Is the Growth of India's Tech Startup Ecosystem Being Driven by Just its Unicorns?

The report highlights that every surge in the funding has been driven by the companies valued at $1 billion

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The Indian tech startup ecosystem witnessed an investment of amount $10 billion in 2017. While $6 billion have been raised by the unicorns of the country, just $206 million have gone into seed and angel funds says a 2018 CB Insight report.

It comes to us as a dilemma whether the tech ecosystem is flourishing or is the growth is just being pumped up by the unicorns in the country.

The report highlights that every surge in the funding has been driven by the companies valued at $1 billion. It shows that in the past three years India has seen a rollercoaster ride in dollars and deals. Between 2015 and 2016, as funding more than halved, the number of deals closed jumped 9.6 per cent — from 889 to 974. And, in 2017, when the country hit a record of nearly $10B, deals dropped by 19.3 per cent.

Unicorns Grab a Major Share

Citing examples of VC-backed firms like Flipkart, Ola Cabs, PayTm and Oyo Rooms, the report gives a detailed analysis of a major share of funding taken by unicorns. The iconic investors like SoftBank, Tencent Holdings Pvt. Ltd are betting high on the Indian unicorns for their expansion in Asia and beyond that.

The Indian e-commerce unicorn, Flipkart, which has recently been bought by retail giant Walmart, raised $2.8 billion across several rounds in 2017, including SoftBank Group's participation in the second tranche of its $1.4 billion in series J round in Q3'17.

Bhavish Agarwal's Olacabs raised more than $1.8 billion in 2017, including a $1.1 billion series J round from SoftBank Group in Q4'17 for their expansion in South East Asia and Australia. In 2018 a row of startups entered the unicorn club by raising funds from SoftBank and Tiger Global Management.

Investors Betting High on Startups

Some of the investors have been constantly investing in Indian tech startups. While the Japanese investor has built a stronghold in the Indian tech sector by pumping a large amount of funds, New York-based Tiger Global Management has invested in 22 rounds to companies that have received unicorn valuations. The e-commerce site Flipkart and ride-hailing app Olacabs are to name a few. Both companies have raised 8 or more rounds of funding that have involved the investor.

From Silicon Valley's Uber to India's Ola, SoftBank has been one of the largest stake investors in all the leading ride-sharing platforms in the world. In the Asia Pacific region, its other investments include in include Singapore's Grab, China's Didi Chuxing and Brazil's 99 (which was later acquired by Grab) in the ride-sharing industry only.

Another Silicon Valley-based VC firm, Accel Partners, has funded 11 rounds to unicorn-valued companies. "Accel has invested in food delivery company Swiggy most frequently, participating in 6 rounds. This includes an $80M series E in Q2'17," says report.

Tech Startup Ecosystem

Rest of the funds raised by other Indian tech firms include $206 million amount of funding.

Although, 2018 has witnessed a total of 1,200 new tech startups added to the list, as per the NASSCOM report, the funding graph has seen a decline in the Indian tech startup ecosystem.

The report states that despite an overall increase in funding, it's clear that India's tech ecosystem has not yet hit a steady pace of growth.