Early-stage deals shows sign of slowing down due to Covid pandemic

The Covid-19 pandemic has gravely hit the funding activity across every sector. Established companies, medium-sized businesses and start-ups all are facing the repercussions of the deadly pandemic and now the ongoing border tension. It’s an open secret how most of the start-ups and early-stage ventures are striving to manage their cash flows and coping up with an ambiguous fund-seeking situation triggered by the covid-19 crisis. Amidst such tough times, many investors and VCs have put forward their ideas and different avenues for securing funds, however the start-up ecosystem has remained vigilant. Reportedly, since the lockdown, a large chunk of early-stage investments from venture capitals have noticeably condensed. This comes with dropping numbers of tech start-ups.

Owing to the covid outbreak, many investors have taken a backseat and shortened the financing rounds significantly to save cash for the coming times. Besides this, several ongoing business deals and discussions are put on hold for an indefinite period; the reason being unexpected market conditions. As per industry reports, there has been a downfall of around 37 per cent in the number of seed and early-stage agreements.

It doesn't end here – the publicly disclosed deals between February-March that were likely to formally conclude by then, was brought to a halt. Moreover, the deals suffered a loss of almost 18 per cent. Financing rounds under-$5 million category fell 50 per cent to 240 deals, while it dropped 33 per cent to 489 deals overall in the first half compared to the same period last year, according to Tracxn data. Total capital inflow also fell to $4.2 billion from $5.7 billion.

As per Venture Intelligence report on VC funding –

• VCs invested $1.74 billion in Indian startups in March quarter
• Q1 2020 funding 22 percent lower YoY
• Volume of investments 36 percent lower YoY
• Q1 2020 funding 7.5 percent lower QoQ
• Q1 2020 investment volume 40 percent lower QoQ
• Month on Month investments fell 50 percent in March
• March 2020: $354 million
• February 2020: $714 million (source: cnbctv18)

Voicing the challenges in terms of investments, several businesses owners have admitted of going down to zero profits amid the chaos situation. They have clearly mentioned how badly hit their funding activities and investments have been. Many of these companies and start-ups have re-aligned their objectives, lowered down costs and reduce manpower to conserve money. Some have even gone to the extent of slowing down their operations till things get better. These companies, no doubt, have been adversely impacted however the silver lining is they are constantly striving to develop new strategies to fight for their survival.

Many among them have already began conserving cash, curbing hiring and projects and seeking alternative ways to run their operations smoothly. Some are even showing positive signs of picking up with innovative ideas to present to the investors. While the uncertainty still remains, a handful of VCs are continuing to support new ideas and helping them raise funds. Start-up across verticals that are starting to show slight upward trends include edtech, online grocery, online gaming, healthcare apps, amongst others. Though businesses will take time to come back to shape, their constant efforts will definitely yield results. Investors too will continue their search for lucrative business propositions.