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Perspectives

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

• 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.)

BOS IVCA Bain India VC report 2018_PPT 2


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

BOS IVCA Bain India VC report 2018_PPT 3


AGENDA

India Venture Capital landscape

Startup ecosystem in India

Regulatory framework

BOS IVCA Bain India VC report 2018_PPT 4


Venture Capital – Key Messages

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

BOS IVCA Bain India VC report 2018_PPT 5


Quantum of fund-raising for focused Indian VC investments has increased
significantly since 2014
1. FUNDING FUNDS EARMARKED FOR INDIA

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

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

Others includes smaller, domestic


Multiple smaller series/ seed A funds raised by VCs such as Prime
focused raised capital in 2017, Venture Partners, Pi ventures and
while participation of larger VCs in Fireside that primarily focus on
fund-raising was limited seed/early stage startups

~20% of total funds raised


by Sequoia deployed ex-
India in SEA
Note: (*) Only includes funds that are earmarked for India – whether raised by Indian or global VCs BOS IVCA Bain India VC report 2018_PPT 7
Source: Venture Intelligence
Significant fund-raising activity also seen by smaller, seed/ series A focused VCs
1. FUNDING

Funds raised Funds raised


(’14 -’18, in (’14 -’18, in
VC Firm $M) VC Firm $M)
Prime Venture Partners 109 Stellaris Ventures 50
IvyCap Ventures 100 Unitus Seed Fund 46
SRI Capital 100 Exfinity Fund 45
Ventureast 83 Lok Capital 40
Fireside Ventures 79 Omnivore Partners 40
DSG Consumer Partners 75 Blume Ventures 30
Pi Ventures 58 Kae Capital 30
IIM-A-CIIE 57 Ganesh Ventures 30
Saama Capital 57 Trifecta Capital 30
Alteria Capital 55 Zodius Capital 30
Lightbox 54 Endiya Partners 26
Indus Age 50 Indian Angel Network 26
Montane Ventures 50
Note: (*) Includes all funds above $50M raised from 2014-18
BOS IVCA Bain India VC report 2018_PPT 8
Source: Venture Intelligence; Bain Analysis
VC industry in India has evolved to a more “mature” phase in the last couple of years
2. INVESTMENTS

Scale-up Phase Maturing Phase

• 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

Number of Deals Average Deal Size

Scale-up Phase Maturing Phase Scale-up Phase Maturing Phase


(VC focus on doing more (VC focus on doing select deals (VC focus on making (Focus on placing select bets
deals and building initial to holistically grow portfolio) multiple, smaller on fewer investments)
portfolio) 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

Number of Deals per Round Round Size

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

“Better growth opportunities, more exits taking place and improved


choices in fund managers make India very attractive”

EMPEA 2018 Global Limited Partners’ survey

Positive “Limited partners are more positive today about India’s


macroeconomic environment than they were in the past.
macro Partner, Indian Fund manager
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

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

Decreasing annual deals per


VC given focus on quality deals
vs. quantity of deals post 2015

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

Investment Break-Down of Large Funds Seed/ Series A VC Examples

Year
VC Fund Founded Investments

Pi Ventures 2016 2018,Series A

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

Corporate VC Investments in India Drivers of Future Growth

Increasing • Flipkart and PayTM are active VC investors


number of
• Aim to further integrate in the start-up
mature start-ups ecosystem, and strengthen own presence
expected to start through VC investments
own funds
Investment include
Blackbuck, and Tinystep

Investments include Jugnoo


and Big Basket

Leading Global • Global Corporate VCs such as Google, and


CVCs doubling Intel increasing direct investments in India
down on • Google made first direct investment in India in
investments in Dunzo in ’17, second investment in Fynd in ’18
India

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

Average deal size of ~$7M


for Consumer Technology
Investments; ~ $5.5-7M for
other segments

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

Diversification of Consumer Tech Investments Top Consumer Tech investments

Sub-segments Sample Companies

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

New verticals in E-tailing Vernacular Content

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

Key Investment Themes Recent Investments

1 • Enterprise/ SMB-focused SaaS companies with an easy-to-use horizontal


offering (both business software like CRM and infra software like middleware)

2 • Vertical-specific software product companies focused on high-growth (Ed) (Agri) (HC)


verticals like Fintech, government, healthcare, education
(HC) (HC)

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)

Source: Bain Analysis BOS IVCA Bain India VC report 2018_PPT 20


VCs in India have seen reasonable success - 5-15% portfolio companies of large
funds went on to cumulatively raise >$100M funding (1/3)
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

• 80-85% deals in 3/190 • 40-50 exits in last 5 years (total


partnership exit value2 of ~$3B)
~190
~3000 ~80% 15-16%
(~$5.4B) • Frequent Partners: • Marquee exits (company
(2006)
Accel, Lightspeed, valuation >$500M) include Star
Matrix, SAIF, Nexus Health Insurance, Freecharge

2/150 • ~20 exits in last 5 years (total


• 80-85% deals in
exit value of ~$2B)3
partnership
~150
~800 ~70% 6-7%
(2008) (~$3.8B) • Marquee exits (company
• Frequent Partners:
valuation >$500M) include
Sequoia, IDG, SAIF
Flipkart, Myntra, Ola

• 10-12 exits last 5 years (total


• 80-85% deals in
1/85 exit value of ~$0.2B)
partnership
~85
~750 ~65% 5-6%
(2006) (~$1.3B) • Top 2 exits (by total exit value)
• Frequent Partners:
include Mezi.com, What’s on
Sequoia, Blume, Helion
India

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

• 15-16 exits in last 5 years (total


• 75-80% deals in
1/70 exit value2 of ~$0.4B)
partnership
~70
~700 ~60% 10-11%
(~$1.1B) • Top 3 exits (by total exit value)
(2006) • Frequent partners:
include ItzCash, TCNS Clothing,
Sequoia, Nexus, Tiger
Quikr

• ~16 exits in last 5 years (total


• 95-100% deals in
exit value of $1.1-1.2B3)
partnership
~90
~420 ~70% 6-7% ---
(~$0.9B) • Marquee exits (company
• Frequent Partners:
(2006) valuation >$500M) nclude
Accel, Kalari, Inventus
Myntra, Lenskart

• 65-70% deals in • ~15 exits in last 5 years (total


partnership 1/100 exit value of ~$1.0B)
~100
~350 ~70% 11-12%
(~$1.1B) • Frequent Partners: • Marquee exits (company
(2000) Accel, India Quotient valuation >$500M) include
Fund, Sequoia PayTM, Just Dial

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

• 80-85% deals in • 7-8 exits in the past 5 years


partnership 1/90 (total exit value2 of ~$0.3B)
~90
~290 ~70% 4-5%
(~$1.0B) • Frequent Partners: • Top exits (by total exit value)
IDG, Accel, India include Embibe, VisionaryRCM
(2006) Quotient Fund and Zivame

• 85-90% deals in • 3-4 exits in the past 5 years


partnership 1/40 (total exit value of $0.2-0.3B)
~40
~290 ~70% 13-14%
(~$2.4B) • Frequent Partners: • Top 2 exits (by total exit value)
(2007) Sequoia, Matrix, Helion, include ItzCash, India Energy
Nexus Exchange

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

Classification of rounds Includes start-ups that


as Seed/ Series A/ directly raised Series A
Series B/ Series C per funding
investment
announcements

~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)

Exits in early 2010s were from


primarily from IT deals done in
late 2000s – more IPO exits given
more mature investment profile

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

Tiger Global 2017 800

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

SAIF Partners 2017 400

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

Multiple impending exits Founders’ expectation

• 35% of founders expect an exit between


2019 and 2021; a further 41% expect exits
550+ deals due for
80% by 2024
immediate exit based on
investments before 2013
(assuming 5 year holding “The number of buyers in the market has increased. It is not
period) difficult to find a buyer in the industry even for a moderately
attractive asset.”

- Former AVP, Sequoia Capital

“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

Source: Innoven Start-up Outlook Report; Bain Analysis BOS IVCA Bain India VC report 2018_PPT 27
AGENDA

India Venture Capital landscape

Startup ecosystem in India

Regulatory framework

BOS IVCA Bain India VC report 2018_PPT 28


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

BOS IVCA Bain India VC report 2018_PPT 29


India houses 50K+ total start-ups, of which ~3.5K+ are funded – growing rapidly at
~30% CAGR

Number of startups Number of funded startups

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

US China India UK Israel

Total funded tech startup*


base (2017), Growth (2013- ~20100, 19% ~4800, 48% ~2800, 39% ~3000, 26% ~1150, 23%
2017)
Total number of unicorns
(2018)* 126 77 18 15 3

Total engineering grads 0.25 4.5 1.1 0.07 0.007


(2017, M)

Total number of internet


users (M) (2018) ~240 ~740 ~399 ~59 ~6.5

Total number of incubators


(2017) ~1500 ~2400 ~140 ~50 ~130

Ease of doing business


rank (2018) 8 46 77 9 49

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

BOS IVCA Bain India VC report 2018_PPT 32


1 India is one of the largest base for quantity and quality of talent

Second highest annual college Healthy mix of STEM and Business


Largest young, working population enrollments graduates

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

Annual engineering graduates in India Comparison vs. other countries

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

Incubation centers Co-working spaces Global Programs

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

Corporate Government University Social Private

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

Indian co-working spaces International co-working spaces

Inception Year
• Launched in 2015 in Delhi NCR • Launched in 2013 in Delhi • Entered India in 2017

No. of facilities

• 55 facilities with 25,000 seats • 19 facilities


• 9 facilities in India with 12,000 seats
• Present in 9 cities – Delhi, • Present in 8 cities - Bangalore,
Bangalore, Mumbai, Hyderabad, Delhi, Goa, Gurgaon, Hyderabad, • Present in 3 cities- Mumbai, Bangalore and Gurgaon
Gurgaon, Noida, Pune, Kolkata Mumbai, Navi Mumbai and Noida

Funding

• Raised ~$20M till date from


• Raised ~50M till date from • Raised $4.4B from Softbank in 2017, out of which $1.4B
Sandway Investment, AMA
Sequoia and InnoVen would go into Asia Pacific subsidiaries
Holdings, 33 Investments etc.

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

Israel France South Korea United Kingdom

India Israel Global K start-up Grand Mayor of London’s IE20


French Tech ticket
Innovation challenge Challenge Program

Overview • Collaboration between • Initiative to discover 20 of


Start-up India and Israel • Initiative to invite foreign start- India’s most innovative and
Innovation • Initiative to attract entrepreneurs
ups to Korea and cooperate high-growth start-ups that are
to create tech start-ups in France
• Focus Area: Agriculture, with VCs and considering international
Water and Digital Health expansion

• Access to early tech


Key Offerings • INR 2-5 lakh cash prize; adopting Korean population;
additional INR 10-25 lakh Govt. support for launch in S. • Opportunity to set up or
• €45,000 per team; French
cash prize in water-tech Korea expand business in London
residence permit
• Cross-border mentorship • $11,300 funding support • 6 months free office
• 1 year incubation; Office space
and incubation/acceleration membership
and mentoring in France • 3.5 months accelerator
support
program • Expert advice on marketing,
• Networking events, demo days
• Connection to access to finance and local
with investors • Free office space in Seoul;
investors/corporates to market analysis
explore piloting solutions Corporate support and
sponsorship
Impact • 11 Indian start-ups won (Total 70 • 10 of the 80 start-ups selected • 20 Indian start-ups out of 300
• 18 Indian start-ups selected
winners) from India applications selected

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

Bengaluru Delhi NCR Mumbai


Number of funded tech
startups ~840 ~710 ~450

Number of
Co-working spaces
~320 ~180 ~270

Top funded startups


headquartered in locations

Key growth drivers • Talent – 24 universities, ~135


• Talent – 26 universities, 34 engineering
engineering colleges; abundant tech
colleges
talent given proximity to IT campuses
• Talent – 14 universities, 46 engineering
and captives (highest in India) • One of the fastest growing urban colleges
centers of India – highest vacant grade
• Low cost of commercial real estate
A commercial real estate stock (~30 • India’s commercial capital – highest
for grade A rentals compared to NCR/
MSF) and as well as upcoming supply contribution to India’s GDP and
Mumbai (INR 70 sq. ft vs. INR 80-100
(~42 MSF) across all metros highest share of disposable income
sq. ft.)
• Rising number of • Highest number of VC headquartered
• Supportive state government:
incubators/accelerators set up by in Mumbai vs. other hubs
Launched a dedicated startup cell aimed
govt., corporates & educational
to provide mentorship, regulatory advice
institutions
and corporate exposure to startups
Note: Includes only funded companies founded after 2005 – excludes deadpooled startups BOS IVCA Bain India VC report 2018_PPT 40
Source: NASSCOM; Tracxn; Euromonitor
In addition to the 3 hubs, Indian startup ecosystem has expanded to newer cities

Hyderabad Pune Chennai


Number of funded tech
startups ~150 ~120 ~110

Number of
Co-working spaces
~110 ~90 ~30

Top funded startups


headquartered in locations

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

• Proactive state government – set up • Abundant product engineering/


“T-Hub” (India’s fastest growing design talent given proximity to
incubation center) and launched automotive/ manufacturing captives
Innovation Policy – offering tax
incentives to startups & incubators
Note: Includes only funded companies founded after 2005 – excludes deadpooled startups BOS IVCA Bain India VC report 2018_PPT 41
Source: NASSCOM; Tracxn; Euromonitor
AGENDA

India Venture Capital landscape

Startup ecosystem in India

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

4 • 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

Source: Bain Analysis BOS IVCA Bain India VC report 2018_PPT 43


1
Startup India is the government’s flagship initiative to extend operational and
financial support to startups

1
“Startups, technology and Procedural
innovation will be effective and
Simplifications

MAIN FOCUS AREAS


exciting instruments for India’s for setting of
transformation.” entities
Shri Narendra Modi,
Prime Minister of India

2
Providing tax
relaxation
to financially incentivize
startups

3
Providing
incubation
and funding assistance

BOS IVCA Bain India VC report 2018_PPT 44


1
Since its inception, Startup India has mobilized multiple govt. institutions to
implement favorable regulations for startups NON-EXHAUSTIVE

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

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

• Establishment of a Fund of Funds for • Atal Incubation Centers (AIC): Provides a


Key Initiatives Startups (FFS) with a corpus of INR. grant-in-aid of INR. 10 Cr. for a maximum • Credit Linked Capital Subsidy Scheme
10,000 Cr. to be deployed through period of 5 years assists in technological and machinery
SEBI registered VC funds upgradation of manufacturing startups
• Atal Tinkering Labs (ATL): Dedicated work
• ASPIRE Fund of corpus INR. 200 Cr. spaces aimed at imparting additional • Stepping up of credit line for Small and
focusing on rural and agri-based skillset to school students – computational Medium Enterprises (SMEs)
startups thinking, adaptive learning, etc.

• 13 AICs approved across India with INR. 10


Impact Cr. grant each • Procedural simplifications like complete
• INR 600 Cr. of funds already deployed
digitization of Industrial Entrepreneur
by SIDBI across 75 startups in India • 2441 schools across the country selected for Memorandum (IEM)
setting up ATLs

Source: Bain Analysis BOS IVCA Bain India VC report 2018_PPT 46


5 SEBI AIPAC: SEBI has recommended easier financial regulations for VCs

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)

• 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
Key regulatory revisions

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 First set of AIPAC recommendations
(IVCA recommendation)
Note: AIF Category I funds include Venture Capital Funds, SME Funds, Social Venture Funds and Infrastructure Funds BOS IVCA Bain India VC report 2018_PPT 47
Source: SEBI; Bain Analysis
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

Source: World Bank Data BOS IVCA Bain India VC report 2018_PPT 48
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• 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.
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BOS IVCA Bain India VC report 2018_PPT 49

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