What COVID-19 crisis means for India’s startup funding ecosystem in 2020

By Apoorv Ranjan Sharma

The yr 2019 was a blockbuster one for startups in India, drawing a report variety of worldwide traders. According to analysis agency Tracxn, the startup neighborhood raised about $14.5 billion in funding – a big leap from $10.6 billion in 2018. Data from Tracxn additional reveals that 1,894 startups have been based final yr, out of which practically 50% (887) obtained funding.
Also in 2019, 9 Indian startups joined the Unicorn membership and 4 obtained publically listed. OYO Rooms, Paytm and Udaan have been among the many startups to seize essentially the most precious offers, adopted e-commerce participant Delhivery.

Naturally, the expectations from 2020 have been excessive, if not even increased. Although the yr began off effectively for startups and traders alike, the outbreak of novel coronavirus or COVID-19 quickly dampened their spirits. With many sectors coming to a close to halt, budding ventures started anticipating the worst – a extreme liquidity crunch. As it seems, their fears have been justified. Public markets are crashing and enterprise capital funds have grow to be extraordinarily cautious in the direction of their spending. Deep-pocketed world traders, too, have determined to place off some massive offers for the time being. But whereas the general state of affairs appears grim proper now, allow us to see how the pandemic is impacting India’s startup funding state of affairs.

Funding actions dropped drastically in March
Startup funding for March 2020 dropped by over 50% as in comparison with the earlier month, reveals knowledge from Venture Intelligence. The startup knowledge tracker reported that Indian startups managed to boost solely $354 million throughout 34 offers, down from $714 million secured in February throughout 46 offers. At $1.74 billion (throughout 126 offers), startups additionally noticed a 22% year-on-year decline in investments for the primary quarter of 2020. The numbers mirror a big slowdown in funding actions, primarily brought on by a sluggish financial system coupled with the continuing nationwide lockdown.

India’s revised FDI coverage more likely to damage startup investments The Government of India has not too long ago tweaked its Foreign Direct Investment (FDI) coverage in a bid to restrict “opportunistic takeovers/acquisitions of Indian companies” amidst the pandemic. As per the revised tips, any investor of a nation that shares land borders with India will now require authorities approval for making any funding in India. While the transfer to curb hostile acquisitions is well-intended, it may well create a further funding impediment for home-grown startups.

This is as a result of China is likely one of the largest stakeholders in the Indian startup ecosystem. Industry stories counsel that 18 out of 30 Unicorns in India are backed by Chinese traders and VCs, together with the likes of Tencent and Alibaba. China alone has made a complete funding value over $eight billion in Indian corporations, which outweighs all different neighbouring nations mixed. Now that it has been mandated for all Chinese traders to get authorities nod, bigger funding rounds will probably take longer than typical to shut. It can be anticipated that funding will dry up, including to the woes of startups which might be already scuffling with money circulation.

Growing investor curiosity in sure sectors
The COVID-19 crisis has introduced a change in startup funding patterns. Venture capital corporations are shifting their focus from tech-centric startups to those working in sectors akin to FMCG, on-line grocery supply, dwelling leisure and many others. Apart from that, startups in EdTech, FinTech and cyber safety are witnessing an growing consumer demand, which in flip is luring traders. Also, the federal government itself is providing Indian startups $130Ok to develop an encrypted video conferencing answer after that may work on a number of platforms.

The pandemic has undoubtedly affected the startup funding state of affairs in India, however it has additionally created new alternatives for startups that may adapt to the present setting. Some corporations are already displaying trend-defying progress, which is giving a ray of hope to VCs and angel traders.

While it’s too early to gauge the long-term impression of coronavirus, we will anticipate a constructive flip in the direction of the top of the yr. However, in order to realize that, a concerted effort is required from the federal government together with VCs and corporates.

Apoorv Ranjan Sharma is Co-Founder and Managing Director, 9Unicorns.

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