India sees record investment in tech startups despite economic headwinds

Fintech deal volumes in India surpassed China for the first time in the second quarter of 2019.

Source: Unsplash.

Indian startups attracted record-breaking investment this year despite sailing on an economic anti-current of flagging consumer demand, according to data compiled by startup intelligence service Venture Intelligence.

346 deals came through in the first seven months of 2019, resulting in USD 4.7 billion investment in Indian startups. The corresponding period last year witnessed an investment of USD 4.3 billion across 338 deals.

While U.S. investors have always pumped in money thick and fast into Indian startups, this year also saw an increase in interest from non-marquee Asian investors such as GGV Capital, Korean Investment Partners, Qiming Ventures, among others who are exploring the country to find potential unicorns.

Chinese investors put in a total of USD 2.5 billion in 2018 and USD 1 billion in the first half of 2019 in Indian technology companies, the Venture Intelligence report said.

Early-stage investors including Blume Ventures, India Quotient, Fireside Ventures and Endiya Partners will reportedly invest a total of USD 350 million by the end of this year. Funds such as Sequoia Capital, Accel Partners, and Lightspeed Venture Partners are also going to increase their India fund or raise new fund.

“The fact is that we have not seen the effect of the downturn in the performance of the actual companies yet. And that is what is driving a lot of this interest in funding, because startups are still growing very, very rapidly. I have never seen this kind of growth in my entire career of venture investment,” Ritesh Banglani, managing partner, Stellaris Venture Partners, told local newspaper Mint.

Traditional companies in India continue to bear the brunt owing to a downturn in demand, whereas tech startups have kept their flag running high. New age verticals like mobility, sharing economy, niche consumer brands, and other internet-driven businesses are growing steadily.

Temasek-backed Innoven Capital in a report said factors such as low cost to start a business, large and affordable workforce, and the advantage of having the second-largest internet user base after China, are the few reasons that make India one of the world’s most startup-friendly nations. There is a cultural shift too amongst youngsters wherein they are not risk-averse anymore and are building companies rather than opt for cushy salaried jobs.

Over the years, India has risen in the Global Innovation Index, Ease of Doing Business, and Global Competitiveness Index rankings. In 2014, India launched schemes and policies to support startups financially, doled out incentives to build incubators, and gave a thrust to the upgrading of technology and infrastructure.

India is said to be the 5th most startup-friendly economy in the world this year, followed by US, UK, Canada, and Israel. In contrast, the Global Innovation Index 2019 places India at the 52nd position out of 129 countries for capacity and success in innovation.