India-focused venture capital (VC) firms raised about $3 billion throughout the Covid year 2020 in new fundraising, up 40 per cent from 2019. Against that trend, if one appears at the dry powder remaining steady, and VC deal flow reaching $10 billion, there is a clear indication that investment appetite on the component of VCs remains higher, Sriwatsan Krishnan, Partner, Bain & Company told TheSpuzz Online. Dry powder is colloquially referred to the strategic quantity of money on hand with investors to invest in acceptable investment possibilities that may possibly need instant funding.
Since 2017, the dry powder with VCs in India has remained at $6 billion or above except in 2019 when it dropped marginally to $5.5 billion. In 2020, VCs had been left with a $6-billion reserve, according to India Venture Capital Report 2021 by Bain & Company and IVCA. On the other hand, though the deal volume for VC investments in Indian startups improved to 809 in 2020 from 756 in 2019, the deal quantity saw a slight decline to $10 billion from $11.1 billion in 2019. This meant that though the typical deal size contracted due to Covid in 2020 to $12.4 million from $14.7 million in 2019, the deal-producing momentum accelerated. “This should also be read in conjunction with exits slowing down this year, despite which new rounds were closed which indicates continued interest in new investments especially in digital native business models which flourished during and after Covid,” Krishnan added.
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VC exits witnessed a decline of 70 per cent to $1.3 billion in 2020 from $4.4 billion in 2019. Muted exits had been driven by the effect of the pandemic on companies, potentially lowering their valuations and therefore producing it an unfavourable time for investors to money in on their investments. Sector-sensible, one-third exits had been reported in edtech segment though about 20 per cent came from foodtech. However, the exit momentum is anticipated to increase more than the next one to two years as most of the best VC funds’ portfolio is but to attain maturity. The typical holding period of funds such as Tiger Global, Sequoia, Matrix, Lightspeed, and Elevation Capital is more than 5 years. The notable exits in 2020 incorporated Byju’s acquisition of WhiteHat Jr. with about $300 million exit worth and about $220 million in the secondary sale at Swiggy that gave exit to Elevation, Accel, Norwest Partners, RB Investments, and Bessemer.
Importantly, 15 per cent Indian startups had been forced to shut operations in 2020, according to the report. “Startups did take a significant hit, especially during the months of cold lockdown. Companies operating in sectors such as B2B tech and commerce, or lending, would have faced relatively greater disruption than others which saw tailwinds in user adoption as well as favorable government policies — prime examples include sectors like edtech and health tech,” Arjun Upmanyu, Associate Partner, Bain & Company told TheSpuzz Online.