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Indian tech startups raised a record $14.5B in 2019

Indian tech startups have never had it so good.

Local tech startups in the nation raised $14.5 billion in 2019, beating their previous best of $10.5 billion last year, according to research firm Tracxn .

Tech startups in India this year participated in 1,185 financing rounds — 459 of those were Series A or later rounds — from 817 investors.

Early stage startups — those participating in angel or pre-Series A financing round — raised $6.9 billion this year, easily surpassing last year’s $3.3 billion figure, according to a report by venture debt firm InnoVen Capital.

According to InnoVen’s report, early stage startups that have typically struggled to attract investors saw a 22% year-over-year increase in the number of financing deals they took part in this year. Cumulatively, at $2.6 million, their valuation also increased by 15% from last year.

Also in 2019, 128 startups in India got acquired, four got publicly listed, and nine became unicorns. This year, Indian tech startups also attracted a record number of international investors, according to Tracxn.

This year’s fundraise further moves the nation’s burgeoning startup space on a path of steady growth.

Since 2016, when tech startups accumulated just $4.3 billion — down from $7.9 billion the year before — flow of capital has increased significantly in the ecosystem. In 2017, Indian startups raised $10.4 billion, per Tracxn.

“The decade has seen an impressive 25x growth from a tiny $550 million in 2010 to $14.5 billion in 2019 in terms of the total funding raised by the startups,” said Tracxn.

What’s equally promising about Indian startups is the challenges they are beginning to tackle today, said Dev Khare, a partner at VC fund Lightspeed Venture Partners, in a recent interview to TechCrunch.

In 2014 and 2015, startups were largely focused on building e-commerce solutions and replicating ideas that worked in Western markets. But today, they are tackling a wide-range of categories and opportunities and building some solutions that have not been attempted in any other market, he said.

Tracxn’s analysis found that lodging startups raised about $1.7 billion this year — thanks to Oyo alone bagging $1.5 billion, followed by logistics startups such as Elastic Run, Delhivery, and Ecom Express that secured $641 million.

176 horizontal marketplaces, more than 150 education learning apps, over 160 fintech startups, over 120 trucking marketplaces, 82 ride-hailing services, 42 insurance platforms, 33 used car listing providers, and 13 startups that are helping businesses and individuals access working capital secured funding this year. Fintech startups alone raised $3.2 billion this year, more than startups operating in any other category, Tracxn told TechCrunch.

The investors

Sequoia Capital, with more than 50 investments — or co-investments — was the most active venture capital fund for Indian tech startups this year. (Rajan Anandan, former executive in charge of Google’s business in India and Southeast Asia, joined Sequoia Capital India as a managing director in April.) Accel, Tiger Global Management, Blume Ventures, and Chiratae Ventures were the other top four VCs.

Steadview Capital, with nine investments in startups including ride-hailing service Ola, education app Unacademy, and fintech startup BharatPe, led the way among private equity funds. General Atlantic, which invested in NoBroker and recently turned profitable edtech startup Byju’s, invested in four startups. FMO, Sabre Partners India, and CDC Group each invested in three startups.

Venture Catalysts, with over 40 investments including in HomeCapital and Blowhorn, was the top accelerator or incubator in India this year. Y Combinator, with over 25 investments, Sequoia Capital’s Surge, Axilor Ventures, and Techstars were also very active this year.

Indian tech startups also attracted a number of direct investments from top corporates and banks this year. Goldman Sachs, which earlier this month invested in fintech startup ZestMoney, overall made eight investments this year. Among others, Facebook made its first investment in an Indian startup — social-commerce firm Meesho and Twitter led a $100 million financing round in local social networking app ShareChat.

India’s NoBroker raises $50M to help people buy and rent without real estate brokers

An Indian startup that is attempting to improve the way how millions of people in the nation lease or buy an apartment — by not paying any brokerage — just raised a significant amount of capital to further expand its business.

NoBroker said on Wednesday it has raised $50 million in a new financing round. The Series D round for the Bangalore-based real estate property operator was led by Tiger Global Management and included participation from existing investor General Atlantic. The five-year-old startup, which closed its previous financing round in June, has raised $121 million to date. The new round valued NoBroker at about $325 million, a person familiar with the matter told TechCrunch.

NoBroker operates in six cities in India: Bengaluru, Chennai, Gurgaon, Mumbai, Hyderabad and Pune. The startup has established itself as one of the largest players in the local real estate business. It operates over 3 million properties on its website and serves about 7 million users. It is adding more than 280,000 new users each month, Amit Kumar, cofounder and CEO of NoBroker, told TechCrunch in an interview.

Real estate brokers in India, as is true in other markets, help people find properties. But they can charge up to 10 months worth of rent (leasing) — or a single-digit percent of the apartment’s worth if someone is buying the property — in urban cities as their commission. NoBroker allows the owner of a property to directly connect with potential tenants to remove brokerage charges from the equation.

The startup makes money in three ways. First, it lets non-paying users get in touch with only nine property owners. Those who wish to contact more property owners are required to pay a fee. Second, property owners can opt to pay NoBroker to have its representatives deal with prospective buyers — in a move that ironically makes the startup serve as a broker.

NoBroker also offers end-to-end services such as rent agreements, home loans, and movers and packers, for which it also charges a fee. The startup says it uses machine learning to speed up the transactions and make it service low-cost.

The startup processes about $14 million in rent each month, Kumar said. This is increasing by 25%-30% each month, he said. NoBroker’s business in Bangalore and Mumbai, two of its largest cities, are already profitable, Kumar said.

The startup will use the fresh capital to expand its business and build more products. It recently launched a community and digital management app to keep a digital log of all the entries — say a Flipkart delivery personnel comes to your house — occurring in a society, and maintain a dialogue with other people in a vicinity. The app also allows users to exchange goods with one another and pay their utility bills, startup’s executives said.

The new financing round is oddly smaller than $51 million NoBroker had raised in June this year. Saurabh Garg, chief business officer of NoBroker, told TechCrunch in an interview that the founding team did not want to dilute their stake in the startup, hence they opted for a smaller round.

NoBroker is competing with a number of players including Proptiger, 99Acres, and heavily backed NestAway, which counts Goldman Sachs and Tiger Global among its investors. NestAway operates in eight Indian cities and has raised north of $100 million to date. Budget hotel startup Oyo, which has already become one of the largest hotel businesses in the world, also operates in NoBroker’s territory with Oyo Living.

But NoBroker’s Kumar said he does not see Oyo and other startups as competition. Instead, “these other players are some of our largest clients,” he said. India’s real estate industry is estimated to grow to $1 trillion in worth by 2030.

The business model of NoBroker has also created new local challenges for the startup. Brokers are unsurprisingly not happy with startups such as NoBroker and have grown hostile in recent years. In recent years, they have attacked and harassed NoBroker employees. So much so that the startup had to delist its address from Google Maps. But Kumar said the mindset of people is changing.

UrbanClap, India’s largest home services startup, raises $75M

UrbanClap, a marketplace for freelance labor in India and the UAE, has raised $75 million in a new financing round to expand its business.

The Series E round for the four-and-a-half-year old India-based startup was led Tiger Global. Existing investors Steadview Capital, which led the startup’s Series D in December last year, and Vy Capital also participated in the current round. The startup, which has raised about $185 million to date, said some early investors sold portions of their stake as part of the new round.

Through its platform, UrbanClap matches service people such as cleaners, repair staff and beauticians with customers across 10 cities in India and Dubai and Abu Dhabi. The startup supports 20,000 “micro-franchisees” (service professionals) with around 450,000 transactions taking place each month, cofounder and CEO Abhiraj Bhal told TechCrunch.

Bhal said that UrbanClap helps offline service workers, who have traditionally relied on getting work through middleman such as some store or word of mouth networks, to find more work. And they earn more, too. UrbanClap offers a more direct model, with workers keeping 80% of the cost of their jobs. That, Bhal said, means workers can earn multiples more and manage their own working hours.

“The UrbanClap model really allows them to become service entrepreneurs. Their earnings will shoot up two or three-fold, and it isn’t uncommon to see it rise as much as 8X — it’s a life-changing experience,” he said. Average value of a service is between $17 to $22, according to the company.

In recent years, UrbanClap has also started to offer training, credit, and basic banking services to better support the service workers on its platform. On its website, UrbanClap claims to offer 73 services — including kitchen cleaning, hairdressing, and yoga training. It says it has served 3 million customers.

Bhal said that around 20-25% of applicants are accepted into the platform, that’s a decision based on in-person meetings, background and criminal checks, as well as a “skills” test. Workers are encouraged to work exclusively — though it isn’t a requirement — and they wear UrbanClap outfits and represent the brand with customers.

A rare glimpse into the sweeping — and potentially troubling — cloud kitchens trend

Independent restaurant owners may be doomed, and perhaps grocery stores, too.

Such is the conclusion of a growing chorus of observers who’ve been closely watching a new and powerful trend gain strength: that of cloud kitchens, or fully equipped shared spaces for restaurant owners, most of them quick-serve operations.

While viewed peripherally as an interesting and, for some companies, lucrative development, the movement may well transform our lives in ways that enrich a small set of companies while zapping jobs and otherwise taking a toll on our neighborhoods. Renowned VC Michael Moritz of Sequoia Capital seemed to warn about this very thing in a Financial Times column that appeared last month, titled “The cloud kitchen brews a storm for local restaurants.”

Moritz begins by pointing to the runaway success of Deliveroo, the London-based delivery service that relies on low-paid, self-employed delivery riders who delivery local restaurant food to customers — including from shared kitchens that Deliveroo itself operates, including in London and Paris.

He believes that Amazon’s recent investment in the company “might just foreshadow the day when the company, once just known as the world’s largest bookseller, also becomes the world’s largest restaurant company.”

That’s bad news for people who run restaurants, he adds, writing, “For now the investment looks like a simple endorsement of Deliveroo. But proprietors of small, independent restaurants should tighten their apron strings. Amazon is now one step away from becoming a multi-brand restaurant company — and that could mean doomsday for many dining haunts.”

The good news . . . and the bad

He’s not exaggerating. While shared kitchens have so far been optimistically received as a potential pathway for food entrepreneurs to launch and grow their businesses — particularly as more people turn to take out —  there are many downsides  that may well outweigh the good, or certainly counteract it. Last year, for example, UBS wrote a note to its clients titled “Is the kitchen dead?” wherein it suggested the rise of food delivery apps like Deliveroo and Uber Eats could well prove ruinous for home cooks and as well as fresh food providers, including restaurants and supermarkets.

The economics are just too alluring, suggested the bank. Food is already inexpensive to have delivered because of cheap labor, and that will cost center will disappear entirely if delivery drones every take off. Meanwhile, food is becoming cheaper to make because of central kitchens, the kind that Deliveroo is opening and Uber is reportedly beginning move into, as well. (In March, Bloomberg reported that Uber is testing out a program in Paris where it’s renting out fully equipped, commercial-grade kitchens to serve businesses that selling food on delivery apps like Uber Eats.)

The favorable case for cloud kitchens argues that businesses using the spaces are paying less than they would for traditional restaurant real estate, but the reality is also that most of the businesses moving into them right now aren’t small restaurateurs but quick service brands that already have a following and aren’t particular known for emphasis on food quality but instead for churning out affordable food, fast.

As Eric Greenspan, an L.A.-based chef who has appeared on many Food Network shows and has opened and closed numerous restaurants over the course of his career, explains in a new, independent documentary about cloud kitchens: “Delivery is the fastest growing market in restaurants. What started out as 10 percent of your sales is now 30 percent of your sales, and [the industry predicts] it will be 50 to 60 percent of a quick-serve restaurant’s sales within the next three to five years. So you take that, plus the fact that quick-serve brands are kind of the key to getting a fat payout at the end of the day . . .”

During an age when fewer people frequent them traditional restaurants —  with their overhead and turnover and razor-thin margins — running one simply makes less and less sense, Greenspan continues. “[Opening] up a brick-and-mortar restaurant these days is just like giving yourself a job. Now [with centralized kitchens], as long as the product is coming out strong, I don’t need to be there as a presence. I can quality control remotely now. I can go online and [sign out of a marketplace like Postmates or UberEats or Deliveroo] and not piss off any customers, because if I just decided to close the restaurant one day, and you drove over and it was closed, you’d be pissed. But if you’re looking for [one of my restaurants] in Uber Eats and you can’t find it because I turned it off, well, you’re not pissed. You just order something else.”

Big players only need apply . . .

The model works for now for Greenspan, who is running numerous restaurant “concepts” from one cloud kitchen in L.A. Perhaps unsurprisingly, that facility belongs in part to Uber cofounder Travis Kalanick, who was quicker than some to grok the opportunity that shared kitchens present. In fact, it was early last year that he announced he was investing $150 million in a startup called City Storage Systems that focused on repurposing distressed real estate assets and turning them into spaces for new industries, like food delivery.

That company owns CloudKitchens, which invites chains, as well as independent restaurant and food truck owners, to lease space in one of their facilities for a monthly fee, along with additional fees for data analytics meant to help the entrepreneurs boost their sales.

The pitch to restaurateurs is that CloudKitchens can reduce their overhead, but of course, the company is also amassing all kinds of data about its tenants and their customer preferences in the process that one could them seeing using over time. Little wonder that Amazon wants in, or that these outfits have at least one serious competitor in China — Panda Selected — that is doing exactly the same thing and which raised $50 million led by Tiger Global Management earlier this year.

No one can fault these savvy entrepreneurs for seizing on what looks like a gigantic business opportunity. Still, the kitchens, which make all the sense in the world from an investment standpoint, should not be embraced so readily as a panacea, either.

Most obviously, they rely on the same people who drive Ubers and handle food deliveries — people who aren’t afforded health benefits and whose financial picture is forever precarious as a result. As with Uber drivers, Deliveroo employees tried to gain status as “workers” last year with better pay and paid but they were denied these rights because they have the option of asking other riders to take their deliveries. The EU Parliament more recently passed new rules to protect so-called gig economy workers, though the measures don’t go far. (Meanwhile, in the U.S, Uber and Lyft continue to fight legislation that would give employee status to contract workers.)

Ripple effects . . .

Matt Newberg, a founder and foodie from New York, says he could see the writing on the wall when he recently toured CloudKitchen’s two L.A. facilities, along with the shared kitchens of two other companies: Kitchen United which last fall raised $10 million from GV, and and Fulton Kitchens, which offers commercial kitchens for rent on an annual basis.

Newberg is responsible for the aforementioned documentary (which you can also watch below), and he suggests that he most taken aback by the conditions of the first facility that CloudKitchens opened and operates on West Washington Boulevard in South L.A. Though most restaurant kitchens are chaotic scenes, Newberg said that as “someone who loves food and sustainability” the easy-to-miss warehouse didn’t feel “very humane” to him when he walked through it. It’s windowless for one thing (it’s a warehouse). Newberg says that he also counted 27 kitchens packed into what are “maybe 250-square-feet to 300 square-foot spaces,” and a lot of people who appeared to be in panic mode. “Imagine lots of screaming, lots of sirens triggered when an order gets backed up, tablets everywhere.”

Adds Newberg, “When i walked in, I was like, holy shit, no one even knows this exists in L.A. It felt like Ground Zero. It felt like a military base. I mean, it seemed genius, but also crazy.”

Newberg says CloudKitchen’s second, newer location is far nicer, as are the facilities of Kitchen United and Fulton Kitchens. “That [second CloudKitchen warehouse] felt like a WeWork for kitchens. Super sleek. It was as quiet as a server farm. There were still no windows, but the kitchens are nicer and bigger.”

Growing pains . . .

Every startup has growing pains, naturally, and presumably, shared kitchen companies are not immune to these. Still, Moritz, the venture capitalist, warns that they will benefit some far more than others. Writing in the FT, he says that in the early 2000s, his firm, Sequoia, invested in a chain of kebab restaurants called Faasos that planned to delivery meals to customers’ homes but was getting crushed by high rents and turnover among other things, so opened a centralized kitchen to sell kebobs. Now, he says, Fassos produces a wide variety of foods, including other Indian specialities but also Chinese and Italian dishes under separate brand names.

It’s the same playbook that Eric Greenspan is using, telling Food & WIne magazine last year that his goal was ultimately to have six delivery-only concepts running simultaneously, with two menus each for breakfast, lunch, and dinner.

Greenberg, who is obviously media savvy, can probably pull it off, too, as has Fassos. But for restaurants that are not known franchises or have the star appeal of celebrity chef, the future might not look so bright.

Writes Moritz: “In some markets there is still an opportunity for hardened restaurant and kitchen operators — particularly if they are gifted in the use of social media to build a following and refashion themselves. But they need to move quickly before it becomes too expensive to compete with the larger, faster-moving companies. The mere prospect of Amazon using cloud kitchens to provide cuisine catering to every taste — and delivering these meals through services such as Deliveroo — should be enough to give any restaurateur heartburn.”

It should also worry people who care about their neighborhoods. Cloud kitchens may make it easier and cheaper than ever to order take-out, but there will be consequences, some of which most of us have yet to imagine.