India Venture Capital Report 2022

Executive summary

2021 was a pivotal year for the Indian venture capital (VC) investment landscape—a convergence of heady tailwinds coming together in a record growth year as VC funding reached $38.5B with several highlights:

  • Investments in India grew 3.8x over 2020, faster than China’s (1.3x)
  • Share of VC funding in India accounted for greater than 50% of overall private equity (PE) and VC investments in the country in 2021
  • 44 unicorns were minted in India, exceeding China’s 42 unicorns in the year

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Investing momentum was driven by a significant confluence of factors that were several years in the making: maturing digital infrastructure (Unified Payment Interface [UPI]-led payment rails, cheap and ubiquitous data access and Aadhar electronic Know Your Customer [eKYC]), increasing depth in the start-up ecosystem and reinvigorated investor confidence as long-held capital saw significant public and secondary exits, and a positive macroeconomic outlook for India. Further, as Chinese regulators tightened control over the local tech economy (fintech and edtech), capital deployment saw redirection to India.

“We believe that the Indian tech market has finally hit PMF—a perfect storm of talent, capital, infrastructure, depth in demand, and other enablers is brewing. The next decade is going to be growth.”

Elevation Capital

Total deal value of $38.5B in 2021 was driven by dual impact of ~2x growth in number of deals (1,545 deals vs. base of 809 in 2020) as well as average deal size (expanding from $12.4M to $24.9M over 2020–21). Most significant, however, was the shift in shape of deal flow as global VCs led 90+ mega rounds of $100M+ (vs. ~20 in 2020), typically as follow-on rounds in market leaders such as Swiggy (online food delivery) and Dream11 (gaming). Similarly, early-stage deals saw a dramatic shift in pace and ticket size, with Series A rounds hitting the $10M+ mark in average deal size. Further, India minted 44 unicorns in the year, becoming the third largest home of unicorns, with 73 privately held active unicorns, after the US (~500) and China (~170).

Consumer technology, fintech, and software as a service (SaaS) continued to account for 75%+ of all VC investments by value (in line with 2020). These sectors continued to see a significant expansion in deal size, indicative of a maturing landscape. SaaS specifically saw deal size expansion as marquee Indian unicorns became category-defining leaders globally, such as Postman in API management or BrowserStack in automated testing. A few emerging sectors stood out:

  1. Within consumer tech, several alternative formats of commerce saw significant funding, such as video commerce, direct-to-consumer (D2C) brand aggregator models, and short-form videos
  2. Online business-to-business (B2B) marketplaces saw traction as four new unicorns were created—large opportunity size driven by the pandemic-led inflection in digital adoption within B2B supply chains
  3. SaaS funding continued to see momentum as several category leaders emerged, addressing unique use cases
  4. Within fintech’s record funding in 2021, consumer and SMB-focused neobanks held a significant share
  5. Web 3.0 and crypto-based start-ups saw explosive growth raising up to $500M+ in 2021

“We continue to be excited about several sub themes: enterprise SaaS across sales & support enablement, upskilling and life-long learning tech, cross-border commerce, and challenger banking services are key areas of interest. On the healthcare front, digital and consumer health, tech-enabled healthcare services, next generation manufacturing, and innovation are examples of focus themes.”

Eight Roads Ventures

The active investor base in India also consequently saw a significant expansion, reaching 660+ from a base of 516 in 2020. Several seed funds and family offices debuted or raised funds for early-stage rounds, becoming more significant on the pre-seed to Series A landscape. Tiger Global and Sequoia Capital retained the top spots on the leaderboard in terms of deal volume and capital deployed, while SoftBank remained competitive on capital deployment, focusing selectively on large deals.

New investors made significant inroads into India in 2021: (a) several Tier 1 global VCs and crossover funds (e.g., Technology Crossover Ventures [TCV] and Dragoneer Investment Group) made large investments, (b) emerging domestic VCs gained presence (e.g., 3one4 Capital), and (c) global sovereign funds (e.g., Abu Dhabi Developmental Holding Company [ADQ], Qatar Investment Authority [QIA]) made direct investments. Sector-focused global and domestic funds doubled down (e.g., Ribbit Capital in fintech or DSG Consumer Partners in consumer tech). Further, traditional PE funds such as KKR or Warburg Pincus also demonstrated an increasing focus on growth equity deals. Most funds have also forayed into offering several portfolio advisory services spanning from recruitment to business development to help differentiate their capital.

2021 was also a defining year for exits. Total VC exits reached north of $14B across secondary transactions and initial public offerings (IPOs). Secondary transactions led 60% of the exit value, anchored by a few marquee deals (BillDesk acquisition by PayU at $4.7B, and partial exit by Kalaari in Dream11 at $400M). Further, companies with VC backing accounted for at least five high-profile IPOs in the year in a major shift as the Securities and Exchange Board of India (SEBI) relaxed norms for listing on the public bourses. Retail investor appetite for tech-led scrips further drove record levels of oversubscription for these IPOs (e.g., Zomato oversubscribed at 7.5x while Nykaa was oversubscribed at 12.2x for retail investors).

The Indian start-up ecosystem reached an inflection point in maturity in 2021, fuelled by VC investments. With $400B+ in valuation across a burgeoning ecosystem of 50K+ active start-ups, companies are looking to unlock significant economic value, addressing major pain points for consumers and small and medium businesses (SMBs). 2021 also saw significant wealth creation through employee stock ownership plan (ESOP) liquidation—30+ start-ups announced ESOP buybacks.

Global headwinds in early 2022 are likely to affect the funding outlook for the rest of the year. Although we expect investments in 2022 to remain in a similar range as 2021 (driven by existing dry powder), the pace and quality of deals is likely to shift. Investors are expected to double down more significantly on quality assets with larger rounds, and a more measured pace of dealmaking. Compressed multiples in global public markets will probably see a trickle-down impact, leading to rationalisation in valuations and a focus on unit economics. Exits via public listings may also see some moderation as IPOs in the pipeline may adopt a wait-and-watch stance given global headwinds in public markets. A few emergent sectors, however, will continue to see interest: Web 3.0 or crypto-based investments (especially with the Indian government’s ruling on validity of digital assets), creator commerce, and core sectors, such as agritech and healthtech.

Some India-specific trends may further affect momentum over 2022: (a) stricter IPO norms are expected to be rolled out by SEBI, specifically focused on capping investor share offloading at IPO; (b) regulatory shifts are likely to continue to affect a few sectors such as online gaming, cryptocurrency, and fintech; and (c) talent attraction and retention will continue to remain top of mind for scaling start-ups.

“We expect tech valuations to be restrained this year, especially across growth and late-stage financings. On the early side, we believe deal activity in the industry will be muted compared to 2021 but still higher versus the previous years, given the fundamental consumer shifts driven by the Covid-19 lockdowns, and substantial dry powder in the market.”

Lightspeed Venture Partners

India VC deals landscape

  • VC investments in India had a banner year in 2021, with a meteoric 3.8x growth over 2020, to reach $38.5B in capital deployed. Remarkably, share of VC deal value within overall PE-VC investments reached 50%+ for the first time

  • India’s VC investments grew significantly faster than global VC investments, which surged a record 1.9x over 2020, as well as behemoths US and China, which saw VC investments grow 1.9x and 1.3x, respectively. India’s share of global VC funding almost doubled from less than 3% to 5.6% in 2021

  • Investing momentum in India was driven by a pivotal convergence of tailwinds. Digital infrastructural fundamentals (e.g., cheap data access, UPI, eKYC via Aadhar) opened enormous economic opportunities that are increasingly being addressed by the deepening start-up ecosystem in India. Investor confidence was also reinvigorated by a record year of exits, especially as public listings gained momentum. Regulatory crackdowns in China on tech firms created further uncertainty, driving some degree of capital flight to India

  • Investment growth was led by both deal volume growth (1,545 deals vs. base of 809—1.9x growth) and average deal size growth (from $12.4M to $24.9M) over 2020–21. 2021 also saw a record upswing in mega rounds of $100M+ occurring as global VCs led 92 large ticket size rounds (mostly follow-on growth equity investments), 7 of which were $500M+ rounds in major capital commitments in market leaders such as Swiggy (online food delivery), Dream11 (gaming), and Eruditus (edtech)

  • Finally, scale rounds drove up valuations across the board. India minted 44 new unicorns in 2021. In a significant shift, this was the first year that India surpassed China in terms of annual number of unicorns (44 vs. 42), taking its overall active unicorn tally to 73 and moving India into third place globally in terms of overall number of active, privately held unicorns

Key investment themes in 2021

  • Three sectors (consumer technology, fintech, and SaaS) continued to account for 75%+ of all VC investments by value, in line with 2020; however, 2021 was differentiated in terms of a sharp rise in investments in emerging technologies, such as B2B commerce and tech (6.6x growth over 2020) and Web 3.0 or crypto based start-ups (~28x growth over 2020 reaching $500M+ in investments)

  • E-commerce and SaaS mostly saw deal size expansion reflective of the maturity of the sectors, while fintech and other consumer tech sectors (edtech and gaming) saw both deal size and volume expansion. Conversely, sectors such as online B2B commerce and Web 3.0 saw a rapid pace of deal making

  • Several investment themes emerged or continued to gain traction in 2021:
    • New e-commerce models (social commerce, video commerce)
    • D2C brand aggregators
    • Short-form video or social networking (focused on Tier 2+ consumers)
    • Consumer and SMB neobanks
    • SaaS
    • Online B2B marketplaces
    • Web 3.0 and crypto-based technologies

Investor base and fundraising overview

  • India witnessed significant participation from several global and domestic investors in 2021, taking its active investor count to 665, from a base of 516 in 2020. Several seed funds raised significant funds in 2021 (<$30M fund sizes; e.g., Eximius Ventures, Atrium Angels). The fundraising landscape saw a marked shift as smaller funds raised a higher share of capital in 2021 relative to leading Tier 1 investors

  • Share of investments by incumbent leaders remained stable at ~25% in 2021: Tiger Global and Sequoia Capital continued to retain the top spots in terms of investment value and volume, while SoftBank made few selective large deals, remaining on the leaderboard in terms of investment value

  • The shape of the dealmaking landscape, however, underwent a dramatic shift as top investors such as Tiger, SoftBank, and Alpha Wave Global (erstwhile Falcon Edge Capital) had 60%+ of their deals in $50M+ size bracket. Traditionally VC-focused investors, Sequoia and Accel, continued participating actively in <$50M ticket size deals with 70%+ deal contribution

  • Newer investors made significant inroads into the deal landscape in 2021: (a) Tier 1 global VCs, such as TCV and Dragoneer Investment Group, made several large investments; (b) domestic VCs scaled presence (e.g., 3one4 Capital, Gemba Capital, Together Fund); (c) sovereign funds, such as ADQ and QIA, also made direct investments into the market as late-stage investors; and (d) several sector-focused funds increasingly doubled down. Finally, traditional PE funds also stepped up focus on growth equity deals, with the marquee deals being the Warburg Pincus-led investment in The Good Glamm Group, ChrysCapital’s investment round in Dream11, and the KKR-led investment in Lenskart

  • With increasing capital availability and liquidity, investors are looking to differentiate themselves to build the right positioning in the market with focused portfolio advisory and support (e.g., recruiting support, strategic advisory)

Perspectives on the exits landscape

  • VC exits witnessed a defining change, reaching $14B+ in total exit value:
    • Three marquee exits accounted for nearly 60% of total exit value: (1) BillDesk’s acquisition by PayU ($4.7B), (2) Paytm IPO ($2.5B), and (3) Zomato IPO ($1.3B)
    • VC exit IPOs accounted for a robust 40% of the overall exit value in 2021, while secondary sales were anchored by a few large deals

  • Secondary and strategic sales continued to be the mainstay for exiting VCs, with more than 60 deals amounting to $8.7B or 60% share in overall VC exit value. Growing interest from global investors and PEs in growth stage deals was a key driver of the buoyant secondary market

  • Five high-profile IPOs in 2021, accounting for $5.3B (of total IPOs value of $16.1B), had VC exits. IPO momentum was largely driven by shifting regulatory climate on tech IPOs in India and public markets being at an all-time high, whetting retail investor appetite for tech listings in India

2022 and beyond: India investment outlook

  • We believe that the VC-funded Indian start-up ecosystem has reached escape velocity with a robust value creation flywheel

  • 2021 was remarkable with ESOP liquidity events across the start-up ecosystem—more than 30 start-ups announced ESOP buybacks, likely to fuel a newer generation of founder operators with higher risk appetite and expertise, further increasing the depth of opportunities in the ecosystem

  • While the first quarter of 2022 continues to see robust traction, public market trends indicate some headwinds for VC investments in 2022, augured by a spate of multiples compressions in publicly listed tech companies on global exchanges. We expect continued funding momentum given dry powder availability and depth in the ecosystem; however, a few shifts in the pace and quality of deals are likely. Focus will probably shift to larger rounds in quality assets as dealmaking returns to a more measured pace. A few new sectors will probably see emergent growth (crypto- and blockchain-based technologies, healthtech, and agritech). Further, anticipated tech listings in the pipeline may have to adopt a wait-and-watch approach for the markets to rebound

  • A couple of watchouts may continue to affect the ecosystem for a while: stricter IPO norms are expected from SEBI, regulatory uncertainty for a few sectors is likely to continue (e.g., online gaming and fintech), and a competitive talent market will continue to strain the ecosystem


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