For most of us, 2021 has largely been the same as 2020. As the year of 2020 ended, we all hoped the next year would be different, but our wishes remained largely elusive. Although things were similar on the surface, we at the Bar tried to look at all the things that were not. There were some pretty massive shifts underway in our favorite universe of the multiverse(if you believe there is one), the Indian Startup Universe. All through the year we’ve been sloshed with LIIT news of the highest ever funds raised each month, rising valuations and even IPOs that made the likes of Zomato and Nykaa household names, cementing their places in the minds and hearts of the common Indian. We dive head first and dissect what spirits made 2021 as LIIT as it was. But first, let’s start with the base. 

2020 :  The arrival of an inflection point 

In order to comprehend 2021, we must first understand what happened in 2020. As 2020 ended, all of us hoped that the next year would be nothing like it. When the pandemic began around March 2020, we had no idea of what the new world would be like. Suddenly the world’s focus turned to EdTech as everyone woke up to the necessity of online education. This was reflected as it usually does in the amount of funding that flowed in. 

Indian startups in EdTech received investments of $1.52 Bn in 2020 , 4x that of $380M, that it attracted in 2019. To put things in context, the entire startup ecosystem raised $10.14 Bn in 2020, down 30% from the $14.5 Bn in 2019, of which Byju’s alone raised $900M, as it drove into decacorn territory. The second biggest in the pack, Unacademy, attracted investments twice in the same year, raising a total of $260 million and ending the year with a 12-fold jump in valuation to $2B. Thus, making it the second EdTech unicorn in India. We also wrote about the Edudemic, which came with the pandemic back in mid 2020.

Even as investment in dollars went down, the number of deals increased by 14% in 2020 to 920 deals, indicating a drop in the average funding size and an increased appetite for early-stage investments. As everyone learnt to grapple with the new world order, investors were keen to back founders that saw opportunity for innovation in the swiftly changing environment. Over $620 million (500 deals) were invested in early stage companies in 2020,  almost double that of the $350 million (380 deals) in 2019.

Other sectors like e-commerce and FinTech also raised significant capital with $3 billion and $2.3 billion respectively, but both were down from a combined $6.7 billion in the preceding year. 2020 was a year when we had little visibility of what the future would hold. This had a two-pronged effect. On one side, we had an increased number of early-stage deals with smaller sizes, a combination of the changing landscape and lack of traditional attractive investment options. On the other side we had fewer late stage investments that require solid conviction from investors. Late stage deals happened only for what was certain post-Covid like food delivery, EdTech, and online payments. The 11 Indian Startups that became unicorns in 2020 – Unacademy, Pine Labs, FirstCry, Zenoti, Nykaa, Postman, Zerodha, Razorpay, Cars24, Dailyhunt and Glance – all of them actually solved key problems for their customers during the Covid-19 lockdowns.

But the real and a much more complete story lies in what followed in 2021, so let’s dive straight into that.

2021: The Defining year for the Indian Startup Ecosystem

Although people still can’t agree on whether a new decade starts in 2020 or 2021, we can surely say that for the Indian startup ecosystem, it dawned in 2021. Indian founders and their investors ushered in a new chapter, one that was marked by higher than ever inflow of money, premium valuations and growth like never before coupled with super early signs of maturity.

To throw some numbers for the sake of context, almost $39 billion dollars and 1350+ deals flowed into the startup ecosystem, 3x of the money last year. 44 unicorns were created in the process, taking India’s total to 84 unicorns till date. This is in the background of global VC funding breaking all records with over $600B in 2021 (2x of $330B in 2020) and creating 500 unicorns (5x of 110 in 2020).

Unicorns from Tiger Global, Softbank in 2021

EdTech continued its surge raising over $3 billion in 2021, but unlike 2020 it wasn’t the only boat in the tide. With time, investors were better able to comprehend the tech-tonic changes in the industry and changing customer habits that were underway in the country. People were forced to order groceries, invest money, even book haircuts on their mobile phones and educate their children too. Large enterprises were forced to re-think their strategies and become technology-first in their industries. A change in financial habits of the public, prompted investments worth $7 billion in FinTech almost 3x of 2020. Retail and E-commerce also raised $7 billion, while Enterprise and SaaS solutions managed $5.3 billion to become the third largest funded sector in the year.

India also produced 44 unicorns in 2021 alone, which is more than half of all unicorns in India. These were distributed over all sectors like FinTech, Retail D2C brands, SaaS and even included newly popular cryptocurrency platforms like CoinSwitch and CoinDCX. Perhaps the most noteworthy of these was Mensa Brands, an aggregator of consumer brands,  which achieved unicord status in just 6 months of its founding. Perhaps, this is the norm now. Zepto, a 7 month old company, is already valued at $570M. Zepto is a 10 minute delivery startup founded by a couple of 19 year old Stanford dropouts and has already raised $160M. Unicorns in 2021 entered the club 1 year younger on average compared to previous years. It took 6.6 years on average to become a unicorn in 2021. 

What provoked the sudden change this year? Especially in comparison to 2020, is there any fundamental change that warrants a billion dollar valuations within a year of starting up ?

The crackdown on China’s Big Tech    

There has been a 2x increase in funding since 2019 and 3x from 2020 levels, even after the pandemic severely affected so many businesses. More unicorns have been created in 2021 than in recent Indian history. For the first time, India raised more capital than China in 2021, outpacing China by $4 billion in Q3 2021. Foreign funds are flocking to India compared to China, partly due to the booming domestic market in India and the increasing regulatory control in China as it cracked down on its big tech companies, including the likes of Alibaba and Tencent,  last year. Even as 211 funds made debut investments in India this year, the one that stole the show is actually an old one masquerading around with a new strategy. It is Tiger Global Management, the top investor in Indian startups for the year.

Tiger Global Investments in India

The roar of the “Indian” Tiger

Tiger Global is an American hedge fund and is one of the biggest startup investors in the world. It boasts of $83 billion in AUM, and is probably reaching a $100 billion mark soon. In India, Tiger has minted 20 unicorns alone out of the total 44 this year becoming the top investor in unicorns in the country. In total Tiger infused nearly $2.2B in 2021 and participated in 56 deals, worth $8.7 billion , one-fourth of the national total funding raised. The last time the Tiger was roaring this loud was back in 2015 with 38 investments totaling $1.2 billion which was also the last time it was the top investor. Unlike this year, in 2015 Tiger was focused on backing early-stage companies and not minting unicorns on the side.

Tiger is known for taking sectoral bets across the globe. For example, consider the food delivery space. Tiger has stakes in Zomato and Grofers in India, Just Eat Takeaway in Europe, and Grubhub and Postmates in the USA.

But, this year Tiger has disrupted the venture market, showing a new way to win. Its approach is predicated on rapid capital deployment, reducing founder friction, and accepting a lower return profile.  By being less selective with its companies, Tiger is deploying more capital as well as increasing its error rate (%age of bets that will not be profitable). Its objective is to earn money from a higher volume and smaller rate of return rather than a higher return on investment. By deploying 3 times the capital that traditional VCs do in a year, Tiger can comfortably accept one-third lower percentage returns compared to other VCs. In addition, the Tiger backing itself is valuable for the startup as it builds conviction among the other VCs about investing into that startup.

“More than ever, VC has become a game of speed today, and Tiger is definitely leading this race”

Interestingly Tiger Global has also outsourced all its due diligence to the consulting firm Bain & Co. This places at their disposal, a global network of people that can quickly generate insightful industry trends in different geographies helping it expand its footprint globally. It is not a surprise then that Tiger has signed deals within minutes of meeting the founders for the first time. Globally Tiger is doing almost 1 deal per day this year, which is an order of magnitude higher than 45 deals/year that it did between 2010-2020. This is because Tiger believes that the tech asset class – where its investments lie- is mispriced and the winners will also be orders of magnitude higher than current estimates. It’s a game of speed, and in increasing its speed, Tiger is willing to accept a little lower precision and outbid competitor VCs out there to the cap table. 

Fact : All portfolio investments of Tiger Global Management also get access to Bain’s consulting services for free

But alas, these are only valuations as of now, and we have to wait and watch how things pan out and whether Tiger Global Management really manages to garner higher returns and avoid the pitfalls of large capital deployment that Softbank faced. Speaking of which, Softbank has been uncharacteristically cautious this year, investing $3.2 billion as part of deals worth $8.3 billion. Softbank, known for taking risky bets and encouraging companies to grow at any cost not caring for profits, has been quite conservative in this funding boom. This is due to a change of guard with Sumer Juneja, now heading the Indian investments after the catastrophic demise of WeWork marked the shortcomings of its $100 billion Vision Fund. After its bold bets on high cash-burning businesses PayTM, Oyo and Ola totalling $5 billion, Softbank has chosen to invest in firms like WhatFix, Zeta, Cars24 and Meesho, all of which are comparatively stable in cash-burn. Even companies like Delhivery which was initially apprehensive of Softbank’s heavy influence on the board, have now seen their valuation triple to $3 billion, since Softbank invested in them three years back. It did so without burning a lot of cash and focussing on efficiency. This was possible only because the new Softbank under Juneja was nothing like its former self.

It’ll be an interesting phase to watch with Softbank clamping down on its aggressive bets, and Tiger picking up the baton but with a radically different strategy that is more mathematical and  less reliant on picking industry winners. With new foreign investors flocking to India, both will have competition, which might even see them making bolder bets.  

Signs of Maturity

Higher returns in the VC business mostly happens when there is an exit option. And the most obvious exit journey for an investor is a public listing of the company. Although, in the Indian context, mergers and acquisitions have been the more common route, this year we got the first glimpse of what a public listing would be like. Behemoths like Zomato and PayTM as well  as fresh unicorns like Nykaa lined up to ring the market bell at the stock exchange.

This year was marked by the public listing of pioneering Indian internet age startup, Zomato. The debut of Zomato was a very closely watched affair, with its performance setting the mood for the companies that followed – Nykaa, Policy Bazaar and PayTM.

Zomato and Nykaa both followed a similar trajectory with their valuation nearly doubling to $14 billion apiece since listing. PayTM, which was the largest public issue till date, saw a timid response from shareholders with its value falling by 35% to $11 billion. 

Overall, it has been a mixed response from public shareholders. Nevertheless with the likes of Mobikwik, Urban Company, OLA, Flipkart and OYO to go public in 2022, it is a heartwarming sight to see the new-age companies gaining wider visibility and acceptance with the people. Maybe we will soon have to stop calling them startups anymore? Who knows.

Things have been hot like always on the private mergers side as well. Interestingly, it was led by Reliance and Tata, the two biggest conglomerates in India as they looked to participate in the digital economy. Tata made clear its digital ambitions with big stakes in CureFit, BigBasket and 1Mg, all of which now proudly bear the Tata brand. Tata eventually plans to roll out a super app with its complete digital offerings, for which it also appointed Mukesh Bansal (founder, CureFit) as CEO, Tata Digital clearly validating the credibility of the new age founders.

Reliance, which captured the attention of the world in 2020 when it raised a staggering $20B, in a matter of months acquired controlling stakes in Netmeds, Urbanladder, Milkbasket to name a few. EdTech had a field day as Byju’s stepped out and spent over $2B to acquire 10 startups globally and Unacademy also acquired 5 startups in 2021  while UpGrad managed to get 4.

What’s next? 

This is a perennially difficult question to answer, and our guess would be as good as yours. When 2021 started, nobody expected NFTs and Web 3.0 to be all the rage that they are now. Although such breakouts are hard to predict, we can however extract some macro trends that are likely to shape 2022.

Although owning cryptocurrency is still a legal grey area in India, it hasn’t stopped crypto exchanges like CoinDCX from becoming unicorns. Web 3.0 which initially had roots in Virtual Reality and browsing the internet in 3D, is now about owning things on the internet via NFTs bought with cryptocurrencies. Online gaming was another big talking point since 2020 is now also moving to the blockchain. With the correct policies and regulation, Web 3.0 could add as much as $1.1 trillion to the Indian economy. With even Facebook rebranding itself to Meta as it shifts focus to its virtual reality endeavours, we believe Web 3.0 is a concept that is here to stay and could garner even more attention in 2022 as a regulatory framework is believed to be in the works.

The other big area of attention, we believe will be a problem that’s existed in India since Web 0.0, the agrarian crisis. India has the second largest agricultural land area in the world that is still cultivated with traditional methods, with little to no technological innovation. This is a market that is ripe for technological disruption. AgriTech startups have been mushrooming and expanding over the last year, with the sector raising almost $500M this year and DeHaat, a 10-year old full-stack agri startup bagging $115M in the largest agritech round in India. With companies like NinjaCart, Agrostar, Cropin, DeHaat and many more, it is very likely we will see the first Indian agritech unicorn in 2022. Of what could be a $24B market by 2025, AgriTech startups have managed to reach just over 1% in 2021, with clear future potential. 

The next big thing in 2022 is iterating and improving upon all the new big things started in 2020 or 2021 – Gokul Rajaram

The funding numbers of 2021 are unlikely to be achieved in 2022, as some of it was spilled over from 2020. But it is evident that 2021 has set a new normal. The pace of funding for tech-startups and even the number of unicorns will be greater than pre-pandemic levels for some years now. We at BusinessBar will always try to serve you with the latest shots and industry pitchers to keep you updated on the world of business. With the new Covid variant now forcing curfews across the country, you can drop in at BusinessBar anytime you like. 

Keep visiting us as we have plans to expand our menu in 2022 in hopes to better serve you. Wishing all our readers, a happy and safe new year from all our bartenders. Party responsibly. Cheers!

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