The overall funding amount raised by Indian startups is higher than in 2016 and 2017; more than $1.5 billion invested in December alone.
Investors have poured in about $9.3 billion into Indian startups so far in 2020 despite the Covid-19 pandemic upending many sectors of the economy, data from industry tracker Tracxn showed.
In December alone, more than $1.5 billion was invested across companies including food delivery app Zomato, logistics player Delhivery, and InMobi’s Glance, even at a time when deal closures usually slow as things wind down for the year. The investments have been spread across 1,088 financing rounds, according to the Tracxn data shared with ET.
In 2019, domestic startups had raised a total of $14.2 billion across 1,482 rounds from January 1 to December 23.
Although the number of funding rounds fell to its lowest in five years in 2020, the amount raised was higher than 2016 and 2017 — when investors chipped in $3.51 billion and $6.43 billion, respectively — signalling continued investor interest this year from both global as well as domestic investors.
Some of the largest venture capital firms doubled down on seed and Series A deals. There were fewer $100-million funding rounds this year (24 rounds totalling $4.71 billion), but these accounted for the bulk of deal value, Tracxn data showed. There were 28 rounds of over $100 million amounting to $7.86 billion in 2019, according to Tracxn.
The year also saw heightened mergers and acquisitions, with several corporates and strategic investors scooping up high-growth targets.
Leading the pack was the acquisition of WhiteHat Jr ($300 million) by Byju’s, and Reliance Industries NSE 0.46 %’ acquisition of online furniture retailer Urban Ladder ($24 million) and online pharmacy Netmeds ($83 million), clocking more than 20% growth in M&A transactions over the previous year.
Consumer healthcare, SMB SaaS (Software-as-a-Service), fintech, e-grocery, ed-tech and med-tech were clear winners this year, as companies realigned business models, pivoted or even shut down after the outbreak.
Big spike in seed & series A deals
“Compared to last year, 2020 has been a year of higher deal velocity. Overall, we committed to deploy 50% more capital this year than we did in the previous year,” said Hemant Mohapatra, partner at early-stage venture capital firm Lightspeed India, which has backed companies such as Oyo and Byju’s.
Over 80% of these deals have been in seed and series A stages, Mohapatra said. “Several of our portfolio companies accelerated their paths to series B+ rounds with interest coming in from global tier I funds before they even went out to raise formally. We saw more momentum, and higher check sizes at early stages across most sectors,” he added.
The lockdowns imposed during the early part of the year impacted business activity across sectors. Deal activity was slow in April ($461 million raised through 85 rounds), May ($318.5 million through 72 rounds) and June ($553 million through 68 rounds).
However, investors were back to the table in the second half of the year as the lockdowns eased across states by the end of June.
“For VCs, it has been a year of two halves. The first half was spent in supporting portfolio companies as much as possible. The second half saw businesses adapt to the new normal – and that’s why there was an increase in investing activity towards the end of the year,” said Prasun Agarwal, partner at Mumbai-based A91 Partners.
Big funding deals were seen for startups such as Byju’s, Unacademy, Zomato, Cred, Delhivery, Razorpay, Vedantu and Cars24.
The ed-tech and SaaS sectors saw company valuations ballooning, raising concerns about frothiness, both in public as well as private markets.
In contrast, deals in sectors such as offline retail, restaurant SaaS, consumer lending, consumer mobility and construction/real-estate declined sharply.
Offline services marketplaces like wedding services, agent-led feet-on-street commerce, industrial robotics, travel and hospitality also took a severe beating.
The pandemic also forced investors to pump in funds into existing portfolio companies to help them stay afloat.
“We had to support some of our portfolio firms (low single-digits) where the funding rounds fell through, with top-ups,” said Sajith Pai, director, Blume Ventures, which invests in early-stage startups.
“Many of our portfolio companies are having the best months of their life and are either closing or have closed new rounds,” Pai added.
Falcon Edge, Tiger Global, Sequoia Capital, Lightspeed Venture Partners, Accel and Steadview Capital were some of the most active venture capital investors this year, the Tracxn data showed, as these funds invested across funding stages.
“VC investors continue to be positive for India over the long term. When the investment horizons are for 5-10 years, there are always blips along the journey. Investing activity in 2020 shows that Covid-19 has not changed the long-term view on the country. In fact, technology adoption in both, enterprises and consumers have leapfrogged years, which has opened up wonderful opportunities for young businesses,” Agarwal of A91 said.