VC investments in India fell to $2.2 Bn in Q1 2020: Report

Venture capital investments in Indian startups have fallen sharply to $2.2 billion in the first quarter of the calendar year 2020 according to KPMG’s latest Venture Pulse report, reflecting the tough going for businesses in the pandemic-induced economic downturn.

At the end of the Q4’2019, VC investments in India were quite strong, the number as high as $6 billion. The startups had closed mega deals including a $1 billion funding round by Paytm and a $500 million round by Udaan. Overall, Indian startups had raised $14.5 billion across 887 deals in 2019, said the report.

Globally, VC-backed companies raised $61 billion across 4,260 deals in Q1 of 2020. 

“In India, we are beginning to feel the full impact of the virus,” said Nitish Poddar, partner, and national leader - private equity, at KPMG India.

Initially, India was not as affected by COVID-19 in Q1’20 compared to China. Concerns related to the pandemic grew later in the quarter, due in part to the fact India receives a significant amount of VC investment from international VC firms and corporates, said the report. 

While the pipeline for deals is expected to remain relatively robust in India, deal flow is expected to become very slow, particularly in Q2 of 2020.

China bore the maximum brunt of COVID-19’s impact throughout Q1’20, as evidenced by its drop in total VC investment to a twelve-quarter low, and a drop in the number of VC deals with a level not seen since Q4’14. Meanwhile, VC investments in the US and Europe remained strong during the same period, added the report. 

The report also mentioned that despite all these challenges, India saw a number of good-sized deals. The majority of the mega deals were sealed by edtech startups led by Byju's raising $400 million, Unacademy raising $110 million, and Aakash Educational Services announcing its acquisition of Meritnation. Mobility startup Bounce has also bagged a $ 150 million funding round in 2020. 

Given the current status of the spread of coronavirus in India, the future seems a bit grim for VC investments. So far, India has reported 20,835 positive cases with 872 deaths. The number of positive COVID-19 cases worldwide has crept over 3 million. 

Moreover, capital inflows into Indian startups will be likely hit as the stringent foreign direct investment rules newly framed by India makes it mandatory for companies to seek its prior approval for all investments coming from the seven nations it shares a land border with, a move primarily aimed at stopping opportunistic buying of stakes in Indian companies by Chinese firms.

Many VCs and entrepreneurs have also cautioned that the next 6 months will be very critical for the Indian startup ecosystem.