Deals worth more than $120 million struck in April alone, as investors look to make the most of soft valuations and a bigger shift towards tech in the post-COVID-19 world.
Much against the conventional wisdom that investors claw back during rainy days, several venture capital (VC) funds are out shopping, striking deals and writing cheques even as the coronavirus outbreak continues to hurt the economy, pushing businesses to the brink.
Surplus capital, soft valuation of startups, a shift towards tech in a post-coronavirus world and family offices looking to diversify asset base in times of economic uncertainty are some of the reasons for the ongoing funding activity.
Take the example of online vernacular competitive test preparation startup Pariksha. The company signed term sheets, a non-binding document that spells out the broader contours of the arrangement, with investors for an extension of its pre-Series A round at the beginning of March.
On March 24 when Prime Minister Narendra Modi announced a lockdown on national television, the founders got jittery. Some of the promised money was in the bank but the rest was yet to come.
While they were trying to figure out the impact of the announcement on their funding, some of the investors called, one of the founders, Karanvir Singh, told Moneycontrol.
Among the callers was Saahil Bhatia, the director of venture capital fund Temasek. The rest of the money would be transferred soon, he assured Singh.
“In less than a week, the entire sum was in the bank,” Singh said, without disclosing the amount. Over a dozen investors, including INSEAD Angels, IIT Kanpur Angels, Nikhil Vora and Swati Mehra from Sixth Sense Ventures, besides Bhatia and existing investor Venture Catalysts, concluded the deal.For live updates on coronavirus, click here
Testing times? Not really
Founded in 2105 by Singh, Utkarsh Bagri, Vikram Shekhawat and Deepak Choudhary, Pune-based Pariksha says it helps 13.6 crore people in small towns and villages prepare for state government job exams every year.
With governments increasingly shifting such tests online, more and more job-seeking youngsters want to familiarise themselves with the medium as well as tech without leaving their homes.
Investors, too, sensed a growth opportunity--online preparation will not only be helpful during the lockdown but also after that, when social distancing will be the norm, at least for some time.
Singh's venture is not the only one to have received venture capital funding. Dozens of startups across sectors such as health, fintech, gaming and education have received funds in the last couple of months while several unicorns face uncertainty.
Over $120 million worth of deals were struck across 48 rounds across consumer, fin-tech and ed-tech space in April alone, startups data tracker Tracxn said. The data is for companies that are not older than five years.
"Everyone understands that a down phase is the best time to invest in any asset class. Historically, we have seen most of the unicorns come up during these times whether it was the 2008-09 crisis or 2001-02 bubble bust. Cases in the example are companies like Uber, Policybazaar, Airbnb and Whatsapp," said Anuj Golecha, founder of domestic startup incubator and early-stage investor Venture Catalysts.
Online financial services portal Policybazaar, founded in June 2008, became a unicorn, or was valued at $1 billion, ten years later. The company is among the few tech-firms currently disrupting the dominance created by state-owned or even private insurance firms.
Venture Catalysts itself claims to have invested in at least three startups–Qin1, which conducts online classes for children, and health supplement firm Power Gummies and Pariksha in the last one month.
"Overall in 2019, we did 69 deals. I don't see that number falling this year," Golecha said.
The startup cushion
Even family offices that have businesses across multiple verticals are trying to place their bets on startups.
A fund manager who works for a leading family office with interests in the real estate sector said given the slowdown in his core business, the owner was looking to diversify into startups.
“A lot of business houses are struggling. Startups are a new kind of avenue for many of them, especially across the COVID-positive segments such as healthcare, education and financial solutions in the mid to growth stages,” he said, requesting anonymity.
There is a fair amount of money to be deployed, with multiple venture capital funds having closed their funds in the last one year.
According to VCC Edge, India-focussed private equity and venture capital funds raised $11.7 billion just in 2019.
These include funds such as Accel Partners, which raised $550 million in December, Singapore-based Vertex Venture Holdings that got $230 million for technology startups in Southeast Asia and India and domestic venture capital fund Blume Ventures, which closed its opportunity fund at $41 million earlier this year.
“There is a fair amount of capital waiting to be deployed. Some investors are aggressively scouting for deals, some are in the wait-and-watch mode. But everyone is evaluating something or the other. There couldn’t be a better time to enter with such realistic valuations,” said Pankaj Karna, managing director of boutique investment banking platform Maple Capital Advisors.
However, investors are being careful as restrictions on movement are coming in the way of due diligence. They are now relying on virtual data rooms and mostly reference checks to close deals.
“It is not that everyone is getting funded. Investors are smart enough to recognise startups that are resilient, agile and adaptive. Silicon Valley calls them camels. They will be able to weather the storm and when the tide turns, they can grow very fast,” said Nimesh Kampani, president, LetsVenture Plus, a growth platform launched by deals syndication platform LetsVenture.
Launched in early May, LetsVenture Plus will allow ultra-high net individuals and family offices to invest in growth-stage startups.
So far, LetsVenture has focussed on early-stage deals and claims to have closed 14 such agreements since March.
“Even for the growth stage, a good amount of investor interest has already started to pour in for businesses with a moat. People want to diversify their asset base, both across different classes and geographies,” said Kampani.
Singh, who just closed the funding round for Pariksha, vouched for it. He has got plenty of investor queries for the growth round. “Every investor who does not have ed-tech in its portfolio is currently looking to make an investment in this sector,” he said.
Some investors are, however, sticking to internal rounds. Bertelsmann India Investments, which counts hospitality firm Treebo, music-streaming company Saavn and online lending platform Lendingkart among its portfolio companies, is keeping the powder dry for its existing companies.
“It is a well-known fact that the market has become skewed and investments will only flow towards a specific direction. In such a scenario, we have to look for the well-being of our own companies first,” Bertelsmann India Investments managing director Pankaj Makkar said.
He, however, declined to comment if the company had made any internal investments in the last couple of months.
There are also instances where rounds are taking longer to conclude but investors say they are happening nonetheless.
“All in all, investors have realised that it is a buyers’ market and there is cautious optimism. Valuations have softened and even the startups realise that money in the bank is much better right now given the uncertainty around,” said Anup Jain, managing partner at Orios Venture Partners.
As India faces its worst medical emergencies in recent times that also threatens its economy, the startup sector holds out hope for Brand India.
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