MUMBAI: In the first six months of 2020, venture capital firms (VCs) have shown a clear preference for ed-tech startups with $795 million raised compared to $108 million in the year ago period.
While the number of deals hasn’t increased drastically, it is the only sector apart from healthcare to report a growth in number of deals according to data from Venture Intelligence research. Other sectors largely raised funding before the full impact of the pandemic started began to play out April while ecommerce reported a 70% dip in deal sizes and half the number of deals compared to the same period last year.
As of H1 2020 (data till 26 June), there have been 272 deals raising $4.1 billion across sectors compared to 393 deals worth $4.6 billion during H1 2019. H2 2019 reported a much better performance at 356 deals worth $5.4 billion. In H1 2020, most sectors raised funding before the full impact of the pandemic started in April.
Across education, startups have already raised around $795 million (25 deals) funding in H1 compared to $296 million in H2 2019 (23 deals) and $108 million (19 deals) a year ago. Edtech funding was largely led by Byju’s, now valued at $10.5 billion after Tiger Global had invested $200 million in the company in January. Last week, the company raised another round of investment from BOND, a global technology investment firm co-founded by Mary Meeker. Another $110 million investment was raised by Unacademy from Facebook and General Atlantic, valuing it at $510 million.
In response to schools being shut due to the covid-19 crisis and lockdowns, ed-tech platforms have stepped in to fill the gap in live classes to further student engagement showing some prospects to investors as well. Mint reported on Thursday that Byju's is set to hire around 4,000 employees in the next six months as demand for its online courses skyrocketed since the lockdown in March. However, experts suggest that there is scope for startups that can help schools and colleges go online in this situation as well.
Going ahead, experts are of the opinion that investments in startups will increasingly sway in favour of late stage companies, with strong unit economics, over first time founders who are still trying to stabilise their model.
Vivek Soni, partner and national leader, private equity services at EY, said there continues to be significant uncertainty in the ecosystem over the spread of the disease and consequently the government policy response, both at a central and state government level. As a result, enterprises can find themselves dealing with many different markets at different stages of lockdown and recovery.
"During such uncertain times, startups with differentiated business models are more likely to attract VC funding. Moreover, with increased scrutiny on unit economics, VC investors will be more cautious. Strong existing investors on the cap table and founders that have previously exhibited their execution skills will also find favour as differentiating factors," said Soni.
Funding across ecommerce, highest gainer last year, is down by 77% from $1764 million (66 deals) in H2 2019 to just $393 million (32 deals) in H1 2020. Funding was led by Swiggy and Zomato’s $150 million each from the likes of Tencent and Ant Financials.
Anil Joshi, Partner – Unicorn India Venture said, “Looking ahead, startups with differentiated models will find funding because VCs also look for good opportunities during these times. Early stage funding should be normal, mid-stage fund raising is likely to be difficult, more so if they were previously bootstrapped, but again growth stage startups will raise money even if it may be lower than planned."
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