Entrepreneurs and investors TOI spoke to said the startup ecosystem saw a ‘K-shaped recovery curve’ in 2020. The strong got stronger and the weak kept getting weaker, they said. While the year of Covid gave rise to 11 unicorns, it simultaneously sounded the death knell for numerous upstarts.
Venture Intelligence (VI) founder & MD Arun Natarajan said that the year dealt a blow to later-stage tech ventures looking for growth capital as geopolitical tensions affected investment by Chinese investors. According to VI data, Chinese investors participated in 24 deals in 2020, investing $410 million in all, compared to over $1 billion across 35 deals in 2019.
However, with the digital revolution picking up in the second half, 2021 is expected to see demand and funding action return to the worst-hit sectors, and also reset the stakes of overheated sectors such as edtech, stakeholders said. “The days of deep discounts are behind us, and consolidation activity will continue as strong companies are likely to close massive bargains,” Natarajan said.
According to Krish Subramanian, co-founder of SaaS firm Chargebee, which raised a $55-million round in 2020 from American VC firm Insight Partners, the absence of Chinese investors may impact certain segments, but not enterprise SaaS — the biggest gainer of the pandemic. Subramanian said the automation and digitisation boom brought on by Covid is a huge positive for the SaaS sector.
Orios Venture Partners managing partner Anup Jain predicted a return to business for discretionary spend sectors like fashion, travel, real estate and entertainment from around June 2021. “Edtech will start cooling down, vernacular social network platforms will see investor interest, and entertainment action will shift from OTT platforms to gaming,” 3One4 Capital founding partner Siddarth Pai predicted.
In 2020, as of November, about 140 investment proposals valued at over $1.75 billion — mostly from China and Hong Kong — were on hold, boutique law firm Burgeon Law’s founder Roma Priya said. However, China’s loss was the US and Jio’s gain. “There has been renewed interest from the US, Japanese and Middle East investors in the Indian startup ecosystem, and this is likely to pick up in 2021,” Pai said. Tarun Davda, MD of PE firm Matrix India, said the ecosystem was still buoyant despite restrictions on Chinese capital. “The recent fund-raise exercise by Jio has brought India on the radar of several marquee foreign investors” he said.
“The pandemic readjusted valuations to make an attractive proposition for acquisitions and help companies ramp up service offerings and increase market share,” said EY India e-commerce sector leader Ankur Pahwa.