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STARTUP INDIA

2016

REPORT

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CONTENTSExecutive Summary

Nearly 1,000 startups expected to be funded in 2016

Tough times for startups with Series A, B funding ambitions

Startups’ share in private investments on the rise

More funds for startups but fewer deals

Funds investing, but cautiously

Consolidation drives startup exits; E-Commerce is the big thing among startups

Every fourth startup investment is in Bengaluru

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EXECUTIVE SUMMARY

T he number of startups that may receive funding this year is likely to reach 1,000 mark. The forecast is based on the run rate seen in Q1 2016, and the contribution from

first quarter to the yearly deal volume. There have been 255 deals till mid-April this year.

On a quarter on quarter basis, the startup funding deals have taken a hit of over 50 per cent with deal value falling from $611 mn in Q1 CY2015 to $301 mn in Q1 CY2016.

Angel, Seed, Series A and Series B stage venture funding transactions that peaked with 287 deals or one every 7.7 hours in the quarter ended October-December 2015, have slipped by 19% to 234 deals in quarter ended January-March 2016. In value terms, the slide is 41%, to $301.5 mn at the end of January-March quarter ended 2016 when compared with the previous quarter.

While volumes of Angel and Seed funding have risen by 33% from 142 in Q1 CY2015 to 189 in Q1 CY2016. Venture Capital Series A funding volumes have dropped 52% from 67 deals in Q1 CY2015 to 32 in Q1 CY2016. in the corresponding period. Venture Capital Series B funding has seen a decline volume terms too, there has been a fall of 46% from 24 deals in Q1 CY 2015 to 13 deals in Q1 CY 2016.

Share of startups in the overall private investment pie is on the rise. By volume, startups contribute 70% of the total transactions in 2015, up from 62% a year ago. While the contribution of the startup deal value too has been on the rise, moving from 7% in 2011 to 11% in 2015, it has slipped in 2016YTD to 6%.Share of startups in the overall private investment pie is on the rise. By volume, startups contribute 70% of the total transactions in 2015, up from 62% a year ago. While the contribution of the startup deal value too has been on the rise, moving from 7% in 2011 to 11% in 2015, it has slipped in 2016YTD to 6%.

#The report defines startups as companies that have raised an angel or seed stage or a Venture Capital round A or round B over the last five years.; *2016YTD till mid-April

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Nearly 1000 startups expected to be funded in 2016Early-stage deal value takes a hit in Q1

A f ter a promising 2015 when a record number of startups raised funding and early-stage

investments peaked at $717 million in Q2 CY15, 2016 has started on a slower note in value terms. In the January-March quarter, the deal value slipped to $301 million while deal volume at 234 transactions returned to Q1 CY15 levels, indicating lesser money is flowing into startups. And there is unlikely to be any significant change in the number of funded startups this year considering the run rate seen in Q1 2016 and contribution from the first quarter to the annual deal flow.

According to data from VCCEdge, the

financial research arm of VCCircle, a record 979 startups raised funding in CY15, marking a 67% spike when compared with CY14. The number of startups that may receive funding this year is likely to be around 1,000 considering that 255 startups have got funded in 2016 so far. Though these are still early days, indications are that startups will find it challenging to raise funds in the rest of 2016 as cautious VCs have tightened their purse strings.

Industry experts acknowledge 2015 was a year of rapid deployment, while 2016 could turn out to be a year of consolidation for startups and early-stage investors. The sky-high valuations from the previous

year seems to be on the retreating path. So, even though there is no dearth of funds, VCs are going to be more choosy and careful with their investments.

Slowdown or not, startups are playing a key role in the overall private investments. In fact, startups’ contribution to the total private equity investments by volume and volume peaked to a record in 2015. Read more about it in our report (pg 7).

This report defines startups as companies that have reportedly raised an angel or seed-stage or a venture capital round A or round B over the last five years.

LANDMARK YEAR FOR STARTUPS IN 2016

20110 -100%

1,200 80%

1,00060%

800 20%

0%

40%

600-20%

400 -40%

-60%200

-80%

2012 2013 2014 2015 2016YTD*

324430 491

586

979

255

33 19

67

14

Number of Startups % Change (RHS)

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Early-stage investment sped to new records in 2015 and remained robust throughout.

In fact, mid- stage venture funding deals hit a speed bump a few months ago as galloping valuations made investors tizzy. The pain is now reaching farther and deeper for startups looking to raise fund at Series A and B stages.

Angel, Seed, Series A and Series B stage venture funding transactions, which peaked with 287 deals-- or one every 7.7 hours--in the October-December quarter of 2015, have slipped 19% to 234 deals in the quarter ended January-March 2016. By value terms, the slide is 41% to $301.5 million for the January-March 2016 period when compared with the previous quarter.

A closer look shows that in the January-March 2016 quarter, both Series A and Series B seem to be the real pain points as the number of transactions dipped by more than half from a year earlier. The fall was particularly bad for Series A funding as the number of transactions matched the 10-quarter low of 32 transactions. At the angel and seed stage too, the number of transactions have slipped to 189 during the January-March quarter, after peaking at 212 transactions in the previous

quarter. While a slowdown in angel and seed funding deals shows the first external funding support is getting weak, the decline in Series A

deals--the first institutional level of venture funding for a startup--is particularly worrying.

Tough times for startups with Series A, B funding ambitionsMore capital for angel/seed-stage deals

VolumeValue ($ mn)

2011

Q1 74 255 Q2 79 218 Q3 75 177 Q4 110 206

2012

Q1 136 208

Q2 95 180 Q3 82 159 Q4 138 166

2013

Q1 120 189 Q2 94 127 Q3 110 215 Q4 183 287

2014

Q1 143 300 Q2 136 285 Q3 168 433 Q4 167 262

2015

Q1 232 611 Q2 264 717 Q3 285 552 Q4 287 511

2016 Q1 234 301YTD* 259 320

SPEED BUMPS FOR STARTUPS IN Q1 | FEWER DEALS, TOUGHER FUND RASING CLIMATE GREETS STARTUPS IN EARLY 2016

STARTUP INVESTMENTS BY VALUE AND VOLUME

2011

2012

2013

2014

2015

2016 YTD*

Value ($ mn) Volume

Value ($ mn) Volume

856338

451

507

614

1,068

259

713

819

1,281

2,392

320

3,237 6,381TOTAL

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STARTUP INVESTMENT TYPE BY VOLUME - QUARTERLY

142

6668 69 61

3213

14212624

170195 212

189

Q1 2015

250

200

150

100

50

0Q2 2015 Q3 2015 Q4 2015 Q1 2016

Series BAngel / Seed Series A

STARTUP INVESTMENT TYPE BY VALUE - QUARTERLY

Series BAngel / Seed Series A

Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016

91

240

281

348

217177 137

66

303 231 237

105104 96 59

350300250200150100

500

STARTUP INVESTMENT TYPE BY VOLUME

718

2013

315

136

56

2014

379

167

68

2015

266

84

2012

125

279

47

2011

136

142

60

2016YTD*

212

3413

Angel / SeedSeries ASeries B

2011 2012 2013 2014 2015 2016YTD*

50

515

290

120

348

245

96

367356

208

490

583

357

1,0261,008

65119

137

While the investment euphoria of the past couple of quarters seems to be ebbing now, there is a silver lining dotting the grim early-stage investment clouds. At the angel and seed level, the investments are driven more by micro-VC funds who do small-ticket deals, and the signals of a slowdown have not yet perpetuated down to their level. Also, traditional VCs have realised that there is pressure at all stages of investment and have generally decided to either consolidate the existing portfolios or wait for a more opportune moment.

STARTUP INVESTMENT TYPE BY VALUE

Angel / SeedSeries ASeries B

Figures in $ mn

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Startups’ share in private investments on the riseVCs wait till Series B stage, prefer larger stake

F or startups, the average stake held by angel and seed-stage investors has nosedived to 7% in 2016

so far, another indicator of investors’ interest in meaningful deals. The average stake held by angel and seed-stage investors has been on a continuous decline after peaking in 2011, when investors picked up about 26% stake in startups, to 16% in 2015. While the average stake acquired by investors at the Series A stage has slipped too, the Series B stage is where investors are ready to take bigger risks. The average stake held at the Series B stage in 2016 so far has perked up marginally to 27%.

Further, the share of startups in the overall private investment pie is on the rise. By volume, startups contribute 70% to the total transactions in 2015, up from 62% a year ago. While the contribution of the startup deal value too has been on the rise, moving from 7% in 2011 to 11% in 2015, there’s a blip in 2016YTD to 6%.

Year

Volume Value

Startup Deals

PE deals

Startup Investments as % of PE Investments

Startup Investments

($ mn)

PE Investments

($ mn)

Startup Investments as % of total PE

Investments

2011 338 757 45% 856 11,427 7%

2012 451 852 53% 713 10,924 7%2013 507 896 57% 819 10,979 7%2014 614 995 62% 1,281 12,847 10%2015 1,068 1,516 70% 2,392 21,253 11%2016* 259 372 70% 320 5,096 6%

STARTUPS’ CONTRIBUTION TO OVERALL PE INVESTMENTS (BY VALUE AND VOLUME)

AVERAGE STAKE % ACQUIRED IN STATUPS BY DEAL TYPE

2011

2012

2013

2014

2015

2016*

Angel / Seed Series A Series B

2634

22

2335

31

1930

26

2026

22

1627

26

726

27

2014 614 995 62% 1,281 12,847 10%

2012 451 852 53% 713 10,924 7%

Figures in %

2016* 259 372 70% 320 5,096 6%

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More funds for startups but fewer deals

W h i l e angel and seed investments continue to pour in, the year is expected

to see some traction the Series A and B front as well. There is no dearth of startup funds being raised as investors are still gung-ho, but they are going to be choosy. Six funds have raised $1 billion in 2016 so far, which is about 40% of the total early-stage fund raised in 2015. Of this, top Silicon Valley fi rm Sequoia Capital closed its $920 million fundraising during the January-March quarter this year. This is the biggest raise by any VC fund for India-specifi c investments. A total of 19 funds raised $1.7 billion in 2015.

EARLY-STAGE STARTUP FUNDS LAUNCHED/RAISED

SEQUOIA RAISES MOST FUNDS IN Q1

# of Funds Launched # of Funds Raised Amount raised ($ mn)

27

1519

1618 19

06

12

2219

24

05

2011

1,202 770 1,136 1,763 1,064267

2012 2013 2014 2015 2016 YTD*

Launched Fund Name Asset Manager Funds Raised ($ mn)

2015 Sequoia Capital India Sequoia Capital India 920

2015 IvyCap Ventures IvyCap Ventures Advisors 48

2015 KAE Capital KAE Capital Management 30

2016 Zodius Technology Zodius Capital 30

2015 SIDBI West Bengal SIDBI Venture Capital 20

2015 SIDBI Maharashtra SIDBI Venture Capital 16

2015 IvyCap Ventures IvyCap Ventures Advisors 48

2016 Zodius Technology Zodius Capital 30

2015 SIDBI Maharashtra SIDBI Venture Capital 16

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Investor Name 2011 2012 2013 2014 2015 2016 YTD*500 Startups 1 11 14 12 18 3Accel India Management 16 22 15 14 40 2Blume Ventures 18 31 27 22 14 5CIIE Initiatives 7 4 13 10 10 2Helion Venture Partners 13 6 8 14 11 0IDG Ventures India 10 4 10 7 12 0KAE Capital 4 8 17 3 16 0Kalaari Capital 7 9 9 10 24 0Matrix Partners 5 4 8 11 12 1Nexus India Capital 16 11 11 13 20 0Sequoia Capital India 19 15 14 27 38 5The Morpheus 13 19 10 2 0 0Tiger Global 7 5 1 4 24 0

Funds investing, but cautiously

T h e number of active early-stage funds has been rising consistently. After hitting a peak in

2015, when a record 295 funds were actively investing in startups, already 136 funds have done so in 2016YTD*. Accel India has the highest deal volume in 2015 with 40 transactions with Sequoia close on its heels at 38 transactions.

Some active investors to drive deal-volume in 2015, like Tiger Global, Nexus India Capital and Kalaari Capital, are yet to clinch their first deal this year.

# of PE funds

148 165

208 225

295

136

2011 2012 2013 2014 2015 2016 YTD*

ACTIVE FUNDS INVESTING IN STARTUPS

ACTIVE INVESTORS - BY VOLUME

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SectorNumber of Deal value ($ mn)

# of ExitsStartups Early stage deals Total Mean Median

Ad-Tech 63 82 100.15 1.34 0.28 5E-commerce 225 346 828.46 2.83 0.90 18Edu-Tech 82 111 187.32 2.18 0.25 2Entertainment Tech 39 52 75.00 1.87 0.35 3FinTech 84 124 323.99 3.95 1.39 2Food-Tech 79 114 188.67 2.04 0.52 3Health-Tech 52 71 67.56 1.25 0.34 2Mobile Tech 227 300 578.62 2.58 0.50 20Real Estate Tech 32 46 87.04 2.72 0.91 2Travel Tech 89 128 270.17 2.62 0.50 7

Consolidation drives startup exits

T h e number of startup exits is on the rise with more companies preferring mergers and

acquisitions for the exit. A total of 22 exits took place in 2015, up from 19 a year ago. The year 2016 has started on a positive note with

seven exits so far, all via M&As. Last year, too, M&As played a key role with 16 such exits in 2015. Some key exits done recently include Zostel Hospitality, Qikwell Technologies, Village Laundry Services and others.

Year Buyback M&A Secondary Sales

2011 -- 2 42012 1 7 112013 -- 3 32014 1 10 82015 1 16 52016 -- 7 --

2012 1 7 11

2014 1 10 8

2016 -- 7 --

STARTUP EXITS BREAKUP (2011-2016 YTD*)

E-Commerce is the big thing among startupsMean value of deals highest in FinTech

E -commerce is the key sector for startups in India and recorded the highest number of transactions.

A total of 225 e-commerce startups

got funding since 2011 with $828 million being invested in 346 deals. mobile tech is the second most popular destination with a total of 227 startups, followed by travel tech

and fi ntech with 89 and 84 startups, respectively, raising funds. By deal size, e-commerce startups raised the maximum funds followed by mobile tech and fi ntech.

E-commerce 346 828.46 2.83 0.90 18

Entertainment Tech 52 75.00 1.87 0.35 3

Food-Tech

Mobile Tech

114 188.67 2.04 0.52 3

300 578.62 2.58 0.50 20

Travel Tech 128 270.17 2.62 0.50 7

KEY SECTORS IN STARTUPS (2011-2016YTD*)

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Sector Bengaluru Delhi-NCR

Mumbai (Incl. Thane) Chennai Hyderabad Other

Cities Total

Ad-Tech 24 23 6 2 4 23 82E-commerce 80 106 80 18 11 51 346Edu-Tech 31 32 17 5 2 24 111Entertainment Tech 14 9 6 4 3 16 52FinTech 26 14 39 8 5 32 124Food-Tech 36 36 25 3 2 12 114Health-Tech 20 9 12 3 8 19 71Mobile Tech 84 69 47 9 10 81 300Real Estate Tech 14 12 14 2 1 3 46

Travel Tech 29 40 12 6 4 37 128

Every fourth startupinvestment is in BengaluruBengaluru’s contribution steadily high for fi ve years.

B e ngaluru, Delhi NCR, Mumbai (including Thane), Chennai and Hyderabad are the

top cities for startup funding and together attracted almost 77% of the total investments in the last fi ve years. Bengaluru is on the top with

25%, followed by Delhi NCR at 24%. Mumbai (19%), Chennai (5%) and Hyderabad (4%) are the other top cities that attracted startup capital.

Bengaluru was the hub for 32% of the food tech, 30% of real estate tech and 29% of ad tech startups

funding in India in the last fi ve years. Delhi NCR nested 31% of each of e-commerce and travel tech startups funding in India in the last fi ve years.

KEY CITIES FOR EARLY STAGE INVESTMENTS IN 2011 TO 2016 YTD*

TRENDING SUB-SECTORS BY VOLUME (2011-2016YTD*)

Hyderabad133

Chennai151

Volume of Deals

Bengaluru809

Delhi-NCR760

Mumbai(Incl. Thane)

591

Disclaimer: VCCEdge (the research arm of VCCircle.com) has taken due care and caution in preparing this report. Information has been obtained from the VCCEdge platform and sources which it considers reliable. However, VCCEdge does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. No part of this report may be published/ reproduced in any form without VCCEdge’s prior written approval. VCCEdge or its owner Mosaic Media Ventures Pvt. Ltd. is not liable for investment decisions which may be based on the views expressed in this report.

E-commerce 80 106 80 18 11 51 346

Entertainment Tech 14 9 6 4 3 16 52

Food-Tech 36 36 25 3 2 12 114

Mobile Tech 84 69 47 9 10 81 300

Travel Tech 29 40 12 6 4 37 128

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