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How covid-19 has changed VC investing in India

Data on venture capital funding to Indian startups in 2020 shows both the lag effect of good times and the changes forced by the virus

Most entrepreneurs who have raised money from venture capitalists (VCs) say the time between making a pitch and signing the deal is about three months. This could stretch to six to nine months when VCs have doubts about the market opportunity or the startup’s business model. Thus, in normal times, deals announced today would have been in the works for at least three months, possibly longer.

But these are extraordinary times. Monthly data for calendar 2020 from Venture Intelligence, a research firm, on VC funding to Indian startups shows the presence of both the lag effect of good times and changes forced by the virus. VC investments, both in terms of number of deals and value of investments, have been dropping in calendar 2020. The same set of VC majors is driving the funding, but there is movement in the pecking order of sectors.

In January and February 2020, VCs invested more in Indian startups compared to the same period last year. On January 30, India registered its first case of coronavirus. But it wasn’t till the second half of March that the government started going into overdrive to contain the virus. That’s when Indian startups got busy measuring their ‘runway’—the number of months they could survive without funding—and updating their pitch decks for more funding. The layoffs followed at Ola, Uber, Swiggy, Zomato, Paytm, Paisa Bazaar...

March onwards, each month has seen fewer VC deals and smaller amounts, compared to the corresponding month of 2019. Several of these were ‘in-rounds’, or VCs pumping money into existing portfolio companies. May was especially brutal. The number of deals fell from an average of 50 a month between January and April to 20 in May. And the amount invested in May 2020 was about one-fourth of that invested in May 2019. June, though, has seen a slight pick-up.


The sector drivers have changed, mirroring changes in habits brought on by the pandemic. Fintech, healthcare, education and food have been the leading sectors in 2020 in terms of investments. In less than six months, for example, education startups have already raised 96% of the amount they raised in all of 2019.

E-commerce has been the big loser, going from raising more than a billion dollars in each half of 2019 to $202 million in the first half of 2020. E-commerce companies faced restrictions on what they can deliver to their customers during the early phases of the pandemic-induced lockdown, and in general have faced an uncertain regulatory environment in recent times. Venture Intelligence defines venture capital investments as seed to series F investments (by institutional investors) in companies less than 10 years old.


In 2019, about 60% of startups that were funded were early-stage startups (as opposed to growth-stage or late-stage companies). But in value terms, early-stage received only about 10% of all VC investments. In 2020, this has increased to 16%. Startups in early stages depend almost entirely on VC funding as they tend to have little or no revenues. However, in later stages, once they start earning revenues, they seek VC funding for growth. With uncertainties around Covid, many growth and late-stage startups are scaling down their ambitions and cutting costs to extend their runways.

Amid these changes in the landscape of VC investing, the cast of leading VCs has mostly remained the same. VC firms with larger portfolios, led by Sequoia and Accel, continue to lead, especially given the demand from funded startups for additional funds. But unless deal activity picks up in the second half, most leading VCs are looking at a sharp drop in number of deals this year. For example, Sequoia, whose portfolio includes Unacademy, Bounce, MoneyTap, Khatabook and MedGenome, did 80 deals in 2019. This year, till June 16, it had closed only 27 deals.


Since 1998, there have been three occasions when VC investments suffered setbacks of some severity. The first was the dotcom crash of 2000, and it took the Indian industry five years to regain pre-crash investment levels on a calendar year basis. The second was the credit crisis of 2008, and recovery then took two years. The third was 2016, when big tech (companies such as Amazon, Alibaba and Tencent) took to making direct investments in India in a big way.

Arun Natarajan, founder of Venture Intelligence, feels a clearer picture on funding of new companies and larger rounds is likely to emerge only as businesses and consumers adjust to the post-lockdown return to “normal work-life". “Several experts have predicted a W-shaped recovery, including a potential spike in new cases and further lockdowns, like in Chennai," he says.

At the moment, 2020 is not looking good for VCs. A survey by IT industry association Nasscom of 250 technology startups done in April 2020 has projected a wide range of impact duration for different sectors: 4 months (telecom and health tech) to 9 to 12 months (retail and travel).


It's been three months since the pandemic-induced lockdown, and startups and VCs wait on tenterhooks.

howindialives.com is a search engine for public data

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