India Deal Review: Startups raise $4.33b in Q1, COVID-19 clouds future outlook

Photo: Reuters

Indian startups raised at least $4.33 billion across 229 venture capital (VC) and private equity (PE) investments in the first quarter ended 31 March 2020, according to proprietary data compiled by DealStreetAsia.

The key growth drivers were hospitality, financial services, edtech and e-commerce sectors, the data shows. Fundraising was lowest in March at about $1.38 billion, compared with $1.5 billion in February and $1.45 billion in January.

The following quarters will, however, be a true reflection of how COVID-19 has impacted dealmaking in India, which went into a complete lockdown starting March 25. Amid this continuing uncertainty, businesses across the board have been forced to change or pause their operations, which, in turn, has disrupted hiring and budgeting.

“While Sequoia India and a few other funds will continue to invest, it is true that for the next few months, the overall VC ecosystem will be quieter. So fundraising will largely be a concern. However, it’s also a time when certain countercyclical sectors will see some really strong companies emerge. So we will still see continued activity in the early stages, particularly in seed and Series A. Though of course, the bar for new investments will go up,” GV Ravishankar, Managing Director, Sequoia Capital India LLP, told DealStreetAsia.

The joint investment by Japanese conglomerate SoftBank and RA Hospitality in Indian hospitality major Oyo Hotels & Homes (OYO) marked the single largest deal, accounting for over 18.5 per cent of the total deal value in Q1.

With hospitality among the hardest hit sectors, OYO this month announced that it is freezing operations around the world and furloughing thousands of employees as it reels under the effects of the pandemic. The Ritesh Agarwal-led unicorn has more than $1 billion of cash in the bank and is exploring options to remain viable for at least the next 36 months, per a recent Bloomberg report.

Overall, the hospitality sector witnessed only three deals during the quarter.

Startups in the financial services sector, including fintech and insurtech, were among the major beneficiaries of venture capital funding with as many as 48 transactions worth a total of $786.35 million.

Meanwhile, edtech startups together garnered $584.52 million through 23 transactions. Byju’s, which raised $200 million from New York-based investment firm Tiger Global at a reported $8-billion valuation in January, led the fundraising charge within the sector.

The next most funded sector was e-commerce, which raised $548.1 million through 20 transactions, while foodtech startups raised $296.93 million across 12 deals. Together, the four segments – hospitality, financial services, edtech and e-commerce – mopped up about $2.73 billion, or about 63 per cent of the total deal value in Q1.

E-commerce, hospitality, foodtech set to take a big hit

While the nationwide lockdown may have thrown up an opportunity for online grocers, the rest of the e-commerce industry has come to a grinding halt. The halt in sales of non-essential items due to the coronavirus-led lockdown will cost e-commerce majors a $1 billion hit in gross sales, the Times of India recently reported quoting market research firm Forrester.

The virus outbreak has had wide-ranging ramifications for other sectors too, including marketing, advertising, travel, entertainment, and FMCG. Online travel firms such as MakeMyTrip, Cleartrip and hospitality firms Fab Hotels have reportedly laid off numerous employees amid the lockdown.

Hospitality major OYO, which was on a major expansion spree last year, has, too, hit a speed-breaker. The company’s revenues have dropped by 50-60 per cent as a result of the virus outbreak, it said recently. Since its inception in 2012, OYO has aggressively expanded to 800 cities in 80 countries, including the US, the UK, and the Middle East.

Meanwhile, FMCG majors have partnered with online platforms to stay afloat. Marico has partnered with Zomato and Swiggy to distribute its portfolio under the Saffola brand. Similarly, Britannia Industries has tied up with e-commerce platform Dunzo to distribute its products.

Within foodtech, both Zomato and Swiggy are going through turbulent times. According to a recent report in the Economic Times, online food delivery orders for Zomato and Swiggy have dropped 70 per cent to under 1 million a day. To make up for this loss, Zomato has started delivering groceries online under a new initiative to shore up revenues.

Meanwhile, online grocers are making the most of the sudden spurt in consumer demand. BigBasket has reportedly seen demand for groceries rise three to five times following the nationwide lockdown.

The edtech sector, too, has witnessed significant traction in the past few weeks. As educational institutions across the country have been asked to shut down until further notice, edtech startups such as Byju’s, Vedantu, Toppr, and Lido Learning have started offering online courses for free to help students keep learning remotely.

Byju’s, the world’s most valuable edtech company, has witnessed a 150 per cent increase in the number of new students learning on its app after announcing free access in March 2020. Another edtech startup, Coding Ninjas, which focuses on teaching coding and other programming related courses for beginners, claims to have recorded a 150 per cent increase in its admissions for March 2020.

Growth-stage deals lead the pack

Companies at and post-Series B round collected an aggregate of about $2.89 billion – nearly 66.7 per cent of the total deal value – through 46 transactions in the Jan-March quarter.

Prominent growth-stage deals during the quarter included health and fitness startup Cure Fit Healthcare’s $109-million Series D round led by Singapore’s Temasek, SoftBank’s $300 million investment in FirstCry’s Series E round, healthcare data platform Innovaccer’s $70-million Series C round, Swiggy’s $113-million financing led by Naspers, and Unacademy’s $110-million Series E funding led by Facebook and private equity major General Atlantic.

Coronavirus cases in India have surpassed the 12,000 mark and claimed over 400 lives so far. If the crisis persists for long, growth and late-stage financing rounds may get impacted, according to industry experts.

“The market for Series B and above might slow down in comparison. That space gets less capital in general and is historically more dependent on global investors. So companies in a slightly later stage need to moderate their fundraising expectations and extend their cash runway,” Ravishankar added.

Late-stage investors had already become cautious after the WeWork debacle and Uber IPO, and had started to push their portfolio companies towards profitability.

“Early-stage funding will likely rebound faster even as later-stage funding recovers slowly given that their LP sentiment is pegged to stock markets. However, the investment hypothesis across the board will require significant revision. Some firms will use COVID as a trigger to strike out a more independent path even as others revert to herd-driven decisions,” Vivek Durai, founder of business signals platform Paper.vc, said.

Indian startups raised about $194.9 million through 56 pre-Series A and Series A rounds in the first quarter. Seed-stage startups raised a total of $57.7 million through 55 deals while angel and pre-seed funding deals raised a total of $8.95 million through 14 transactions.

Most active investors

Storied venture capital firm Sequoia Capital remained the most active VC firm in the quarter having invested in at least 20 startups.

Some of the companies it financed during the month include fintech startups Leap Finance and FamPay, edtech startups Classplus and Unacademy, SaaS-based startup Whatfix, healthtech startup Qure.ai, mother care products brand Mamaearth, e-sports streaming and community platform Rheo TV, neobank epiFi and app-based credit line MoneyTap, among others.

“From Sequoia India’s perspective, the firm has always been balanced and centred – being consistent in our partnerships through bull and bear markets. We believe there will still be great founders and great startups worth backing – and that some of the best companies are created in the most challenging times,” Ravishankar said.

Expand Table

Investment CompanyDeal VolumeTotal Value of Particpaited Deals (USD)
Sequoia Capital20433.1 million
Accel12409 million
Tiger Global6440.5 million
InfoEdge623.92 million
Sprout Venture Partners 55.95 million
Steadview Capital4283.3 million
Chiratae Partners4220 million
Omidyar Network India4147 million
Matrix Partners India452.4 million
Alteria Capital461 million
Blume Ventures 3123 million
Trifecta Capital38.52 million
SoftBank 21,107 million
General Atlantic2310 million

Venture capital firm Accel was the second most active investor backing at least 12 startups in Q1, including healthtech startup CureFit, calling platform QTalk, payments platform Juspay Technologies, video commerce platform SimSim, and used cars online marketplace Spinny. New York investment firm Tiger Global, which has been on an investment spree in India since last year, participated in six deals during the quarter.

Meanwhile, SoftBank participated only in two funding deals during the quarter — OYO and FirstCry — totalling $1.1 billion.

VC deals worth $50m and over

There were at least 20 startups, which made it to the $50-million-plus club in Q1 while there were at least 10 startups who garnered over $100 million in funding during the quarter, including OYO, CureFit, Swiggy, FirstCry, Byju’s, Zomato, and Unacademy.

The number of startups who made it to the $100-million plus club stood at two in March, as against four each in January and February.

Expand Table

StartupHeadquarterInvestment Size (USD)Investment StageLead Investor(s)Other Investor(s)Sector
OYOGurugram807 millionSeries FSVF India Holdings, RA Hospitality-Hospitality
FirstCryPune300 millionSeries ESoftBank-Retail/E-Commerce
Byju'sBengaluru200 million (reported)-Tiger Global-EdTech
Byju'sBengaluru200 million (reported)PEGeneral Atlantic-EdTech
ZomatoGurugram150 millionPEAnt Financial-FoodTech
HighRadiusTexas, Hyderabad125 millionSeries BICONIQ CapitalSusquehanna Growth Equity, Citi VenturesSoftware & Services
SwiggyBengaluru113 millionSeries INaspersHadley Harbour Master Investments, MeituanFoodTech
UnacademyBengaluru110 millionSeries EFacebook, General AtlanticSequoia India, Nexus Venture Partners, Steadview Capital, Blume Ventures, Kalyan Krishnamurthy, Sujeet KumarEdTech
CureFitBengaluru109 millionSeries DTemasek Holdings Pvt Ltd.Accel Partners, Chiratae Ventures, Castle Investments, Unilever Swiss Holdings, Epiq Capital, Pathiti Investment Trust, GableHorn Investments, Ascent CapitalHealth & Wellness
Biocon BiologicsBengaluru100 millionPETrue North-Pharamaceutical
BounceBengaluru97 millionSeries DAccel India, B CapitalSequoia Capital, Chiratae Partners, Omidyar Network, Vistra ITCL, SCI Investments, Qualcomm VenturesTransportation
ZinierUS, Bengaluru90 million Series C ICONIQ CapitalTiger Global Management, Accel, Founders Fund, NGP Capital, Newfund Capital, Qualcomm VenturesSoftware & Services
Digit InsuranceBengaluru84 millionEquityFaering Capital, TVS Capital, A91 Partners-InsurTech
BharatPe New Delhi75 millionSeries CCoatue Management, Ribbit CapitalAmplo, Insight Partners, Steadview Capital FinTech
Innovaccer Inc.Noida, San-Francisco70 million Series CSteadview Capital, Tiger GlobalDragoneer, Westbridge Capital, Mubadala, Microsoft’s M12HealthTech
MoneyTapBengaluru70 millionSeries BAquiline Technology Growth (ATG), RTP Global, Sequoia IndiaPrime Venture Partners, MegaDeltaFinTech
Fusion MicrofinanceNew Delhi69.6 millionSeries FWarburg Pincus, Creation Investments Capital Management Llc.-Financial Services
LivspaceBengaluru60 million Series DTahoe Investment Group, Mercer Investments, EDB Investment, Kharis Capital, Nicholas CatorE-Commerce
PhonePeBengaluru60 million-PhonePe Private Limited-FinTech
Rupeek FintechBengaluru60 millionSeries CGGV CapitalTanglin Venture Partners, BTB Ventures, KB Investment Co.Financial Services
Vivriti CapitalChennai50 millionSeries BLGT Lightstone Aspada-FinTech

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.