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New Delhi: Venture capital (VC) funding in India will likely stay strong this year, carrying on the sharp recovery in investment activity to pre-covid levels during the second half of 2020 after a nearly 60% drop in deal value between April and June last year, according to a report by consultancy firm Bain & Co.

India-focused VC funds raised about $3 billion last year, 40% more than 2019 despite the widespread disruptions caused by the pandemic. The number of active VC funds also grew, with the emergence of new funds such as Inflection Point, Avataar Ventures, Coatue, D1 Capital, while seasoned funds including Sequoia, Elevation Partners, Falcon Edge, and Lightspeed also closed new funds for India investments in 2020, the report noted.

“VC investments continued at pace in 2020 and were back to pre-covid levels after a dip in April to June. More importantly, we saw a higher number of VC deals take place in 2020 compared to 2019, even as the average size of deals declined, which tells us that the startup environment continues to be robust, with a number of new startups getting funded within the year. We saw growth in seed stage deals as well, compared to last year," said Arpan Sheth, partner, Bain, and co-author of the report.

Last year’s high level of fund-raising was also fuelled by the successful closing of two big funds by Sequoia Capital: India Venture Fund VII ($525 million) and India Growth Fund III ($825 million), making up 40% of all funds raised in 2020 for India-focused VC deals.

Sequoia also invested in the highest number of startups last year, whereas Tiger Global was the most prominent investor by deal value, participating in several deals of more than $100 million each.

India is among the top five startup ecosystems globally with the number of startups growing by around 7,000 in 2020 and the number of seed-stage deals growing by about 13%, with a dozen new companies achieving ‘unicorn’ status in 2020, the most in a year, according to the report. Razorpay, PineLabs, Zerodha, and Postman are among startups to join the coveted unicorn club in 2020.

Consumer tech, software as a service (SaaS), and fintech continued to dominate the investment tally, accounting for 75% of VC investments last year, up from 65% in 2019, with 14 of 22 VC deals being more than $100 million in size. SaaS in particular saw clear signs of maturity, with average deal size growing to $25 million in 2020 from $14 million in 2019.

“We are sure with the rising interest of global LPs (limited partners) and the sensitizing environment for domestic LPs, family offices, corporates and Government Fund of Funds, the VC, PE funds will take off and many more successful exits plus unicorn/decacorn announcements are awaiting in 2021-22," said Rajat Tandon, president, India Private Equity and Venture Capital Association.

On exits, while overall exit value fell from $4.4 billion in 2019 to $1.3 billion in 2020, Bain expects recovery over the next 1–2 years as portfolios of top VC investors mature.

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