2020 was an extraordinary year for India, due to the impact of COVID-19 on the economy and healthcare systems in India. It also played an important role in accelerating and/or driving certain digital and technological trends that were before thought to be years away. This dramatic acceleration and adoption is reflected in the startups that have come up and the VC investment trends since last year.
2020 saw Consumer Tech, SaaS and FinTech continue to lead as key sectors of investment, with the three sectors accounting for 75% of the VC investments in 2020 vs. 65% in 2019 and Consumer Tech accounting for the majority of that 75%. SaaS, in particular, has shown clear signs of maturity, with the average deal size increasing dramatically to $25M in 2020 from $14M in 2019. Key sub-sectors in each of these sectors include:
Investments themes that continued from prior years into 2020
Investment themes accelerated or driven by COVID-19 in 2020
In 2020, the top three sectors – Consumer Tech, SaaS and FinTech – accounted for 75% of all VC investments, with Consumer Tech attracting the maximum funding.
In Consumer Tech, the investments grew 25% over 2019, and certain sectors saw massive increase in investments, such as EdTech (6.1x), FoodTech (4.1x), Gaming (2.7x), and Media & Entertainment (2.4x), accelerated by the pandemic. SaaS accounted for the second highest quantum of investments after Consumer Tech.
FinTech’s investments grew slightly from $1.1B in 2019 to 1.2B in 2020, and payments was the most sought after segment. Investments in Lending and InsurTech sectors increased by 4% and 6% respectively. The FinTech sector has especially seen several large deals getting closed in these three sectors.
SaaS companies in India raised $1.5B in total funding in 2020, a number 4 times that of 2018. Investments in SaaS have grown by ~10% in 2020 vs. 2019 and average deal size continues to grow across all segments as the Indian SaaS ecosystem matures. There has been an overall increase in investments despite lower deal volume vs. 2019 due to higher average deal size, driven by large deals such as those of Postman, who raised $150M. Over the course of the pandemic, 10 new unicorns have emerged: Postman, Zenoti, Innovacer, Highradius, Chargebee and Browserstack, Mindtickle, Byju, UpGrad, and Unacademy.
The SaaS sector is positioned to keep growing beyond the pandemic. Although as a phenomenon SaaS is global, India has the opportunity to take its SaaS momentum to the next level. It could be classified across:
1.Horizontal business products targeting small & medium businesses (SMBs) globally, such as CRMs and ERPs, targeting Global SMBs
Notable startups: Zoho, Kissflow, Freshworks, Chargebee, Agile CRM
2. Vertical SaaS businesses disrupting underserved markets, such as Companies disrupting underserved markets and verticals by replacing legacy processes
Notable startups: Zenoti, Innovapptive, Innovaccer, CareStack, DataWeave, Tookitaki
3. Broad-based horizontal and vertical solutions serving enterprises and SMBs: SaaS companies witnessing bottom-up adoption within enterprises and catering to different verticals, and solutions building category leadership in emerging tech (e.g. APIs, GraphQL, cybersecurity)
Notable startups: Postman, Hasura, BrowserStack, Acceldata
Investments in FinTech have increased marginally in 2020 vs. 2019, and payments have emerged as the most attractive sub-sector, driven by the surge in digital payments during the pandemic. The majority of the investment in the lending sub-segment occurred in Q1 2020, followed by smaller deals due to the pandemic
The investment trends created by the acceleration in adoption and transformation of digital media and technology across various sectors by the pandemic is something that will continue post it, due to the significant change in habits and patterns of humans. Going by the current trends, Tech and Tech-enabled startups, especially those in the consumer tech, SaaS and FinTech segments can expect more end-user adoption and thus better deal values. The exit outlook too remains positive for the next few years as most of the top VC funds’ portfolio is yet to reach maturity.
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