Data | Indian startups founded in 2021 took only 28 months to go from seed stage to Series A funding: RBI paper
A recent article titled ‘What drives startup fundraising in India?’ was published as a part of the January 2023 issue of the Reserve Bank of India’s monthly bulletin. It shows that more startups have been becoming unicorns in recent years in India. The article also points out that the number of months taken by startups in India to climb up the funding ladder has drastically declined in recent years.
As on January 12 this year, there were 87,988 startups in India recognised by the Department for Promotion of Industry and Internal Trade (DPIIT). This makes the country the third-largest startup ecosystem in the world. Only those entities which work towards innovation or which have a scalable business model are recognised in India as startups up to 10 years from the time of their incorporation and which had a turnover that did not exceed Rs. 100 crore in any year.
According to DPIIT, startups have created around 7.6 lakh jobs in India as of June 30, 2022. Also, the average age of startup founders India was reported to be 32 years (as of 2019) and 14% of the startups had at least one female founder (as of 2022).
In the post-pandemic period, startups have been on a fast lane in India. In 2021, the average time taken for a startup to become a unicorn dropped to 7.8 years from 9.9 years in 2020. A unicorn is a private limited company with a valuation of over $1 billion. Chart 1 shows the number of unicorns created in India each year. The number of unicorns has surged in the post-pandemic period with the total count increasing to 107 as of September 2022.
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Most unicorns in India were FinTech platforms, Software-as-a-Service companies and e-commerce firms. But interestingly, many new entrants in 2021 to the unicorn club were from non-traditional areas (cloud kitchens, gaming, data management and analytics, and content). As shown in Chart 2, close to 40% of startups in India as on January 11 this year were in Bengaluru followed by Gurugram (16%) and Mumbai (15%).
Usually, a startup goes through many rounds of funding from funds, high net-worth individuals and other businesses in successive pitches or rounds (seed, Series A, B, C and so on). Initially, the seed money comes from the founders, friends and family who are called angel investors. Early rounds may be used to establish a foothold in the market, while later rounds may be used for expansion. Later, when the startup gets acquired, becomes a listed company, or merges with another firm, it no longer needs funding.
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Notably, the median number of months required to rise up the funding stages has reduced for the startups founded in recent years. Chart 3 shows the median months taken for startups founded in 2014 and 2021 to rise up the funding stages. Startups founded in 2014 took an average of 50 months to transition from the seed stage to Series A, whereas startups founded in 2021 took only 28 months. Similarly, for those founded in 2014, the progression from Series A to B was 36 months as against 12 months for those founded in 2021.
Indian tech startups raised $17.4 billion over 2,531 rounds in 2019. In 2020, this was around $6.9 billion. In 2021, this increased to $45.4 billion over 2,900 rounds. The share of late-stage startups (Series C and beyond) in total funding and in the number of funding rounds increased compared to the past few years, as shown in Chart 4.
This indicates that investors are backing established companies that had proven themselves more than before, which is typically risk-averse behaviour.
Source: “What Drives Startup Fundraising in India?”, a paper published by the RBI as part of its January bulletin