VCs continue to bet on startups as opportunities open up amidst COVID-19

Funding momentum may have slowed down due to COVID-19, but VCs are still very optimistic about the entrepreneurial energy in the country.

Amidst COVID-19, the topmost concern among founders and budding entrepreneurs is whether investors are still willing to invest. The short answer is yes. April and May were bad in terms of funding but the situation seems to returning to a new normal.

Participants at the India Internet Day summit organised by TiE Delhi NCR.

The funding momentum has certainly slowed down at least for the first six months of the current year but venture capitalists (VCs) are still very optimistic about the entrepreneurial energy in the country.

At an India Internet Day 2020 event organised by TiE Delhi on Investments and Fund Raising, a cross-section of venture capitalists said they will continue to invest in startups in the country.

Rashmi Gopinath, General Partner - B Capital Group, said, “We have been extremely active and done six investments since the start of the year.”

Though there was a word of appreciation for the founders. Mukul Arora, Partner - SAIF Partners, said, “In these super challenging times, founders have dealt it with resilience and calmness.”

There was a sense of panic in the April and May but since then there has been a rapid regaining of the momentum.

Prashanth Prakash, Partner - Accele Venture Partners, said, “There has been aggressive building up since July and pace of deals is the same like last year.”

Pankaj Naik, Co-Head Digital and Tech Investment Banking, Avendus, said, “After COVID-19, we closed four transactions and there has not been much change though it is concentrated in few circles.”

These VCs were confident about continuing with the current pace as Dev Khare, Partner - Lightspeed India Partners, said, “We are excited to invest in this time frame.”

As Mohit Bhatnagar, MD - Sequoia Capital India, said, “There is enough capital floating around.”

Investing in the new normal

However, this is also time to rethink from a VC's point-of-view to see what has changed and what remains the same.

Rahul Khanna, Managing Partner of Trifecta Capital, said, “We are thinking how much of the change is structural or cyclical.”

There are certainly new boundary lines with some sectors gaining more traction while others continue to struggle. The one most obvious change is the pace of digital adoption or transformation.

Rashmi said, “The whole digital transformation has accelerated by several years.” This also brings home the point that innovation does not have to come from Silicon Valley and can spring from anywhere as it is a remote working environment.

The sectors like edtech, Software as a Service (SaaS), ecommerce, online consumer brands, gaming were some of the sectors being favoured by the VCs. These segments are playing their strengths of social distancing and safety which is paramount in the Covid-19 environment.

Rahul of Trifecta Capital highlighted the broader trends happening across the world especially with tension filled relationship between US and China, which could mean actually talent coming back into India. This may bring a completely different dimension to entrepreneurship to India.

The VCs also highlighted the opportunities in this downcast condition where niche consumer brands can be built with digital becoming mainstream or combining ecommerce along with distribution to extend the reach beyond the metros.

At the same time, there is a definite shift towards B2B startups which were largely in the background until now. With the advent of SaaS, it has come back into prominence. This has been largely due to increasing digitisation where even the small businesses want to get on the online mode and the B2B startups are enabling this.

Dev said, “Small businesses can be a source of a lot of value creation for startups.”

At the same time, the core question among the entrepreneurs is whether they would be able to raise capital at a time when physical meetings are a rarity. Prashanth brought home the point that founders need to demonstrate their domain expertise and it is becoming more important than the past.

Edited by Saheli Sen Gupta


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