Exploring India's

dynamic Start-up
Ecosystem

December 2024

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Exploring India's dynamic Start-up Ecosystem

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 Exploring India's dynamic Start-up Ecosystem

Executive summary
India's startup ecosystem, ranking third globally entrepreneurship. As the ecosystem matures,
with over 100 unicorns, offers rich investment increased collaboration between startups and
opportunities for foreign investors. The country's corporations, innovative business models, a pool
large consumer base and growing digital adoption of talent with specialised skills, advancements in
create significant market potential. Government technology and increased internet and
initiatives such as Make in India, Startup India smartphone penetration have created the
and the creation of digital public infrastructure potential for high returns and contribute to India's
have fostered a supportive environment for innovation-driven growth.

USD140 billion USD1 trillion

Infused by startups into the Expected
Expected addition
addition to theto
Indian economy in FY23 the economy
economy by 2030 by 2030

1,40,803 15 lakh+
DPIIT recognised startups Expected addition to
(As on 30 June 2024)
Jobsthe
created sinceby
economy 2016
2030

Factors driving the Indian startup ecosystem

Robust support system of Surge in venture capital funding Startup20 engagement group
incubators and accelerators to accelerating the growth of institutionalised under India’s
mentor startups for networking existing startups and promoting G20 presidency is stimulating
opportunities overall ecosystem growth innovation among stakeholders

India's diverse market and Vast pool of tech talent, advancements

growing middle class create a in technology, increased internet and
favourable ground for startups smartphone penetration has created a
and innovative business models large, connected audience

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Exploring India's dynamic Start-up Ecosystem

Leading hubs Emerging hubs

Bengaluru Delhi NCR Ahmedabad Chennai Hyderabad

Mumbai Jaipur Kochi Pune

GDP growth Increasing foreign

contribution investment
• The startup ecosystem has contributed 10 • Venture capital (VC) funding in India has
per cent to 15 per cent to India's GDP grown steadily since 2015, with a steady
growth between FY16 and FY23 influx of foreign investment

Deeptech ecosystem
• Deeptech startups in India have increasingly attracted investor interest over
last five years

Dominant Technologies
USD850 Million 450+ new
deeptech Artificial intelligence IoT Big data
funding in deeptech
startups added in
startups in 2023
2023 Blockchain AR/VR

Diversification and innovation

• Beyond IT, sectors such as healthtech, edtech, cleantech and spacetech are attracting
significant investments, showcasing diversification in the Indian startup landscape

Cleantech Edtech
Early stage USD48.9 Estimated K-12
118 segment value in 2023
startups (2023) billion

Healthtech Spacetech
DPIIT recognised DPIIT recognised
10,221 startups (2023)
189 spacetech startups (2023)

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 Exploring India's dynamic Start-up Ecosystem

Source of funding and managing different

aspects of risks
Pooling of Foreign External Commercial Angel Grants and
funds investments Borrowing investors subsidies

Liquidity Information and Regulatory and Startup- Tax-related

risks operational risks political risks specific risks risks

Exit strategies maximising returns from

investments
IPOs and Secondary Alternative
Management buyouts
M&As transactions Investment Fund (AIF)

Snapshot of M&A and IPO Activities

M&A deals by startups

76 Number of IPOs in FY24 123 in 2023

USD7.4 Cumulative M&A deals

Funding raised in FY24 1,286 by startups (2015-23)
billion

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Exploring India's dynamic Start-up Ecosystem

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 Exploring India's dynamic Start-up Ecosystem

Table of contents
1. The rise of India’s startup ecosystem
8
2. Emerging sectors in the startup ecosystem
18
32
3. Investing in India: Understanding sector-specific
regulations and investment routes

42
4. Assessing market potential in India's diverse
consumer landscape

46
5. Managing risks and harnessing growth potential for
foreign investors

50
6. Exit strategies: Maximising returns from investments
in Indian startups

54
7. Staying ahead: Future prospects in India's startup
ecosystem

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Exploring India's dynamic Start-up Ecosystem

01
The rise of India’s
startup ecosystem
8
 Exploring India's dynamic Start-up Ecosystem

India’s startup ecosystem has grown significantly over the past decade due to a vast consumer market,
supportive government policies, a surge in venture capital (VC) funding, talent availability and the
younger generation's entrepreneurial spirit. A strong network of incubators and accelerators further
supports startups growth. In FY23, startups contributed about USD140 billion to the economy, which is
projected to reach USD1 trillion by 2030. From FY16 to FY23, they contributed 10 to 15 per cent to
India's GDP growth1.

Number of startups recognised by DPIIT in the last three years3

• As of June 2024, the Department for

34,779 Promotion of Industry and Internal
Trade (DPIIT) has recognised 1,40,803
26,542 startups, leading to the creation of
over 15.5 lakh direct jobs2
20,046
• DPIIT has also recognised startups
from 56 different diversified sectors3
— As of October 03, 2023, IT
services has the highest number
of startups, with a share of 13 per
cent, followed by healthcare and
Calendar year(CY) CY22 CY23 life sciences with 9 per cent and
21
education with 7 per cent

Growing significance of tier II and largely due to prestigious educational institutions,

III cities a rich talent pool, strategic locations and
supportive government initiatives.
The increasing significance of tier II and III cities
as startup hubs in India is a noteworthy trend, The startup growth rate in tier II cities has seen a
backed by the need to solve local problems, 15 per cent upsurge6. Further, the FY24 economic
diverse funding options, improved infrastructure, survey revealed that over 45 per cent of new
robust digital payments systems and digital-first startups are now arising from these tier II and tier
business models, all of which have attracted III cities7. The main drivers of startup growth in
investors. these cities include lower operational costs,
access to untapped markets, evolving consumer
While Bengaluru, Delhi and Mumbai have been preferences and a less saturated competitive
the traditional unicorn hubs, securing over USD8.1 landscape. Funding within tier II and III cities has
billion in funding in CY23, other cities including also surged, reflecting investor confidence in these
Pune, Chennai and Hyderabad are carving out emerging hubs.
their own space in the startup ecosystem 4. This is

The Indian startup ecosystem with a value of USD349+ Billion ranks third
globally in unicorn count. (as of May 2024)5

1. Unicorn 2.0: Adding the next billion, CII, 14 March 2024

2. Government initiatives to promote startups across the country, PIB, 29 July 5. Unicorns in India: List of startup companies with unicorn status in 2024,
2024 Forbes, 22 August 2024
3. Startup industry report, EMIS, April 2024 6. Beyond metro hubs: India's new startup frontiers, Forbes India, 25 July 2024
4. Leading cities for start-up funding in India in 2023 by value, Statista, 15 7. Economic survey 2023-24, Government of India, accessed on 04 October
January 2024 2024

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Exploring India's dynamic Start-up Ecosystem

Funding in top 10 startup hubs, 2023 (USD million)8

Bengaluru 4,154
Delhi NCR 2,693
Mumbai 1,457
Pune 211
Chennai 211
Hyderabad 129
Ahmedabad 46
Jaipur 8
Kolkata 8
Surat 7

Despite Delhi, Gujarat, Maharashtra and Karnataka accounting for half of India's startups, significant
growth in frontier industries, including green technology, renewable energy and IT services has been
observed in Bihar, Assam and other states from 2021 to 2023.

Bihar's startups boom

• From 2022 to 2023, Bihar's startup sector expanded
by 54.6 per cent, fueled by young entrepreneurs and
the Bihar Startup Policy, which funded 324 startups9
• As a leading maize producer, Bihar's focus on
ethanol production and electric vehicles, along
with its 2024 climate strategy, spurred the growth of
Green Tech startups, making it the state's quickest
growing sector from 2021-2023
Surge in northeastern construction startups
• The northeastern region has seen considerable
growth in construction startups since 2020,
averaging 102.6 per cent9 year on year, driven by a
focus on enhancing logistics infrastructure for
better connectivity
• The region’s strategic location adjacent to numerous
Asian countries offers significant trade potential. The
North East Venture Fund (NEVF), which has
supported 37 startups since 2017, further bolsters
this growth9

The Government of India (GoI) has been crucial in supporting businesses in these lower-tier cities and
rural areas by offering incentives such as lower land rates, subsidised offices and tax rebates. This
coupled with setting up innovation hubs, startup incubators, streamlined business procedures and
improved transport links, creates a vibrant ecosystem for business initiation.

8. Leading cities for start-up funding in India in 2023 by value, Statista, 15 9. Beyond metro hubs: India's new startup frontiers, Forbes India, 25 July 2024
January 2024

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 Exploring India's dynamic Start-up Ecosystem

• Asia Competitiveness Institute highlighted that startup-friendly policies in Madhya Pradesh

(MP) resulted in a 41 per cent startup growth in 2022-2023. Key incentives, such as stamp
duty concessions and government-owned venture capital funds transformed Indore, Bhopal
and Jabalpur into startup hubs under the Startup MP initiative10
• Rentals and utilities in tier II cities are about half the price compared to tier I cities. The
availability of specialised skill sets also adds to
these cities' advantages:
Lucknow and Mangalore were among
India’s top three cities for
employable skills specialised in
niche areas, while Coimbatore
became a prominent hub for
engineering services.

Furthermore, startups are playing a key role in bridging the rural-urban divide by offering solutions
tailored to rural needs. This includes digital tools for agriculture, healthcare services, microfinance
for the unbanked and growth in rural tourism and ed-tech. This is fostering rural development and
addressing economic disparities.

• As of 09 February 2024, 1,554 agritech start-ups, including 387

women-led start-ups, are working in the agriculture and allied sector11
• The Innovation and Agri-Entrepreneurship Development programme
offers up to ~USD6,000 for idea/pre-seed stage and ~USD30,000 for
seed stage to agriculture-related startups12

Exploring the funding landscape of Indian startups

The Indian startup landscape is dominated by technology startups, with ecommerce startups leading
the funding race in 2023, maintaining their top position from the previous year with over 192 funding
deals. The enterprisetech and fintech sectors followed with 157 and 129 deals respectively13.
Moreover, consumer service startups are also gaining momentum, offering innovative solutions that
are revolutionising people’s daily life activities.

10. Beyond metro hubs: India's new startup frontiers, Forbes India, 25 July 12. Government initiatives to promote startups across the country, PIB, 29 July
2024 2024
11. Promotion of startups in agriculture sector, PiB, 9 February 2024 13. Leading startup sector in India from 2021 to 2023, by number of funding
deals, Statista, 29 December 2024

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Exploring India's dynamic Start-up Ecosystem

The startup sector in India that tops in the number of funding deals 14

2021 2022 2023

300

292

290
288

262
248
192

172
157

129

125

28
119

106

36
32

33
95

25
87
81

68
61

60
58

57

57

54

54
52
52

48
47

44

45
39
VC funding, being instrumental in the growth further demonstrating the robust growth of the
story of Indian startups in India, witnessed a 43 Indian startup ecosystem.
per cent year-on-year increase from January to
July 2024, representing 7 per cent of the total 1.1 The surge of foreign interest
count of globally announced VC funding during in Indian companies
that time15.
India has emerged as the third-largest global
The Indian startup ecosystem is rapidly startup hub18 and is maintaining this upward trend
expanding across various sectors such as fintech, through the growth of startups. Foreign investors
automotive and healthtech, indicating a significantly contribute to growth and innovation in
broadening scope for investment opportunities. the sectors. For instance, foreign investments
By 2029 the Indian electric vehicle (EV) market is contribute a significant amount of the total
expected to be worth about USD113 billion. This deeptech startup funding19. Their investments fuel
will require the creation of at least 1.3 million rapid startup growth and bring valuable expertise,
charging stations in India to support the fast- best practices and global market access. This
paced growth of EVs. This situation presents a partnership could enhance competitiveness and
vast opportunity for startups to delve into the ensure Indian startups thrive globally.
sector16.
India attracts foreign investments from many
The fintech sector, with more than 6,386 startups countries including, the U.S., Singapore, the EU,
over the past decade, has an adoption rate of 87 Mauritius and others, due to the huge domestic
per cent, surpassing the global average of 67 per market, infrastructural development, digitalisation
cent17. These startups cater to diverse financial and strong economic growth. This trend is seen in
needs, including those in tier II and tier III cities fintech, ecommerce, stockbroking, healthcare and
and rural areas. edtech sectors. Between FY23 and FY24,
Healthtech startups offering services such as Singapore, the U.S., Mauritius, the Netherlands
telemedicine, robotic surgeries and artificial and Japan contributed 70-75 per cent of foreign
intelligence (AI) based disease detection have direct investment (FDI) equity inflows due to
also seen a surge in total investments, relaxed FDI rules20.

14. Leading startup sector in India from 2021 to 2023, by number of funding 17. Fintech sector-catalyst to growth, NPCI, 18 July 2024
deals, Statista, 29 December 2024 18. How India became the world's third largest startup hub in 15 years, Forbes
15. VC funding for Indian startups up 42% to US$ 6.3 billion in January-July: India, 23 May 2024
GlobalData, IBEF, 29 August 2024 19. National Deeptech startup policy 2023, Principal Scientific Adviser, 01 July
16. Electric Vehicle, IBEF as accessed on 30 October 2024 2023
20. FDI statistics, DPIIT, accessed on 26 July 2024

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 Exploring India's dynamic Start-up Ecosystem

In FY24, India received the highest FDI equity VC firms, corporate investors and government
inflow from Singapore (USD11.8 billion), followed officials from both countries to foster connections
by Mauritius (USD8.0 billion), the U.S. (USD5.0 between their innovation ecosystems. The
billion), the Netherlands (USD4.9 billion), Japan programme includes anchor events scheduled for
(USD3.2 billion) and the UK (USD1.2 billion)21. the fall, featuring investment forums and
This rise in FDI inflow is due to India's appealing hackathons in both India and the U.S.
economic growth and vibrant startup ecosystem.
Additionally, Indian universities and American
universities are expected to advance
1.2 Collaborative initiatives to collaborative research in fields such as
boost the Indian startup sustainable energy, agriculture, health and
advanced technologies. Both countries have also
ecosystem pledged to promote policies facilitating technology
India and several countries have launched sharing and co-development between Indian and
several collaborative initiatives aimed at boosting U.S. entities. These collaborative efforts aim to
the Indian startup ecosystem. One notable drive technological advancements, create a
programme is the ‘Innovation Handshake’ thriving startup ecosystem in India and strengthen
agenda, part of the India- U.S. Commercial bilateral ties between the two nations.
Dialogue. This initiative brings together startups,

November 2023
• The U.S. and India signed a memorandum of understanding (MoU) on augmenting
innovation ecosystems via an Innovation Handshake to connect the startup
ecosystems of both sides, tackle regulatory obstacles and share fundraising
information
— It also aims to strategise job growth and stimulate innovation, especially in
critical and emerging technologies (CET) as outlined in the India-U.S. iCET
initiative22

June 2023
• The U.S. and Indian defence departments launched INDUS-X, an innovative bridge
for defence technology, to boost defence tech collaboration among companies,
investors and universities
— Under INDUS – X, in September 2024, the U.S. and India announced seed
funding of USD1.2 million to ten firms, planned further joint challenges and
started the INDUSWERX testing consortium
• The U.S. Department of Defence’s Space Force signed an International
Cooperative Research and Development Agreement (ICRDA) with two Indian
startups
— These startups collaborated to co-develop components by utilising advanced
artificial intelligence (AI) and semiconductor technologies23

Moreover, the removal of the angel tax and proposed reduction of tax rates for foreign companies are
notable reforms, which are seen as beneficial for startups and are expected to encourage more foreign
direct investment. These efforts contribute to India's growing reputation as a hub for technological
advancement and economic growth.

21. FDI statistics, DPIIT, accessed on 26 July 2024 23. Fact Sheet: India-U.S. Defense Acceleration Ecosystem (INDUS-X), US
22. Secretary Raimondo and Minister Goyal Lead “Innovation Handshake” Department of Defense, 21 February 2024
Event to Deepen U.S.-India Tech Ties, US Department of Commerce, 14
November 2023

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Exploring India's dynamic Start-up Ecosystem

1.3 Exploring the potential of the growing consumer market in India:

Opportunities and challenges for global entrepreneurs
Global entrepreneurs have enormous USD3.9 trillion as of 1 July 2024, making it the
opportunities in the Indian startup ecosystem, world's 5th largest economy, with significant
however, while aiming to tap into India's contributions from the service sector24. Projected
burgeoning landscape must navigate certain growth positions India to become the 3rd largest
challenges, including diverse consumer economy by 202725, potentially surpassing the
behaviours and regulatory requirements. U.S. to be the 2nd largest by 207526, behind
Understanding these local nuances is crucial for only China.
harnessing the vast potential of this rapidly
The Indian consumer market, with its vast and
growing economy.
expanding middle class of over 1.4 billion
Despite these challenges, India's transformation people28, presents a significant opportunity for
into an emerging global force is remarkable. global entrepreneurs. Consumer spending is
Further due to strategic reforms, robust domestic expected to reach about USD6 trillion, making
consumption and favourable demographics, India the world's third-largest consumer market
India's gross domestic product (GDP) reached by 203029.

Real GDP (% change)27

2021 2022 2023 2024 2025E 2026E

China Germany India Japan US

24. The top 10 largest economies in the world in 2024, Forbes India, 17 July 27. EIU data, accessed on 09 September 2024
2024 28. Population, total – India, World Bank Group, accessed on 23 October 2024
25. India to become the third largest economy by 2027, PIB, 19 October 2023 29. India poised to become third-largest consumer market: WEF, IBEF as
26. How India could rise to the world’s second-biggest economy, Goldman accessed on 30 October 2024
Sachs, 06 July 2023

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 Exploring India's dynamic Start-up Ecosystem

Further, Ecommerce is a major driver for India requires an understanding of the country's
increased consumer spending, with the market unique cultural nuances. Trust and relationships
expected to touch USD325 billion by 203030. hold paramount importance in India's structured
Increased smartphone adoption and digital business landscape. Building these connections
commerce are propelling this growth, offering takes time but pays dividends in the long run.
businesses new avenues to engage consumers. While Indian consumers may be price-sensitive,
they are increasingly investing in quality and
The burgeoning middle-class fuels demand for
convenience. This shift presents opportunities for
diverse consumer products, from medical devices
businesses with new business models catering to
and cosmetics to food, beverages, electronics
this change. From e-commerce platforms offering
and automobiles. This demographic shift creates
doorstep delivery to fintech solutions simplifying
a compelling case for global entrepreneurs to
financial transactions, innovation is thriving. The
invest in and cater to India's dynamic market. By
Indian market, with its large consumer base,
navigating these challenges and leveraging the
scalability, supportive policies, local supplier
opportunities presented by India's economic
networks and technology-friendly youth, presents
trajectory and digital transformation, global
promising opportunities for global entrepreneurs.
entrepreneurs can tap into a market brimming
with potential. Stimulants for manufacturing innovation in
Indian consumer behaviour showcases a growing Indian startups
appetite for innovative products and digital
solutions. Preferences are increasingly influenced Supportive government initiatives
by value for money, convenience and social including the PLI scheme and
media trends, making the market ripe for Make in India
disruptive startups. Thus, high-growth sectors
such as information technology (IT), retail and
DPIIT’s dedicated corridors for
manufacturing hold significant potential.
incubators and startups in B2B
Furthermore, the exponential growth of India's manufacturing
manufacturing sector, driven by a skilled
workforce and government initiatives has
significantly attracted foreign investment, boosted Startup20 engagement group
exports and improved living standards. The established under India’s G20
dynamic startup ecosystem further strengthens presidency
this sector, enhancing India's self-reliance and
global competitiveness.
Adopting advanced technology
Subsequently, numerous startups that previously
to enhance efficiency, cut costs
adopted the flip strategy (incorporating overseas)
and create innovative products
due to favourable tax and regulatory regimes and
easy access to global investors are relocating or
reverse-flipping to India (in sectors such as
fintech, e-commerce, healthcare and edtech) due Strong R&D infrastructure
to the country’s streamlined compliance rules, tax facilitates the growth of startups
benefits, expanding local market and stock
market listing opportunity.
Initiatives such as the Design Linked Incentive Synergy between established
(DLI) scheme have sparked interest among companies and startups
international companies to set up manufacturing
units in India. This trend transcends mere cost-
efficiency; it represents an opportunity to leverage Strong collaborations between
India's expansive talent pool and burgeoning industry and academic
consumer market. institutions are fostering
innovation
As entrepreneurs navigate the business
*The above list is non-exhaustive
landscape in India, they realise that success in

30. E-commerce Industry in India, IBEF, as accessed on 30 October 2024

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Exploring India's dynamic Start-up Ecosystem

Moreover, GoI is undertaking numerous initiatives to boost startup growth and job creation, some of
these initiatives are detailed below:

Schemes/Initiatives Benefits

ASPIRE (A Scheme for • Promotes entrepreneurship and innovation in rural and agriculture-based
Promotion of Innovation, industries by establishing technology and incubation centres
Rural Industries and
Entrepreneurship)

Atal Innovation Mission • Fosters a culture of innovation and entrepreneurship by creating

(AIM) innovation hubs, providing mentorship and supporting startups through
incubation centres
• Created 10,000 Atal Tinkering Labs, 72 Atal incubation centres and
supported 3,500+ startups31

Credit Guarantee • Aimed at offering credit guarantee up to a pre-determined threshold for

Scheme for Startups loans provided by Member Institutions (MIs) to qualified borrowers
(CGSS)

Fund of Funds for • GoI has set up a Fund of Funds for Startups (FFS) with a USD1.2 billion
Startups (FFS) Scheme corpus to cater to the financial requirements of startups32

International market • To link the Indian startup ecosystem with its global counterparts through
access to Indian startups international governmental partnerships, participation in global forums and
hosting international events
• Startup India has established ties with about 20 countries, offering a
supportive platform for startups from these nations and fostering cross-
collaboration

Initiatives under • Launched Technology Incubation and Development of Entrepreneurs

the Ministry of (TIDE) 2.0 Scheme and GENESIS (Gen-Next Support for Innovative
Startups) to strengthen overall tech startup infrastructure
Electronics and
Information Technology • TIDE 2.0: 1,235 startups have been supported (As of 29 July 2024)
(MeitY)33 • GENESIS: MeitY approved this scheme with USD58.3 million outlay for
five years, starting from July 2022, to accelerate the fast-rising tech
startup ecosystem

Prime Minister’s • Aiding entrepreneurs in establishing new ventures within the non-farm
Employment Generation sector
Programme (PMEGP) • Aims to establish 0.2 million new enterprises with the potential to generate
through the Ministry of 1.3 million jobs during FY25 to FY26
MSME33

Production Linked • Benefitted 176 MSMEs with ~0.7 million employment generation (as of
November 2023)
Incentive (PLI)
Scheme34

31. Overview, AIM, as accessed on 23 October 2024 33. Government initiatives to promote startups across the country, PIB, 29 July
32. The Fund of Funds Scheme (FFS) for startups commits Rs. 7,980 2024
crores, PIB, 03 February 2023 34. Production Linked Incentive Schemes witness over Rs. 1.03 lakh crore of
investment till Nov 2023, PIB, 17 January 2024

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 Exploring India's dynamic Start-up Ecosystem

Schemes/Initiatives Benefits

Startup India Action • Comprises 19 action items spanning various areas, such as simplification,
Plan35 support, funding and incentives to cultivate a vibrant startup ecosystem

Startup India Seed Fund • USD112.5 million sanctioned under the scheme from FY22 to FY26 for
Scheme (SISFS)35 easy capital availability for early-stage entrepreneurs

Support for International • Encourages innovation by providing financial support for international
Patent Protection in patent filing to MSMEs and technology startups
Electronics and
Information Technology
(SIP-EIT)

The Startup India • To provide the platform for early-stage startups across the country to
Investor Connect present themselves to notable investors and VC funds
Portal35

*The information in the above table has been arranged in an alphabetical order

35. Government initiatives to promote startups across the country, PIB, 29 July 2024

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Exploring India's dynamic Start-up Ecosystem

02
Emerging sectors
in the startup
ecosystem
18
 Exploring India's dynamic Start-up Ecosystem

The Indian startup landscape is currently making 2.1 Cleantech

a substantial impact1 wherein tech startups are
emerging as a pivotal investment opportunity, India's cleantech sector is poised for significant
propelled by a burgeoning digital economy, a growth driven by government initiatives and
rising middle class and robust government investment opportunities. GoI aims to achieve
support. Despite the stiff competition, high 500 GW of renewable energy capacity by 20302
customer acquisition costs and modest loyalty and has increased renewable energy subsidies to
levels, these startups continue to allure promising USD1.8 billion for FY23, marking an 8 per cent
investment opportunities. Their swift innovation, rise from the previous year3. India plans to issue
customised to local needs, is garnering attention sovereign green bonds to finance these initiatives
from both domestic and international investors. and aims to produce 5 million metric tons of
green hydrogen annually through the National
In recent times, startups are seen relocating or Hydrogen Mission by 20304. The cleantech
reverse-flipping to India, particularly in sectors market, including renewables, electric vehicles
including fintech, healthtech and edtech. The and green hydrogen, is expected to unlock over
conducive business environment in India is USD500 billion in investment opportunities by
encouraging these investors to explore and tap 20305. The rapid urbanisation and increasing
into the potential of the Indian market, thereby energy needs of India, along with international
contributing to its growth and development. The support for clean energy, are leading to the
following select sectors outline major trends in growth of the cleantech market.
India's emerging sectors/industries:

Key facts Innovative solutions/Impactful use cases*

118 USD502 Biomethanation Machine High-voltage

Number of million technology for learning for powertrains
early-stage Early-stage organic waste predictive technology for
startups funding management maintenance of commercial
(2023)6 (2023)6 wind turbines electric
and efficient vehicle
Fastest growing sub segments waste
segregation
Renewable Energy
energy efficiency
Lithium Titanate Oxide
Water and (LTO) and Lithium Iron Rooftop solar
Green Phosphate (LFP) cell energy
waste
transportation technologies
management

Growth drivers
Government regulations Large scale National Green
and incentives fostering foreign Hydrogen Mission
cleantech resources growth investments (NGHM)

*The above list is non-exhaustive

1. The Indian tech start-up landscape report 2023, Nasscom-Zinnov, accessed 4. National Green Hydrogen Mission, Department of New & Renewable Energy
on 27 September 2024 Government of Haryana, accessed on 04 October 2024
2. Government declares plan to add 50 GW of renewable energy capacity 5. India offers $500 bn investment opportunities in clean energy and other
annually for next 5 years to achieve the target of 500 GW by 2030, PIB, 05 sectors by 2030, IBEF, 07 June 2024
April 2023 6. Energy start-up data explorer, IEA, 16 July 2024
3. Mapping India's Energy Policy 2023, The International Institute for
Sustainable Development, Accessed on 04 October 2024

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Exploring India's dynamic Start-up Ecosystem

Share of startups in key sub-sectors

• In 2023, across clean energy technology startups in India, electric mobility accounted for 30 per
cent of startups, followed by solar (25.4 per cent), other renewables (21.2 per cent), energy
efficiency (17.5 per cent), other energy (3.7 per cent) and energy storage and batteries (2.1 per
cent), representing an advantage of investing in India7
Government support: A boost for development
• Renewable energy research and technology development programme provides up to 100 per cent
financial support to government / non-profit research organisations and up to 70 per cent to
industry, startups, private institutes, entrepreneurs and manufacturing units 8
• National Green Hydrogen Mission (NGHM) with a preliminary budget of USD2.4 billion9
• Incubation support to startups and companies through the Bioincubators Nurturing
Entrepreneurship for Scaling Technologies (BioNEST) scheme among others.

India's cleantech industry, propelled by its commitment to renewable energy objectives and
sustainability, presents significant growth opportunities. The robust growth potential and a vast energy
market transitioning towards greener sources enhance India's appeal as an attractive investment
destination.
Leveraging growth potentials in cleantech

Early-stage investments
• India's cleantech sector, still in its early stages, offers investors a chance to enter at
lower valuations and gain high returns as it expands.
— It is predominantly supported by rising energy demand, the push for energy
security, government support for sustainable solutions and the focus on
delivering solutions particularly for rural areas

Diversification
• U.S. investors can diversify their portfolios geographically and across various sub-
sectors by investing in Indian cleantech startups.

2.2 Deeptech
Deeptech focusing on AI, robotics, biotech and quantum computing in transforming India’s startup
ecosystem. Startups involved in this space make up about 12 per cent of India's startup landscape, with
over 3,600 companies10. In 2023, they secured around USD850 million in funding10, showing strong
investor interest despite economic challenges. Government initiatives, such as the National Deep Tech
Startup policy, support this growth, alongside venture capital funding.
India, with its strong Science, Technology, Engineering and Mathematics (STEM) foundation, with 34 per
cent of all graduates opting for STEM11, is well-positioned to lead deeptech innovation. The generative AI
market alone could generate economic benefits between USD2.6 trillion and USD4.4 trillion annually12.

7. Energy start-up data explorer, IEA, 16 July 2024 10. Indian deeptech startup landscape report 2023, Nasscom-Zinnov,
8. Renewable Energy Research and Technology Development Programme June 2024
being implemented to develop widespread applications of New & Renewable 11. Where Students Choose STEM Degrees, Statista, 16 March 2023
Energy, PIB, 12 December 2023 12. Harnessing the Power of Generative AI – Opportunities for Technology
9. National Green Hydrogen Mission (NGHM), PIB, 24 July 2024 Services, NASSCOM, accessed on 04 October 2024

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 Exploring India's dynamic Start-up Ecosystem

Indian deeptech startup ecosystem 202313

950+ 100+ USD850 USD40

450+
New tech Inventive* million+ million+
New deeptech
startups deeptech Deeptech Inventive*
startups
added startups startup deeptech
added
funding funding

*Startups in this category use foundational research and science to innovate, create intellectual property
and introduce new industry processes in fields, such as computing, engineering and manufacturing

Over 2,600 deeptech startups exist in established hubs, with 250+ new deeptech startups incepted
in 202313.
Established hubs13

Bengaluru Hyderabad
950+ 100+ startups 280+ 20+ startups
Startups added in 2023 Startups added in 2023

Delhi NCR Chennai

650+ 80+ startups 200+ 20+ startups
Startups added in 2023 Startups added in 2023

Mumbai Pune
370+ 30+ startups 180+ 10+ startups
Startups added in 2023 Startups added in 2023

Rising hubs13,

Ahmedabad Trivandrum • In 2023, the inception of new deeptech

75+ startups 30+ startups startups in rising hubs doubled to over 110,
marking the highest growth in five years13

Jaipur Kochi • Factors accelerating innovation include:

o Expanding talent pool
50+ startups 25+ startups
o Cost advantages over tier I cities
o Supportive incubators and accelerators
Kolkata o Government initiatives such as Accelerate
35+ startups Bharat and K-Accelerator among others

13. Indian deeptech startup landscape report 2023, Nasscom-Zinnov, June 2024

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Exploring India's dynamic Start-up Ecosystem

Cumulative funding in deeptech start-ups (2019-2023)14

9.6
9.1

5.5

2.8
1.3
279 505 820 1,170 1,463

2019 2020 2021 2022 2023

Number of deals Funding amount (USD billion)

Per cent distribution of deeptech startups, by technology (2023) 15

AI 74

Big data and analytics 23

Blockchain 10

IoT 5

AR/VR 4

Others (3D printing, drones and robotics) 2

14. The Indian tech start-up landscape report 2023, Nasscom-Zinnov, 2023 15. Indian deeptech startup landscape report 2023, Nasscom-Zinnov, June 2024

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 Exploring India's dynamic Start-up Ecosystem

Innovative solutions and impactful use cases*

Agritech Cleantech
• AI-enabled disease and pest • Air quality monitoring
detection • Water waste management solutions
• Farm input E-Commerce • AI-powered smart building solutions
• Drone-based smart farming • Energy consumption solutions
• Food quality monitoring • Climate monitoring solutions
• IoT based agri supply chain • Recycling solutions
management
• Farm bots

Enterprisetech Fintech
• Video analytics • AI-enabled infrastructure for
• Deepfake detection banking products
• Customer experience • Lending platforms
management • Credit assessment and
• Drone services management
• Edge data processing • Verification and KYC
• Crypto exchange solutions
• Investment advisory

Healthtech Supply chain management

• AI/ML disease diagnostics
(SCM) and logistics
• Bionic prosthetics using robotics • Warehouse automation robots
• VR based medical equipment • Last mile logistics
• Remote patient monitoring • IoT-enabled transportation
• Predictive health risk analysis marketplace
• Demand forecasting

*The above list is non-exhaustive

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Exploring India's dynamic Start-up Ecosystem

2.3 Edtech creating educational content is set to revolutionise

learning by making it more interactive and
India's edtech sector is rapidly growing due to personalised.
increasing demand for online learning solutions,
particularly in K-12 education, skill development Furthermore, the hybrid model of education,
and test preparation. The country has 580+ million combining online and offline learning, is gaining
people between 5 to 24 years of age, presenting a traction, particularly in tier II and tier III cities
huge opportunity in the sector17. Government where access to quality education remains a
policies, such as the National Education Policy challenge. This shift not only enhances inclusivity
2020, support this growth by promoting digital but also opens new avenues for investment as
education and enhancing accessibility. As digital startups can focus on regional language content
literacy and internet penetration increase in India, and affordable course offerings. With these trends
edtech companies are using advanced indicating robust growth potential, India's edtech
technologies such as AI and machine learning to sector is set to play a crucial role in shaping the
personalise the learning experiences and enhance future of education in the country.
student engagement. The use of generative AI in
Leveraging growth potential in edtech

Key facts Innovative solutions/Impactful use cases*

51 per cent USD48.9

startups billion Usage of Advanced XR
established Estimated K-12 generative AI technologies
Personalised
(from CY19 segment value models to and virtual
learning and
to CY23)16 in 202317 augment labs for
course design
content interactive
Fastest growing sub segments creation learnings

Skill Test
development preparation
Assessing
Gamified Teaching
Online learning
K12 education learning assistance
certification patterns

Growth drivers

Changing educational Increasing internet

Technological
approaches and demand and smartphone
advancements
for quality education penetration

*The above list is non-exhaustive

16. The Indian tech start-up landscape report 2023, Nasscom-Zinnov, 2023 17. Education & Training Industry in India, IBEF, as accessed on 29 October 2024

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 Exploring India's dynamic Start-up Ecosystem

Growing market value

• The market value of the sector is projected to reach USD30 billion by 203118

Lower operational costs

• Operating costs in India are generally lower compared to the U.S., including labour,
office space and technology infrastructure
• This cost advantage allows Indian edtech startups to maintain profitability and
reinvest in growth and innovation

Addressing affordability and upskilling demand

• Edtech platforms are offering cost-effective solutions and catering to the needs of
upskilling professionals and job seekers

Government initiatives and policy relaxations

• GoI’s efforts to promote edtech, including relaxing the FDI policy to allow 100 per
cent foreign investment under the automatic route for education technology and
institutions18

18. Education & Training Industry in India, IBEF, as accessed on 29 October 2024

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Exploring India's dynamic Start-up Ecosystem

2.4 Healthtech These innovations are improving patient outcomes

and streamlining healthcare operations. The focus
The healthtech sector in India is witnessing on patient-centric care and preventive health
remarkable growth, driven by a confluence of measures, along with government initiatives
technological advancements and increasing including Health IDs and electronic medical
consumer demand for accessible healthcare records, are facilitating the integration of digital
solutions. The sector's growth is also fueled by the technologies in healthcare. As these startups
increasing prevalence of chronic diseases, an continue to innovate, they are set to fill critical
expanding digital population and government gaps in India's healthcare landscape, improving
efforts towards the digitalisation of healthcare. patient outcomes and operational efficiencies.
Healthtech startups are introducing innovations
such as telehealth services, remote patient
monitoring and AI-based personalised healthcare,
which present a profitable investment opportunity.

Key facts Innovative solutions/Impactful use cases*

10,221 USD60 billion

Number of Healthcare
DPIIT innovation Artificial Point-of-care
recognised opportunity by Home
intelligence testing
healthtech FY2820 healthcare
(AI)-driven systems
startups solutions
diagnostics
(2023)19

Fastest growing sub segments

Healthcare
platform and Pharmaceutic
wellness al services
analytics
Tele-ICU Bionic
Tele-radiology
services health-Care

MedTech and Telemedicine

biotech platforms

Growth drivers
PE investments in Indian Technological
hospitals to improve the Greater health
investments in
bottom line and increased insurance
medtech and
investor focus on positive penetration
biotech
unit economics in healthtech

*The above list is non-exhaustive

19. The rise of healthcare startups: Bridging the gap in Indian healthcare, IBEF, 20. Innovation-led Indian healthcare market, Fortune India, 06 March 2024
19 March 2024

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 Exploring India's dynamic Start-up Ecosystem

Leveraging growth potential in healthtech

Ayushman Bharat Digital Mission21

• 49 per cent of the 34.7 crore Ayushman Bharat beneficiaries are women
• 10,000 Jan Aushadhi Kendras inaugurated
• 64.9 crore Ayushman Bharat Health Accounts created under Ayushman Bharat
Digital Mission
• Cumulative footfall of 20.66 crore in 25.25 lakh health melas (as of 31 March 2024)

National Digital Health Mission (NDHM)

• The National Digital Health Mission (NDHM) unveils a wealth of opportunities for
foreign startups. The objective of NDHM is to standardise health data that could
deliver significant insights to startups, aiding them in the development or
enhancement of their offerings.
• The initiative's emphasis on interoperability could pave the way for foreign startups
to collaborate and integrate with local health systems or other healthtech
companies.

Comprehensive investments in the Indian healthcare sector22

• The Indian government intends to launch a USD6.8 billion credit incentive scheme
aimed at enhancing the nation's healthcare infrastructure
• In 2024, the Indian medical tourism market was valued at USD7.7 billion in 2024
and is estimated to reach USD14.3 billion by 2029

21. Health sector vital for resilient economy, PIB, 22 July 2024 22. Healthcare Industry in India, IBEF, accessed on 29 October 2024

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Exploring India's dynamic Start-up Ecosystem

2.5 Spacetech use of AI and machine learning for complex

missions. Startups are leveraging these trends to
The Indian space technology sector is valued at introduce affordable and efficient space
USD8.4 billion, accounting for 2 per cent of the technologies. The segments propelling the growth
global space economy. The sector is rapidly are satellite manufacturing, launch services and
growing and is expected to capture a larger share space-based applications such as earth
of the global market, projected to reach USD44 observation and communication.
billion by 203323, driven by technological
advancements, government support and rising There exists immense potential for investors in the
demand for space solutions. Growth drivers sector, with opportunities to develop new satellite
include expanding satellite communication, technologies, improve launch capabilities and
increased space data applications and policies expand space-based services. As startups
such as the Indian National Space Promotion and continue to innovate, they are likely to play a
Authorization Center (IN-SPACe), which promotes crucial role in advancing global space
private sector participation. These factors have infrastructure, making India a significant player in
created fertile ground for innovation and the global space economy. The future looks bright
investment. for Indian spacetech, promising substantial returns
for forward-thinking investors.
Key trends include the development of small
satellites, cost-effective launch solutions and the

Key facts Innovative solutions/Impactful use cases*

189 USD124.7
DPIIT AI and
million Machine
recognised Investment in
space learning to
Indian space analyse
technology Satellite data
Startups Small satellite
startups satellite data supports
(2023)23 development
(2023)23 for navigation
applications
across
Fastest growing sub segments sectors

Climate Disaster
monitoring management
Advanced propulsion
systems for satellites, Multisensory imaging
enhancing their satellites
Urban maneuverability and
Agriculture lifespan
planning

Growth drivers
Increased space data Expanding satellite Favourable
applications communication government policies

*The above list is non-exhaustive

23. Indian Space Economy expected to grow from around $8.4 billion to $44 billion Indian by 2033, PIB, 20 December 2023

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 Exploring India's dynamic Start-up Ecosystem

Leveraging growth potentials in spacetech

Assistance to private companies

• Indian Space Research Organisations (ISRO) assist private companies in
expanding their launch capabilities, coupled with the rise in startups developing
advanced analytics in the sensing sector, which are key factors in stimulating
stakeholder interest in the ecosystem

Government support
• India's standing as a significant player in the global space race can be enhanced
through increased involvement of private enterprises
• The government's proactive policies, such as the establishment of IN-SPACe and
the Make in India initiative, coupled with the innovative approaches of startups, are
contributing to India's firm footing in the global space race.

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Exploring India's dynamic Start-up Ecosystem

2.6 Co-investment opportunities programme, which allocated USD9.1 billion24 to

support the industry. With the Indian
India's diverse economic sectors offer abundant semiconductor market projected to reach USD109
co-investment opportunities for foreign investors, billion by 203025, foreign investors can partner with
from the rapidly emerging semiconductor Indian startups focused on chip design and
manufacturing industry to the fintech, manufacturing to diversify their supply chains.
telemedicine, renewable energy and e-commerce Additionally, GOI launched the Programme for
logistics sectors. These collaborations, supported Development of Semiconductors and Display
by government initiatives and tailored to address Manufacturing Ecosystem, with a budget
unique market challenges, can drive innovation, allocation of about USD9.1 billion in December
mitigate supply chain risks and contribute to 2021.26
substantial growth.
Several startups specialising in Gallium Nitride
Opportunities in diversifying technology are positioned to play a crucial role in
semiconductor supply chains this ecosystem. Co-investing in these ventures
can help investors mitigate risks associated with
India is rapidly emerging as a global hub for supply chain disruptions while tapping into India's
semiconductor manufacturing, driven by skilled workforce and cost advantages.
government initiatives such as the Semicon India

The U.S. Department of State has collaborated with India's Semiconductor

Mission, a part of the Ministry of electronics and IT, to explore opportunities for
expanding and diversifying the global semiconductor ecosystem
The initial phase involves a thorough evaluation of India's current semiconductor
ecosystem and regulatory structure, along with the requirements for workforce
and infrastructure

Fintech sector to leverage digitalisation

The fintech landscape in India is experiencing unprecedented growth, with technology spending by
financial institutions projected to increase by 11.4 per cent in 202427. The rise of mobile payments, digital
lending and blockchain solutions presents a fertile ground for co-investment. Foreign firms with expertise
in fintech innovation can collaborate with Indian startups which simplifies bookkeeping for small
businesses, to enhance financial inclusion for the unbanked population. This partnership can leverage
advanced technologies and regulatory frameworks to create scalable solutions that cater to India’s
diverse market.

24. India's High-Tech Revolution: Driving Global Leadership in Advanced 26. Cabinet approves one more semiconductor unit under India Semiconductor
Technology & Manufacturing, PIB, 11 September 2024 Mission, PIB, 2 September 2024
25. Government of India taking steps to encourage domestic manufacturing, PIB, 27. India Financial Services Summit, IDC, 13 June 2024
31 July 2024

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 Exploring India's dynamic Start-up Ecosystem

Telemedicine and digital health sector E-commerce logistics, delivery

The Indian healthcare sector is on the brink of solutions and retail technology
transformation. Telemedicine and digital health With rising income and changing consumer
startups are at the forefront, addressing unique tastes and preferences, co-investments in
challenges in accessibility and affordability. startups specialising in e-commerce logistics,
Several startups in the ecosystem are delivery solutions and retail technology are
revolutionising healthcare delivery through instrumental in driving innovation and efficiency
integrated telehealth services, including remote in online shopping. They provide an opportunity
consultations and AI-driven diagnostics. Co- for investors to capitalise on the growing
investing with foreign healthcare technology firms demand for more streamlined and advanced
can help Indian startups scale their solutions, retail experiences.
improve healthcare access and address the
unique challenges faced by the Indian Networking and building relationships
healthcare system. Networking and building relationships are crucial
Renewable energy and green for investors as it provides access to valuable
information, potential investment opportunities and
technologies
strategic partnerships. Local networks play a vital
With India’s commitment to achieving net-zero role in navigating cultural nuances and
emissions by 2070, the renewable energy sector understanding market dynamics. Incubators and
is ripe for co-investment. The government has set accelerators offer access to mentorship, funding
ambitious targets, including generating 500 GW of and networking opportunities tailored to startups
non-fossil fuel energy by 203028. Indian startups in and early-stage companies.
this space are at the forefront of this transition,
Building long-term partnerships is essential for
focusing on solar and hybrid power solutions. Co-
substantial growth in India. Collaborating with local
investments in these startups can facilitate
businesses, universities and government
knowledge transfer and access to advanced
institutions can provide insights into emerging
technologies from foreign firms, driving innovation
trends and regulatory environments. Such
in renewable energy and energy efficiency.
partnerships can also facilitate knowledge
Collaborating in this sector not only addresses
transfer, talent acquisition and market
environmental challenges but also positions
expansion strategies.
investors to benefit from the growing demand for
sustainable energy solutions.

28. 500GW Non fossil Fuel Target, Ministry of Power, as accessed on 30 October 2024

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Exploring India's dynamic Start-up Ecosystem

03
Investing in India:
Understanding sector-
specific regulations
and investment routes
32
 Exploring India's dynamic Start-up Ecosystem

Investing in India's startup ecosystem requires an understanding of the dos and don'ts for
foreign investors. It is crucial to comprehend the local market, leverage local expertise and
adapt to changing conditions. Avoiding networking, underestimating risks and ignoring local
regulations can lead to failure. A balanced approach embracing the dos while steering clear of
the don'ts can significantly enhance the likelihood of investment success.

• Focus on understanding the local • Avoid overlooking local nuances that

market, seeking expertise and can significantly impact the success of
adapting to changing conditions an investment
• Familiarise with sectors open to • Underestimating the regulatory
foreign investment and restrictions complexities could result in significant
associated with those sectors legal repercussions and potential
damage to business reputation
• Conduct thorough due diligence on
market potential, team expertise and • Refrain from rushing into deals
financial projections without market research due diligence
• Build strong relationships with • Non-compliant to local laws and
founders through trust, mentorship and regulations could result in penalties
networking and inability to sustain in potential
market fluctuations.
• Stay informed about market trends
and technological advancements • Refrain from allocating all financial
resources into a single investment
• Leverage tax incentives while
managing risks

Investing in India involves understanding its legal Digital reforms and data privacy
and compliance environment. The GoI has
enacted various reforms, including liberalising the India's push towards digitalisation, exemplified by
FDI policy and establishing laws for investor rights initiatives such as the India Stack, has created
protection. Foreign investors, however, must new opportunities for investors. The Personal
consider crucial elements, such as the Income Data Protection Bill aims to regulate how personal
Tax Act 1961, Indian Patent Act 1970, data is processed and stored. Investors must stay
Environment Protection Act 1986 and Digital informed about these evolving regulations to
Personal Data Protection Act 2023 among others ensure compliance and protect their investments.
for legal and compliance matters related to Competition law reforms
investment in India.
Recent amendments to Indian competition law
Sector-specific regulations have expanded the powers of the Competition
India's FDI policy imposes sector-specific Commission of India (CCI). Transactions
investment limits, which are crucial for investors exceeding about USD240 million now require
to navigate. Different sectors have varying prior CCI approval2. This affects not just mergers
percentages of foreign ownership allowed, and acquisitions but also joint ventures and
ranging from 100 per cent in most sectors to 49 collaborations. Investors must factor these
per cent in others. For example, the defence changes into their investment strategies and due
sector allows 74 per cent foreign ownership, diligence processes.
while many other sectors permit 100 per cent1.
Understanding these limits assists investors in
selecting the appropriate sectors for their
investments.

1. FDI in the defence sector, PIB, 09 February 2024 2. Ministry of Corporate Affairs Year Ender 2023, PIB, 28 December 2023

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Exploring India's dynamic Start-up Ecosystem

Tax considerations 3.1 Fund pooling vehicle options

The Indian government has implemented several In the Indian startup ecosystem, pooling vehicles
measures to attract investors to its ecosystem. play a crucial role in attracting diverse
These include simplifying the tax structure investments, both domestic and international.
through the introduction of the Goods and Typical options include domestic Alternative
Services Tax, eliminating the angel tax to allow Investment Funds (AIFs), pooling of funds through
startups to secure funding at valuations above the International Financial Services Centre (IFSC)
their market value and lowering the long-term in Gift City and overseas pooling vehicles in
capital gains tax on unlisted shares to 12.5 per jurisdictions including Singapore, Mauritius and
cent. These actions have been taken to Luxembourg. These structures enable startups to
encourage more investments in startups3. access capital through unlisted debt, equity and
other investment categories while offering
investors various routes including FDI, ECB and
other instruments, supporting robust growth and
innovation4.

3. Startup related regulations and notifications, Startup India, accessed on 12 4. KPMG in India Insights
September 2024

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 Exploring India's dynamic Start-up Ecosystem

Pooling of funds in India –Domestic AIF

Offshore Investor
Investor units Overseas
IM Service Trusteeship services India
Investment Manager AIF Platform Trustee

Unlisted debt and equity Units of Cat I/II AIF

Pooling of funds in Gift City/IFSC

Foreign Investors Indian Investors
Under LRS Route
Overseas

IM service Trusteeship services GIFT city

AIF
IFSC FME IFSC AIF Trustee
Platform
India
Permissible
Investments

IFSC listed
Listed securities Unlisted securities Units of other AIFs
securities

LLPs Securities of Foreign Cos REITs, InVITs, etc.

Overseas pooling of Funds (Singapore, Mauritius or Luxembourg)

Ultimate Hold Co

Intermediary Hold Co
Overseas

India

FDI route ECB/FPI/FVCI

Unlisted Equity Debt

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Exploring India's dynamic Start-up Ecosystem

3.2 Types of entry routes for foreign investments

The following infographic provides a comprehensive breakdown of the various categories of foreign
investments, including FDI, Foreign Portfolio Investor (FPI) and Foreign Venture Capital Investors (FVCI).
Each category is further divided based on the types of financial instruments involved, such as equity
shares, convertible preference shares, debentures and debt instruments, highlighting the diversity of
options available for foreign capital participation5.

Foreign investments routes

Equity shares (listed / unlisted)

Convertible Preference shares (CCPS)

Foreign Direct
Investment (FDI)

CCDs
Foreign Investments#

Share warrants

Foreign Portfolio Listed / unlisted debentures

Investor* (FPI)

Listed equity shares

Unlisted equity shares

Foreign Venture Capital

Unlisted equity linked instruments
Investors (FVCI)

Debt instruments**

Note:
# Foreign investments through alternative structures for the poling of funds could be considered. They
have been covered under ‘Typical structures for pooling of funds’
* FPI Route may be opted for under the Non-debt and Debt regulations or the Voluntary Retention Route
** Investment under the debt instruments is subject to conditions, outlined in subsequent slides

5. KPMG in India Insights

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 Exploring India's dynamic Start-up Ecosystem

The following table further compares different entry routes across various parameters 6

Particulars FDI route FPI route FVCI route

Eligible Equity, convertible Listed Equity shares, Equity or equity linked

Instruments debentures, preference Listed / Unlisted Non instruments or Debt
shares and share convertible debentures Instruments (including
warrants issued by an (NCDs), Securitised Optionally convertible
Indian company Debt Instruments, debentures (OCDs)) of
government securities / unlisted companies (can
T-bills, purchase of units invest in only 10
of REIT / InVIT and units prescribed sectors which
of domestic mutual funds include infrastructure and
or Cat III AIF IT), Units of Venture
Capital Fund, Cat-I AIF,
units of a Scheme or of a
fund set up by a VCF or
by a Cat-I AIF
Eligible Any non-resident entity / NRIs, OCIs, Foreign Investment Trust,
Investor individual, Non-Resident Central Banks, Investment Company,
Indian (NRIs), Overseas Multilateral Development Investment Partnership,
Citizenship of India (OCI), Bank, Sovereign wealth AMC, Endowment Fund,
company, trusts, firms fund (SWFs), Multilateral Mutual Fund, University
incorporated outside India, Agencies, Endowment Fund, Pension Funds
Securities and Exchange Funds, Insurance Funds and Charitable Institution
Board of India (SEBI) and Pension Funds or any other entity
registered Foreign incorporated outside
Venture Capital Investors India
(FVCIs), Endowment
Funds, Insurance Funds
and Pension Funds
Type of Strategic investment Portfolio investment Strategic investment
Investment
Registration No registration with SEBI FPI registration with FVCI registration with
requirement is required to participate SEBI is required to SEBI is required to
through this route participate through this participate through this
route route
Investment in Permissible Investment in unlisted Permissible
unlisted non-convertible debt
securities securities permissible.
Other unlisted securities
not permissible
Optionality Permissible without any Not permissible Arguably permissible,
clause in assured return with assured return
instruments
Pricing Pricing guidelines apply Pricing guidelines are not Pricing guidelines are not
guidelines to issue or transfer of applicable for NCDs applicable to issue or
instruments under this transfer of instruments
route under this route

6. KPMG in India Insights

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Exploring India's dynamic Start-up Ecosystem

Particulars FDI route FPI route FVCI route

Restriction on Can invest only in Can invest in Non- No restriction on

debt compulsorily convertible convertible debentures convertible debt
investments debt instrument subject to availability of instruments
debt limits and other
FVCIs can invest up to
conditions
one-third of their investible
in pure debt instruments in
specified companies in
which FVCI has already
invested its equity
Given that OCDs are
optionally convertible,
hence regarded as equity
linked instruments, thus
not subject to the
aforesaid restriction

Lock – in period/ No specific lock-in The instruments should No specific lock-in

Maturity period condition in general. Any have a minimum condition
sector specific lock-in maturity/retention period
conditions prescribed of one year. In case of
under the FDI policy to be investment under VRR
complied with route, investment would
need to be retained for 3
years
Maximum No regulatory restrictions, No regulatory restrictions, Arguably, no cap on
interest pay-outs subject to transfer-pricing subject to transfer-pricing interest pay-outs, subject
provisions provisions to transfer-pricing
provisions
End No end use restrictions No end-use restriction, in • At least two-thirds of
use/investment except investment cannot the case of listed NCDs. investible funds shall
restriction be made in prohibited In the case of unlisted be invested in equity or
sector and within the NCDs, investment in real equity linked
sectoral cap in other estate business, capital instruments
sector, subject to market and purchase of • Further, FVCIs can
conditions land invest up to one-third of
Investment by any FPI, its investible in pure
including investments by debt instruments in
related FPIs, should not specified companies in
exceed 50 per cent of any which FVCI has
issue of a corporate already invested in its
bond/NCDs. Effectively, equity
any issue by an Indian
entity would need to have
at least two subscribers
who are not related to a
group. Given condition is
not applicable under the
VRR scheme

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 Exploring India's dynamic Start-up Ecosystem

3.3 Leveraging External Commercial Borrowing for foreign or Indian

currency investments
External Commercial Borrowing (ECB) is a pivotal funding mechanism for Indian startups, providing
access to foreign capital through commercial loans. These loans, governed by certain parameters such
as minimum maturity, permitted and non‐permitted end uses and maximum all‐in‐cost ceiling, offer a
wider pool of resources for startups to fuel their growth and expansion strategies 7.

ECB routes

Automatic route Approval route

(Upto USD750 million per FY subject to max (Over and above USD750 million):
ECB Liability - Equity ratio of 7:1):
• Prior application to the RBI through AD
• No approval required Bank (in Form ECB)
• Obtain LRN from RBI by filing Form ECB • Recommendation of RBI Empowered
through AD Bank Committee (Internal RBI & External
Members) for final decision by RBI
• Monthly filings with RBI through AD Bank
in Form ECB‐2 • Factors: merits, macroeconomic
situations and overall guidelines
• Includes entities under Investigation
under FEMA on without prejudiced basis • Post approval, obtain LRN, monthly
filings as Automatic Route

7. KPMG in India Insights

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Exploring India's dynamic Start-up Ecosystem

With two routes available for ECB funding, the following are their key features 8.

All entities are eligible to receive FDI, while PortTrusts, Units in SEZ, Small
Eligible Industries Development Bank of India (SIDBI), Export-Import Bank of India (EXIM
Bank) and registered entities in micro-finance activities including Not for Profit
borrowers
companies, societies, trusts, cooperatives and Non-Government Organisations are
also eligible to raise ECB.

Recognised lenders must be from the Financial Action Task Force (FATF) or the
Recognised International Organisation of Securities Commissions (IOSCO) compliant
countries. Additionally, multilateral/regional financial institutions, qualifying
lenders
individuals and foreign branches/subsidiaries of Indian banks can participate under
specific conditions.

Individual borrowing limit: ECB up to USD750 million per financial year via
the Automatic Route, with a liability-equity ratio not exceeding 7:1, unless total
ECBs are under USD5 million
Salient
features Restricted uses for ECB proceeds: Include real estate activities, capital
market investments, general corporate purposes, working capital, Rupee loan
repayment and on-lending for restricted activities, except as prescribed for
NBFCs.

The Minimum Average Maturity Period (MAMP) for External Commercial

Minimum Borrowings (ECB) is generally three years but varies depending on the category
average of borrowing. Specific MAMPs range from 1 to 10 years based on the loan’s
purpose, such as capital expenditure, repayment of loans, or general corporate
purposes.

8. KPMG in India Insights

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 Exploring India's dynamic Start-up Ecosystem

3.4 Various funding sources and investor types in the Indian startup
ecosystem
India's dynamic startup ecosystem provides diverse funding options. Understanding these can help
startups navigate complex funding processes. Each funding and investor type impacts startup control,
the support offered and the funding size. Therefore, startups must meticulously examine their objectives,
situations and potential risks to decide on the optimal mix of funding sources.

Bootstrapping Crowdfunding
Startups often start with bootstrapping, using Raises funds from individuals via online
personal savings or debt, which offers full platforms, allowing startups to generate fund
control but may restrict growth due to without surrendering equity
resource limitations

Angel investors Government grants and subsidies

Offer capital and mentorship to startups GoI provides startups with various forms of
for equity support, such as grants, loans and tax
benefits.

Venture Capitalist (VC) Corporate VC

Provides funding to high-potential startups in Established firms provides funding to high-
exchange for equity and often manage the potential startups in exchange for equity and
company often manage the company

Note:
The areas covered in this section may be subject to changes based on updates in laws and regulations. This report does not constitute professional
advice and we recommend professional advice is obtained before placing reliance on the above content. In accordance with its policy, KPMG in India
(‘KPMG’) advises that neither KPMG nor any of its affiliates, associates, partners, directors, agents, representative or employees undertake any
responsibility/liability arising in any way whatsoever, to any person in respect of the matters dealt with in this presentation, including any errors or
omissions therein, arising through negligence or otherwise, howsoever caused. In connection with our presentation or any part thereof, KPMG does
not owe duty of care (whether in contract or in tort or under statute or otherwise) to any person or party to whom the presentation is circulated to and
neither KPMG nor any of its affiliates, associates, partners, directors, agents, representative or employees shall be liable to any party who refers,
uses or relies on this presentation. KPMG thus disclaims all responsibility or liability for any costs, damages, losses, liabilities, expense (direct and
indirect) incurred by such third party arising out of or in connection with the presentation or any part thereof.

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Exploring India's dynamic Start-up Ecosystem

04
Assessing market
potential in India's
diverse consumer
landscape
42
 Exploring India's dynamic Start-up Ecosystem

Investing in Indian startups necessitates a b. Assessing startup technology

tailored approach, considering the unique infrastructure
dynamics of the Indian market. Investors seeking
Evaluating adaptability to local digital
high-value Indian startups for investment can
ecosystems is crucial. Investors should
employ a multiparty staging approach, mirroring
evaluate the startup's technological
the U.S. venture ecosystem. This strategy
capabilities in meeting diverse regional
involves engaging with local networks and
requirements and user behaviours.
experts and focusing on high-growth sectors such
as technology, e-commerce and consumer tech, c. Monetisation strategies: Aligning with
including hyperlocal and quick commerce, SaaS, consumer behaviour
FinTech, healthcare and clean energy.
A robust revenue model is essential for long-
Investors should analyse the market size and term sustainability. Understanding customer
competitive advantages, while also assessing acquisition costs (CAC) and lifetime value
founder quality and regulatory framework. (LTV) metrics is vital. Startups with a clear,
Monitoring funding rounds and valuations scalable revenue model that can adapt to
provides crucial insights while leveraging data market demands are more likely to attract
analytics tools offers objective metrics beyond investor confidence and achieve profitability.
qualitative assessments. Partnering with Indian
d. Adapting to diverse markets: Achieving
venture capital firms grants access to deal
product/market fit
pipelines and local expertise. By combining these
targeted strategies including analysing financial This involves ensuring that the product
performance, conducting social media sentiment resonates with the target audience and meets
analysis and participating in networking events, their needs effectively. Startups that have
investors can effectively identify promising iterated their offerings based on customer
startups worthy of consideration. This insights are more likely to succeed, which
comprehensive approach balances quantitative also requires a deep understanding of
analysis with qualitative assessment, allowing for customer preferences and behaviours that
informed investment decisions in India's startup vary by region.
landscape.
e. Assessing long-term viability and
Investors should also evaluate a startup's profitability: The role of scalability in
resilience by assessing its ability to adapt to startup success
changing market conditions, diversify revenue
Scalability and profitability are critical factors
streams and maintain growth momentum.
for investors, as they indicate the startup's
Startups that have demonstrated the ability to
ability to grow rapidly without a corresponding
navigate turbulent times and emerge stronger are
increase in costs. Investors should scrutinise
more likely to attract investor confidence.
operational efficiency, market growth tactics
a. Assessing startup viability in India's and the opportunities for geographic or
diverse consumer landscape product diversification, all of which could
enhance profitability as the startup scales.
Understanding the market potential in India
involves recognising the diverse consumer f. Commitment to social impact and
base and regional nuances. Investors should sustainability
evaluate the startup's ability to address
As the startup ecosystem matures, investors
specific local needs, such as language
are increasingly prioritising startups that
preferences and payment methods, which
prioritise social impact and sustainability.
can vary significantly across regions.
Startups that address pressing societal
challenges, such as healthcare, education
and financial inclusion and demonstrate a
commitment to ethical practices and
environmental stewardship, are more likely to
attract investor interest and support.

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Exploring India's dynamic Start-up Ecosystem

Due diligence process • Integrity due diligence: Integrity due

diligence helps in assessing and
The due diligence process is a critical component
mitigating risks associated with third-
for investors assessing the viability of startups in
party relationships, mergers and
India. Given the unique challenges and
acquisitions and other business
opportunities in the Indian market, a
partnerships. It broadly includes pre-
comprehensive due diligence approach can
transactional integrity due diligence,
significantly mitigate risks and enhance
leadership due diligence and customer
investment decisions.
due diligence
a. Financial due diligence
• Commercial due diligence: Commercial
Financial due diligence focuses on evaluating
due diligence helps interested parties
a startup's financial hygiene, health and
understand a target company's
sustainability of revenue streams, unit
competitiveness, positioning in the
economics, burn rate and KPIs such as
market, industry dynamics, market
growth in customer/user base, retention
strengths, commercial performance,
rates, LTV/CAC ratios and working capital
potential risks and opportunities to
days, among others. For example, assessing
support the decision-making process
the unit economics or burn rate (how quickly
a startup is spending its capital) helps • HR and cultural due diligence:
investors gauge business models. Startups Examines HR policies, organisational
with high burn rates may require additional culture and workplace inclusivity. This
funding sooner than expected, which can type ensures compliance with
raise concerns. employment laws and evaluates the
startup's ability to foster growth through
b. Legal and regulatory compliance
effective human resources
India's regulatory landscape is complex,
necessitating rigorous legal due diligence. • Intellectual property due diligence:
Startups must comply with various laws, Focuses on IP protection, especially for
including tax filings, intellectual property technology startups, given India's
rights and industry-specific regulations such evolving digital ecosystem
as GST regulations and the Consumer
• Technology due diligence: Evaluates
Protection Act.
the technological infrastructure, security
c. Operational due diligence measures and data protection protocols,
Operational due diligence is a crucial especially important for startups dealing
component of the investment process for with sensitive data
startups, particularly in the Indian startup
• Supply chain due diligence: Assess
ecosystem. Quality assurance processes
supplier reliability, inventory management
must be robust to prevent defects and
systems and logistics infrastructure
maintain customer satisfaction.
• Scalability due diligence: Assess the
d. Other due diligence elements
startup's ability to scale operations,
While financial, legal and operational due
manage growth and adapt to changing
diligence covers a broad spectrum to ensure
market conditions
well-rounded examination, Environmental,
Social and Governance (ESG), integrity and • Cybersecurity due diligence: Examine
commercial due diligence are also gradually the startup's cybersecurity measures,
gaining importance. especially important for startups dealing
with sensitive data or operating in
• ESG due diligence: ESG due diligence
regulated industries
provides a detailed evaluation of key
ESG risks and opportunities for a target, • Foreign investment compliance due
which may be a portfolio company or diligence: Assess compliance with
transactional target. Some of the India's foreign investment regulations,
advantages of ESG due diligence for including obtaining necessary approvals
both investor and the company include and adhering to sector-specific
price negotiation, premium for favourable limitations.
ESG factors and value enhancement
opportunities among others
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 Exploring India's dynamic Start-up Ecosystem

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Exploring India's dynamic Start-up Ecosystem

05
Managing risks and
harnessing growth
potential for foreign
investors
46
 Exploring India's dynamic Start-up Ecosystem

In a globalised economy, U.S. investors are eyeing emerging markets, such as India due to its robust
economy, young workforce and expansive market. However, investing in India entails unique challenges
and risks. Therefore, it is imperative for global investors expanding their portfolios to India to understand
these risks and devise effective mitigation strategies.

5.1 Liquidity risks

Risk Mitigation strategy

Higher transaction costs due to • Leverage investment funds or professional managers

elevated brokerage fees, duties, taxes who can navigate the complex fee structures, though this
and other local market charges in India may incur higher overall fees

Currency volatility and exchange rate • Hedge currency risk through tools, such as currency
fluctuations between the dollar and futures, options and forwards
Indian rupee
• Utilise currency exchange-traded funds (ETFs) for a
more straightforward hedging approach

Liquidity challenges, particularly in • Adopt a dollar-cost averaging strategy to spread out

emerging Indian markets, where investments over time
selling investments quickly without
significant losses during a crisis can be
difficult

5.2 Regulatory and political risks

Risk Mitigation strategy

Unpredictable government intervention • Closely monitor the regulatory environment and political
and policy changes that can impact landscape in India
foreign investments
• Engage with local legal and advisory firms to stay
informed on policy updates and their potential implication
• Structure investments to leverage available investment
protection mechanisms, such as bilateral investment
treaties and multilateral investment agreements

Equity, screening and personnel • Prioritise investments in sectors with more favourable
restrictions on foreign investors in foreign investment policies, such as manufacturing,
certain sectors communication services and e-commerce
• Collaborate with local partners or establish joint ventures
to navigate regulatory hurdles and leverage their
expertise

Closure of some sectors, such as legal • Explore alternative investment avenues, such as portfolio
and accounting services, to FDI investments or indirect exposure through investment
funds, to gain exposure to restricted sectors
• Monitor for any regulatory changes that may open
previously closed sectors to foreign investment

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Exploring India's dynamic Start-up Ecosystem

5.3 Information and operational risks

Risk Mitigation strategy

Limited access to information on • Engage with reputable local research firms, consultancies
Indian companies and markets, and industry experts to gather comprehensive market
making due diligence and informed intelligence
decision-making challenging
• Leverage the expertise of local partners or establish a
presence in India to gain deeper insights into the
operating environment

Operational complexities, such as • Collaborate with experienced local partners or establish a

navigating processes, managing dedicated on-the-ground presence to handle day-to-day
talent and addressing infrastructure operations and navigate the business environment
developments
• Invest in robust risk management and compliance
frameworks to mitigate operational risks

5.4 Startup-specific risks

Risk Mitigation strategy

Lack of exit opportunities and liquidity • Explore alternative exit strategies, such as secondary
for startup investment markets or strategic acquisitions, in addition to traditional
Initial Public Offerings (IPOs)
• Maintain a long-term investment horizon and focus on
startups with clear paths to profitability and potential for
sustainable growth

Intellectual property (IP) protection • Work closely with the startup to ensure they have robust
challenges in the Indian market IP protection measures in place, such as proper
registration of patents, trademarks and copyrights and a
plan for enforcing these rights
• Collaborate with local legal experts to navigate the IP
landscape and mitigate risks of IP infringement

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 Exploring India's dynamic Start-up Ecosystem

5.5 Tax-related risks

Risk Mitigation strategy

Stringent tax inspections and • Consult a local tax specialist or legal expert to effectively
penalties for alleged tax evasion handle tax responsibilities and the formation of local
business alliances
• Periodically assess tax strategies, making necessary
modifications to identify and offset potential tax liabilities

Uncertainty in tax laws • Investors should keep themselves informed about the
most recent changes in tax legislation and Indian court
rulings and seek professional tax consultation

Double taxation • The Double Taxation Avoidance Agreements (DTAAs)

that India holds with certain nations can be accessed for
beneficial treatment, where applicable

Transfer pricing risk • Maintaining robust documentation demonstrating that

intercompany transactions are at arm's length can help
manage this risk

General Anti-Avoidance Rule (GAAR) • Ensuring transactions possess significant commercial

purposes and are not purely targeted at tax evasion can
help to decrease this risk.

Permanent establishment risk • Strategic planning of business operations can assist in

avoiding the inadvertent creation of a permanent
establishment, thereby reducing tax liabilities.

Compliance risk • To avoid penalties for non-compliance, ensure regular

and precise tax filing

Changes in international tax • Periodic review of updates to DTAAs and other

agreements international tax agreements and comprehending their
effects is vital for risk management

Impact of Multilateral Instruments • The application of a Multilateral Instrument (MLI) to

(MLI) existing tax treaties may change the tax implications. It's
essential for investors to actively track and understand
these alterations

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Exploring India's dynamic Start-up Ecosystem

06
Exit strategies:
Maximising returns
from investments in
Indian startups
50
 Exploring India's dynamic Start-up Ecosystem

An investor's strategic plan fundamentally includes an exit strategy, which outlines their intended approach
to recover their investment in a startup. For Indian startups, investors often opt for secondary sales as
their favoured exit strategies. These two strategies have proven successful, however, the choice between
them hinges on various factors, including the startup's growth phase, prevailing market conditions and
expected returns on investment.
a. IPOs: A privately owned firm first sells its shares to the public, offering investors an opportunity to
offload their stake in the startup while potentially augmenting the value of their holdings. This strategy
necessitates meticulous planning and adherence to specific financial and regulatory prerequisites.
• June 2023: The Securities and Exchange Board of India (SEBI) expedited the IPO listing timeline
from T+6 to T+3, implementing this reform optionally from September 2023 and mandatorily from
December 20231.
– It signifies India's progress towards global IPO standards, illustrating the maturing efficiency of
its financial systems and infrastructure robustness.

Indian IPO market1 FY22 FY23 FY24

No. of IPOs 47 36 76

Funding raised (USD billion) 13 6.8 7.4

b. Secondary transactions: After IPOs, exits secondary deals is likely to increase as these
through secondary transactions are the most funds look to exit through secondary deals in
favoured exit strategy deployed by Indian 2-3 years or through smaller IPOs on the
VCs. In recent years, particularly as the global Bombay Stock Exchange (BSE)’s for Small
interest rates have increased, Indian venture and Medium Enterprises (SME) exchange.
capitalists have offered liquidity to their limited The availability of liquidity through such
partners (LPs). The preferred method has transactions and the development of a
been a combination of secondary transactions secondary fund ecosystem in India has given
and IPOs. However, many of the exits through the required comfort to the limited partners
this route are completed at a discount (LPs) which was lacking earlier.
(sometimes a significant discount to the peak
c. Mergers and acquisitions (M&As): M&As
valuation). In the last few years, many
facilitate product diversification and cost
dedicated secondary funds have been set up
efficiency, thereby enhancing stakeholder
to exploit such opportunities. Additionally, with
value and economic vitality. M&As are potent
the advent of Micro VCs (investors largely
catalysts for economic growth and market
focused on seed capital infusion in early-stage
competitiveness, fostering job creation and
companies with amounts that are smaller than
business expansion.
a typical VC investment) in the Indian start-up
investment landscape, the number of

1. IPOs in India, KPMG in India, July 2024

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Exploring India's dynamic Start-up Ecosystem

CEOs in the U.S. are waiting for the opportune moment to initiate M&A activity, potentially
later this year or in 2025. They believe that market conditions, including fluctuating
business values, presidential elections, inflationary macroeconomics and the geopolitical
environment could impact their current business acquisition and sales plans 2

62% 48% 34%

CEOs plan to delay
CEOs will CEOs will pursue
major investments and
seriously pursue new deals in the
M&A actions until after
new deals in 2025 second half of 2024
the 2024 U.S. election

One of the key factors contributing to India’s vibrant startup ecosystem is the number of M&As that have
taken place. About 1,300 cumulative M&As have been reported in the Indian startup sphere cumulatively
from 2015 to 20233, highlighting the fierce competition and strategic moves by startups to bolster their
positions and diversify or access new markets and technology.

Count of M&A deal by Indian startups3

240
210

149
117 128 124 123
113
82

2015 2016 2017 2018 2019 2020 2021 2022 2023

d. Management buyouts: The leadership group of a startup acquires a company, essentially converting
it into a private entity. This approach can be effective if the administrative team possesses the
required capital and is confident about the startup's long-term prospects.
e. Transfer of Interest in Alternative Investment Fund (AIF): An investor can exit whenever they
choose by shifting their stake in an AIF and settling the tax on the profit made from the sale, provided
any applicable tax treaty relief is considered.
• AIF Category I encompasses funds that allocate investments to startups SMEs, social projects,
infrastructure ventures and other sectors identified as advantageous by regulators. This category
includes a variety of AIFs such as VC, angel funds and special situation funds.

The number of AIFs registered with SEBI grew 27 times, from 42 (as of 31 March
2013) to 1,148 (as of 13 July 2023)4.

2. 2024 KPMG U.S. CEO outlook pulse survey, KPMG U.S., April 2024
3. Number of mergers and acquisition deals by Indian startups from 2015 to 2023, Statista, 25 December 2023
4. Beyond the basics: Navigating the world of alternative investment funds, Nifty indices, March 2024

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 Exploring India's dynamic Start-up Ecosystem

f. Exit strategy in private equity: This approach is vital for investors as, with careful planning and
effective execution, it boosts the likelihood of achieving a more substantial profit.

In H1 2024, PE industry in India documented 106 exit transactions, with a total

value of USD7.1 billion, an increase of ~39 per cent, from 76 transactions in
H1 20235.

g. Liquidation: A startup can opt for liquidation if other approaches do not work. This process entails
selling all the company's assets and using the revenue generated to settle debts. The remaining funds
are then shared among the shareholders.

Rate of return: While a VC fund’s operating model is similar to a private equity model wherein GPs
launch a fund and LPs contribute most of the capital to a fund, it's vastly different as VCs typically
invest in start-ups which have a longer horizon than compared to a PE investment. The lack of data on
returns from VC investments in India is one of the biggest problems while evaluating different funds.
There are multiple companies which track various facets of VC investments (number of deals, the
value of investments, valuation, exits, among others.) but the rate of return is not publicly available for
funds active in India, Other ways to evaluate VC funds would be to compare performance with
synthetic benchmarks (such as benchmark created by adding a liquidity premium over the stock
market index or currency premium over the U.S. VC returns where abundant data is available)6.

5. VCCEdge 2024 H1 Deal Report, VCCedge, July 2024 6. KPMG in India Insights

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Exploring India's dynamic Start-up Ecosystem

07
Staying ahead:
Future prospects
in India's startup
ecosystem
54
 Exploring India's dynamic Start-up Ecosystem

India's startup ecosystem is poised for exponential GoI is proactively fostering entrepreneurship and
growth in the next five to seven years, fueled by a innovation through strategic initiatives, such as the
confluence of favourable conditions that are Startup India Action Plan, SISF and PLI schemes
uniquely positioned to foster innovation and among others. The focus on emerging
entrepreneurship. Key to this growth is India's technologies and regulatory facilitation presents a
large, young and tech-savvy populace that is compelling opportunity for foreign investors. The
swiftly joining the formal workforce. India is likely streamlined startup process, tax incentives and
to have a 535 million labour force by 20301; this enhanced legal and digital infrastructure are
demographic asset is pivotal for the growth of the catalysing startup innovation and growth. This,
startup ecosystem, offering a ready pool of talent coupled with robust policies, establishes India as a
and consumers for innovative solutions. promising and future-ready investment
destination.

GoI’s forthcoming initiatives to boost the startup ecosystem

• In FY25 budget, the Mudra loan limit has been raised to USD0.02 million and
USD12 billion allocated to the Anusandhan National Research Foundation2
• About USD120 million venture capital fund proposed to improve early-stage
funding across space startups3
• Introduction of Startup20 under India's G20 presidency to boost startup
ecosystem

AI is taking the lead in startups space

• AI implementation in startups presents opportunities for angel investors to
broaden portfolios, reduce risks and boost returns
— India and Germany’s partnership on AI startups and research in sectors,
including healthcare and green energy to boost scientific collaboration
in new tech areas
• Developments, such as GoI’s collaboration with private entities are further
strengthening India’s digital leadership

Focus on tier II and tier III market

• With GoI's SISF Scheme minimising risks for investors, startups are poised to
revolutionise India's rural market with innovative solutions for sectors, including
agriculture, ecommerce and finance among others in tier II and III markets.

In conclusion, the Indian startup ecosystem holds significant potential as an investment opportunity for
angel investors, having the power to significantly influence the future of startups.

Note: The currency across the document has been converted as per the currency conversion rate of INR1=USD0.012 as of
November 2024

1. Projected labour force population of India and China, IEA, accessed on 03 3. INR1000 crore VC fund to boost India’s space economy, Fortune India, 23
August 2023 July 2024
2. Budget 2024–25 will boost Startups and the StartUp ecosystem through
bold and innovative proposals, PIB, 23 July 2024

© 2024 KPMG Assurance and Consulting Services LLP, an Indian Limited Liability Partnership and a member firm of the KPMG global organization of independent 55
member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
Exploring India's dynamic Start-up Ecosystem

Acknowledgement
We are sincerely grateful to the following team members who have helped in the preparation of
this report.

KPMG in India research team Bengaluru OMP Office

• Reshma Pai (Lead - Research) • Pooja Sundar Raj (Associate Director)
• Gagandeep Singh (Assistant Manager)
• Rohan Barua (Consultant)
• Damini Sharda (Consultant)
• Pratik Kulkarni (Senior)
• Balamurali Radhakrishnan (Manager)

KPMG in India compliance Chartered Accountants

and design team • Manoj Kumar
• Pooja Patel (Assistant Manager) • Mohit Choudhary
• Venkatesh R (Manager)

56 © 2024 KPMG Assurance and Consulting Services LLP, an Indian Limited Liability Partnership and a member firm of the KPMG global organization of independent
member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
 Exploring India's dynamic Start-up Ecosystem

© 2024 KPMG Assurance and Consulting Services LLP, an Indian Limited Liability Partnership and a member firm of the KPMG global organization of independent 57
member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
Exploring India's dynamic Start-up Ecosystem

58 © 2024 KPMG Assurance and Consulting Services LLP, an Indian Limited Liability Partnership and a member firm of the KPMG global organization of independent
member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
 Exploring India's dynamic Start-up Ecosystem

© 2024 KPMG Assurance and Consulting Services LLP, an Indian Limited Liability Partnership and a member firm of the KPMG global organization of independent 59
member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
KPMG in India contacts:
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Head – Clients & Markets
E: [email protected]

Neeraj Bansal
Head – India Global
E: [email protected]

Supreet Sachdev
Office Managing Partner
Bengaluru
E: [email protected]

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