India’s startup ecosystem has notched up record investment of nearly $ 36 billion in privately held companies this year as demand for digitisation grew manifold amid the Covid-19 pandemic. UK-based Investment data platform Preqin estimates that venture and private equity investments increased three-fold during the year up from the $11 billion mopped up by Indian startups in 2020.

This year, the volume of seed-stage deals dominated with nearly 396 deals aggregating to $705.86 million while about 166 investments at series A amounted to about $1.67 billion, data until December 20, showed.

However, the bulk of the investments were directed towards pre-IPO financing rounds in companies such as Zomato, Ola, Policybazaar and Paytm, with the top 10 deals totalling upto $5.58 billion, Prequin data shared exclusively with ET, showed.

In addition to an increase in the number of deals, Indian startups also raised larger financing rounds compared to previous years as risk capital funds stepped up to take bigger bets on high growth companies early-on. As a result, companies have been able to snag higher valuations, often doubling and tripling their value in successive financing rounds.

“Valuations are a reflection of an investor’s exit expectations. 2021 has proven the full venture cycle for India. Some fabulous exits like Zomato, Nykaa, PolicyBazaar and others have increased exit size expectations, and consequently the valuations,” said Alok Goyal, founder and investment partner at Stellaris Venture Partners, an early-stage VC firm.

He also sounded a cautionary note while pointing out that “markets have a habit of overreacting on both sides – in bull and bear cycles. We are seeing a bull cycle reaction right now and (won’t) be surprised if there is a bearish overcorrection in the future.”

Goyal ascribed the significantly higher capital flow into high-growth companies to a confluence of factors including higher global liquidity and the relative attractiveness of startup investments compared to other asset classes.

“We expect the upswing of 2021 to subside, but the secular trends to continue in 2022,” he said.

Funds such as Tiger Global, Falcon Edge, Sequoia Capital, Accel, Blume Ventures were among the most active investors this year. SoftBank, which is known for its larger-sized bets, invested more than $3 billion, making it the largest infusion in Indian startups by the Japanese investment firm in India in a single year.

Unicorns Galore

Unicorn, a moniker for startups valued at $ 1 billion or more, were birthed by the dozens this year. Nearly 40 companies launched themselves into the unicorn club, with a week in April seeing half-a-dozen startups in a span of four days entering the unicorn club. But it was not only unicorns, high-growth companies too went on to raise multiple rounds this year indicating the aggressive intent to back the leaders.

Fintech startup Cred, OfBusiness, Groww, Cars24, Licious, Spinny, Infra.Market, Good Glamm Group and Pristyn Care were among the firms whose valuations grew manifold in the last one year.

“Through 2021 we experienced a strong positive shift in quality of founding teams, depth of markets, unit economics and exit opportunities via public markets. As a result, investors across stages felt comfortable writing larger cheques and taking more risk,” said Vaibhav Agrawal, partner at Lightspeed India, which has backed new unicorns of 2021 like ShareChat and Apna Co.

Unicorn founders are of the view that in late-stage funding deals, there are relatively fewer assets and therefore marquee investors are ready to sweeten the deal. “Founders ( must) dilute less and this cash can come handy during the rainy days,” said a top unicorn founder who raised capital thrice this year.

Armed with all this capital, startups have been able to move fast executing their strategies to grow exponentially through inorganic routes, both vertically and geographically.

Most investors said that sectors which dominated 2021 like web3/ crypto, SaaS, direct-to-consumer or D2C brands and fintech, business-to-business (B2B) commerce, edtech and healthcare will continue to attract funding next year as well.

“ Cycles will come and go, but the important takeaway here is that Indian entrepreneurs have access to the equity needed to get closer to their vision of being market leaders,” said Pranav Pai, cofounder, 3one4 Capital, an early-stage venture fund with investments in Licious and Koo.

“They are also taking this opportunity to strengthen balance sheets and prepare for the resilience needed to face a correction when it comes,” he added.

Today, most mature startups have dedicated corporate development teams and an exit by sale is a real option for founders now, according to Kashyap Chanchani, managing partner, The Rainmaker Group, a Mumbai-based investment bank. “Till two years ago a majority of M&As would have been out of distress and lack of options,” he said.

The year tech IPOs became a reality

For a while, when Indian entrepreneurs spoke of an initial public offering (IPO), it wasn’t seen as a real option but 2021 changed that. The year marked a monumental shift in how technology-led businesses are able to tap the public markets and most of them being rewarded by public investors too.

Smaller startups like gaming firm Nazara Technologies went public this year but it was food delivery firm Zomato’s Rs 9,000-crore IPO that really set the stage for at least half-a-dozen top-league startups filing for an IPO in India.

Founders have told ET that Zomato’s stellar listing this year made them rethink their IPO timelines and consider it as a serious option for 2022 and 2023.

Others such as Policybazaar, Nykaa, as well as Paytm have raised nearly $2.5 billion from public market investors.

Lightspeed’s Agrawal expects the momentum to spill over into the new year as well.

“ Indian founders are among the very best globally, and in 2022 we see a big opportunity in ‘building for the world’ from India ( by backing) cross border commerce, fintech, crypto and new categories of software such as PLG and infrastructure,” he added.