Startup funding for March 2020 fell over 50 percent compared to the previous month due to the novel coronavirus outbreak which has disrupted business, led to lockdowns and deterred funding activity, data indicates.
Indian startups raised $354 million across 34 deals in March 2020, less than half the $714 million raised in February across 46 deals, according to data from Venture Intelligence, a startup data tracker. The fall is even sharper- 56 percent, compared to the $794 million that startups raised from venture capitalists in March 2019.
In the first quarter this calendar year, startups raised $1.74 billion across 126 deals, 22 percent less than the same quarter the previous year, and 7.5 percent less than the December quarter last year, the data showed.
“This is going to be the biggest test for startups and the VC ecosystem. The priority for companies is not to grow or show certain metrics right now; it is to survive this slowdown,” said Anirudh Damani, Managing Partner at Artha Venture Fund, an early stage investor.
“Investors have to be careful in deploying capital for the next six months more than ever because no one has seen an event like this. You can’t predict an outcome,” he added.
The funding slowdown could also get worse. Generally, deals of over $20 million and more take longer to close, sometimes as long as six months to a year.
For example, March 2020’s largest deals were health and fitness startup Cure.fit raising $114 million led by Singapore’s sovereign wealth fund Temasek and lender Vivriti Capital raising $50 million led by swiss investor LGT Lightstone Aspada. However, these deals had term sheets as early as November last year, according to an investor aware of the matter.
“The deals announced this month are rounds which actually closed before COVID-19 outbreak even started. So the real impact will be seen in the next six months where the shortage of funds could be more than ever. The current data shows some lag because deals take time to close,” said the investor, requesting anonymity.
Startups are bracing for a funding winter unseen in the Indian ecosystem for the last few years, especially after Flipkart’s $22 billion sale to Walmart in early 2018, which drove two continuous years of record funding activity. Indian startups raised $10 billion and $9.6 billion in 2019 and 2018 respectively, both records, according to Venture Intelligence data.
While COVID-19 is today the largest reason for a slowdown in dealmaking and business activity, investors were expecting 2020 to be a slower year for mega technology and venture capital deals, after a slew of poor IPOs for US tech companies and coworking firm WeWork’s meltdown.
“We have clamped down on deals for the next few months, and will reassess potential companies and sectors down the road, because right now almost every consumer internet investment is struggling,” Damani noted.