What Drives Startup Fundraising in India?

Rajas Saroy, Ashish Khobragade, Rekha Misra, Sakshi Awasthy and Sarat Dhal in the RBI Bulletin article:

This article presents an analysis of fundraising by the Indian startups over the past decade, along with an overview of the venture capital financing model. The article empirically derives the important factors that determine the quantum of start-up funding at the economy-wide level as well as at the firm level.

Highlights:

1. 1. There has been an upward level shift of fundraising by the Indian start-ups post-2014. This has been contributed to by the Startup India initiative, along with other enabling policies and the increasing digitalisation of the economy. COVID-19 provided a temporary boost to fundraising.
   2. At the aggregate level, long-run start-up funding is largely driven by the excess return offered by the domestic equity market over the global benchmark, and by the level of domestic economic activity.
   3. At the firm level, unconventional factors like the educational background of founders, pre-existing relationships with institutional investors and popularity matter for fundraising, in addition to the scale already achieved and the sector of operation.

 

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