In this weekly newsletter we discuss the landscape of funding in various start-ups during these times of crisis.
COVID-19 has brought about change in almost everything. One such change is investment patterns in start-ups. 2019 was a remarkable year for start-ups which drew a record number of investors. According to research firm Tracxn, start-ups raised about $14.9 Billion in funding thus registering a significant jump from $10.6 Billion in 2018. A record of 1894 start-ups were founded last year out of which 887(50%) received funding. It’s not only about quantity but quality too. In 2019, nine Indian start-ups joined the Unicorn clubs!
The year 2020 was expected to be a great year for Indian start-ups until Covid-19 happened. Start-ups in the country raised an impressive $3 billion in fresh funding during February. As per Everest group, a Texas based consultancy firm, India sees around $1.5 billion investments per month and February was an outlier but March 2020 was surely impacted by freezing of people and economic activity.
Before the Covid-19 infused lockdown gripped India, things were looking very positive. Markets were also performing well coming out of domestic slowdown which would have generated a lot of capital, some of which would have gone into VC funding. But now most of the investment firms are looking at protecting existing portfolio companies rather than adding new ones in times of crisis. This can be seen as follows:
An interesting historical data suggests seed stage and early stage investing suffered a lot during the crisis but is fastest to recover among all stages as well. The number of deals fell from 70 to 40 in a year ago period. VC investments fell 22 per cent to $1.74 billion in value terms when compared with the same period last year.
The funding freeze has been compounded by India’s move in April to step up scrutiny of investments from overseas. However, India’s revised FDI policy is likely to hurt start-up investments. The Government of India has recently tweaked its Foreign Direct Investment (FDI) policy in a bid to limit “opportunistic takeovers/acquisitions of Indian companies” amidst the pandemic. As per the updated guidelines, any investor of a nation that shares land borders with India will now require prior government approval for making any investment in India. Some experts say this move is to curb the rising Chinese influence on home grown start-ups
China is one of the biggest stakeholders in the Indian start-up ecosystem. An industry report suggests that 18 out of 30 Unicorns in India are backed by Chinese VCs, including the likes of Tencent and Alibaba. China has made a total investment worth over $8 billion in Indian companies, which outweighs all other neighbouring countries combined.
Growing investor Interests in certain sectors:
Venture capital firms are shifting their focus on tech centric start-ups. Apart from that start-ups in Edtech, Fintech and cyber security are witnessing an increasing user demand which is luring new investors. Firms like Byju’s, Vedantu, Pharmeasy, Practo have registered an increase in business valuations during these times.
Covid-19 is like a black swan event which has generated a big shock to the startups ecosystem. Start-up founders as contacted by research firms suggest they have cash to sustain only for a few months and would require additional funding in order to sustain. Suta, Mumbai-based online clothing brand which saw sales triple for three years before India’s lockdown stopped all business, would be unable to stay afloat beyond a month and a half without a cash infusion
Cure.fit, a Bengaluru-based fitness firm which had to shut its gyms and health clinics around India slashed salaries and laid off about 800 people in recent weeks. BookMyShow, is promoting free-to-watch Instagram Live performances in an effort to keep its users engaged, while restaurant aggregator and food delivery firm Zomato is targeting a push into alcohol delivery.
Is Creativity the Need of The Hour During A Crisis Like This?
We have seen how firms get creative in order to generate any opportunity to make money. In a similar way start-up are required to be creative in order to sustain this crisis. An online apparel store reinvented its business to sell customized masks online in order to sustain. We need more creativity to build on existing business models rather than seeking government support in every aspect. The pandemic has undoubtedly affected the start-up funding scenario in India, but it has also created new opportunities for start-ups that can adapt to the current environment.
If you are an entrepreneur & have your business affected or grown drastically in the past 3-4 months, let us know how did you tackle or boost respectively:)
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