India Deal Review: Startup funding dives 52% in May amid COVID-19 crisis

Photo: Reuters

Hit hard by the coronavirus pandemic, Indian startups raised a mere $330 million in venture capital and private equity financing across 71 transactions in May. This is a drop of about 52 per cent over April, when they collectively garnered about $692 million across 74 transactions, according to proprietary data compiled by DealStreetAsia.

The fundraising has been on a decline in India since March this year as a result of the novel COVID-19 outbreak in the country. The virus originated in Wuhan district of China – the outbreak of which was made official on December 31, 2019. On March 25, India went into a nationwide lockdown to prevent the spread of COVID-19, the devastating impact of which has started to reflect on the startup ecosystem. 

Cut to January 2020, a few months before the virus loomed large on the country. Dealmaking was on a roll and the total funding garnered by startups then stood at $1.45 billion, followed by $1.5 billion in February, and $1.38 billion in March. The number of deals, however, remained almost stable through these months. 

In May, the largest funding round of $60 million was raised by Khatabook, a digital ledger app that helps micro, small and medium-sized businesses track business transactions. The round was led by equity investing firm B Capital Group. However, the value of about 20 transactions during the month was not disclosed.  

As lockdown measures persisted through May, startups continue to see a drop in financing, especially those in later stages. In a survey of  9300 Indian startups in May, Nasscom found that 40per cent have had to temporarily shut down or wind up operations. The B2C sector has taken the hardest hit, with 60 per cent of the startups facing closure. The industry body further observed that 60 per cent of startups are seeing their revenues decline by as much as 40 per cent.

In its survey, Nasscom also highlighted that about 70 per cent of startups have cash to last for just about three months and another 22 per cent have money in the bank for three-six months. 

Financial services tops funding

The financial services industry led the deal volume and value in May by raising at least $152 million through 13 transactions, accounting for 46 per cent of the total funding value. As most people were stuck at their homes due to the lockdown guidelines, it isn’t surprising that media companies picked up at least $37 million through three deals. 

After the media industry, logistics & distribution companies garnered the highest funding at $29 million through four transactions. With the lockdown, supply chain companies saw sharp increases in online purchases, increasing the demand for fulfilment.

The B2C sector will hopefully start seeing some relief as India has stepped into Phase 1 of reopening. This phase has allowed the reopening of religious places, eateries, and restaurants as the state governments go easy on restrictions.  

Another industry, which has done quite well in the recent past, is education and training. Edtech startups are cashing in on the current CoOVID-19 situation and are conducting online classes for students as schools nationwide remain shut. Some of the top funding grocers in the edtech space in the previous months, include Byju’s Unacademy, and Vedantu.

Lockdown fuels media/entertainment biz

Apart from the financial services industry, the media industry saw increased investor interest. Digital media startups attracted the majority of the funding within the media industry. The top grosser was Dailyhunt, a digital media content provider, that raised $35 million in its ongoing Series G funding round led by James Murdoch-led Lupa India. 

E-sports startups, including Rooter and Fanbuff Esports India, also attracted significant investor interest as their viewership skyrocketed amid the COVID-19 outbreak. Gaming companies and platforms are cashing in on the opportunity as people are being forced to stay home and practice social distancing. Global esports revenues will surpass $1 billion in 2020 for the first time, according to market researcher Newzoo.

The food industry saw lesser funding in May compared with April. This is because restaurants and hotels kept premises shut during the lockdown. A few food delivery startups, including Zomato and Box8, have even started to offer groceries on their platform to tide over these turbulent times. The country is currently in the fifth phase of lockdown, which has allowed gradual opening up of shopping malls and restaurants with certain restrictions. 

Growth-stage deals nosedive

In terms of value, growth-stage startups led funding in May. Companies at and post-Series B round collected an aggregate of about $177.8 million – about 54 per cent of the total deal value – through 12 investments. This is less than half of $390.55 million raised by startups through 21 investments in April. 

The growth- and late-stage startup funding have been worst hit due to the pandemic, and the future, too, looks bleak as the COVID-19 virus outbreak could stretch beyond a few months. Moreover, a slew of growth-stage companies that were in talks with Chinese investors for financing will have to wait as India has tightened FDI norms for neighbouring countries. Revisions were made to the policy to prevent hostile takeovers.

Meanwhile, investors are also becoming more and more cautious about investing in early-stage startups, and are taking more time than usual for conducting due diligence. Early-stage investments contracted again in May with only $9.26 million raised in the pre-Series A round and $17.32 million in the Series A round. 

Most active investors

Sequoia Capital has been occupying the top slot since the beginning of this year. In May too, it topped the investors’ list by backing at least three Indian startups including, Khatabook, Bira91, and Bankbazaar. This is a steep drop from April, when the Silicon Valley investor had invested in at least 11 startups. 

Despite the economic slowdown, however, Sequoia remains bullish on India’s thriving ecosystem. The firm was last reported to be seeking to raise about $7 billion for a set of venture funds across China, India and the US.

In an interview with Entrepreneur Asia-Pacific, Rajan Anandan, Managing Director, Sequoia Capital India LLP, said while sectors such as international travel and hospitality will likely take a long time to recover, the pandemic has opened up opportunities for edtech, digital health, health and hygiene products and e-commerce operators, among other. 

Other prominent venture firms, including Matrix Partners, Falcon Edge, RTP Global, Omidyar Network, and Innoven Capital clinched at least two deals each. 

50-million-plus club shrinks

The only startup to make it to the 50-million-plus club in the month was KhataBook, which raised $60 million in Series B round of funding led by B Capital Group, with the participation of Sequoia India, Partners of DST Global, Tencent, and others. 

The number of 50-million-plus deals stood at three in April and March respectively. 

The beginning of the year, however, saw some of the companies raise mega-rounds in the first quarter of this year, including Oyo Hotels and Homes ($807 million), ReNew Power ($450 million), and FirstCry ($300 million). 

In our monthly analysis, we have put together detailed charts and analysis of prominent deals, active investors, deal stages and the most attractive sectors that have garnered the maximum venture dollars in India from May 1-31, 2020.

We have also introduced a standardized system for industrial classification. The system currently includes over 50 industries, as well as more than 45 new economy and high-tech verticals that will progressively increase to adapt to local market conditions in our closely watched areas of Greater China, Southeast Asia, and India.

Sarah McLellan contributed to this story.

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.