Byju’s, Zomato corner bulk of startup funds in pandemic year

Funding in startups fell sharply in 2020 as the pandemic led venture capital firms to adopt the watch-only mode, though global investors continued to back unicorns and firms that adapted to the changed business conditions.

Indian startups raised around $10.6 billion across 660 deals this year, the lowest in four years in terms of deal value, according to data from Venture Intelligence. In 2019, startup funding was at $12.5 billion across 833 deals.

Also Read | The march of 2020 in 10 key long reads

Despite the covid-led disruption, 11 startups turned unicorns in India, joining the billion-dollar or more valuation club, across sectors such as edtech, beauty and fashion, software-as-a-service (Saas) and payments.

Unicorns such as food delivery firm Zomato and edtech platform Byju’s emerged at the top of the most-funded startups this year.

Zomato raised $660 million, touching a $3.9 billion valuation, with 10 new investors coming onboard, ahead of a planned initial share sale next year. Founder and chief executive Deepinder Goyal tweeted recently that Zomato is on track to post its best-ever monthly sales in December.

“Even though certain industries were positively impacted due to the pandemic, the overall impact has been negative as majority of the startups suddenly found their business models failing with decreasing revenues, increasing burn, and shortening runway. VCs and other investors focused more on providing support to their portfolio companies and tightened their purses while waiting for effects of the pandemic to become clear, leading to a decrease in overall funding,” said Ankur Bansal, co-founder and director, BlackSoil, a venture debt fund.

Byju’s secured funds of over $1.25 billion from a slew of VC funds, hedge funds and asset management firms, catapulting its total funding to $12 billion after the last round in November, led by US-based T. Rowe Price and BlackRock. The Bengaluru-based edtech firm was valued at $10.8 billion when it raised $500 million in September from a group of investors including private equity firm Silver Lake Partners along with existing investors General Atlantic, Owl Ventures and Tiger Global.

“The Indian edtech market is expected to grow 3.7 times to become a $10 billion opportunity by 2025. Apart from the large domestic opportunity, edtech startups are actively expanding into developed regions such as North America, Europe, and West Asia,” Bansal said.

Others, however, see the edtech boom flattening out in 2021.

“Edtech did take a jump this year especially in early stage as it directly benefited from the pandemic. However, we see this even out in 2021. We have had larger funding rounds for established players and non-ed tech players like Nykaa, FirstCry and Razorpay acquired unicorn status in 2020,” said Anup Jain, managing partner, Orios Venture Partners.

Founders and investors are bullish about the coming year, more so as nearly 6-7 startups are gearing up for initial public offerings (IPOs).

“2021 will be a watershed year for the tech economy in India. While foreign investors have been extremely bullish about it, domestic investors and even large corporates have been largely bystanders past 10 years waiting for the change to reach a certain critical mass. They will now jump in or be left out of the handsome gains that will be accrued in the next 10 years, by participating in the tech economy,” said Jain.

Valuations for many companies such as edtech firms Unacademy and Byju’s surged as their sectors headed for exponential growth with direct tailwinds from the pandemic. Fintech firms such as Pine Labs and Razorpay saw large market adoption spurred by contactless digital payments. Pine Labs registered a 67% jump in monthly merchant on-boarding while Razorpay turned cash flow positive. Similarly, social platforms—InMobi-owned Glance and VerSe Innovation—focusing on personalized content in local languages are the newest unicorns.

“We continue to be bullish on personal care, packaged food and beverages and several lifestyle product categories. The pandemic and the ensuing digital acceleration have forced even incumbent players to re-evaluate their digital plans,” said Vinay Singh, founding partner, Fireside Ventures.

Anand Prasanna, managing partner at VC firm Iron Pillar said the last five years have seen an accelerating trend of global cloud software companies being built from India.

“Work from home gave a massive boost to this trend as it is becoming increasingly sensible for global cloud companies to have lot more product development, customer service, inside sales being based out of India where high quality talent for these areas are already available. We expect this to be a major trend going forward in 2021 and something where we will be making investments in,” Prasanna said.