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Why 2021 could birth many IPOs by local startups

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Photo: Mint

Indian startups raised about $12.8 billion across nearly 1,350 funding rounds from investors last year, as per data from Tracxn Technologies. Though deal value and volumes in 2020 were lower than those in 2019, the new year is expected to bring a sea change. Mint explains.

Indian startups raised about $12.8 billion across nearly 1,350 funding rounds from investors last year, as per data from Tracxn Technologies. Though deal value and volumes in 2020 were lower than those in 2019, the new year is expected to bring a sea change. Mint explains.

What do the numbers say about sentiment?

Despite a drop in deal volume and in overall investments, numbers are still surprisingly healthy for a pandemic-hit year. When the covid-19 crisis had begun in March 2020, public markets collapsed across the world and investors froze private investments. India had put restrictions on investments from China. Between March and June, when a nationwide lockdown was imposed, deal-making remained suspended. However, as the lockdown ended, deal-making picked up rapidly, especially in the second half. By the end of 2020, nearly a dozen startups had become unicorns—the most in any year.

What were the reasons for funding to stay up?

Macro factors played an important role. The surge in public markets led by the US helped shore up investor confidence. Low interest rates also allowed investors to maintain risk investment funding. The biggest reason was that covid triggered an acceleration of digitization across sectors. Digital education, enterprise software, content and logistics were the biggest beneficiaries, while sectors such as cab and bike aggregation and financial technology struggled to attract capital. Some of the biggest fund-raises included $660 million by Zomato; $500 million by Byju’s; $300 million by Firstcry; and $225 million by Dream11.

Funding trend
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Funding trend

Where does RIL fit amid this funding scenario?

Reliance Industries Ltd (RIL), which raised a mammoth $26 billion last year (not included in the Tracxn data) for its digital and retail ventures, has become a major player in India’s internet ecosystem. Many of the its consumer-facing services may start rolling out this year. RIL has already bought several startups and is competing with incumbents in a wide range of sectors.

What does 2021 look like for the startups?

For now, startup funding may continue to be strong because of the glut in available capital. Till covid prevents a complete return to normalcy, sectors like digital education, content and software will prosper. Others like consumer transportation will pick up only when the pandemic is largely over. Speed of vaccination programme, the fate of proposed initial public offerings by leading startups, the performance of companies that have raised huge funds, and the strength of consumption would determine funding, going ahead.

What’s the excitement for IPOs all about?

IPOs are the holy grail for startups. But apart from a few exceptions like Makemytrip and Indiamart, Indian startups have failed to go public. Companies have built weak business models that yielded huge, increasing losses every year. That is now changing, albeit slowly. A handful of profitable firms like Freshworks, Druva, PolicyBazaar and Delhivery have announced plans to list their shares in the near future. If they are able to pull off successful IPOs, it will mark a turning point that will lead to more capital for Indian startups.

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