Indian tech startups had a huge year in 2018, but the way the money is being distributed has some experts concerned about the future of the country’s financial ecosystem, according to reports.
Startups in the country were a part of 924 rounds of funding and received $10.5 billion in funding – the most ever. In 2017, Indian startups got $10.4 billion through 1,141 rounds. In 2016, it was lower and companies only saw $4.3 billion.
The funding saw the creation of two new unicorns (companies with a $1 billion valuation or more). These were OYO Rooms, a hospitality company, which raised $1 billion in September, and food delivery company Swiggy, which also secured a cool billion.
Mobile wallet app Paytm raised $300 million from Warren Buffett’s firm Berkshire Hathaway. The service expanded to Canada last year and also launched PayPay in Japan, with SoftBank and Yahoo! Japan. BYJU’S, maker of a learning and tutoring app, raised $540 million.
Chinese investors have also been funding Indian companies. Tencent invested in Swiggy and a music service called Gaana, and Alibaba funded Paytm and Zomato, a restaurant search company. Chinese funders were part of 43 funding rounds, which is up from 29 in 2017 and 25 the prior year.
The problem, experts say, is that only big-name companies are getting the money.
Jayanth Kolla, founder of research firm Convergence Catalyst, said all of the money going to big players is tipping the scales only in one direction. “Last year, we saw some early-stage startups in the country explore innovative and creative solutions, but if you look at the quantum of the funding, it was the big players that attracted most of it,” he said.
Early startups were a part of 304 deals in 2018 and raised $916 million. That number is down from the $988 million raised in 380 rounds in 2017 and the $1 billion in 430 rounds raised in 2016.
Part of the problem is a law in India stating that about a third of the money raised from angel investors must be paid as tax. Kolla said this basically took the wind out of the early startup game. “Innovative startups working on emerging technologies, such as AI, require patient capital,” he said.