India sees a sharp drop in number of start-ups founded in 2020

Sangeetha Chengappa Bengaluru | Updated on January 03, 2021

Covid-19 likely to impact shutting down 75% of the startups in the next 12 months

In 2020, a pandemic stricken year, India witnessed a sharp 44.4 per cent drop in the total number of tech start-ups being founded at 3,061, compared to 5,509 in 2019.

The total equity funding raised by tech start-ups in 2020, irrespective of the founding year, dropped 30.9 per cent to $11.4 billion vs $16.5 billion raised in 2019. The funds in 2020 were raised in 1,152 rounds, of which 448 were Series A + investments. There were 909 active investors in 2020 of which, 365 were the first time investors and 505 were international investors. The year saw 12 Unicorn start-ups emerge and 41 Soonicorns, which hold the potential to become Unicorns shortly, as per data sourced from Tracxn, a start-up intelligence company.

Business Models

Some of the most popular business models that attracted investor interest in 2020 were online self-paced test preparation (BYJU’S, Unacademy), food delivery (Zomato, Swiggy), digital wallets (PhonePe, MobiKwik), internet-first restaurants (Box8, Biryani By Kilo), e-commerce logistics services (XpressBees, Vinculum Solutions) real money e-sports gaming platforms (MPL, WinZo), vernacular news aggregator (InShorts, DailyHunt), horizontal B2B marketplaces (Udaan, Bijnis), among others.

Equity investments

Sequoia Capital invested $5.1 billion in 106 deals, Matrix Partners invested $1.8 billion in 48 deals, Blume Ventures invested $1.7 billion in 50 deals and Accel invested $1.1 billion in 56 deals in 2020.

The country is home to over 73,000 start-ups of which over 8000 are funded. But this number may soon be down by 75 per cent, going by serial entrepreneur and partner GrowthStory, K Ganesh’s prediction.

“In the next 12 months, 75 per cent of start-ups will shut shop due to the impact of Covid-19. While start-ups may fail, the entrepreneur will not fail, they will re-emerge with new business models, pivots and new opportunities thrown up by the new normal” he told BusinessLine.

Elaborating further, he said “start-ups by nature do not make profits. They take risks, try to develop a product-market fit, find out if there is demand, experiment, pivot and tweak their product/solution, but they do not have positive cash flows through all of this. They are dependent upon risk capital or venture capital to burn until they turn cash flow positive. Covid has stopped any risk capital coming in as investors don’t know how to value a company because of the uncertainty that the pandemic has created. Investors don’t know how long Covid will last, or by when these start-ups will recover or how long it will take to get to the new normal.”

Published on January 03, 2021

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