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on Indian VC
Ecosystem, 2018
December, 2018
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
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.)
• 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
Regulatory framework
1 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)
2 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,
3
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
4 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
5 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
6 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)
7 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
8 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 accelerate
in the future as the start-up ecosystem matures; ~80% of start-up founders expect exits by 2024
Number of
funds raised
Note: (*) Only includes funds that are earmarked for India – whether raised by Indian or global VCs BOS IVCA Bain India VC report 2018_PPT 6
Source: Venture Intelligence
~$10B capital raised by VCs for India-focused investments over the past 4 years
1. FUNDING FUNDS EARMARKED FOR INDIA
• Scale-up Phase for VCs in India with multiple new VCs setting up funds to benefit from a • Maturing Phase for VCs in India as VCs now
booming start-up environment more focused on placing select bets on fewer
investments - given their initial portfolios are
• Focus on doing more deals given high number of start-ups seeking investment and aggressive already in place
competition among VCs
Source: Venture Intelligence; AVCJ; VCCEdge; Bain Analysis BOS IVCA Bain India VC report 2018_PPT 9
Focus has shifted to fewer, higher quality deals
2. INVESTMENTS
Source: Venture Intelligence; Bain Analysis BOS IVCA Bain India VC report 2018_PPT 10
With increasing focus on quality – number of deals has declined and deal size has
increased across all investment stages
2. INVESTMENTS
Classification of rounds
Classification of rounds as Seed/ Series A/
as Seed/ Series A/ Series B/ Series C per
Series B/ Series C per investment
investment announcements
announcements
Source: Venture Intelligence; Bain Analysis BOS IVCA Bain India VC report 2018_PPT 11
India is well positioned to attract high quantum of investments in future
2. INVESTMENTS
Key Drivers
India VC Market Attractiveness – LP Perspective
Strong “We believe that the strong exits seen in the past 3 years
have played a material role in ‘rerating’ the India VC sector in
exits in the eyes of Global LPs. These exits have underlined the ability
the last of the Indian market to return foreign capital to LPs”
3 years
PE/VC Agenda 2018, EY
Source: Coller Capital’s Global Private Equity Barometer, 2018; EY Report; Bain Analysis BOS IVCA Bain India VC report 2018_PPT 12
Number of active VCs have grown significantly from 2013 but have plateaued out
recently
3. VC FIRMS
Source: Venture Intelligence; Bain Analysis BOS IVCA Bain India VC report 2018_PPT 13
Bigger VCs have shifted their focus to late investment stages with smaller VCs
dominant in the seed/ series A stages
3. VC FIRMS
Year
VC Fund Founded Investments
2017, Series A
Exfinity 2015,Series A
2013
Ventures
2018, Seed
Top 10 based on
funds raised Unitus
between ’14 and ‘18 2012
Ventures 2016, Series A
2017, Series A
Omnivore
2011
Ventures
2016,Seed 2016, Seed
Note: Top 10 funds include Sequoia, Accel India, Nexus, Matrix, IDG, SAIF, Kalaari, Lighspeed, Lightbox, Saama Capital BOS IVCA Bain India VC report 2018_PPT 14
Source: Tracxn; Venture Intelligence; Bain Analysis
Investment by Indian corporate VCs has grown 4x since 2013 – quantum of
investment expected to further increase in future
4. C O R P O R AT E VCS
Source: CBInsights; Bain Analysis BOS IVCA Bain India VC report 2018_PPT 15
Consumer Technology has dominated VC investments over the past few years
5. SEGMENTS
VC Number of Deals in India by Industry
VC Investments ($) in India by Industry Segment Segment
Source: Venture Intelligence; AVCJ; VCCEdge; Bain Analysis BOS IVCA Bain India VC report 2018_PPT 16
Most funds have diversified portfolios with only a few having vertical focus
5. SEGMENTS
Consumer Technology and IT/ ITeS dominate investments of large funds Funds with vertical-specific focus
8 investments in
Healthcare
15 investments in
Healthcare
30 investments in
BFSI
18 investments in
BFSI
10+ investments in
Consumer Goods
Investments of all large funds are diversified across sectors almost mirroring the 10+ investments in
market mix - all funds have exposure to consumer technology/ IT Consumer Goods
Source: Venture Intelligence; AVCJ; VCCEdge; Bain Analysis BOS IVCA Bain India VC report 2018_PPT 17
Even within Consumer Tech., VC investments have diversified - shifting away from
General e-tailing/ OTAs
6. D I V E R S I F I C AT I O N TOP 500 CONSUMER TECH DEALS
EdTech
HealthTech
FoodTech
FinTech
Verticalized e-tailing
Online Travel
Aggregators (OTAs)
Horizontal e-tailing
Source: Venture Intelligence; AVCJ; VCCEdge; Bain Analysis BOS IVCA Bain India VC report 2018_PPT 18
Going ahead - multiple new areas within Consumer Technology expected to gain
traction
6. D I V E R S I F I C AT I O N
Multiple categories within e-tailing that are sizeable globally are likely to see traction • Rapid increase in web
in India over the next few years (such as Beauty, Sports, Toys, Auto Parts, etc.) 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
Source: Forrester; Bain Analysis BOS IVCA Bain India VC report 2018_PPT 19
Investments in IT also expected to evolve to be more SaaS/ analytics focused (vs. IT
services)
6. D I V E R S I F I C AT I O N
3 • Firms with differentiated capabilities/ offerings in high-growth niche (Cyber Security) (Cyber Security)
segments like cyber-security, IoT and AI
(AI) (AI) (IOT)
4 • Analytics firms with own differentiated products/ solutions/ IP in focus (Sales marketing platform
(Video Analytics)
verticals/ niches and data management
platform for pharma) (Big Data Analytics)
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
BOS firms IVCA Bain India VC report 2018_PPT 21
Source: Tracxn, Venture Intelligence; Bain Analysis
VCs in India have seen reasonable success - 5-15% portfolio companies of large
funds went on to cumulatively raise >$100M funding (2/3)
7. PERFORMANCE
% Portfolio Portfolio
Funds # of deals % of Portfolio
companies companies
raised, participated Typical investment companies with
VC Name that raised with total Exits
2014-18 2014-18 (total Partners total funding
further funding
(in $M) deal value) >$100M
funding1 >$500M
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
BOS firms IVCA Bain India VC report 2018_PPT 22
Source: Tracxn, Venture Intelligence; Bain Analysis
VCs in India have seen reasonable success - 5-15% portfolio companies of large
funds went on to cumulatively raise >$100M funding (3/3)
7. PERFORMANCE
% Portfolio Portfolio
Funds # of deals % of Portfolio
companies companies
raised, participated Typical investment companies with
VC Name that raised with total Exits
2014-18 2014-18 (total Partners total funding
further funding
(in $M) deal value) >$100M
funding1 >$500M
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
BOS firms IVCA Bain India VC report 2018_PPT 23
Source: Tracxn; Venture Intelligence; Bain Analysis
Overall, ~30% of all VC seed investments in India and ~50% series A/ B/ C
investments continued to raise subsequent rounds of capital
7. PERFORMANCE
Funding post Seed stage Funding post Series A Funding post Series B Funding post Series C
~50%
~47% ~49%
~30%
Note: Classification of rounds as Seed/ Series A/ Series B/ Series C per investment announcements BOS IVCA Bain India VC report 2018_PPT 24
Source: Bain Analysis
Exit momentum in India has been strong with increasing exit value per deal
8. EXITS
~$16B Walmart-
Flipkart deal
contributes ~80%
to exits in 2018
Increasing % of strategic exits driven
by higher number of exits from
consumer technology deals (~25%
High Transaction Value per deal of all exits in 2018 vs. 1% in 2013);
driving higher total VC Exit value these deals are almost all primarily
even as the number of annual exits top-line growth driven - need further
is consistent at 100-150 seasoning pre-IPO (especially in
terms of profitability)
Note: Exits with undisclosed deal amounts have not been included BOS IVCA Bain India VC report 2018_PPT 25
Source: Venture Intelligence; AVCJ; VCCEdge; Bain Analysis
Multiple big ticket exits in recent years have contributed to a stark increase in
average exit value per deal
8. EXITS
Exit Value
Startup/Asset VC/Investor name Year (in $M)
Kalaari Capital, Tiger Global, IDG Ventures India, Accel India, SoftBank Corp, Greenoaks Capital, 2018 16,000
Naspers, Others
2018 930
Tata Capital, Sequoia Capital India, ICICI Venture, Apis Partners, Tata Capital Growth Fund, Others
2017 500
Tiger Global
2015 450
Sequoia Capital, Sofina Societe, Tybourne Capital, Valiant Capital, ru-Net,
2017 400
SAIF Partners
Reliance Capital Ventures Ltd., Saama Capaital (SVB), SAP ventures 2017 250
2015 340
Citi Venture Capital, Infrastructure Development Finance, Baring Asia Private, Samara Capital
2014 240
Kalaari Capital, IDG Ventures India, Accel India; Tiger Global, Others
2018 240
Sequoia Capital India, Saama Capital, Madison India
Source: Venture Intelligence; Tracxn; Bain Analysis BOS IVCA Bain India VC report 2018_PPT 26
Exits are expected to further accelerate - 80% founders expecting exit by 2024
8. EXITS
Source: Innoven Start-up Outlook Report; Bain Analysis BOS IVCA Bain India VC report 2018_PPT 27
AGENDA
Regulatory framework
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
33%
28%
Note: Startups are companies founded post 2005; as reported by Tracxn BOS IVCA Bain India VC report 2018_PPT 30
Source: Tracxn
India is considered among one of the top startup ecosystems in the world
Source: NASSCOM; Tracxn; Euromonitor BOS IVCA Bain India VC report 2018_PPT 31
Availability of tech talent and a strong macroeconomic base are top factors
contributing to India’s startup boom
1 2 3 4
Strong underlying Other ecosystem
Availability of talent Regulatory push
macroeconomic growth enablers
• Largest young (i.e. age group • Disposable income & • Significant presence of both • Multiple schemes and initiatives
20-39 in the world) working consumer expenditure per International (e.g. - WeWork, to give boost to start-up
population (~440 M) capita have grown at ~10% SpacesWorks) and domestic ecosystem such as Startup
CAGR over past 5 years (Awfis, 91-Springboard, etc.) co- India, SIDBI Fund of Funds,
• 50% of India’s college graduates working spaces initiatives by NITI Aayog
are STEM and business
students • Access to consumer tech
products and services has grown • Multiple Incubation programs • Financial and operational
• More than 1 million annual - rapid growth in number of across sectors and segments benefits for VCs investing in
engineering graduates internet users and high India facilitated by SEBI’s recent
smartphone penetration revamping of regulations for
VCs
• Global partnerships with other
mature startup ecosystems like Covered in detail in the
Israel, France UK and S. Korea next section
Note: STEM education degrees in includes, Science, Technology, Engineering and Mathematics BOS IVCA Bain India VC report 2018_PPT 33
Source: World Bank Data
1
India produces more than 1M engineering graduates each year - second only to
China
CAGR
(’13’-17)
Note: Engineering graduates include Construction and Manufacturing graduates too BOS IVCA Bain India VC report 2018_PPT 34
Source: Euromonitor
2
Growing consumer demand and increased tech penetration are top macro factors
driving growth in India’s start-up ecosystem
DEMAND ENABLERS
Disposable income & consumer expenditure per capita Internet users and smartphone penetration
Source: Euromonitor; Bain Analysis BOS IVCA Bain India VC report 2018_PPT 35
3
There are multiple ecosystem enablers that have contributed immensely to India’s
startup story NON EXHAUSTIVE
Source: Indian Tech Start-up ecosystem, NASSCOM; BOS IVCA Bain India VC report 2018_PPT 36
3 Incubation programs have delivered successful startups in India
Location • Bangalore (2017) • Hyderabad (2015) • Chennai (2013) • Delhi (2011) • Bangalore (2015)
Focus Area • Advanced Tech- IoT, • FoodTech, EdTech, • Biotech, HealthTech, • AgriTech • ConsumerTech, FinTech,
Cloud, Virtualization, HealthTech, Finance Hardware and Software Deep-tech, HealthTech,
Analytics, Machine start-ups Enterprise solutions
learning
Key Offerings • Financial: Equity-free • Access: Extensive • Financial: Connections • Financial: Up to $50,000 • Financial: Seed funding
grant of $15,000 network of CXOs, serial with angel investors/VCs equity investment in 1 to 3 for early stage start-ups;
entrepreneurs, senior for funding businesses of each cohort Initial investment of up to
• Access: Technology
executives $450-500K
and business • Access: Extensive alumni • Access: 4-month
mentorship • Support System: network & industry workshops with mentors • Access: 50+ VCs, 200+
Financial advisory, legal connects followed by investor founders in Axilor’s
• Support System:
and HR/recruiting services showcase network
NetApp platforms/ tools, • Operational: Access to
co-working space, HR, R&D infrastructure
marketing, legal and
tech support
Source: Indian Tech Start-up ecosystem, NASSCOM BOS IVCA Bain India VC report 2018_PPT 37
3 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
No. of facilities
Funding
Source: Indian Tech Start-up ecosystem, NASSCOM BOS IVCA Bain India VC report 2018_PPT 38
3 India has forged collaborative programs with other top global startup ecosystems
Source: Indian Tech Start-up ecosystem, NASSCOM BOS IVCA Bain India VC report 2018_PPT 39
Bengaluru is the startup capital of India, followed by Delhi NCR and Mumbai
Number of
Co-working spaces
~320 ~180 ~270
Number of
Co-working spaces
~110 ~90 ~30
Key growth drivers • Talent – 15 universities, ~42 • Talent – 17 universities, ~129 • Talent – 25 universities, ~29
engineering colleges engineering colleges engineering colleges
• House captives of global tech giants • Low cost of grade A commercial real • Low cost of grade A commercial real
like Microsoft, Facebook & Google – estate rentals @ INR 60 sq. ft estate rentals @ INR 55 sq. ft
attracts top tech talent
• Presence of major IT hubs like Infosys, • Large number of Special Economic
• Very low cost of grade A commercial TCS, Wipro, Accenture leading to large Zones (~20)
real estate rentals @ INR 50 sq. ft pool of IT resources
Regulatory framework
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
• Flagship initiative by govt. of India aimed at promoting • Securities and Exchange Board of India
growth of startups and generate large scale job opportunities 5 (SEBI) constituted a standing committee
1 ‘Alternative Investment Policy Advisory
• Key initiatives include setting up incubation centers, tax
Committee’ (AIPAC)
exemptions for startups, easier patent filing, etc.
• Aim of committee is to at help domestic
financial institutions access appropriate
• Intent of supporting startups at different stages of their
2 lifecycle – incubation, seed funding and growth
investment opportunities to earn risk-
adjusted returns
• Key initiative is setting up of a INR. 10,000 Cr. fund of
funds – capital to be deployed in startups through VCs • Since setting up of AIPAC, SEBI observed:
– >3x growth in total capital raised by VC firms
(AIF category 1 funds)
3 • Founded by NITI Aayog, key initiative is setting up of Atal – ~33% growth in total registered VCs with SEBI
Incubation Centers (AICs) for support to startups across
sectors
1
“Startups, technology and Procedural
innovation will be effective and
Simplifications
2
Providing tax
relaxation
to financially incentivize
startups
3
Providing
incubation
and funding assistance
Source: IVCA; Bain Analysis BOS IVCA Bain India VC report 2018_PPT 45
Several other government schemes have created tangible impact for startups
2 3 4
Overview
• An initiative by NITI Aayog, the policy think
• Small Industries Development Bank of • Make in India was launched in 2014 with
tank of government of India, AIM acts as an
India (SIDBI) aims to provide the objective of job creation and "to
umbrella organization that aligns innovation
government support to the VC transform India into a “global design and
policies between central and state
ecosystem of India manufacturing hub“
governments
SEBI constituted AIPAC supports domestic financial institutions AIPAC recommendations have catalyzed the
with capital to deploy number and total fundraising of registered VCs
• Alternate Investment Policy Advisory Committee (AIPAC) was constituted in
Overview
March, 2015
• AIPAC has submitted 4 sets of recommendations to SEBI to ease regulations for
Alternate Investment Funds (includes VC funds)
Source: World Bank Data BOS IVCA Bain India VC report 2018_PPT 48
Disclaimer
• This material and the analysis contained herein (the “Report”) was prepared by Bain & Company India Pvt Ltd (“Bain”), in
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.
• The Report is intended solely for the use of the recipient to whom the Report has been provided directly (e.g. by email), and
is not to be disclosed in whole or in part to any third party without Bain’s explicit prior written permission. In the event Bain
does grant permission for this Report to be disclosed to a third party, Bain will not permit the third party to rely on this
Report.
• No representation or warranty, either expressed or implied, is made as to the reliability, completeness or accuracy of this
Report. Due to lack of sufficient internal data on any particular company, the Report contains some estimates based on
outside-in assessments and comparisons within the industry and the experience base. Bain does not have any duty to
update or supplement any information in this Report.
• No responsibility or liability whatsoever is accepted by any person including Bain or its affiliates and their respective officers,
employees or agents for any errors or omissions in this Report.
• Projected market and financial information, analyses and conclusions contained herein are based (unless sourced
otherwise) on the information described above and Bain’s judgment and should not be construed as definitive forecasts or
guarantees of future performance or results.
• This paper is not to be considered as a recommendation for investment in all or any part of the industry.