Seed-stage investments into start-ups are sprouting even in Covid drought

Team StartupcityA clutch of well-known venture capital firms that invest across stages, have been seeing a steady, if not an uptick, in flow of seed funding transactions, even as the broader deal-making pace in the Indian startup ecosystem has slowed to a crawl due to the Covid-19 pandemic. WaterBridge Ventures, Chiratae Ventures, SAIF Partners and Orios Venture Partners — four venture capital firms that make early-to-growth-stage investments — have continued to pursue seed-stage deals over the last two months, when most investors put away their cheque books in the wake of the virus outbreak.

"The deal flow has been phenomenal. We are planning to announce up to six deals, which are currently in the shareholders' agreement or term-sheet stage, over the next couple of weeks. All of this has happened in the last 20 days," said Manish Kheterpal, managing partner
of WaterBridge Ventures. This comes after WaterBridge Ventures launched its Fast Forward program, an entirely online process that has been set up with a $10 million commitment from its second fund to make seed and pre-Series-A rounds in early stage startups.

"As compared to doing growth-stage deals, in seed transactions, if you have a strong sector thesis and a well thought through process, the entire journey, including due diligence, can be undertaken remotely," Kheterpal said.
According to data collated by Tracxn, there have been 36 Series A investments in the April-June year-to-date period, totalling $238.5 million, compared to 56 transaction in the January-March quarter, totalling $270 million. The VC firms, which invest across stages but also have an active focus on seed transactions, are now increasingly focusing on very early-stage companies, more so in specific sectors such as health-tech, Software as a Service and ed-tech, as they believe these are more defensive plays, given the current environment.

"For instance, over the past three months, we have focused a lot more on segments such as deep-tech, which we believe will have much less sensitivity in a Covid-19-led crisis, at least in the medium term," said Karan Mohla, partner at Chiratae Ventures, a top-tier VC firm which counts home grown unicorns such as FirstCry, Lenskart and PolicyBazaar among its portfolio.

The pandemic has ensured, at least for the medium term, a keener sector focus, with some that were seen as investor favourites now on course to lose that status.