India Deal Review: Startup funding plunges 68% in Q2 to $1.41b

Photo: Reuters

Indian startups raised $1.41 billion through 194 venture capital (VC) and private equity (PE) investments in the second quarter ended 31 June 2020, down 68 per cent from the first quarter this year, according to proprietary data compiled by DealStreetAsia.

In the first quarter, startups mopped up at least $4.33 billion through 229 VC and PE transactions. While the impact of coronavirus on startup funding is unlikely to wither away anytime soon, investors continue to loosen wallet strings for financial services, education, and software startups.

SaaS startup Postman’s $150-million financing round marked the single largest deal during the second quarter. Apart from Postman, the other startup to make it to the $100-million-plus funding club was Delhi-based non-banking financial company DMI Group. In contrast, at least 10 startups garnered over $100 million in the first quarter, including OYO, CureFit, Swiggy, FirstCry, Byju’s, Zomato, and Unacademy.

As investors tread cautiously and shy away from taking up new, bigger deals in the COVID era, the primary challenge facing the startups is survivability, feel experts. Many startups have reportedly shut shop across the world, while others have implemented cost-saving measures, including workforce reduction.

The quarter also saw one of the biggest moves taken by the Indian government to ban 59 Chinese applications, including top social media platforms such as TikTok, WeChat and Helo. India also tightened FDI rules for its neigbouring countries, including China, which poses a risk to Chinese investments in Indian startups.

The government has also banned 47 more apps that were operating as the clones of the 59 apps that were banned in June, according to a recent tweet posted by DD News.

Financial services, food among major beneficiaries

Startups in the financial services, food, software, education, and media industries were among the major beneficiaries of venture capital funding in Q2.

Startups in the financial services industry collectively garnered at least $397.42 million through 37 million transactions in the second quarter compared to $786.35 million through 48 transactions in Q1.

COVID-19 has had a very significant impact on the financial services industry in India and globally. The Reserve Bank of India has, however, rolled out several measures to give some relief to the lending institutions in the areas of liquidity and regulation.

 

The food industry remained the most funded raising $252.69 million through 21 transactions while software startups mopped up $177.41 million through 16 transactions. Within food, BigBasket raised the largest round of $50 million in debt funding from China’s Alibaba Group.

Other food startups to have secured funding during the quarter include Swiggy, Zomato, Happytizers, Teamonk Global, Bira91, and Hoi Food Concepts. To offset the impact of coronavirus, some online food ordering companies, including Zomato, also switched to online delivery services for grocery and food during the quarter.

Other industries to have fared well even amid the pandemic include education/training, which raised $77.36 million through 20 transactions in Q2, against $584.52 million through 23 transactions in Q1 led by edtech unicorn Byju’s.

Since the countrywide lockdown in March, edtech companies including Byju’s, Unacademy, and Vedantu have reported major spikes in user registrations and engagement.

Media startups raised $70.63 million through nine transactions in Q2. News and local language content platform Dailyhunt raised the largest amount of $58.5 million across two rounds in April and May, respectively.

Social distancing norms fuel fintech growth

Fintech companies garnered the maximum funding of $310.6 million through 29 transactions led by South Korean gaming company Nexon’s $123 million infusion in New Delhi-based diversified financial services company DMI Group.

In May, Khatabook, a digital ledger app that helps micro, small and medium-sized businesses track business transactions, had raised a $60 million round led by B Capital Group.

As people strictly practise social distancing, there has been tremendous growth in digital payments and transactions this year, accelerating the growth of fintech startups.

While the nationwide lockdown may have thrown up an opportunity for online grocers, the rest of the e-commerce industry had come to a grinding halt in the first 2-3 months of the outbreak. E-commerce startups raised $217.5 million through 24 transactions in Q2 compared with 548.1 million through 20 transactions in Q1.

E-commerce biggies like Amazon and Flipkart have started to witness a spike in orders. Last month, Amazon infused a fresh Rs 2,310 crore in India marketplace entity Amazon Seller Services. The company has also ramped up hiring in the country to meet the surge in consumer demand.

Another segment that is getting a lot of investor attention is SaaS, which raised a total of $199.19 million through nine transactions in the second quarter led by Postman’s round.

Foodtech startups, on the other hand, garnered $123.35 million through nine transactions. In the foodtech space, cloud kitchen player Rebel Foods mopped up about $47 million from hedge fund Coatue Management, at a time when food delivery services are staring at a tough business environment with fewer consumers placing online orders, fearing COVID-19 contamination.

Growth-stage deals account for bulk of funding

Companies at and post-Series B round collected an aggregate of about $764.55 million through 37 transactions in the April-June quarter, about 73.5 per cent lower than the amount they had raised in the January-March quarter.

Prominent growth-stage deals during the quarter included health Postman’s $150-million Series C round, DMI Group’s $123-million round, BigBasket’s $50-million funding round, Khatabook’s 60 million Series B round, and Medgenome’s $55 million Series D round. As lockdown measures persisted through May, startups continue to see a drop in the financing, especially those in later stages.

 

India has seen over 16 lakh coronavirus cases so far and has the fifth-highest COVID-19 death toll in the world. With uncertainties around COVID and businesses suffering setbacks, growth-stage funding activity in the country is likely to remain subdued.

Indian startups raised about $157.02 through 47 pre-Series A and Series A rounds in Q2 as against $194.9 million through 56 transactions in the first quarter. Seed-stage startups raised a total of $17.12 million through 25 deals.

In a survey of 9,300 Indian startups in May, Nasscom found that 40 per 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 the cash to last for just about three months and another 22 per cent have money in the bank for three-six months.

Most active investors

Storied venture capital investor Sequoia Capital invested in at least 17 startups, thus retaining the top position during the quarter.  The firm had invested in at least 20 startups in Q1. In the second quarter, Sequoia made most investments in April, with at least 13 deals.

Some of the companies it financed during the April-June quarter include genetic diagnostics, research and data company MedGenome, agritech platform DeHaat, online financial services marketplace BankBazaar, B9 Beverages, Khatabook, Capital Float, among others.

Last month, Sequoia India managing director Shailendra Singh announced that the firm had raised a total of $1.35 billion for two new funds that will invest across India and Southeast Asia.

After Sequoia, venture capital firms Nexus Venture Partners, Venture Catalysts, and Inflection Point Ventures were also active backing at least six startups in Q2.

Venture capital firm Accel, which invested in at least 12 startups in Q1, took a backseat with only three disclosed investments in Q2. New York investment firm Tiger Global, which had been on an investment spree in India since last year, made no new investments in the second quarter. The firm had participated in six deals during Q1.

VC deals worth $50m and over

There were only six startups including BigBasket, CasaOne, DMI Group, Khatabook, MedGenome which made it to the $50-million club against 20 startups in Q1.

The only two startups to make it to the $100-million plus club in Q2 were Postman and DMI Group compared to 10 in the Jan-March quarter. The first quarter of the year saw several mega-rounds raised by startups including Oyo Hotels and Homes ($807 million), ReNew Power ($450 million), and FirstCry ($300 million).

 

 

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.