In the last year-and-a-half, India has seen an escalation in dollars invested. From last year, the growth doubled its unicorn count and made it the leader in funding in Asia last quarter. The reason for this funding boom is that India’s startup ecosystem has moved beyond just consumer apps. Another reason is the expanding domestic stock market that has shown investors a path to liquidity.

“I think you are finally seeing the loop close of investments, exists and wealth creation,” said GV Ravishankar, managing director at Sequoia Capital India.

Total investment in India in the third quarter outpaced that seen in China, for the second time in the last six quarters, with $16.2 billion coming into the startup ecosystem in Q3 compared to $12 billion in China. By the end of 2021, the country is on pace to surpass the record level of total investment it saw last year. In the first three quarters of this year, Indian startups received $26.7 billion, putting the nation on track for well more than $35 billion in investment. The funding gave rise to a record number of new unicorn startups for India. 17 companies have been newly minted, including PharmEasy with a $4 billion valuation and Digit Insurance at the $3.5 billion mark.

The booming domestic public market:

Investors like to put money into successful companies as they know that they will see that money multiply in a large exit. For years, the pervading investment environment and some investing rules kept many tech startups on the sidelines. Many of the country’s largest tech companies have reached a size where going public proves to be a better option. That led to Zomato, the food delivery service’s IPO this summer, while Paytm, the fintech giant following the next month. Other Indian companies like e-commerce firm Flipkart and ride-hailing startup Ola also appear in the pipeline for an offering in the near future. A lot of these companies have become large and can now list domestically. This is just the start-much like China-and it will not be stopping.

India’s public market could grow to more than $5 trillion, making it the fifth-largest in the world, Goldman Sachs reportedly predicted last month. It also said that within the next three years, 150 private companies could potentially list on the market. Investors say the growth beyond just the consumer application wave that began about a decade ago also is an important driver for the venture capital market's growth in the country.

SaaS is a very large part of our portfolio and the inbound interest we see. During its IPO on the Nasdaq, SaaS customer engagement developer Freshworks raised $1 billion from investors. India will likely be the next exporter of software products, not software services.

Fintech is another sector leading the venture capital charge, investors say. A handful of years ago, the country started to implement a unified payment interface for banks and customers to more easily make payments. That has driven innovation in the fintech startup sector and led to the creation of very large payment providers. Fintech firm BharatPe raised a $370 million round led by Tiger Global making it a unicorn last quarter. Digit Insurance raised $200 million from Sequoia Capital India, Faering Capital, IIFL Alternate Asset Management, and others. The advancements in fintech have helped retail investors to increasingly enter the investment market.

In the country, nearly 750 million people have smartphones and are doing investments through fintech platforms. Other areas to watch in the country include edtech, crypto, and even the deep-tech space, investors said. Tech disruption here has become very broad-based.

The competition in the market:

With interest picking up in a variety of sectors, investors say trying to get in on funding rounds has become more difficult and expensive. Ravishankar states “I would say every segment (of investment) is competitive. The markets are buoyant. Due to its lower price threshold, seed has become more appealing to investors. Ten years ago, no one even knew what a term sheet was. Even as wealth has grown in the country, the vast majority of venture dollars still come from outside of India, especially when it comes to the large rounds led by firms like Tiger and TPG. However, that could eventually change as more successful entrepreneurs in the country become part of the venture capitalist world. Especially as China has ramped up regulations that foreign money likely will continue to increase, which may cause investors to re-evaluate positions there and look for Asian markets. The change in regulations may benefit India, India stands out as an emerging market.”