State Of Indian Startup Ecosystem In 2019
With the Venture Capital market being rigidly closed off, it is estimated to die down as more contemporary models of raising funds elbow it to the side to hog the limelight
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It’s an exciting time for the market here in India. We are in the post-modern era at the moment and the society around us is constantly evolving and branching out. Change is constantly sweeping us off our feet, and challenging our intimately held notions about what we think the market and investing space is like. With the times, the trends are changing too, and you can either keep up with this evolution or fall back with the rest of the outdated herd. As a Venture Capitalist, I have an exclusive insider view of the investing space around me, and I may have a few insights of my own to share regarding investing in the year 2019.
Trying to keep up with trends that are upcoming in the investor space is truly exhausting at this point because there is so much happening at the same time. What fascinates me is that even though we are surrounded by technology at all times, we have only just begun to discover the potential of upcoming technologies. There has been a lot of interesting developments in Q1, especially in India’s investment space. However, on juxtaposing the deals in India and that in the West, we acquire a new perspective on how the nature of funding varies and how we are yet to rake in the ultimate big bucks.
Initial Public Offerings (IPO) Activity
In Q1, the startup space categorically witnessed a rise in the popularity of IPOs or Initial Public Offerings. Companies such as Uber and Lyft are well on their way to go public by the end of this year. Indian startups too have jumped on this IPO bandwagon and are deciding to go public by the hundreds, and can we blame them really? Capital expansion is on the charts for all of these companies and they are looking to rake in massive revenues from this decision to go public. At the end of the day, every company wants to gradually expand with time.
IPOs in India painted a positive picture. According to the 'EY India IPO Trends Report: Q1 2019', Indian companies raised $940 million (about Rs 6,482.48 crore) through 14 initial public offers, in Q1 of 2019. The report also predicts that this momentum is expected to carry on post- elections. It is no surprise that technology and consumer products posted the highest number of IPOs in Q1 2019. The report outlines the accurate reality of the Indian IPO space. It states that SEBI has issued clearance to around 70 companies to go public, but they are holding off till the election results are out. Additionally, about 19 firms are awaiting clearance from the regulator.
It is true that the geopolitical scenario around the globe will take its toll on the IPO market, and Dr. Martin Steinbach, EY Global and EY EMEIA IPO Leader seems to agree. He expects the market to pick up in Q2. In the EY IPO Trends Report, he said:
“Ongoing geopolitical tensions and trade issues, the risk of slower economic growth and uncertainties about Brexit delayed IPO activity in EMEIA in Q1 2019. IPO candidates have become more nervous, proceeding cautiously and taking a ‘wait-and-see’ approach. However, with a number of mega IPOs and unicorns in the pipeline, and a diverse group of candidates, including family businesses, carve-outs and high-growth companies, we anticipate IPO activity to spring into action in the second half of 2019. “
There has also been a noticeable shift in the earlier narrative, that only small companies go public in hopes of blooming into a bigger business. With foreign companies as big as Uber and Slack willing to go public, the market is definitely gearing up towards a paradigm shift in terms of shareholding among big corporations. Additionally, the available liquidity will be beneficial for investors and founders as it will pump capital back into the ecosystem by allowing employees to start angel investing into upcoming startups. In India, RBI’s decision to introduce measures that ease tight liquidity, can affect the IPO market.
Emerging Technologies (AI, DLT, IOT) Trend
Another strong investing trend that I have noticed is the dominance of emerging technologies like Blockchain, Internet of Things and Artificial Intelligence. Although AI has been creating buzz for a long time now, I group it under ‘emerging’ technologies because of how it is constantly being experimented with, to fuel new possibilities that were previously considered unimaginable. Blockchain is establishing itself as an incredibly significant technology while riding on the wave of ‘decentralization’, the buzz word for the year.
People are looking for real change in the way they share their data and how major corporations handle their data. With technologies like blockchain, people are being exposed to the idea of having a transparent system where data is accessible to all and one is in control of their own data. Startups are experimenting massively with blockchain. I am constantly impressed by the bright new ideas that young entrepreneurs in our country are working on, by making use of such upcoming technologies. One can expect more permutations and combinations between these technologies that will enhance concepts of self-driving cars or robots that do your odd jobs for you.
With AI and Robotics coming up strong, that field is ripe for all sorts of investments. Nascent startups related to blockchain and crypto are also expected to play around with the tech. Mention worthy here is the expected 5G phase one rollout on a massive scale in many countries. Not just ground-based 5G towers, but also the launch of satellites into space. However, since I explored the health risks of the technology which are severe, I advise investors to exercise caution while deciding to invest in that space.
Looking at the change in the investor space, it is quite apparent that the traditional model of venture capital funding is becoming exactly that, traditional. Crowdfunding and alternative business models of funding are slowly gaining momentum. I wouldn’t go so far as to say that VC funding is becoming obsolete, but it is definitely being upstaged by these new alternative models that are now stepping forward into the mainstream. ‘Mega-funding’ might just take a mega-hit this year as crowdfunding becomes the new norm. Indian investors are focusing heavily on commercial real estate and infrastructure, considering that it attracted around $6.3 billion worth of investments in the last year alone. That space is expected to see greater revenues in Q2.
India witnessed an impressive boom in the Private Equity and Venture Capital market. Recording a stellar 159 deals in Q1, PE-VC investments cumulatively raked in around $10 billion worth of revenue in the first quarter. As mentioned above, the real estate market contributed significantly to driving the investment value percentage, which at the moment is 26% up from the same quarterback in 2018. Instead of many small drops forming an ocean, it’s been a collectivity of large water bodies that has resulted in this growth. The big ticket deals are pushing the numbers up inch by inch.
It also helps that the Indian startup space will receive a much-needed boost, in light of Securities and Exchange Board of India’s (SEBI) decision to ease up on the startup listing norms. There is an evident inclination towards a more open system where people are being given an opportunity to participate.
With the Venture Capital market being rigidly closed off, it is estimated to die down as more contemporary models of raising funds elbow it to the side to hog the limelight. However, as long as startups in India keep flourishing, which they will based on RBI and SEBI’s efforts, there will always be a space for Venture Capital funding in the Indian market.
Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house
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