Funding up by 2.3 times in India start-ups: Jefferies

Indian start-up companies saw a 2.3 times increase in number of private equity (PE) or venture capital (VC) funding deals in 2015, which indicated a significant broadening of the sector beyond e-tailing, a recent Jefferies research note said here.

"There was a 2.3x increase in number of PE/VC funding deals in 2015 indicating a significant broadening of the sector beyond e-tailing," the research note said.

The report said fund raising from PE/VCs aggregated $5.7 billion in 2015 compared to $4.1 billion in 2014.

"While the December quarter was relatively muted with less than $1 billion of funds raised, we note that number of deals (of $5 million and above) still doubled year-on-year from 12 to 24."

According to the report, two key trends emerged in 2015 -- unlike in 2014 when e-tailing companies accounted for over 70 percent of money raised, 2015 saw significant diversification with many non-e-tailing companies raising more than $100 million of funding each.

Also, while the value of funds raised increased by 40 percent year-on-year, the number of deals increased 2.3 times from 49 to 112 indicating a significant increase in the breadth of companies.

The Indian government announced the Start-Up India Action Plan on January 16, where it gave an income tax holiday for three years and exemption from capital gains levies on venture capital investments to the start-ups.

"While there are some positive measures, the definition of start-ups to qualify for many of the schemes could be a limiting factor," the report stated.

A host of incentives were unveiled by Prime Minister Narendra Modi for start-ups, which included self-certification and a three-year exemption from inspections, an online portal and mobile app, an 80 percent cut in the patent application fee and a single-point hub for hand-holding.

He also announced a Rs.10,000 crore fund for new enterprises, equal opportunity in government procurement, a Rs.500 crore credit guarantee scheme and easier exit norms.

The Jefferies report pointed out "the definition of startups to qualify for the government schemes precludes start-ups with turnover of over Rs.250 million, which would limit the benefits to better performing startups. Moreover, the definition also requires that start-ups get certification from an inter-ministerial board, which could prove onerous".