Indian startups raised $9.3 billion in 2020

The coronavirus pandemic - and a handful of other factors - slowed dealmaking for startups in India this year.

Compared to their record $14.5 billion fundraise last year, Indian startups are ending 2020 with about $9.3 billion. This is the first time since 2016 that startups in India, one of the world's largest startup communities, has raised less than $10 billion in a year, according to consultancy firm Tracxn.

The number of deals fell from 1,185 last year to 1,088 in 2020. There were fewer larger sized rounds, too. Rounds with dealsize $100 million or larger fell from 26 in 2019 to 20 (these rounds delivered $3.6 billion this year, compared to $7.5 billion last year), and similarly rounds with dealsize $50 million to $100 million fell from 27 to 13. (The figures do not include investments in telecom giant Jio Platforms, which alone raised over $20 billion this year.)

Despite the slowdown, Indian startups witnessed a substantial rebound in the second half of this year. In the first half, startups in the world's second largest internet market had raised just $4.2 billion from about 461 deals, said Tracxn.

Other than the coronavirus, which has impacted startups worldwide, another factor that affected the dealmaking was absence of - or reduced participation from - some of the biggest investors.

Chinese giants such as Alibaba - and its affiliate Ant Group - and Tencent wrote fewer checks this year to Indian startups amid tension between the two neighboring nations. SoftBank also delivered less capital as many of its high-profile portfolio firms including Paytm, Oyo Rooms, and Ola did not raise money.

But the virus also accelerated growth of some startups. Byju's is now valued at over $11 billion, up from $8 billion in January this year. Unacademy, another high-profile startup in the online learning space, raised two rounds at the height of the pandemic, increasing its valuation from about $500 million in February this year to over $2 billion.

Bond, a firm started by Mary Meeker and other high-profile investors, backed Byju's this year. Bond believes that Byju's will be worth over $30 billion in three years, a person who was briefed by the investment firm told TechCrunch. Several startups in India operating on a SaaS model and catering to customers worldwide also picked up momentum this year.

11 Indian startups including RazorPay, Unacademy, DailyHunt, and Glance became a unicorn this year. (On a side note, Google and Facebook wrote several checks to Indian firms this year. Google backed Glance and DailyHunt last week, while Facebook invested in Unacademy. Both the firms also invested in Jio Platforms this year.)

I am old enough (unfortunately!) to have seen the 2001 and 2008 downturns so when Covid hit and there were stories of doom and gloom everywhere, I remembered what I saw happening in the past downturns - a beginning of a new generation of teams who built the next generation of companies," said Vaibhav Domkundwar, founder and managing partner at Better Capital. Better Capital, which backs early stage startups in India, wrote 43 investment and follow-on checks this year.

M&A activities also accelerated this year. Byju's acquired WhiteHat Jr for $300 million, while Unacademy acquired PrepLadder, which offers courses aimed at medical students, for $50 million in July. It also led an investment round of $5 million to acquire a majority stake in Mastree.

Reliance Industries acquired online pharmacy Nedmeds and, in a fire sale, Urban Ladder.

But for the first time, Indian startups are on the verge of seeing another kind of exit. Zomato, Flipkart, and Policybazaar are among some startups that plan to go public next year. Analysts at Bernstein have identified Paytm, Byju's, PhonePe, and Delhivery among those who could also go public by 2022.