Venture capital investments in Indian startups plunged to $2.2 billion in the first quarter of calendar year 2020, hit hard by a combination of global macroeconomic uncertainty and the ongoing Covid-19 pandemic, according to the latest edition of KPMG’s Venture Pulse report.
This compares with the $6 billion pumped in by VC investors into Asia’s third-largest economy in the October-November quarter of 2019, according to the report.
The previous calendar year saw a record-breaking $14.5 billion inflow into India, spread over 909 deals.
“Initially, India was not as affected by Covid-19 in Q1’20 compared to China. Concerns related to the pandemic grew later in the quarter, due in part to the fact (that) India receives a significant amount of VC investment from international VC firms and corporates,” the report said.
The pandemic has ravaged countries across the globe, leading to lockdowns and crippling the global economy. In India, the world’s second-most populous nation, there have been 20,835 positive cases and 872 deaths as of April 27, according to government-issued data.
Globally, according to World Health Organisation data, almost 3 million people have tested positive, while around 200,000 have succumbed to the virus and related causes.
“VC investors are already starting to ask the question, ‘How will your business be impacted by Covid-19?’ This is a question everyone will be asking for the next few quarters. Here in India, we are beginning to feel the full impact of the virus,” Nitish Poddar, partner and national leader – private equity, at KPMG India, said.
In early March, ET reported that the venture capital industry had begun the new calendar year with $7 billion of dry powder, or capital left to invest. This was on the back of a buoyant 2019, which had seen the average investment per fund rise to $26 million, up from $21 million in the previous year, along with an increase in the average deal size across stages.
Over the next quarter, while the transaction pipeline is expected to remain strong, deal flow is likely to slow, with a significant number of potential investments expected to be deferred to the latter half of the year.
“While the pipeline for deals is expected to remain relatively robust in India, deal flow is expected to become very slow, particularly in Q2’20,” the report said.
It, however, points out that sectors such as ed-tech, health-tech, gaming and auto-tech, which also includes the mobility sub-segment, are anticipated to continue garnering interest from VC investors.
Companies such as Byju’s, Unacademy and Bounce have all raised $100 million and upwards in funding in the first three months of 2020.
Capital inflows into India’s startups are also likely to be hit after the government, earlier this month, tweaked its foreign direct investment regulatory norms, which make it mandatory for companies to seek its prior approval for all investments coming from the seven nations it shares a land border with, including China.