Venture capital funding in Indian startups fell by 22% in the first quarter of this year owing to the novel coronavirus, according to a Venture Intelligence report.
While the plunge in funding is likely to persist in the second quarter, a few early-stage VC funds are bucking the trend. Bengaluru-based VC firm Prime Venture Partners is one firm that is actively seeking new investment opportunities. Earlier this month, it participated in a USD 6 million funding round in a Bengaluru-based fintech startup called Recko.
Founded in 2012 by Sanjay Swamy, Shripati Acharya, and Amit Somani, Prime Venture has invested in over 25 startups. Typically, it funds companies that operate in sectors such as health tech, logistics, SaaS, and fintech.
KrASIA got in touch with Swamy to learn about their investment strategy during the COVID-19 pandemic and the impact that the healthcare crisis has had on its portfolio companies.
The interview has been edited for brevity and clarity.
KrASIA (Kr): Given the current situation, would Prime Venture slow down on investments? Will you consider making investments in new sectors seeing how certain companies have reacted to COVID-19?
Sanjay Swamy (SS): Prime is an early-stage fund and we focus on companies that are digitizing India. As such, although the circumstances are unfortunate, it is a good time to invest in companies and build them right. Most of our existing portfolio companies are thankfully doing well, so we are actively looking to invest in new, young companies.
Fintech, SaaS, healthcare, logistics, and education are our core verticals and these will continue to be of interest to us. However, companies getting a booster from COVID-19 are likely to be more favored. COVID-19 has changed customer behavior dramatically in a short span of time. We are excited about anything that enables “remote” operations as these will see a huge upswing now.
Kr: How is the health of your portfolio companies? What worked or didn’t work for them?
SS: We are happy to say that the vast majority of our companies have addressed this situation proactively. They have also been sharing their best practices with everyone and have not limited their knowledge to our portfolio companies.
Companies like Mygate have published best practices and also helped the local police with a Digital Pass system, which has been significant for the local authorities. Healthcare startup MFine, apart from providing remote access to doctors from trusted hospitals, has also helped Niti Aayog [a think tank] and the government to draft telemedicine guidelines. Perpule has launched StoreSe, a grocery delivery solution that brings many offline retailers online. Quizizz has launched a corporate engagement solution. Sunstone took their entire education solution online within two weeks.
So, everyone has seen the threat and wherever possible, responded to the business challenges positively. In all cases our companies also tend to be generally quite frugal, and this has helped them to take charge of their expenses and keep their burn manageable. All companies are planning for 18 to 24 months of runway and are focusing on enhancing their infrastructure, product technology, and partnerships. All companies have adapted well to work from home arrangements and many plan to continue to do this at some level on an ongoing basis.
Kr: You have a good number of portfolio companies in the fintech space, which is considered to be one of the worst affected sectors. What are the steps you are taking to help them?
SS: Fintech is a core area for Prime and constitutes about 40% of our portfolio. Our companies include Ezetap, Happay, KredX, Moneytap, Niyo, Recko, OTO Capital, and many others. While certain areas like lending to consumers and SMEs will be impacted in the short term, all these companies have very robust product DNA and have already established a solid product market fit.
In most B2B cases, clients are using the opportunity to upgrade their business processes, investing in automation, and are accelerating the deployment of these solutions. In one or two cases, the companies were quick enough to realize that the real opportunities may be in adjacent areas, and they are expanding or pivoting their products accordingly.
Overall, we remain bullish about this sector and continue to look for new opportunities and deals here.
Kr: Are we going to see more offline companies or physical retailers going online?
SS: The need and opportunity for digitization is further accentuated now, and all sectors will be forced to digitize in order to survive. As tragic as the circumstances are, COVID-19 is accelerating areas like telemedicine, remote education, remote work, and a few others.
We think this is a huge transformation. Two of our companies, Perpule in retail as well as MFine in healthcare and telemedicine, are seeing massive opportunities. Perpule launched a service called StoreSe that essentially turns large offline modern retailers into online retailers. They are seeing very positive results and strong traction. However, we have yet to see how smaller retailers will go online.
Fintech will have to go completely digital. Adoption of new frameworks like IndiaStack [an open API platform] will be further accelerated in India. We are seeing these sectors get a huge boost. Providers of products and services that drive digital transformation will be seen as “aspirin” and would solve an important pain point. On the other hand, sectors that are dependent on inefficient people-driven processes which can be replaced by digitization will not be as popular.
Kr: What are the long-term effects that you see in the VC community?
SS: The VC community has really responded very strongly both to their portfolio companies as well as to the overall startup ecosystem. There has been complete collaboration in trying to help all startups: knowledge and best practices have been shared liberally. All VCs have encouraged companies to collaborate and help address the broader country-wide problems around logistics, data analytics, and setting policy—helping the government with rapidly developed products and solutions. This level of collaboration will have a long-term impact on how VCs partner and function with each other and it’s great to see the ecosystem coming together.
Additionally, we are happy to see that VCs, startup founders, and team members have become more mission-driven, and this is a very positive sign for the ecosystem.