The second wave of COVID-19 in India that has strained the country’s healthcare system and weakened the economy hasn’t yet deterred investors from writing checks for local startups, unlike last year.
Indian startups have raised a total of USD 7.8 billion in the first four months of this year, according to a report by local media Economic Times, which cited data from American research firm PitchBook. This is almost 70% of the USD 12.1 billion funding they received last year and over half of the USD 14.2 billion of venture capital that went to them in 2019.
There were 402 funding rounds that happened between January and April 2021, as compared to 1,114 and 1,036 deals in the same time period in 2020 and 2019, respectively. Pumping billions of dollars across a lesser number of deals implies VCs’ move toward bigger funding rounds.
According to PitchBook, the average funding size rose to USD 25.21 million in 2021—one of the highest in the last five years. In comparison, the corresponding average deal size stood at USD 14.94 million in 2020 and USD 18.41 million in 2019.
Industry veterans, who KrASIA spoke to previously, believe VCs’ appetite for growth to late-stage startups has increased significantly this year on the back of massive digitization that is happening in the world’s second-most-populous country and the surplus capital available to global investors.
Fat checks from marquee investors like Tiger Global, Steadview Capital, Accel India, Elevation Capital, Lightspeed Ventures, Falcon Edge, and Sequoia Capital, among others, have already catapulted 13 startups into unicorns so far this year. For context, only 11 startups entered the elite unicorn club in 2020.
“Regardless of the second COVID-19 wave, we are seeing unicorns being announced on an everyday basis,” Arun Natarajan, founder of research firm Venture Intelligence told KrASIA in a recent interview. “A lot of money that VCs didn’t invest due to uncertainty last year is now being put to work in digital companies that have scale and momentum behind them.”
Natarajan said this year’s high-valued investments largely happened in late-stage companies, which is in contrast with the funding spike Indian startups saw in Q4 2020. “Last year, the [VC] focus was more on early-stage and seed funding. Only a few large deals were peppered here and there, especially in edtech and software-as-a-service companies,” he added.
Investors are making big bets on the Indian startup ecosystem despite the surge in new COVID-19 infections primarily because of the liquidity boom in the US, explained Natarajan.
“Because of IPOs and SPACs that are happening in the US, investors are getting a lot of liquidity,” he said. “We are also seeing public market capital, such as hedge funds investing into the private market, which typically happens when there is too much liquidity.”
The upcoming startup IPOs in India that are expected to give highly lucrative exits to investors have further gravitated global investors toward the cap tables of large homegrown startups. Food giant Zomato, insurance marketplace PolicyBazaar, auto marketplace CarTrade, beauty retailer Nykaa, e-tail major Flipkart, and logistics firm Delhivery are some of the startups that are going public this year.