The number of new startups added in 2020 fell considerably compared to the previous year, while the number of dormant startups grew as the pandemic ravaged through the economy, according to a new report on Indian tech startup ecosystem for 2020 by NASSCOM and Zinnov.
About 1600-plus startups were added to the tech ecosystem in 2020 compared to 2500-plus the year before. The number of dormant startups grew by 3 percent though the absolute number was not made available.
Dormant startups are the ones, which have stopped or shut down activities but yet to wind up.
The total funding in tech startups, which are less than five years old, nearly halved in 2020 from the year before to $3.5 billion from $6.5 billion.
However, the second half of the year did show green shoots as investor sentiment picked up again. The second half 2020 funding at $2.3 billion was nearly at the same level as the first half of 2019 ($2.4 billion).
The number of startups raising a first round of funding was also up from 29 percent in 2019 to 42 percent in 2020, with a 14 percent growth in absolute numbers.
The report also highlighted that seed stage funding in 2020 recovered to more than 90 percent of 2019 levels.
The unicorn club expanded despite the pandemic, with a record 12 unicorns added in 2020, the highest ever in a calendar year.
India is on track to have a 50-plus strong unicorn club in 2021, Nasscom and Zinnov said in the report.
The total unicorn base in the country as of 2020 now stands at 38, with the report identifying that over 50 potential companies could turn unicorns in the next couple of years.
While several sectors such as edtech, fintech and healthech got tailwinds from the pandemic, several were also badly impacted.
Mobility was expected to reach 40-50 percent of pre-COVID levels by December 2020, and the travel & hospitality is expected to have seen revenue decline of 60-70 percent with slow recovery through 2021.
Among the key trends that played out for startups in 2020 were: 40-45 percent startups diversified their products to adjacent businesses post first lockdown (several ecommerce companies had started offering groceries as only essential products were allowed to be delivered in the first two phases of the lockdown); 30-35 percent start-ups are offering remote roles, 28-30 percent are targeting overseas market, and 50-55 percent founders believe profitability to be given weightage alongside valuation.
Nasscom and Zinnov have also put out important recommendations for boosting the startup ecosystem, which includes increasing seed-stage investments, which is less than 10 percent of total investment in a year, increasing the share of domestic capital given that 70-75 percent funding into startups involves foreign capital, and ensuring that the government makes key infrastructure investments to accelerate growth.