2020 was a make-or-break year for start-ups in India — a number of firms shut shop, funding got delayed, many companies laid off employees or introduced furloughs and pay cuts. While a few sectors such as travel, hospitality and tourism were hit severely due to the pandemic, others such as edtech and enterprise applications shone, garnering higher consumer and investor interest. Given this pandemic-induced normal, where is the future of the Indian start-up ecosystem headed? Which sectors do investors see new start-ups springing up in the near future and where are they placing their bets when it comes to new seed investments?
In India, start-ups in the fintech space garnered the maximum eyeballs in the first five months of this year. The sector attracted the highest amount of seed funding in the January-May period of 2021 (data as of May 27), per data from Tracxn, a firm that tracks investments and financials of private companies and start-ups.
Seed funding essentially is the first official round of equity funding raised by a firm.
The fintech space includes the banking and lending industry, the investment tech industry, the insurance industry, financial transaction services (payments, remittance, forex tech and cryptocurrencies) and finance and accounting companies. Announced, disclosed deals for start-ups founded since 2016 have been considered for analysis here.
The top five sectors for seed funding during the January-May period this year, apart from fintech, included edtech, food and agriculture tech, technology, and enterprise applications. While the fintech sector attracted $44.6 million, edtech garnered $21.1 million, food and agriculture tech, $17.6 million, technology, $11.3 million, and the enterprise applications sector, $11.2 million during the period.
“Fintech is an evergreen sector and while some sentiment in the lending space may have dimmed a bit due to Covid related overhang, other spaces such as investments saw a good market uptick, also, there has been good action on new age card products targeting various demographics in the recent past,” said Deepak Gupta, Founding Partner, WEH Ventures, adding that food and agri tech will attract more investor interest — food as people are discovering more brands, healthier ones and these are being delivered through alternative channels, and agri, because the sector has come on the radar of mainstream venture capitalists only in the past year or so, and there has also been an acceleration in on the ground traction there, aided by Covid.
In 2020 also, during the January to May period, fintech ruled the roost in seed funding. The other sectors in the top five last year were enterprise applications, healthtech, food and agriculture tech, and enterprise infrastructure.
While healthtech took a back seat this year vis-à-vis 2020 (it was the sixth-highest funded sector this time as against the third-highest last year), Anup Jain, Managing Partner, Orios Venture Partners, said that healthtech will see a secular rise in India over the next five years as Indians will focus more on their health than ever.
“This will flow across chronic disease remote management, women's health, nutrition and insurance for first time buyers,” Jain noted.
Among European countries too, fintech was among the highest seed-funded sectors in the January to May period. For instance, in France, fintech attracted $32.3 million in seed funding, the highest when compared to other sectors. This segment along with enterprise applications, life sciences, food and agriculture tech, and technology constituted the top five funded sectors in seed funding, in the country. Similarly, in Germany, the top five seed-funded sectors included retail, fintech, enterprise applications, technology and healthtech.
In the UK too, the fintech sector attracted the highest seed funding ($88.5 million) during the January-May, whereas, in the US, the enterprise applications sector topped the charts with $233.3 million seed funding, followed by life sciences, healthtech, fintech and retail sectors.
China also saw a similar trend. While the life sciences and aerospace, maritime and defence sectors got the highest seed funding in the January to May period, enterprise infrastructure, fintech and retail were among others that garnered high seed investments.
Covid has changed the landscape for start-ups and consumers alike. People have taken to digital platforms be it to watch movies or to shop for groceries. Jain said that agritech, gaming, vernacular media and OTT, financial services and edtech are the key sectors to watch out for in the next five years.
“There are millions of underserved consumers here and the legacy models of doing business and getting access to the best prices and services is a perennial problem that needs to be solved,” Jain added.