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Startup Street: Consumer-Centric Startups Were Back As Investor Favourites In 2019

Top funding trends of 2019, Microsoft’s attempt to boost Tier II startups and Wipro’s second fund on Startup Street.

The digital payment service PhonePe, operated by Flipkart, is demonstrated during an arranged photograph in Bengaluru, India. (Photographer: Samyukta Lakshmi/Bloomberg)
The digital payment service PhonePe, operated by Flipkart, is demonstrated during an arranged photograph in Bengaluru, India. (Photographer: Samyukta Lakshmi/Bloomberg)

This week on Startup Street, a look at some of the most interesting funding trends of 2019 where consumer-focused startups cornered a major chunk of investor money. Microsoft will help some Indian startups to enable the Tier II startup ecosystem. And after the success of its first fund, Wipro sets up another. Here’s what went on:

B2C Startups Smash The Funding Charts

While business-to-business startups in India boomed in five years through 2018, the consumer was back in focus in the year gone by.

Business-to-consumer startups, or B2C, took home the major chunk of investor money and also saw more deals than B2B startups. B2C startups received $6.23 billion in funding over 425 deals in 2019—a 23 percent jump, according to Inc42 DataLabs’ Annual Startup Funding Report 2019.

That was nearly half of the total fundraise across startups during the year.

B2B startups, which have seen funding grow 21 percent annually since 2015, noted a 2 percent decline in funding deals. Still, the biggest hit were the startups with a hybrid model that services both businesses and consumers. Such startups saw a funding crunch with 44 percent lower funding in 2019 compared to the previous year.

“B2C, the most preferred business model in 2019, increased addressable market for consumer internet products due to wider penetration of internet and smartphone among the Indian population is the reason behind the increased investor confidence towards B2C startups,” the report said.

Overall, Indian startups raised $12.7 billion across 766 deals in 2019. There were 34 deals that crossed the $100-million mark. Fintech and e-commerce were the preferred sectors for investors. Of the total funding, 20 percent came from just five venture capital firms—Sequoia Capital, Accel Partners, Tiger Global, Blume Ventures and Matrix Partners.

Sequoia, in fact, dethroned Accel Partners as the most active venture capitalist of 2019. It funded 45 startups across 53 deals. Notably, Rajan Anandan, the former executive in charge of Google’s business in India and Southeast Asia, had joined Sequoia Capital India in April last year.

Accel Partners continued its funding spree by pumping money into 36 startups.

Angel investors, however, largely stayed away from funding startups. The share of angel funding fell to 13.5 percent in 2019, from 42 percent in the previous year. It was the lowest since 2014.

The report also flagged gender bias in startup funding. In 2019, only 9 percent of startups that got funding had female founders.

Microsoft Picks 54 Startups From Tier II Cities

Microsoft has selected 54 startups from Gujarat, Maharashtra, Rajasthan, Kerala and Telangana in its efforts to enable the startup ecosystem in Tier II cities of India.

The top tech startups selected through Emerge-X, a competition for startups, win Azure credits and a host of business and tech benefits, according to a statement by the tech giant. The competition received more than 530 applications and the top three startups from each state gain access to a year-long mentorship programme and a two-day founder bootcamp.

These were selected under the ‘Highway to a Hundred Unicorns’, an initiative by Microsoft that works closely with local governments to strengthen the startup ecosystem in each state.

The fifth edition of the outreach programme was hosted in Hyderabad on Monday in association with the Telangana government.

“Through Highway to a Hundred Unicorns, we have been able to reach some highly promising innovators from each of the five states,” Lathika Pai, country head at Microsoft for Startups MENA and SAARC, said in the statement. “In the next phase of our journey, we look forward to engaging with more startups and accelerating their growth and providing them with Microsoft’s platform to go global.”

Wipro Sets Up Another Startup Fund

Wipro Ventures, the strategic investment arm of Wipro Ltd., on Thursday said it has closed a $150-million fund that will invest in enterprise software companies.

This will be Wipro’s second such fund for enterprise software companies. In 2015, it had launched a $100-million fund.

“Buoyed by the success of its first $100-million fund launched in 2015, Wipro Ventures will continue to invest in early- to mid-stage companies building innovative enterprise software solutions across key areas, including cybersecurity, application development, analytics, cloud infrastructure, test automation, and artificial intelligence,” Wipro said in a regulatory filing.

Wipro Ventures, managed by Biplab Adhya and Venu Pemmaraju, has invested in 16 early- to mid-stage startups so far, including 11 in the U.S., four in Israel and one in India.

In addition to making direct equity investments, Wipro Ventures has also invested in five early-stage enterprise-focused venture funds in Israel, New York and Los Angeles.

The strategy has been to invest in promising enterprise software startups, establish strategic partnerships with them and bring their leading-edge solutions to customers, Wipro Chief Executive Officer and Managing Director Abidali Z Neemuchwala said.

“By doing this, we differentiate our customer services, generate revenue for our portfolio companies and deliver strategic as well as financial returns to Wipro,” he said. “Wipro Ventures’ Fund ll demonstrates our continued commitment to this strategy.”

With PTI inputs