Start-up Funding: A Decisive Area to look at
Some are struggling to rescue their businesses from crashing while the others are devising plans that include job cuts and the suspension of operations in several cities. If the market conditions be like this, many of them might be forced to follow the same survival plan.
"Funding activities in Q3 and Q4 will be vulnerable. There will certainly be a recalibration in valuation as well. My take is that we will see new startup models emerge, which will take time to settle down. And the capital inflows into these startups will then pick up and hit steady state. New forms of capital through equity, debt, a mix of both will also emerge," says Jay Krishnan, Partner at Mantra Capital.
Edtech start-ups such as Byju's, Vedantu and Unacademy have reportedly led funding rounds this year
Of the several reasons that have slowed down the start-up market, raising of funds remains prime. For start-ups cash crunch has been a matter of concern. Raising capitals from investors or VCs has been the difficulty, in particular. For those start-ups that have given priority to customer acquisition over profits till now are now facing cash problems and are unsure of the coming times.
The Adverse Effects
Data analytics firm Traxcn claims that owing to the pandemic, funding activities in start-ups have decreased by almost 29 per cent from January 2020 till June if compared to $5.9 billion in the same period last year. Very few numbers of start-ups across verticals (between 400-450) have secured funding in the initial six months of 2020 against 725 in the first six months of 2019.
As compared to the first quarter of 2019 till June which had witnesses at least six unicorns each valued at more than $1 billion, this year a maximum of three start-ups have been valued. Also, against a figure of 28 start-ups having the potential to become a unicorn in 2019, only 17 start-ups this year have shown potency.
Amid this dwindling numbers, few start-ups this year have managed to secure funding despite the covid crisis. Some of these start-ups include Byju's that has raised $300 million from Tiger Global Management and $200 million from General Atlantic, FirstCry that has received $300 million from SoftBank Vision Fund, edtech start-up Unacademy that has secured $110 million from investors including Facebook and scooter-sharing firm Bounce that has received $105 funding.
The Brighter Side!
The initial months of 2020 has witnessed three flourishing sectors - alternative lending, edtech and payments. Start-ups across these verticals have attracted investor attention and many investors have ploughed capital in these start-ups. Edtech start-ups such as Byju's, Vedantu and Unacademy have reportedly led funding rounds this year. This segment has seen a surge in capital investments; the numbers reaching up to $666.2 million, as per reports. Among the three major edtech players, Byju's recently has raised funding from Silicon Valley investor Mary Meeker's Bond Capital.
With this funding activity, it has reached a total valuation of over $10.5 billion valuation. It is likely to become the next bigshot start-ups across the country after Paytm that has valuation of around $16 billion. Start-ups across the lending space like Lendingkart and InCred are the ones that have attracted major investments. They together have raised funding of $704.5 million, amid the panic-stricken market.
Among the VCs, Sequoia Capital and Accel have occupied key positions in the market followed by Steadyview Capital and FMO. Sequoia is believed to have raised $1.35 billion to invest in firms in India and South-East Asia, in the recent times.
Even in such tough times, start-ups founders, VCs, investors have exhibited striking abilities and nimbleness to cope up with the difficulties arising due to the pandemic. Many investors are considering this crisis as an opportunity to meet and understand new ideas which otherwise might have been overlooked.