[RESEARCH] Funding 2020: More deals, less money - an in-depth look at H1 investment trends in the Indian startup ecosystem

Startup funding started out strong this year, but investors grew risk-averse April onwards as the coronavirus increased its stranglehold in India, funding trends in the first six months of 2020 show. Even though more startups got funded in the first half of 2020 (H1), the deal sizes shrank, pointing to the fact that investors put in less money in more startups to spread their risks.

Download YourStory Research's report on funding trends in the Indian startup ecosystem in H1 2020

Overall funding in the first six months of 2020 fell 14.7 percent to $4.16 billion from a year ago, while deal volume rose 3.2 percent to 392. The average ticket size of those deals, across sectors, fell 17.2 percent to $10.6 million.

While the pandemic hit the MSME sector the hardest, startups were not spared. With no sight on revenue, layoffs and pay cuts have become commonplace, as have sending employees on furlough and deferring salaries.

Many have tried to deal with those austere measures in a more humane way, such as helping employees look for jobs elsewhere, extending insurance cover for a year for the employees and their families, asking people to take voluntary pay cuts, and even granting employee stock ownership plans to affected workers.

Investors and economists predict the effects of the virus could well extend into 2022 if the government does not step in to stimulate the economy by cutting taxes, making healthcare cheaper, and, more importantly, containing the spread of the virus.

H1 2020 STARTUP FUNDING ACTIVITY: DEBT & EQUITY

Not surprisingly, the pandemic has accelerated India’s technological age by years as people scrambled for ways to stay connected with not just colleagues, friends and family, but also with their workplace and job function, as well as the education system.

Edtech, as the report reveals, is a sector that will come out of the pandemic guns blazing. Schools and colleges have had to adapt and get used to online teaching platforms to continue with their coursework, while students have had to unlearn age-old methods of learning by rote and through reading text, and start learning using visualisation tools.

Education in India is a vastly different landscape now than it was six months ago. For edtech startups, it has meant a windfall of investor interest and funding. BYJU’S joined the decacorn club with a valuation of $10.5 billion, while Unacademy recorded the highest number of deals in H1.

City-wise, India’s Silicon Valley Bengaluru ceded the crown to Delhi-NCR in the number of deals, as well as funding raised by startups. Gurugram is increasingly becoming a new favourite destination for startups owing to the infrastructure, manufacturing facilities, robust ecosystem, and government network there.

While equity funding has been the preferred method of raising capital for startups, the number of debt deals in H1 jumped 50 percent as companies accepted funding from venture debt funds, via loans, debentures, and other financial instruments.

Download YourStory Research's report on funding trends in the Indian startup ecosystem in H1 2020

H1 2020 STAGE-WISE FUNDING ACTIVITY

All these trends, and more, captured in YourStory’s H1 funding report point to the fact that there is private equity and investor interest in the startup sector, but there’s more emphasis than ever on crisis-era solutions that also fit into a post-COVID-19 world.

Video conferencing tools, business continuity software for people working from home, work from home clothing, fintech tools that make it easier to manage finances without stepping outside, tiny portable machines to sanitise items such as cell phones and masks, telemedicine apps, nutraceuticals customised to fit a person’s DNA structure, home health monitoring devices, and platforms that let people travel the world virtually are some of the “new normals” we have to adapt to — but they are also valuable opportunities for companies.

“COVID-19 has been hard for everyone, and we have to take it one step at a time. Still, the spate of innovations from the startup ecosystem, the way founders and investors have come together as a community to help each other, and the resilience of entrepreneurs in the face of a formidable enemy has been inspiring, and it is what, I’m sure, will help us weather the pandemic,” Shradha Sharma, Founder and CEO of YourStory Media said.

“We’ve fought long and hard, and there is still a long way to go. Our report aims to touch and educate as many people as possible about the achievements of the ecosystem. With this in mind, this year, we will be making our annual paid report free of cost to all,” she added.

YourStory’s extensive H1 funding report, powered by our research arm, YourStory Research, presents a snapshot of the state of startup funding in India over the last six months, encapsulating the emerging trends across various industries.

Download YourStory Research's report on funding trends in the Indian startup ecosystem in H1 2020