Ministry of corporate affairs eases deposit rules for start-ups

Source: Financial Express, Sept 09, 2020

The ministry of corporate affairs (MCA) has amended the rules related to acceptance of deposits by companies, a move that offers more flexibility to start-ups for raising funds at a time when Covid-19 has severely impacted the economy and businesses, especially MSMEs and start-ups.

The amendment allows start-ups to raise funds through corporate bonds or other convertible instruments for 10 years as against 5 years earlier.

Under the new rule, an amount of up to Rs 25 lakh received by a start-up in a single tranche by way of a convertible note (convertible into equity shares or repayable within a period not exceeding 10 years from the date of issue) in a single tranche, from a person will not be considered ‘deposits’ under company law compliance.

MCA amended the Companies (Acceptance of Deposits) Rules, 2014, to change the period of repayment from five to 10 years. A convertible instrument is an investment that can be changed into another form. These generally are convertible bonds and convertible preferred stock, which can be converted into common stocks.

Welcoming the development, Partner at Nangia Andersen, Sandeep Jhunjhunwala said the relaxation in acceptance of deposits norms promotes the ultimate goal of a strong ecosystem for start-ups in India. “With the pandemic causing a mammoth impact on the Indian economy, start-ups are looking for ways to raise funds and revive their business. Flexibility with an extended term of repayment of 10 years provides start-ups registered as a private limited company an alternative opportunity to attract investors and raise funds up to 25 lakhs in one tranche via the option of convertible instruments without facing the risk of being regarded as a deposit, which is otherwise prohibited under the Companies Act,” he added.

India fourth in terms of start-up unicorn numbers

Source: Financial Express, Aug 05, 2020

When it comes to start-up unicorns, India is the fourth biggest behind the US, China and the UK, housing 21 of the global total of 586 in terms of valuation. The combined valuation of these 21 unicorns stand at $73.2 billion. An additional 40 unicorns have been founded by people of Indian origin which are mostly headquartered in Silicon Valley, US, according to the Hurun Global Unicorn Index, 2020. The value of the 40 which have Indian origin founders, but headquartered outside India, stands at $99.6 billion.

The US has 233 unicorns and is closely followed by China with 227 and both of them together account for 79% of the world’s unicorns. UK is third with 24 unicorns.

“The US and China continue to dominate with 80% of the world’s known unicorns, despite representing only 40% of the world’s GDP and a quarter of the world’s population. The rest of the world needs to wake up to providing an ecosystem that allows unicorns to flourish,” Hurun Report India MD and chief researcher Anas Rahman Junaid said.

Start-ups with over $1-billion valuation are called unicorns.

Interestingly, of the 21 Indian unicorns, Chinese investors like Alibaba, Tencent and DST Global have invested in 11 of them. Japanese investor Softbank has investments in 9 of them, while the USA’s Tiger Global has invested in 5.

The number of Indian unicorns is just a tenth of China’s 227, according to the Hurun list. Further, China has only 16 businesses started outside the country by its diaspora as against India’s 40.

A third of the 21 Indian unicorns, which include Paytm, Oyo Rooms, Byju’s, Ola Cabs, etc, are in the e-commerce sector and Bengaluru is the unicorn Capital of India being home to 8 such enterprises, the report said. The youngest Indian unicorn is the 2017-founded Ola Electric, followed by Udaan and Swiggy, it said, adding on average, it takes 7 years for a start-up to achieve unicorn status in India as against 5.5 years in China and 6.5 years in the US.

Valued at $16-billion, Noida-based Paytm is the highest valued unicorn in India, while Robinhood, co-founded by Baiju Bhatt, is the most valuable unicorn which is based outside India. Hangzhou-based Ant Group, spun out of Alibaba in 2014, is the world’s biggest unicorn with a valuation of $150 billion, on the back of its impending IPO in Shanghai and Hong Kong. At the second place is Beijing-based ByteDance, founded by Zhang Yiming in 2012, best known for its news aggregator platform Toutiao and short video platform TikTok. Taxi-hailing app Didi Chuxing, founded in 2012, is the world’s third largest unicorn with a valuation of $55 billion. Last year Didi started expanding outside of China. The Indian Institutes of Technology (IITs) have emerged as the lead source of unicorn founders, with 36 of the founders being from these institutes and IIT-Delhi being the most preferred one. From a gender perspective, the ratio is not favourable, with 104 Indian unicorn founders being male and only five of them being women, the report said.

Sequoia raises $1.35 billion to invest in India, Southeast Asia startups

Source: Business Standard, Jul 06, 2020

New Delhi: Silicon Valley-based venture capital firm Sequoia’s Limited Partners, have collectively committed $1.35 billion to two new Sequoia India funds. This includes a $525 million venture fund and $825 million growth fund, according to Sequoia India managing director Shailendra Singh. Sequoia is an early investor in companies like Apple, Google, Oracle and WhatsApp.

Sequoia India now operates seed, venture and growth funds, a structure that allows Sequoia to remain a relevant partner for founders at all stages of their journey. The three Sequoia India funds will continue to invest across India and Southeast Asia (SEA).

“We are excited about the depth of opportunities in this region, which is undergoing a massive technology-led transformation,” said Singh in a LinkedIn post. “The start-up ecosystem in both India and SEA has come a very long way in the last few years; the market gets deeper and the crop of founders, and their achievements, becomes more impressive each year.”

He said the combined GDP of India and SEA is expected to cross $14 trillion and the number of mobile internet users will likely cross 1.5 billion by 2030. This region will become home to a number of massive technology companies during the next decade.

He said a fundraise represents a massive responsibility to deliver attractive returns to Sequoia’s Limited Partners, the majority of which are non-profits, foundations and charities. However, founders in India and SEA face a challenging, high-friction environment in which they have to build companies.

“This year, in particular, has been difficult for many of us – for founders, employees, investors, and for society at large. The Covid-19 pandemic is raging on and we’re in an unprecedented humanitarian and economic crisis. It has also been a time of reflection.

Where are we in the journey of the startup ecosystem in India and SEA? What type of future should we aspire for?” said Singh.

He said the startup ecosystem in India and SEA has had a tumultuous journey over the last decade. During periods of exuberance, investors have rushed in to invest large amounts of capital into startups. This has, expectedly, resulted in short term over-funding and hyper-competition amongst start-ups. These periods have been followed by down cycles, cost-cutting and negative sentiment. These cycles have enhanced startup mortality and left many founders, investors and startup employees scarred.

Besides other challenges, Singh was of the view that startups in India do not have the benefit of a regulatory framework that allows listing on foreign exchanges like Nasdaq. In this market context, most start-ups have chosen to remain private, and raising capital has become a proxy for success.

“Our markets are deepening, our founders are world-class, our tech talent is formidable – but we need to hold ourselves to a higher bar. It’s time to aspire for massively large and profitable companies,” said Singh. “It’s time to build more products that can compete globally on quality, not just on price. We need more unique and innovative startups, pursuing original ideas in addition to “X of Y” business models. We need more examples of authentic leadership, improvements in gender diversity, and inclusive, safe and nurturing work culture for our teams.” He said the ecosystem needs exemplary, enduring, lighthouse companies of the future, that can prosper for decades and be resilient across market cycles.

Govt allows startups to issue sweat equity for 10 years after registration

Source: Business Standard, Jun 10, 2020

Mumbai: Start-ups can now issue equity shares to their employees for up to 10 years from the date of their incorporation or registration.

The Ministry of Corporate Affairs (MCA) has amended the Companies (Share Capital and Debentures) Rules, 2014, to allow start-ups to issue sweat equity shares not exceeding 50 per cent of its paid-up capital.

The earlier limit of five years was changed to bring the MCA provision in line with the Department for Promotion of Industry and Internal Trade’s order.

Industry experts say the move will help start-ups better incentivise their staff and retain talent. This will also act as an alternative medium of compensation for employees and avoid pay cuts.

“Any help to companies and employees in terms of seat equities will help in retention of talent, and the entire ecosystem will, then, benefit considerably,” said Naganand Doraswamy, managing partner Ideaspring Capital, a venture fund and a start-up mentor.

Usually, start-ups issue sweat equity to their employees or directors against any form of intellectual property or technical knowhow without any vesting period. Employee Stock Options allotment, on the other hand, is linked to employees’ performance and based on completion of the vesting period.

Doraswamy downplayed the concerns that the rule may act as a deterrent to future fund-raising plans. “Ensure the employees benefit when the company does well and the venture capitalists (VCs) automatically make money,” he said.

Apoorva Ranjan Sharma, co-founder of start-up incubator Venture Catalysts and VC accelerator 9Unicorns, said: “The employees will also have a sense of ownership and can reap benefits as the valuation of the company increases.”

“Most of the start-ups usually take over 3-5 years to raise funding in bigger rounds. And, many a time, the top talent is known to quit after encashing the equity (in the early stages),” said Sharma.

Legal experts who worked closely with start-ups also welcomed the change. “It is a positive step, with reduced cash flow in the ongoing pandemic situation. This amendment will help the start-ups that are in operation for more than five years also to issue sweat equity to its employees,” said N Raja Sujith, partner – head (South India), Majmudar & Partners.

The amendment will also help start-ups attract fresh talent from the market. Also, VCs and PEs, typically, favour start-ups with such equity schemes as the employees have “skin in the game” and they perform better to increase the valuation of the company, according to Shalini Jain, partner, people advisory services, EY India. The MCA also dropped a provision that required listed companies with privately placed debentures to mandatorily set aside the reserves for every year.

China FDI constraints may put tech startups in a spot

Source:, Apr 20, 2020

BigBasket, Paytm, Ola and other tech startups may become collateral damage of the government’s move to protect local companies from hostile takeovers by Chinese firms taking advantage of depressed valuations during covid-19.

Online grocery retailer BigBasket, digital payments platform Paytm and ride sharing platform Ola have so far received billions of dollars in investments from Chinese companies. These companies will be affected the most with the new foreign direct investment (FDI) norms announced on Saturday banning fresh investments from India’s neighbours, including China, through the automatic route.

The step makes it mandatory for all Chinese direct and indirect investors to seek government approval before investing in Indian companies. This is likely to affect further rounds of investment in Indian startups by top Chinese investors such as Alibaba and Tencent.

“The new FDI guidelines essentially imply Chinese capital would require prior government approval. In effect, given the uncertainty around approval, startups will shy away from Chinese capital. In the immediate future, this could impact PhonePe and potentially Paytm at a later date,” said Ashneer Grover, CEO and co-founder, BharatPe.

BharatPe is a digital payments firm with investments from India, Singapore and a US venture capital fund.

Think tank Gateway House said in a February report that Chinese technology investors have put in an estimated $4 billion into Indian startups. According to the report, 18 of India’s 30 unicorns are now Chinese-funded. Apart from Paytm, Ola, BigBasket, top Indian tech companies that have Chinese investors include Byju’s, MakeMyTrip, Zomato and Swiggy.

Fresh investments in these companies from existing investors will face additional scrutiny, increase approval times and lengthen the timeline for completing a deal.

BigBasket recently received funding of close to $50 million from Alibaba. The investment came at when the company was struggling to meet operational requirements due to restrictions imposed by the lockdown. However, future capital infusions in BigBasket by Alibaba are likely to be hit by the FDI policy change, which could force the company to look elsewhere for meeting its funding requirements.

Last year, Paytm raised $1 billion from Japan’s SoftBank and Alibaba’s Ant Financial. But growing competition in the payments space from US rivals such as Google and Walmart-owned PhonePe means the company needs to spend more to keep its edge in the market.

Restriction on investments by its single largest shareholder, Alibaba, could likely stifle Paytm’s growth.

“This could impact those Indian companies in which the entities from these countries, including China, have already made investments… Investors and the Indian companies could feel this change as a dampener as original investment was in the automatic route regime and now additional investment in the same Indian company will come under government approval route,” said Lalit Kumar, partner at law firm J. Sagar Associates.

BigBasket and Paytm did not immediately respond to queries emailed on Sunday seeking reactions on the new FDI policy. “It is likely that the definition of beneficial interest will draw from the Companies Act, 2013, and the Companies (Significant Beneficial Owners) Rules, 2018, and affect deal exits and transfer of ownership. Exit and transfer will be impacted in so far as the transfer results in the transferee becoming a shareholder in Indian company—such transactions could require government approval as well,” said Cyril Shroff, managing partner at law firm Cyril Amarchand Mangaldas.

Software startups stare at mixed fortunes

Source:, Apr 08, 2020

BENGALURU: India’s software startups are seeing rising demand for collaboration and employee productivity tracking tools, as well as data protection services, as most corporate employees work from home amid the covid-19 pandemic.

However, Indian software-as-a-service (SaaS) startups are expecting a decline in revenues as companies reduce their overall spending even as some services, such as video conferencing provider Zoom and collaboration software Slack, witness a surge in users over the past few weeks.

Vertical SaaS companies that sell to speciality sectors such as hospitality, food and travel have been hit the most, said Girish Mathrubootham, founder and chief executive of India’s most valuable SaaS firm Freshworks. Horizontal startups, which cater to companies in diversified sectors, have seen a relatively lower drop in growth so far, he said.

Mathrubootham warned that this quarter will be worse for SaaS companies.

“While SaaS businesses enjoy some advantages over other industries—they are delivered over the internet and maintained in the cloud, they are easier to deploy, manage and support—they are not immune from impact. SaaS businesses should expect to see both new and existing revenue affected in (the current quarter). As such, all companies should look to conserve cash and reassess their hiring needs and growth plans given the current uncertainty,” he added in an email.

While Saas startups face tough times ahead, there are newer channels of demand opening up.

Freshworks, for instance, is seeing increased demand for products that enable companies to serve their customers remotely like a chat and call routing services. Another SaaS firm Zoho Corp has seen an increase in usage of products that boost productivity and facilitate collaboration.

“During the current virus outbreak, we have seen a spike in those products that specifically boost employee productivity and facilitate collaboration across remote locations,” said Rajendran Dandapani, director of technology at Zoho. “We even packaged them together into an easy to use suite (Zoho Remotely) that we are offering for free until this virus threat passes away.”

In the current situation, critical business data is at risk to potential security threats, according to Milind Borate, co-founder and chief technology officer of SaaS unicorn Druva.

Druva is now offering Microsoft Office 365 and endpoint data protection services free for six months to new customers.

“It is clear that malicious actors are trying to leverage this situation for their own gains…Teams need to ensure data remains protected from malicious actors, and we are working to support businesses of all sizes, including non-customers, to minimize exposure of business-critical data. This has resulted in a wide range of discussions with customers and prospects about how to combat this new business environment. We’re seeing a large number of them seeking additional support to protect their now largely mobile workforce and expedite cloud migrations,” he added.

Neeraj Sharma, vice president – human resources of FourKites, a SaaS-based supply chain visibility solutions startup, said collaboration tools have reached “a new high in utilization worldwide.” “SaaS products have the inherent advantage of ease of adoption by being successfully deployable – training and getting the products to production mode can be done remotely and in a very short period of time,” Sharma said. He added that a recent virtual summit the company hosted had 1,039 participants from across geographies and verticals.

Startup Boost! Microsoft helps startups in Tier 2 cities go global

Source: Financial Express, Jan 30, 2019

Microsoft for Startups, a comprehensive global programme designed to support startups as they build and scale their companies, is keen on empowering innovative entrepreneurs in the country. From technical resources and free cloud to selling alongside Microsoft salespeople and partner channels, Microsoft is enabling the startup ecosystem in Tier 2 cities across the country to go global. Its initiative, ‘Highway to a Hundred Unicorns’, has selected 54 startups from Gujarat, Maharashtra, Rajasthan, Kerala and Telangana.

Highway to a Hundred Unicorns, the Microsoft for Startups initiative, works closely with local governments to strengthen the startup ecosystem in each state. The fifth edition of the outreach program was recently hosted in Hyderabad in association with the Telangana government. Incidentally, Telangana state, which is competing with the likes of Bengaluru, Pune and Chennai, has been modeled as the ‘startup state’ and has introduced various incentives for startups and incubators which are propellants for the startup ecosystem.

More than 650 startups have benefited from the mentorship and guidance through technology workshops on Azure, Artificial Intelligence and Machine Learning. Over 75 ecosystem players including the Global Entrepreneurship Network, TiE, Headstart, NASSCOM and Startup Grind as well as prominent investors, entrepreneurs and executives in the national startup ecosystem have actively engaged with the innovators at each of the locations.

“The entrepreneurial energy of startups is rising well beyond the known metropolitan hubs and is remarkably high in Tier 2 cities, despite the obvious challenges.

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

Microsoft for Startups is helping entrepreneurs build and scale their companies, by leveraging the cloud platform, enterprise sales team and partner ecosystem. Through its cutting edge technology expertise, strong focus on Microsoft for Startups, a growing partner ecosystem, and the venture fund M12, Microsoft is uniquely positioned to help startups evolve from being market ready to enterprise ready. “In India, the startup ecosystem is largely focused around metro hubs. But other states are also investing in their startup network. The India Inc goal is to have 100 unicorns by 2025 and our goal of ‘Highway to a 100 Unicorns’ is to go deeper and support the state governments and startups in tier 2 cities to empower them,’’ Pai says.

The ‘Emerge X’ competition provides the top 10-12 startups with an in-depth engagement.

This includes national and even global visibility alongside creating opportunities so that startups don’t have to move out of their cities to explore funding opportunities.

As Pai puts it, “The good news is that 54 startups have already been selected from the five states that we have visited so far and two of the ‘Emerge X’ winners have already received funding. We plan to reach out to more tier 2 ecosystems and accelerate their growth with Microsoft’s cloud platform to go global,” Pai explains.

Further, Microsoft ScaleUp, part of the Microsoft for Startups initiative, provides startups access to technology, mentorship and other community benefits. It has extended support to 18 startups in the last 12 months which focused on fintech, blockchain, health-tech and IoT, among others. Leveraging Microsoft’s tech expertise and global enterprise clients, the programme is designed to help startups explore emerging technologies and tap into newer markets.

Deals in growth-stage startup space climb  to  a  record  $3.1 billion in 2019

Source:, Jan 14, 2020

Investments in growth-stage startups touched a record $3.16 billion across 189 rounds in 2019, marginally up from last year’s $2.92 billion, data from Venture Intelligence showed. In contrast, growth-stage funding had doubled in 2018 from the previous year.

The year saw far larger deal size than earlier, including Series B and C rounds worth $75-150 million each.

That apart, big-ticket investors, such as private equity firms, also started participating in early investments in startups.

“A lot of private equity investors are getting interested in tech-enabled businesses, given that some of the survivors from the 2015 cohort have delivered on strong economics and growth,” said Shivakumar Ramaswami, founder, Indigoedge, a startups-focused investment banking firm.

Some of the largest growth-stage fundraises in 2019 included scooter rental firm Bounce raising $72 million (Series C); credit card startup Cred raising $120 million (Series B); MyGate, which provides security management for gated communities, raising $56 million (Series B); and real estate platform NoBroker securing $51 million (Series C).

Startup funding is expected to be tight in 2020, after the poor listings of Uber and Lyft in the US, and WeWork’s initial public offer (IPO) meltdown, where its listing plans were canned and its value was reduced by 80% within a few weeks.

Startups are also hitting the market earlier to beat the shifting investor sentiment.

“We are seeing a lot of firms trying to raise money prematurely, owing to the expectation of the market slowing down. This happens at the end of every cycle. Given this context, the companies need to be more sensible with their ask and ensure they are well capitalized rather than optimizing for price,” said Ramaswami.

Growth-stage startup funding is also buoyant given the entry of more domestic investors, indicating permanent capital, rather than foreign funds that fly in and out, and write cheques every few months.

Mint reported on 15 April last year that venture capital (VC) investors are increasingly participating in mid-stage (Series B-C) rounds, attracted by more opportunities and lower competition.

While there are dozens of dedicated seed-stage funds and a handful of late-stage investors, mid-stage has not seen dedicated pools of capital. Investors such as A91 Partners, Korea’s Mirae Global Asset Management and Iron Pillar have now targeted the mid-stage exclusively.

“Even foreign funds such as Tiger Global Management and Steadview Capital have hired people locally, to have their ears to the ground, and indicating a longer term view,” said an investor who has worked with the two funds, requesting anonymity.

Japan’s SoftBank Group, famous for writing large cheques to late-stage technology firms at huge valuations, is also changing its strategy.

It is looking at growth-stage firms, as early as Series C, and wants to write cheques from $100 million onwards in promising companies, Mint had reported last June.

Growth-stage also contributed to the overall venture capital funding numbers, which also hit a record high of $10 billion in 2019, breaching two previous records—$9.6 billion and $9.1 billion in 2018 and 2017, respectively.

The rise of business-to-business (B2B) startups, across sectors, from e-commerce to fintech and software, was also a large investing theme. Out of the $10 billion, B2B firms raised $4 billion, the highest-ever percentage at 40%, rising from the 25% last year. In 2018, B2B firms had raised $2.3 billion out of the total $9.6 billion.

Bengaluru start-ups get the most funding

Source:, Jan 03, 2020

NEW DELHI: Eight startups became unicorns in the first nine months of the previous year, including BigBasket, Delhivery, Ola Electric, US-based SaaS firm Druva Software, US-headquartered Cloud-based software developer Icertis Software, gaming startup Dream11, healthcare startup CitiusTech and logistics startup Rivigo.

According to data by YourStory Research on Indian startup ecosystem and January-September 2019 funding, investors expect India’s next batch of unicorns to emerge from the pool of B2B startups, building global solutions and attracting marquee investors like Tiger Global due to their scalability and market opportunity.

As per YourStory Research, Oyo is the top acquirer by M&A deal size, while Reliance Industries is the top acquirer by M&A deal volume. Read the rest of this entry »

Indian start-ups raised a record $14.5 bn in 1185 funding rounds this year

Source: Business Standard, Dec 27, 2019

Bengaluru: As the decade is coming to an end, it 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 start-ups.

This year start-ups raised $14.5 billion in 1185 funding rounds out of which 459 were Series A and late-stage investments, according to the ‘India Tech Annual Factsheet – 2019’ compiled by data analytics firm Tracxn. This is a significant jump from $10.5 billion raised by young ventures in 2018 and $10.4 billion in 2017.

There are 24 ‘unicorns’ or startups valued at more than $1 billion (each) and 155 ‘soonicorns’ or firms which hold the potential to become unicorns in the near future in the country. Out of these 9 ‘unicorns’ and 60 ‘soonicorns’ were formed this year, according to Tracxn. The latest entrants into the unicorn club included Bengaluru-based online grocery retailer BigBasket, Gurugram-based logistics startup Delhivery and Delhi-based eye-wear firm Lenskart whose valuation recently crossed $1.5 billion with the SoftBank deal.

This year Masayoshi Son-led SoftBank made massive investments in the Indian startups.

The biggest funding round was raised by Gurugram-based hospitality firm Oyo Rooms which received $1.5 billion in Series F financing led by investors such as SoftBank, Sequoia and Lightspeed Venture Partners. Across the city, SoftBank along with investors like Ant Financial and Discovery Capital also invested $1 billion in digital payments company Paytm.

The Noida-based firm competes with Google Pay, Amazon Pay and Walmart-owned PhonePe to tap the booming digital payments market in the country.

Business to business e-commerce, logistics and mobility companies also attracted a lot of capital from investors. This year, Delhivery secured $413 million in a funding round led by SoftBank Vision Fund. SoftBank also pumped in $250 million in Ola Electric, the Bengaluru-based ride-hailing firm’s electric vehicle arm. The deal turned the company into a ‘unicorn’ almost overnight. Another Bengaluru-based firm Udaan, a business-to-business e-commerce platform raised $585 million in Series D financing round led by China’s Tencent, giving the firm a “post-money valuation in the range of $2.5 billion.

Read the rest of this entry »