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[Funding update] Indian startups raise an astounding $4 Bn in Q1 2019 across 190 deals as investors trust experienced founders, shrug off Angel Tax worries

In part one of the YourStory Q1 2019 Startup Funding Report, we focus on the top deals of the quarter and whether early-stage funding is in trouble.

Suma Ramachandran
3rd Apr 2019
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Q1 2019 funding trends: key takeaways (part 1)


  • A stellar quarter in terms of funding raised even though there were no billion-dollar rounds
  • New 'unicorns' and 'soonicorns' in town
  • The average deal size is getting larger
  • Early-stage investments are hit, but investors are optimistic
  • There's more VC money now in the system than ever before


When we wrote about funding raised in the first quarter last year, we described investor sentiment at the time as one of “cautious optimism”. This time around, it’s safe to drop the adjective and describe the mood as optimistic. Period.


The numbers for Q1 2019 prove it: $4.1 billion raised across 190 deals. That’s 11 percent higher in terms of the amount raised in Q4 2018, and 2.3x the $1.7 billion raised in the same quarter last year. While the number of deals has fallen year-on-year, the average ticket size has gone up.


(The numbers include private equity and other funding, but not debt finance. Comparative numbers are also higher than what appeared in last year’s report dated April 2, 2018, following the disclosure of un-announced deals and the amount of funding raised.)



Also read: Decoding 3 years of funding: Indian VCs take pole positions in established firms as late-stage deals corner the market



The new ‘unicorns’ in town


While the last quarter saw no billion-dollar rounds, the Indian startup ecosystem did welcome two new ‘unicorns’ – logistics startup Delhivery and online grocery retailer BigBasket.


Delhivery raised a total of $807 million across two rounds in March, pushing its valuation to more than $1.5 billion. Towards the end of the month, it was joined by long-time ‘soonicorn’ BigBasket, which is in the process of raising $150 million in a Series F round. This nearly doubles its valuation to $2.3 billion from $950 million last year.


A total of 11 companies raised more than $100 million in Q1 2019, several of them in the ‘unicorn’ club, including Zomato, OYO, and Ola. Check out the full list in the chart below. Between them, these companies accounted for 70 percent of all funding raised.


Q1 2019 funding update, large deals

The cheque size is getting bigger


Increasingly, bigger cheque sizes, especially in late-stage companies, is a trend that looks like it’s here to stay. Average deal sizes have been increasing steadily since 2017. Says Pranav Pai, Founding Partner at 3one4 Capital,


“Larger ticket sizes are a consequence of the ‘new normal’ in venture capital globally. There is more capital in VC now and more VC funds than ever before. So, the rush of capital into the best possible deals has inflated the ticket size. Corporate and strategic participation in mid and growth-stage rounds is also at historic highs, which has led to a spike in $100M+ rounds and more unicorns being created every year.”


Over the past 18 months, venture capital firms in India have raised a lot of funds and continue to do so. Blume itself finished the first close of its third fund last year and has begun investing from it. So have Lightbox India, Stellaris Venture Partners, Iron Pillar, as well as 3one4 Capital, which recently closed a Rs 350-crore ($50 million) Continuum Fund-I for growth-stage funding.


Sequoia Capital too closed its sixth fund with $695 million to become India’s largest VC fund last August, signalling its renewed interest in the country. It has already begun to put that money to work. YourStory Research shows that Sequoia was the most active investor in India during Q1 2019, with 15 (announced) investments. Matrix Partners, which invests across stages, clocked eight deals, including Ola Electric and bike-sharing startup Vogo.


Binny Bansal emerged as the most prolific angel investor, closing five deals. These include breast cancer diagnosis startup Niramai's Series A round and the Series C round of Fintech player Acko General Insurance. In Pre-Series A, the Flipkart Co-founder invested in bike-sharing startup Yulu and online learning platform Crio.do. He also invested in Nymble Labs, which is working on a 'cooking' robot.


Says Tarun Davda, Partner and MD at Matrix Partners,


“2019 has started off well and we continued to see strong deal flow at the early stage (seed and Series A). With the deepening of the market opportunity, a shift towards more experienced founders and increased activity in growth stage investments, the average ticket size has increased.”


YourStory Research too shows that the total number of deals (even those with an undisclosed amount of funding), the average deal size came in at over $21 million in Q1 2019. This is higher than $17 million in previous quarter, and much, much bigger than $8 million in Q1 2018.


Q1 2019 funding update, large deals

As Ashish Fafadia, Partner at early-stage VC firm Blume Ventures, puts it,


“The fundamentals are much stronger than few years ago. You can no longer say that too much capital is chasing too little innovation (other than for very large cheque sizes where there is some concentration). At mid and early levels, the momentum is fundamentals driven.”


Talking about early-stage investments…


For more than six months now, the startup ecosystem has been grappling with notices issued under the provisions of the controversial Angel Tax. Several startups had been issued notices for being in violation of the Section 68 of the Income Tax Act, 1961, which talks about unexplained cash credits. A couple even saw their bank accounts frozen and money withdrawn by the Central Board of Direct Taxes (CBDT).


Despite assurances from the government and the Department for Promotion of Industry and Internal Trade (DPIIT), the startup ecosystem was both outraged and worried. Outraged at how startups could be threatened with closure with their working capital frozen. And worried because whatever measures were taken, would be implemented going forward.


Soon, the buzz in the ecosystem was that seed and angel investors were close to turning off the tap. Without support for idea-stage and early stage ventures, innovation would be throttled. Or, startups might be forced to migrate and set up shop in places like Singapore.


Q1 2019 funding update, large deals

The quarterly numbers do point to a dip in early stage backing year-on-year and quarter-on-quarter. Between two quarters too, the number of deals fell though total investment was up. Investors that YourStory spoke to had contrasting observations to make.


According to Pranav Pai of 3one4 Capital,


“Early-stage funding has been decelerating across the major ecosystems. In general, the outperformance of the public markets and the throttling of individual/angel investments have been the primary contributors to this slowdown. In India, the Angel Tax issue was the primary reason for angel and seed participation to slow down.”


Ashish, of Blume, however, believes it would be unfair to blame Angel Tax for this. “Angel Tax mainly affected operations of startups who have received notices. In my view, it has not dramatically shoo-ed away investors as new regulations are allowing startup to get registered with the DPIIT to avoid these problems going forward. It does affect sentiment and has a follow-through effect but to blame everything on that is not fair,” he points out.


Assures Tarun of Matrix Partners, “In the last two years, we have made the highest number of new investments as a fund. 2019 has also started off well and we continue to see strong deal flow at early stage (seed and Series A).” 


Pranav, too, offers an alternative explanation for the decline when he says, “One other contributor may be that several early stage raises are still done in ‘stealth’ and are not being announced - so the news on their funding is often delayed.” In many cases, this may not be revealed at all.


The problem at the early stage could well be a temporary one, hit by technical snags like Angel Tax that may be limiting friends-and-family rounds. The fundamentals, though, appear to be strong, according to other numbers from this quarter’s funding update. Stay tuned for that and more.


In Part 2 of our quarterly funding update, we dive deeper into where investors put their faith across sectors, stages, and places across the ecosystem.



Also read: 2018 was the year when Indian startups attracted new investors, welcomed new 'unicorns' and began showing signs of maturity



(Disclaimer: 3one4 Capital is an investor in YourStory.)


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