How Indian technology start-ups performed in 2020?

India has added 1600 technology start-ups and a record number of 12 additional unicorns in 2020 – the highest ever added in a single calendar year.
Two young girls working on a laptop in the classroom
COVID-19 has accelerated digital adoption and the shift to online. This has created new opportunities for tech start-ups that are capitalizing on this opportunity with rapid digital acceleration and a shift to SaaS-based solutions, The National Association of Software and Services Companies (NASSCOM), in partnership with Zinnov, a management and strategy consulting firm, said in its annual start-up report.

Venture Capital (VC) firms earmarked 14 percent of their total investments in deep-tech start-ups, up from 11 percent in 2019. Further, 87 percent of all deep-tech investments were in AI/ML start-ups, in 2020.

“The continued innovation, right decision making and strong investor commitment have positioned the Indian start-up ecosystem as a key contributor in accelerating India’s digital economic growth. 2021 promises to be a positive year for Indian tech start-ups – marching steadily towards $1 trillion digital economy goal,” Debjani Ghosh, president of NASSCOM, said.

“2020 saw start-ups increasingly leveraging and piggybacking on the foundational infrastructure that the government has in place – the India Stack, UPI infrastructure, GST norms, FASTag, etc. – that offers up a unified set of layers with contactless and presence-less digital economy truly coming into its own,” Pari Natarajan, CEO of Zinnov, said.

Despite a lower number of total start-up deals in 2020, seed-stage investments are recovering at a good pace as investor activity at lower ticket sizes has increased. Seed-stage funding in 2020 recovered to more than 90 percent of 2019 levels.

Early and Late-stage investments are also recovering steadily. An increase in median deal size is further underscoring investor confidence and a willingness to take big bets. Sectors with COVID-19 tailwinds such as EdTech, BFSI, AgriTech, Gaming, etc., are witnessing a steady increase in first time funding, up from 29 percent in 2019 to 42 percent in 2020, garnering a 14 percent growth in absolute numbers.

Tech startups are offering around 30-35 percent remote roles and 15-20 percent companies committed to remote work culture, as per NASSCOM tech start-up survey. Tech start-ups are expanding into global markets; 28-30 percent tech start-ups are targeting the overseas market for growth and business expansion.

Cross border trade restrictions in 2020 accelerated peer-to-peer collaborations and public-private partnerships, leading to fast and effective knowledge transmission. In fact, as per the survey, 66 percent of tech start-up founders are exploring partnerships post-COVID-19.

Deep-tech and new start-up hubs will continue to grow at 40-45 percent CAGR. While the investments in 2020 were significantly lower than in 2019, recovery in deal pace and investments is expected to return to 2019 levels, if not exceed in 2021. In terms of total Unicorns, India is on track to have a 50-plus strong Unicorn club in 2021. M&A deals and IPO pipeline are also expected to accelerate in 2021.

NASSCOM defines tech start-ups ecosystem as active technology product or platform companies incepted in the last 5 years in 2015 or later.