Startup Funding In Covid-19 Times 

Funding goes on despite lockdowns, favouring select sectors & better performing businesses. Learn how to tap into the funding opportunity.

The outbreak of COVID-19 in 2020 has gravely affected all the Indian small businesses and many consumer’ mindsets are still undergoing a drastic shift across industries. The impact of COVID-19 on Indian small businesses is seen to be a game-changer in both positive and negative sense. Whereas, during the first wave, it was found that 70% of the small businesses were having less than three months of cash runaways. Various problems faced by the small business in terms of finance, funds, cancellations of order, adopting the change in consumption pattern of people have created a huge barrier to their business escalations. Small businesses have changed their style of mapping things from monthly expenses to monthly revenue. 

Consequently, small businesses at the onset of the COVID-19 pandemic, companies had to retrench their staff, moreover, even now are struggling to pay the salaries of the employees. In fact, entrepreneurs of small businesses have started analyzing their situations and have made a new decision on the adoption of the startup accelerator programs, focused on new government schemes adopted for startups. Additionally, they examined how to raise their funds, and have studied small businesses’ financing style. Despite the uncertainties and volatility prevailing in the market, entrepreneurs have thought of building efficiency in operation, adopting new business models, utilization of other alternative steps for handling their business. Further, the pandemic could have been equally devastating if the presence of technology was leftover. Technology and digital solutions have played a pivotal role in fighting the pandemic and were able to limit their spread but to a great extent. 

Indian startups have raised $9.4 billion across 881 deals from 1476 active investors from FY 2o to FY 21.

As the whole country was busy battling and deadly handling the second wave, entrepreneurs were also pulling all their efforts in minimizing the sufferings. In fact here, fundings momentum created a huge impact on small businesses. Furthermore, it remains to be seen that a long current subdued environment is likely to continue, thus proper investment can only be the solution for eradicating such problems. During the second wave, entrepreneurs of the small business were equipped with technology and new digital solutions which made the deal in the second lockdown. Adoption of best practices and new business models have enabled small businesses to escalate their business. Even, proper startup investment studied by the small business has focused on building sustainable cash runaways by having a lean operational structure. 

However, in these turbulent times, the Indian investors emerged as a ray of hope. Indian startups have raised $9.4 billion across 881 deals from 1476 active investors available in the ecosystem. Although the active investors have adopted a cautious approach, in fact, they continued diversifying their portfolios and provided more support to their existing portfolio companies through small ticket-size funding. Moreover, Stages of Startup Funding were gradually changing and paths designed by the investors or experts were recommended to the small businesses for overcoming their problem. As a result, a total disclosed funding of $8.4 billion was observed between Jan to Nov 2020. A maximum number of startups received their number of funding deals between the period of Jan 2020 to Nov 2020. Major deals were gained by the fintech and financial services by holding 123 deals, 99 deals into eCommerce/retail sector, 84 deals into the Ed-tech sector, 80% deals into health tech, and lastly, enterprise software holding 42 deals. While in the terms of the funding amount, one of the top booming sectors was Ed-tech having funding of ($1.8 billion), followed by fintech and financial services ($1.58 billion), next into proptech ($1.03 billion), further food tech ($0.61 billion), and lastly by eCommerce/retail ($0.53 billion). As a result, the major focus of the investors was seen during Covid -19, and the majority of the field boomed in their sectors were fintech, edtech, health tech, food tech, and cleantech, among others. 

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In fact, most of the Startups changed their business style and followed the mindset of the consumers. For example, people earlier visited grocery stores to collect their groceries but later change was seen during pre-covid times were on a single click consumer used to pick their groceries (doorstep delivery was provided by the startups). This change was brought into the picture only because of the major grants provided to small businesses. Another example out there, people earlier struggled to reach gyms and get training from the fitness trainer, whereas online fitness applications changed the style of the gym. Few major sectors received funding namely, fintech, edtech, health tech, food tech, among others. While fintech has been the top choice for investors since 2016, edtech wasn’t even considered in the list of top five segments prior to 2020 when it came to fundraising amount or deal. Whereas now Fintech made up for almost 17% or 88 of all the 502 deals cracked in 2021 till May 29, 2021, this represented a 60% hike from 55 deals cracked in the same time frame last year. While on the other hand, Ed-tech cracked 60 deals versus 39 deals in 2020 and is only 41 deals short of meeting the overall deal count of last year. Many of the sectors were felt unaddressed such as Real estate and property, hospitality, brick & mortar retail sectors. Since the rate of interest was considerably lower than the others. Thus the pandemic has changed the investor pitch deck and naturally the Financial projections for startups.

Originally published July 4, 2021

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