Home to more than 3,000 fintech startups, India has seen M&A activity in the space accelerate in recent years, setting the pace for the entire Asia-Pacific region.
Firms are benefitting from a benevolent approach by the Indian government, which has been promoting a healthy startup ecosystem via the introduction of financial incentive schemes such as startup grants, sandbox grants, proof-of-concept grants, accelerator grants, etc.
And the data reflects the positive climate. Generating USD 1.94bn via 24 deals in 2023 year-to-date (YTD; to 19 October) – the fifth largest amount on Mergermarket record – India currently leads APAC in terms of deal volume in the fintech sector.
Funding previously had been directed towards payment/credit apps such as reward-based credit card payment app Cred or digital payment app Slice, explains Vikram Chachra, founding partner at 8i Ventures, a Mumbai-based early-stage venture capital (VC) firm.
This manifest in most funding being late-stage in nature, he says, and fund-raising in a range of USD 200m-300m has been particularly problematic, with most investors only wanting to come in at lower valuations.
New kids on the block
Since the onset of the coronavirus (COVID-19) pandemic in early 2020 to date, 65% of investment in fintechs has been conducted through funding rounds followed by stock-exchange listings and private sales, respectively.
The largest deals since 2019 include: KinerjaPay Corp PT’s acquisition by Investa Wahana Group for USD 200m in a share placement in January 2019; in December 2020, Walmart [NYSE:WMT] acquired a 12.73% stake in PhonePe Internet for USD 700m in a funding round; Pine Labs received funding in May 2021 from several investors totaling USD 600m; Dreamplug Technologies landed Sequioa Capital-backed Smallcase Technologies in August 2022 for USD 400m; and in August 2023, Vijay Shekhar via his Netherlands-based entity, Resilient Asset Management, snapped up a 10.3% stake in Paytm from Antfin.
In this revitalized atmosphere of increased investment, several new buyers are emerging and numerous funds have been launched.
Pratekk Agarwaal, a former chief business officer at BharatPe, launched GrowthCap Ventures in August and plans to invest in 12-15 startups over the next two years, focusing on fintechs. Also in August, Bengaluru-based VC growth firm Elev8 Venture Partners announced a first close for its Elev8-Capital Fund 1, and the company is targeting 12-14 startups in sectors such as consumer tech, enterprise software, fintech, and healthtech.
In September, B2B SaaS-focused VC firm Pentathlon Ventures launched its second fund, with a targeted capital pool of INR 4.5bn, aiming to invest in 25 B2B SaaS startups operating across a spectrum of industries including fintech.
Roll credits
The growth of Indian fintechs, which has coincided with the emergence of industry unicorns, has seen valuations soar despite deal counts remaining low. According to Mergermarket data, there were 64 deals worth USD 1.2bn in 2019, 106 deals for USD 2bn in 2020, 72 for USD 5.6bn in 2021, 79 for USD 3.1bn in 2022, and 24 for USD 1.9bn in 2023 YTD.
Moreover, there has been another noticeable trend. “We are in the early stages of digital credit,” opines Chachra. He expects industry consolidation to result in the democratization of credit, particularly sachet credit.
Chachra adds that there is a probability of all loans becoming digital, with credit origination shifting to apps from bank branches. Given that these apps are owned by fintechs, this should in turn drive the digital origination of loans, and the next wave should ensure future funding rounds are much bigger.
