forward, we expect deal
momentum in India to continue into 2021, with the second half of 2020 seeing deal activity recover
to pre-Covid levels—VC investments totalled $3 billion in January to March, declined to $1.1 billion in
April to June, and then recovered to ~$3 billion each in the next two quarters. Further, the number of
active VC funds continued to grow in 2020 (~520 vs. ~480 in 2019), with multiple new funds
investing such as Inflection Point, Avataar, Coatue, D1 Capital, amongst others.
On exits, while overall exit value declined by 70%, from $4.4 billion in 2019 to $1.3 billion in 2020.
We expect recovery over the next 1–2 years as portfolios of top VC investors mature (most portfolios
did not reach maturity in 2020, in addition to Covid-19 impacting exit valuations and disrupting
business models across sectors).
Overall, the strength of India’s VC ecosystem has driven real economic value for the country—VC
investments have played a pivotal role in bolstering the start-up ecosystem in India—only behind US
and China globally—and have created more than 3 million jobs directly or indirectly over the past
eight years.
6
Indian Venture Capital and Private Equity Association | Bain & Company, Inc.
7
1
India VC deals landscape
• Indian VC industry has passed through four distinct phases over the
last decade. Between 2011 and 2015, the industry saw a rapidly
evolving start-up environment, with investors feeling optimistic about
the expansion and scaling of first-generation start-ups. This period
was followed by a phase of maturity and moderation between 2016
and 2017 with fewer but higher-quality investments. Over 2018
and 2019, marquee exits renewed investor confidence and saw
emergence of sectors such as fintech and SaaS. This renewed opti-
mism was expected to continue into 2020, but was disrupted with
Covid-19. However, despite Covid-19, deal momentum continued from
2019, with some moderation in the size of deals and pace of exits.
• The year 2020 was a noteworthy year for the Indian VC industry,
with some moderation over high growth seen in 2019. Total deal
value declined slightly to $10.0 billion in 2020 from $11.1 billion
in 2019 because of smaller average deal size, even though deal
volume grew by 7% over 2019 with ~810 VC deals vs. ~755 seen
in 2019.
Figure 6: Investment momentum continued in 2020 despite the pandemic, with some moderation
over 2019
Total VC investments in India ($B) Number of deals
Average
Deal 6.7 4.9 6.8 6.4 5.6 8.1 11.5 14.7 12.4
Size ($M)
• Rapidly evolving start-up environment; investors feel positive • Fewer investments, but • Marquee exits renew • Continued
about the expansion and scaling of first-generation start-ups higher quality investor confidence momentum,
• New VCs competing for investments in India • Caution around investing • Emergence of sectors but with some
in start-ups due to lack of such as fintech and SaaS caution due
clarity on exits increased investor interest to Covid-19
Figure 7: Deal volumes have shown continued increase, while average deal size declined
vs. 2019
Number of VC investments in India Average deal size (in $M)
Growth stage Maturing and Renewed Covid Growth stage Maturing and Renewed Covid
(VC focus on doing more moderation optimism impact (VC focus on doing more moderation optimism impact
deals and building initial (VC focus on (Marquee (Smaller deals and building initial (VC focus on (Marquee exits (Smaller
portfolio) fewer invest., exits renew deals, but portfolio) fewer invest., renew investor deals, but
but high- investor accelerated but high- confidence) accelerated
quality) confidence) momentum) quality) momentum)
1,000 987 15 14.7
854
809 12.4
800 756 11.5
684
10
593 589 571
600
8.1
458 6.7 6.8
6.4
400 5.6
4.9
5
200
0 0
2012 2013 2014 2015 2016 2017 2018 2019 2020 2012 2013 2014 2015 2016 2017 2018 2019 2020
10
Indian Venture Capital and Private Equity Association | Bain & Company, Inc.
Figure 8: Deal volume grew fastest in late-stage (Series D+) deals, followed by seed (implying
continued support for start-ups); average deal size declined across stages
Number of VC deals in India by investment stage Average VC deal size by investment stage ($M)
Figure 9: Decline in average deal size in 2020 driven by increase in share of small deals across
all sectors, except consumer tech and SaaS
Split of VC investment by deal size (%) Average VC deal size for key sectors ($M)
0 0
2015 2016 2017 2018 2019 2020 Overall Consumer SaaS Fintech B2B Banking Health-
Tech commerce fin. serv. care
No. of & tech & insurance
deals (BFSI)
Avg. deal
6.4 5.6 8.1 11.5 14.7 12.4 2018 571 188 71 50 37 43 31
size($M)
2019 756 232 100 82 84 39 35
2020 809 247 60 72 151 42 53
Sources: Bain VC deals database; Venture Intelligence; AVCJ; VCCEdge; Bain analysis
11
Indian Venture Capital and Private Equity Association | Bain & Company, Inc.
Figure 10: Top start-ups that received more than $100M funding in 2020
Byju’s* Tiger Global, Alkeon, BlackRock, General Atlantic, Late Consumer Edtech Jan, July, ~720
Bond Capital, Silver Lake, Sands Capital, Owl Ventures tech and Sep
Zomato Fidelity, Kora Management, Luxor Capital, Mirae Asset, Late Consumer Foodtech Dec ~660
Tiger Global, Steadview, Temasek, D1 Capital tech
Unacademy* SoftBank, Nexus, Sequoia, General Atlantic Late Consumer Edtech Feb, Sep, ~260
tech and Nov
Dream11 Tiger Global, TPG, ChrysCapital, Footpath Ventures Late Consumer Gaming Sep ~225
tech
DailyHunt* Google, Microsoft, Falcon Edge, Sofina Group Late Consumer Media & Apr ~165
tech entertainment and Dec
Zenoti Advent International, Tiger Global, Steadview Capital Late Enterprise Vertical-specific Dec ~160
software (SaaS) business software
Swiggy* Samsung Ventures, Korea Investment Partners, Late Consumer Foodtech Apr ~155
Naspers, Tencent, Mirae Asset, Meituan-Dianping tech and Feb
Postman Charles River, Insight, Nexus Late Enterprise Horizontal infra Jun ~150
software (SaaS) software
Vedantu* GGV Capital, Coatue Management, WestBridge, Late Consumer Edtech Feb ~145
Omidyar Network, Tiger Global tech and Jul
Glance Google, Mithril Capital Late Consumer Media & Dec ~145
tech entertainment
FreshToHome Iron Pillar, Investment Corporation of Dubai Late Consumer Foodtech Jul ~135
tech and Oct
Eightfold Capital One Growth Ventures, General Catalyst, Late Enterprise Horizontal busi- Nov ~125
Lightspeed software (SaaS) ness software
HighRadius Citi Ventures, ICONIQ Capital, Susquehanna Growth Late Enterprise Horizontal busi- Jan ~125
Equity software (SaaS) ness software
Eruditus Sequoia, Prosus Ventures, Chan Zuckerberg Initiative, Late Consumer Edtech Aug ~115
Ved Capital, Leeds Illuminate tech
CureFit Temasek, Accel, Epiq Capital Fund, Satyadharma Late Consumer Healthtech Mar ~110
Investments, Ascent, PraTithi, Chiratae tech
Xpressbees Gaja Capital Partners, Investcorp India, NVP India Late Shipping – Nov ~110
& logistics
Bounce* B Capital, Falcon Edge, Omidyar Network, Maverick, Late Consumer Mobility Jan ~110
Qualcomm, Accel, Chiratae, Sequoia tech and Mar
MindTickle Accel, Founder Fund, ICONIQ Capital, Qualcomm, Late Enterprise Horizontal busi- Nov ~100
SoftBank software (SaaS) ness software
Razorpay Tiger Global, Sequoia, Matrix, Ribbit Capital, Late Fintech Payments Oct ~100
Y Combinator
Biofourmis Sequoia, SoftBank, MassMutual, Openspace Late Consumer Healthtech Sep ~100
tech
12
Indian Venture Capital and Private Equity Association | Bain & Company, Inc.
$5B 300 Strong in-year • While there was a 65% drop in deal value
recovery for Apr–Jun vs. Jan–Mar, both deal volume
243 and value bounced back, 1.4x and 2.5x
4 respectively, in Jul–Sep and Oct–Dec to reach
207 208 pre-pandemic levels
$3.1B 200 • Investor confidence remained strong for Oct–Dec,
$2.9B $2.9B
3 with 9 deals of $100M+; multiple new unicorns
151
emerged—Cars24, Dailyhunt, and Glance (consumer
2 tech); Zenoti (SaaS); and Razorpay (fintech)
100
$1.2B Investment spike • Pandemic drove a strong shift toward certain
1 in steadily subsectors of consumer tech—steep rise
maturing sectors in investments in 2020 across edtech (6.1x),
foodtech (4.1x), gaming (2.7x), and media
0 0 & entertainment (2.4x); SaaS investments grew
Jan–Mar Apr–Jun Jul–Sep Oct–Dec as well
“After the pandemic started, our time was spent in supporting portfolio “VC investors continue to be positive for India over the long term. Investing
companies as much as possible. The second half of the year saw businesses activity in 2020 shows that Covid-19 has not changed the long-term view
adapt to the new normal and there was increase in investing activity towards on the country. In fact, technology adoption in both enterprises & consumers
the end of the year.” has leapfrogged a few years.”
Leading India-based VC Leading India-based VC
13
2
Sector-wise deep dive
Figure 12: In 2020, top three sectors received ~75% of VC investments; consumer tech continues
to attract the maximum investment
Split of VC investments by sector ($B) Growth in deal size and deal volume (2018–20)
* Other includes retail, shipping & logistics, energy, real estate, manufacturing, engineering & construction, and telecom
** B2B includes B2B commerce and tech
Note: deals exclude transactions where deal value is unknown
Sources: Bain VC deals database; Venture Intelligence; AVCJ; VCCEdge; Bain analysis
Figure 13: Within consumer tech, total deal value increased by ~25% in 2020 vs. 2019; edtech,
foodtech, and gaming witnessed a steep rise in VC investments
Edtech, foodtech, gaming saw a rise in investments... … driven by increase in number of deals
and higher deal sizes
Consumer tech VC Investments by subsegments ($B) CAGR Number of deals for consumer tech subsegments
(2018–20)
5 $4.9B 50% 60 55
Other* -1% 52
Mobility 41% 49
4 $3.9B Media & Entertain. 176%
Healthtech 0%
Gaming 77% 40 36
3 Verticalised 32
e-commerce -3%
2020
$2.2B 24 25
Foodtech 23 23
2 131% 21
20 18 18
15
2019
13 12
11
2018
1 9
Edtech 190% 5
0 0
2018 2019 2020 Edtech Foodtech Verticalised Gaming Healthtech Media &
e-commerce Entertain.
No. of Avg. deal
188 232 247 7 8 27 12 15 48 15 23 20 23 12 27 15 21 12 4 10 20
deals size ($M)
“The pandemic has played a critical role in accelerating the rate of technology adoption by consumers. This has provided significant tailwinds for start-ups across
categories. The number of students using edtech products in India has doubled this year.”
Top VC
* Other includes media & entertainment, social network, real estate, logistics, horizontal e-commerce, travel and leisure, job portals, etc.
Note: Deals exclude transactions where deal value is unknown
Sources: Bain VC deals database; Venture Intelligence; AVCJ; VCCEdge; Anandan, 2021 to mark a new era for the Indian startupecosystem, Mint, Dec 2020; Bain analysis
16
Indian Venture Capital and Private Equity Association | Bain & Company, Inc.
Edtech • Online tutorials/test prep (Byju’s, Unacademy, Vedantu) and executive education platforms (Eruditus) continue to see
VC investment traction
• While investment momentum in edtech has been high in the last 2 years, investment in this space has been significantly
fuelled in 2020 by a strong uptick in end user adoption because of lockdowns due to Covid-19; behaviour change is likely
to drive user stickiness and long-term growth
Foodtech • ~95% of ~$1.1B investment value consolidated in 4 assets in multiple, late-stage rounds (Zomato, Swiggy, Faasos,
and FreshToHome)
• In line with historical trends, VCs continue to invest in cloud kitchens, along with a reignited interest in online food
ordering driven by a boost in end user adoption due to the pandemic
Gaming • The gaming industry saw sustained investment momentum on the back of business growth fuelled by growth in
enablers (i.e. mobile penetration and 4G adoption) and greater end user adoption and engagement during the pandemic,
similar to that of video streaming platforms
• ~90% of ~ $350M investment value consolidated in 2 assets—Dream 11 and Mobile Premier League (MPL)—as real
money games continue to garner greater popularity vs. casual and e-sports
Covered in the following figures
Media & • ~85% of ~$300M investment value consolidated in 3 assets—Dailyhunt, Gaana.com, and Inshorts
entertainment • Multiple investments in short-video social networking apps, including Josh (Dailyhunt) and Public (Inshorts), to fill the
void left by TikTok’s ban in India
Healthtech • Wellness (Cure Fit), online consultation (Practo, Docs App), and digital therapeutics (Biofourmis) are the top segments
attracting investments; e-pharmacies witnessed limited VC traction this year—given they scaled significantly in 2019,
they are more conducive to private equity or strategics (e.g. Reliance acquisition of Netmeds)
Verticalised • Verticalised e-commerce saw a decline in investments compared to previous years, with the decline in 2020 vs. 2019
e-commerce being in both deal volume and average deal size
• Baby merchandise (FirstCry), home decor and furniture (Livspace, Pepperfry), used cars (Spinny, CarTrade), and
beauty (Nykaa) brands attracted substantial investments
Figure 14a: Surge in usage of edtech platforms emerged as a positive outcome of the lockdowns
due to the pandemic
Monthly user activity on leading learning Adoption of edtech across segments is expected to sustain
apps increased from January to June of 2020 higher than pre-Covid levels due to high stickiness of users
17
Indian Venture Capital and Private Equity Association | Bain & Company, Inc.
Figure 14b: Within gaming, daily fantasy sports (DFS) apps witnessed a decline in engagement
due to cancellation of live sports; other apps offering casual games gained traction
Usage of fantasy sports apps decreased Decline in usage of DFS due to lack of live sports during
Jan–Aug, while usage of general gaming lockdown; however, uptick seen post resumption
apps increased
Daily active users (indexed to Jan)* Non-fantasy sports gained • Increased time spent at home by users caused an
traction post Covid uptick in gaming because it was a key entertainment
500 source in lockdown
DFS platforms saw decline • Most DFS players (Dream11, HalaPlay) observed
400 owing to limited number a decline in engagement (~80%–90%) owing to
of live sporting events cancellation of major sporting events globally
in the initial months of Covid-19
300 • Leading players expanded coverage to include
Tier III/Tier IV leagues to drive user engagement
and growth
• However, select players like MPL saw an increase
200
in user engagement in Apr–May due to diversified
games portfolio (card games, chess etc.)
100
Spurt in demand with • Significant surge in user engagement for MPL and
resumption of major leagues Dream11 with major sporting leagues, such as Indian
Premier League resuming post lockdown
0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
* Total visits used as a proxy for engagement metric for Dream11, HalaPlay, and MPL because these apps are not on Google Play
Sources: SimilarWeb app and web transaction data
Figure 14c: In foodtech, the food services market was hit hard by Covid-19; however, recovery
is expected, primarily due to online delivery
Food service market revenue, India Drivers of organised food services growth, especially online
Major decline due Covid-19: CAGR CAGR Demand drivers • Rebound of discretionary spend of high-income* groups
30%–40% restaurants shut; (21–25) (20–25) (~30% spend on entertainment/dining out)
others at 50% capacity – High-income groups represent ~35% of India consumption
• Increased preference for ordering food online driven by increased
~$74B 19% 3% convenience and social distancing
~$65B $13B – Gross merchandise value (GMV) already recovered to ~80%
40% 26% of pre-Covid levels by Oct 2020
$4B (6%) CAGR CAGR (17%)
~(43%) ~19% • Rising population share of millennials/Gen Z (2–3 percentage
$24B points in FY20–25; 70% in FY20), who prefer non-home meals
$34B
(37%) 24% 7%
(46%)
~$37B
$3B (9%)
Supply drivers • Sharp recovery in number of delivery executives in operation from
$15B
an initial ~70% dip in Mar–Apr 2020
$37B (39%)
$27B • Sustained expansion of international quick service restaurant
(57%) 9% -6%
$19B (36%) (QSR) chains
(52%) – Pizza Hut to continue expansion in India despite Covid, opening 200+
outlets by FY22
FY20 FY21E FY25E • Increasing entry of strictly dine-in players into online
– 5% of current base was strictly dine-in pre-Covid (e.g. ITC, Hyatt)
Online
penetration 14% 19% 27% • Lower taxation bracket post GST rollout (decrease from 18%
(% organised) to 5%) has made opening new registered restaurants more attractive
18
Indian Venture Capital and Private Equity Association | Bain & Company, Inc.
Figure 15: Indian SaaS companies have evolved from a few upstarts in the 2010s to a
multibillion-dollar industry today
1 2 3
Horizontal business products Vertical SaaS businesses Broad-based horizontal and
targeting small & medium disrupting underserved vertical solutions serving
businesses (SMBs) globally markets enterprises and SMBs
(2011–present) (2015–present) (2018–present)
Enablers • Indian IT giants (TCS, Infosys) • Rise of public cloud with entry • Rise of trained SaaS talent
developing customer service and growth of Amazon Web from Wave 1 and Wave 2
and engineering talent en masse Services, Google Cloud SaaS companies
Platform and Azure
• Setup of India operations by • Development of ecosystem
big tech companies (Google, and better access to capital
Microsoft), gradual return of
trained product managers
Examples Zoho, Kissflow, Freshworks, Zenoti, Innovapptive, Innovaccer, Postman, Hasura, BrowserStack,
Chargebee, Agile CRM CareStack, DataWeave, Tookitaki Acceldata
Note: Start-ups are placed in different waves based on their traction by funding (i.e., Series A/B funding date)
Sources: Market participant interviews; Bain analysis
Figure 16: Investments in SaaS have grown by ~10% in 2020 vs. 2019 and average deal size
continues to grow across all segments as the Indian SaaS ecosystem matures
Overall increase in investments despite lower deal Higher average deal size driven by large deals such
volume vs. 2019 due to higher average deal size as Postman, HighRadius, Eightfold AI,
and MindTickle
Software/SaaS VC investments by subsegment ($B) CAGR Number of deals for enterprise software subsegments
(2018–20)
$1.5B 33%
1.5 80
$1.4B
36% 69
60
1.0 189% 52
$0.8B
42
40
2019
0.5 2018
15% 2020 18
20
11 13
8 10 8
0.0 0
2018 2019 2020 Horizontal Vertical specific Horizontal
business software business software infra software
Deal Avg. deal
71 100 60 12.4 12.7 20.2 5.5 12.7 37.0 13.7 19.5 34.9
vol. size ($M)
Horizontal business Vertical specific business Horizontal infra
19
Indian Venture Capital and Private Equity Association | Bain & Company, Inc.
Figure 17: Investments in fintech have increased marginally in 2020 vs. 2019; payments emerges
as the most attractive subsector
Majority investment in lending occurred in Q1 2020, Increase in investments in payments driven by surge
followed by smaller deals due to the pandemic in digital payments during the pandemic
Split of fintech VC investments by subsegment ($B) CAGR Number of deals for key fintech subsegments
(2018–20)
1.5 40
36
$1.2B 31%
$1.1B* -4%
30 28
1.0 26
11%
23
$0.7B 20 19
16% 15 14
0.5 2020 12
10 2019 8
2018 5 6 6
102%
0.0 0
2018 2019 2020 Payments Lending Insurtech Wealth
management
Number Avg. Deal
51 81 72 8.0 23.2*17.6 10.8 9.1 13.0 50.1 36.2 51.1 15.7 7.0 7.2
of deals Size ($M)
Payments Lending Insurtech Wealth management
Payments • VC activity in 2020 in digital payments grew by ~20% compared to 2019 (except for the $1B Paytm deal of
2019), driven by large late-stage deals—Razorpay ($100M), CRED ($81M), and BharatPe ($74M)
• Unified Payment Interface (UPI) payments have witnessed steady increase in volume and value of transactions
during the pandemic for both online and offline (QR scan) payments. UPI payments are expected to grow at
35% CAGR over next 5 years
Lending • Investment traction in lending increased by ~4% in 2020 vs. 2019, fuelled by the continued momentum from
2019 in Jan–Mar of 2020. 60% of the ~$340M investment value in 2020 was during this period; however, the
pandemic hit this segment hard—the next two quarters witnessed limited activity with a recovery in Oct–Dec that
saw 30% of the investments
• While SME and B2C lending had gained traction in the last 2–3 years due to increasing optimism around
consumer finance, these slowed down in 2020 due to the pandemic’s impact on business—low liquidity and
higher levels of distressed assets
Insurtech • Insurtech increased by ~6% in 2020 vs. 2019 due to large deals such as PolicyBazaar, Digit, and Acko,
constituting ~90% of the total deal value in 2020
• Increased adoption for insurtech, driven by higher digital push and lower inclination for physical agent interaction
amid the pandemic and tailwinds in personal insurance (e.g. health protection plans) due to increased user
health consciousness post-Covid
Wealth • VC investments in wealth management in 2020 are largely in line with 2019 in terms of both deal value and deal
management volume—this segment has been resilient to pandemic
• Wealth management (Groww, Smallcase, INDwealth) continued to attract funding in 2020 as in 2019, on the
back of business growth driven by increased adoption in the traditionally underpenetrated markets
– Retail investors from across the country took to equities trading platforms, such as Groww, as low interest
rates from fixed deposits (FD) and savings, as well as a dip in stock markets during the onset of the
pandemic, presented several profit-making opportunities
20
Indian Venture Capital and Private Equity Association | Bain & Company, Inc.
21
3
Investors and fundraising landscape
• The high level of fundraising was also fuelled by two major funds
closed by Sequoia Capital: India Venture Fund VII ($525 million)
and India Growth Fund III ($825 million), accounting for 40% of
all funds raised in 2020 for India-focused VC investments.
Sequoia Capital also invested in the highest number of start-ups
in 2020, whereas Tiger Global was the most prominent investor
in terms of deal value, participating in several deals of more than
$100 million each.
Figure 19: The number of active VC funds in India has seen steady growth over the last four
years; several new funds started investing in India in 2020
Number of active VCs in India* Top new VC No. of Top portfolio
investors in 2020 investments companies
Figure 20: Most of the top VC funds in India raised capital in 2019 and 2020;
Sequoia and Accel have raised the most funds in the last two years
Total funds raised by VCs Total funds raised by VCs for India-based investments* (%, $B)
for investments in India ($B)
0 0
2014 2015 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 YTD
YTD
* Includes only funds that are explicitly earmarked for India, raised by Indian or global VCs
Notes: Sequoia raised $1.35B combined for India and South-east Asia; red cells are VCs that have been the most active among those that raised funds for India
investments in terms of deal volume/value over the last 5 years; 2020 YTD till last week of November
Sources: Venture Intelligence; Bain analysis
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Indian Venture Capital and Private Equity Association | Bain & Company, Inc.
Figure 21: VC dry powder has remained stable for the past four years
$8B
0
2013 2014 2015 2016 2017 2018 2019 2020
Notes: Includes only the funds that separately raise capital specifically for Indian investments, not those that have a single fund for both global and Indian
investments; excludes real estate and infrastructure dry powder
Source: Preqin
Figure 22: Top 10 VCs (including large growth equity investors, such as Tiger, Softbank,
and Steadview) contributed 25% of deal value, slightly lower than in 2019
Total VC investment split by top investors in 2020 ($B)
25
20
15
10
0
2015 2016 2017 2018 2019 2020
Note: In case of multiple investors for a deal, deal value per investor was calculated assuming equal split of investment across the investors
Sources: Bain VC Deal’s Database; Bain analysis
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Indian Venture Capital and Private Equity Association | Bain & Company, Inc.
Figure 23: Top 10 investors participated in ~20% of the VC deals in 2020; Tiger Global leads
in deal value, and Sequoia leads in deal volume
Total VC deal value and volume Total VC deal value per investor in 2020 ($M)
split by top investors in 2020
80 400 368
318
60 Other 200
141 137
107
83 77 55
40 0
Tiger Sequoia Nexus Matrix Elevation
Global Capital Capital (SAIF)
Top 10
No. of deals 21 6 78 11 19 52 32 22 26 8
0 Average deal
No. of deals* Deal value 27.9 82.8 4.7 28.9 7.4 2.6 3.3 3.8 3.0 6.9
size ($M)
* Deal is counted only once as a top VC deal, even if multiple top VCs participated in the same deal
Notes: Excludes transactions where deal value is unknown; top VCs are the most active in terms of deal volume/value over the last 5 years; deal volumes are not
additive because deals with multiple investors may be counted more than once across top 10 funds; in case of multiple investors for a deal, deal value per investor
was calculated assuming equal split among the investors
Sources: Bain VC Deals Database; Bain analysis
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Indian Venture Capital and Private Equity Association | Bain & Company, Inc.
27
4
Exit landscape
• One-third of the exit value came from edtech and ~20% from
foodtech—sectors that also saw a spike in end user adoption and
funding activities during the pandemic.
• However, the exit outlook remains positive for the next few years
as most of the top VC funds’ portfolio is yet to reach maturity—
2020 saw a gap of 1–2 years on average between the funds’
average holding period and portfolio age today. This, along with
improved economic climate post-pandemic, will likely lead to
recovery in exits going forward.
Indian Venture Capital and Private Equity Association | Bain & Company, Inc.
Figure 24: VC exits have declined by ~70% in 2020 vs. 2019 due to the adverse impact
of the pandemic on businesses & VC portfolios not reaching maturity in 2020
Total VC exits value in India ($B) VC exits in India by mode of exit ($B)
25 5 4.9
4.4
20.9 4.2
20 Walmart-Flipkart deal 4
contributed 80% to
2018’s exit value
15 3
2.5
10 2 1.9
1.3
4.9 4.4
5 4.2 1
2.5 1.9 1.3
0 0
2015 2016 2017 2018 2019 2020 2015 2016 2017 2018* 2019 2020
Average exit Buyback Public market sale Secondary/
13 16 36 29* 38 18
value ($M) including IPO strategic
Number of
186 123 116 170 116 73
exits
* Excluding Flipkart
Note: Exits with undisclosed deal amounts have not been included
Sources: Venture Intelligence; AVCJ; VCCEdge; Bain analysis
Figure 25: Most top funds’ portfolios did not reach maturity in 2020; exit momentum is expected
to improve over the next one to two years
Average holding period and portfolio age of top VC funds (in years)
6 5.8
5.0 5.1 5.2 5.1
0
Tiger Sequoia Nexus Accel Matrix Lightspeed Elevation
Capital (SAIF)
Average holding period Average age of current portfolio
“2021 will mark the dawn of the IPO era for our ecosystem, providing more exits, as growth accelerates across segments and
an increasing number of companies start to hit scale. This trend will accelerate significantly as the ecosystem matures and some
of the large companies move towards profitability.”
Top VC
Notes: Averages calculated using simple average; exit portfolio based on select major deals 2012–20; top VCs are the most active in terms of deal volume/value
over the last 5 years; excludes SoftBank, Steadview, and Tencent because they have very few exits
Sources: Bain VC Deals Database; Anandan, 2021 to mark a new era for the Indian startup ecosystem, Mint, Dec 2020; Bain analysis
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Indian Venture Capital and Private Equity Association | Bain & Company, Inc.
Figure 26: The top 10 exits in 2020 included several exits of more than $100 million
Whitehat Jr. Omidyar Network India, Owl Ventures, Nexus Strategic sale ~300
to Byju’s
PolicyBazaar.com Inventus Capital, Ribbit Capital, Tiger Global, Tencent Secondary sale ~130
XpressBees Elevation Capital, Chiratae, Valiant, Vertex, Paytm Secondary sale ~30
Delhivery Tiger Global, Nexus Venture Partners, Multiples PE Secondary sale ~25
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Indian Venture Capital and Private Equity Association | Bain & Company, Inc.
Figure 27: More than 50% of top funds’ portfolio companies went on to raise further funding
between 2015 and 2020
% of
Est. portfolio % of
India- capital companies portfolio
focused Number of deployed that raised companies
funds deals by further with total
raised participated investor funding funding Exits**
VC name 2015–20 2015–20 2015–20 2015–20* >$100M 2015–20
32
Indian Venture Capital and Private Equity Association | Bain & Company, Inc.
33
5
Start-up ecosystem in India
Figure 28: India has one of the top five start-up ecosystems in the world
Figure 29: The start-up ecosystem in India continues to grow rapidly, with 112,000 start-ups
at present (7,000 added in 2020), of which ~9% are funded
Number of cumulative start-ups in India (2012–20) Number of funded start-ups in India (2012–20)
CAGR CAGR
(2012–20) (2012–20)
125K 12.5K
112K 17%
105K 10.2K 16%
100 10.0 9.6K
92K 8.8K
81K 7.7K
75 71K 7.5
6.4K
6.2K
59K
5.3K
50 46K 5.0
3.9K
37K
31K 3.2K
25 2.5
0 0.0
2012 2013 2014 2015 2016 2017 2018 2019 2020 2012 2013 2014 2015 2016 2017 2018 2019 2020
Notes: Start-ups are companies founded post 2000; public, acquired and deadpooled start-ups are excluded
Sources: Tracxn; Bain analysis
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Indian Venture Capital and Private Equity Association | Bain & Company, Inc.
Figure 30: Among funded start-ups in India, typically ~30% go on to raise subsequent rounds
80
Upto Series A Upto Series B Upto Series C
(59%) (54%) (56%)
Seed only (71%)
60
Unfunded (91%)
40
Funded start-ups
Notes: Start-ups are companies founded post 2000; classification of rounds as Seed, Series A, Series B, and Series C as per investment announcements as
reported by Tracxn; public, acquired, and deadpooled start-ups are excluded
Sources: Tracxn, Bain analysis
Figure 31: 12 new unicorns expanded India’s unicorn tribe to 37 in 2020 (25 in 2019)
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Indian Venture Capital and Private Equity Association | Bain & Company, Inc.
Figure 32: VC investments have fuelled growth in funded start-ups, which have, in turn, created
more than 3 million jobs over the last eight years
VC investments have led to an increase in Start-ups have increasingly contributed to
the number of funded start-ups the creation of direct and indirect jobs
Number of new funded start-ups (in 1000s) Cumulative number of jobs (in millions) CAGR
(2012–19)
1.5 4
1.4 3.0 28%
1.3 2020 YTD
3 2.4
1.2 2017
1.1 2.0
2016 2 1.6
1.0 1.3 30%
2019 1.0
1 0.5 0.7
2018
0.0 20%
0
0 750 800 850 900 2012 2013 2014 2015 2016 2017 2018 2019
No. of VC investments Direct jobs Indirect jobs
VC investing has led to disruption in numerous industries: • Start-ups in India currently employ ~0.5 million direct employees
• Edtech. Enabling education through digital means, especially • Each direct job created by a start-up leads to the creation of
during Covid-19 (Byju’s and Unacademy) multiple indirect jobs (e.g. delivery partners for foodtech and
• Healthtech. Making healthcare accessible to all (Pharmeasy, e-commerce companies)
DocsApp, Cure.fit) – Indirect employment has grown faster than direct employment,
• Fintech. Increasing online payments, lending, and wealth implying more indirect jobs being created per direct job
management penetration (PayTM, Razorpay, etc.) • Hence, investments in Indian start-ups have helped create more
than 3 million jobs
Note: Start-ups are defined as companies founded after 2000; for employment analysis, only technology or technology-enabled companies founded in 2009–19
that are still active and have not been acquired (or IPO) are considered
Sources: IVCA; Zinnov; Tracxn; Bain analysis
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Indian Venture Capital and Private Equity Association | Bain & Company, Inc.
39
6
Regulatory landscape
Figure 33: Ease of doing business has improved in India in the last six years
India’s Ease of Doing Business ranking, India’s Ease of Doing Business score across
World Bank key dimensions
140 100
134 131 130
81 82 80 80
80
74
100 68
65 65
60
77
47
63 41 41
40 35
20
2016
2017
2018
0
2014 2015 2016 2018 2017 2019 2020 Starting a Getting Paying Enforcing
business credit taxes contracts
Figure 34: Several government-led initiatives have ensured continued growth and availability
of funding to start-ups in India amid the pandemic
AtmaNirbhar Bharat • In the wake of Covid-19, a special economic package of INR 20 lakh crore has been introduced for Micro, Small and
Medium Enterprises (MSMEs) and start-ups to create liquidity and enable them to continue to innovate and
expand capacity
Startup India • Flagship initiative to nurture innovation by simplifying processes for start-ups, allowing them to focus on their core
and keep compliance costs low while enabling easy access to funding; ~40k start-ups have been recognized by
Department for Promotion of Industry and Internal Trade (DPIIT) till now
• Budget 2020 has proposed taxation of Employee Stock Ownership Plan (ESOP) at the time of sale of shares
instead of issue, creating a favorable ecosystem for start-ups
Digital India • Launched to transform India into a digitally empowered nation by ensuring electronic availability of government
services through improved infrastructure and increased internet connectivity; ~23% increase in budget to promote
electronic manufacturing
• Mobile apps, such as Aarogya Setu and ePathshala, developed to promote digital health mission, edtech, and agritech
Alternate Investment • Security & Exchange Board of India’s (SEBI) AIPAC eases financial regulations for AIFs under the chairmanship of
Policy Advisory N. R. Narayan Murthy; the committee also includes market experts and partners from top PE and VC firms
Committee (AIPAC) • Employed tax benefits, such as pass-through and Tax Deducted at Source (TDS) waivers for VC funds, and less
stringent angel fund regulations
Atal Innovation • Launched by NITI Aayog to foster sectoral innovation and solve problems in key sectors via collaborative platforms,
Mission incubators and labs
Small Industries • Aimed at promoting growth of MSMEs and start-ups in India through a variety of initiatives such as Fund of Funds
Development Bank of for Startups with a corpus of INR 10,000 crore, MSME lending through SMILE Fund, and Covid-19 Startup
India (SIDBI) Assistance Scheme to provide working capital loans for stressed start-ups
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Indian Venture Capital and Private Equity Association | Bain & Company, Inc.
Reduction in taxation • Reduce taxation and surcharges on private investments to create a level playing field for public and private markets, rolled out
and surcharges in phases (only for broad-based AIF 1 and AIF 2)
(Central Board of – Holding period for unlisted shares be reduced to one year for it to qualify as long-term capital gains (LTCG) to be at par with listed shares
– LTCG tax on unlisted shares be reduced to 10% without indexation or 20% with indexation at the option of the taxpayer
Direct Taxes)
– Consider a one-time exemption from LTCG tax for investments made in Indian companies for a period of 3 years
– Parity can also be achieved by levying of Securities Transaction Tax (STT) on sales of unlisted shares by AIFs that are long-term in nature
– Enhanced surcharge should be rolled back (to be capped at 15%) as it is currently for listed shares
Relax GST on offshore • Extend deemed export status for services rendered to AIFs
management fees – By virtue of the deemed export status, the services provided by the Indian Fund Manager can be viewed to be effectively received by the
underlying investors (i.e. overseas and domestic investors) in the AIF, which is the pooling vehicle to the extent of foreign investors
(GST Council)
Extend AIF status to • Bring pension funds and insurance funds into AIFs
additional investment – India needs >2.5% of GDP to come in the form of VC/PE investments for the $5 trillion target (i.e. around $125B or INR 8.75 lakh crore)
instruments – In addition, domestic capital will benefit from the returns and value creation, the surplus of which can be retained and recycled within the
country
Facilitate offshore • Make global capital available to Indian start-ups by facilitating listing on international exchanges to produce global enterprises,
listing of Indian exempting Indian companies from additional filing requirements on meeting prescribed criteria, lifting end use restrictions on
companies (SEBI) offshore funds raised, and clarifying taxation laws
Single window • Set up a single window clearance system to discuss issues of large funds, both domestic and international
clearance for – Institute strong standard operating procedures (SOPs) and governance for clearance (i.e. pre-clearances/parallel approval from ministries
and government, timelines for clearances, better support system and discussion portals for taxation and regulatory issues, and closer
institutional investors
coordination between government departments)
Hybrid instruments • Permit FDI investors to hold hybrid securities in Indian companies subject to restrictions
under the Foreign – Compliance with restrictions on entry routes, sectoral caps, investment limits, and other conditions applicable to equity instruments issued
to a nonresident in terms of the Foreign Exchange Management (non-debt Instruments) Rules, 2019 (Non-debt Instrument Rules)
Direct Investment
– Lock-in period of 1 year on redemption of Optionally Convertible Debentures (OCDs)/Optionally Convertible Preference Shares (OCPS);
(FDI) route coupon on the OCDs/OCPS capped at a prescribed rate
Source: IVCA
43
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With leading VC/PE firms, institutional investors, banks, corporate advisers, accountants, lawyers and other service
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