India got VC investments worth $10 bn last year, 7,000 new startups: report

Consumer tech and SaaS saw 'continued momentum' despite lockdowns to contain Covid-19, says report.

India got venture capital (VC) investments worth nearly $10 billion in 2020--the highest ever after 2019—when lockdowns to contain the spread of Covid-19 pulled down the economy, said a report on Wednesday. 

The "India Venture Capital Report 2021" said last year saw continued momentum in consumer tech and software as a service (SaaS). There was also significant fundraising activity with $3 billion raised by India-focused funds: a 40 per cent increase from 2019. This included marquee funds like Sequoia, Elevation Partners, Falcon Edge, and Lightspeed, which closed new funds for India investments despite the pandemic. 

"In terms of key sectors receiving investments, consumer tech, SaaS, and fintech continued to lead the way, accounting for 75 per cent of VC investments in 2020 vs. 65 per cent in 2019, and 14 of 22 VC deals which were more than $100 million in size," said the report prepared by Indian private equity and Venture Capital Association (IVCA) and Bain & Co. 

The year 2020 also saw an increase in the number of start-ups and unicorns. Close to 7,000 new startups were founded in 2020, with more than 10 per cent growth in seed stage deals, while 12 unicorns were added in 2020 compared to eight in 2019. The total tally of unicorns in India is now 37.

The average deal size in 2020 declined by about 15 per cent compared to the previous year, driven by a higher number of smaller deals. The year recorded about 500 deals less than $5 million compared with about 390 in 2019. There was also an increase in seed stage deals.

"Going forward, we expect deal momentum in India to continue into 2021, with the second half of 2020 seeing deal activity recover to pre-Covid levels—VC investments totalled $3 billion in January to March, declined to $1.1 billion in April to June, and then recovered to $3 billion each in the next two quarters. Further, the number of active VC funds continued to grow in 2020 (520 vs 480 in 2019), with multiple new funds investing such as Inflection Point, Avataar, Coatue, D1 Capital, amongst others," the report said. 

VC exit value in 2020 declined by 70 per cent in 2020 compared to 2019 due to lower valuations and impact on operations from the pandemic. This is expected to recover over the next 1–2 years as portfolios mature.

The report said that compared to 2019, investment value grew about six times in edtech, nearly four times in foodtech, and about 2.7 times in gaming, as well as about 2.4 times in media and entertainment, signifying the role of Covid in rapidly accelerating digital trends.

Among the areas that saw a fall in investments were B2B commerce and technology, where investment value declined by 50 per cent in 2020 due to industrial lockdowns and fall in economic activity.