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Indian Startups End 2020 on Strong Note Even as Chinese Investors Dry Up Cash Flow

By: Shouvik Das


Last Updated: December 28, 2020, 16:49 IST

Earlier in March, the startup raised undisclosed funds from 25 angel investors (Representational Image)

Earlier in March, the startup raised undisclosed funds from 25 angel investors (Representational Image)

Startups such as Byju’s, Unacademy, Glance, RazorPay and others led the growth, even as Chinese investment majors such as Alibaba and Tencent held back from splurging on Indian companies.

Indian startups understandably saw a decline in the amount of money they raised through 2020, as the Covid-19 pandemic and its subsequent impact on Indian and global economies took its toll. According to consultancy firm Tracxn, 2020 marked the first year since 2016 when the total amount of funding raised by startups in India failed to cross the $10 billion mark. The total number of deals that startups struck with funding houses declined from 1,185 funding rounds in 2019, to 1,088 rounds in 2020. This marks a decline of about 8.2 percent in the total funding rounds that took place among Indian startups – one of the world’s largest hubs for aspiring ventures.

However, it is important to note that much of this decline happened in the first half of 2020, when India and large chunks of the world went under lockdown, thereby restricting businesses and economies. During the first six months, Tracxn’s report states that in the first six months of 2020, startups raised a total of around $4.2 billion from 461 reported deals. This accounts for about 42.4 percent of all deals in the start of the year, suggesting that despite the pandemic and its economy impact, interest still remains strong in the prospect that homegrown startups represent.

The downturn in investments in Indian startups was also an effect of India’s geopolitical tensions with neighbouring country, China. Back in August, a Reuters report had stated that the Alibaba Group, one of the biggest investors from China with sizeable stock in numerous Indian startups, was holding back from making investments in Indian startups in the immediate future. Internet operations between the two nations started getting strained as reports came out about China’s cyber espionage campaigns on India. In response, the Indian government has so far banned a total of 267 Chinese apps from the Indian cyber space.

Despite such a climate, a number of Indian startups also succeeded in cashing in on opportunities that the Covid-19 pandemic raised. Online education has been one of the key areas of growth, with edu-tech major Byju’s seeing its valuation ballooning to $11 billion. Unacademy, another promising ed-tech startup, achieved unicorn status in 2020, hitting $2 billion in valuation after global technology giant Facebook invested in the company. Vedantu, backed by the US-based Tiger Global, also saw its valuation rise to $600 million. In the overall scheme of things, a report on ed-tech startups by Indian Private Equity & Venture Capital Association (IVCA) and PGA Labs stated that the ed-tech category saw investments quadruple from 2019, up to $2.2 billion this year.

Other startups such as Glance, owned by the InMobi Group, also hit unicorn status this year after Google invested in the venture. Following the ban of viral Chinese app TikTok, India also saw a boom in the rise of short video platforms, which further attracted investments from around the world. ShareChat, the Twitter-backed poster boy for Indian social media services, raised $40 million amid speculations of Microsoft’s interest in investing in the company. Google, meanwhile, also invested in DailyHunt – another promising Indian startup that is seeing considerable interest in its short videos venture, Josh. InMobi’s Roposo also received investment from Google.

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    On overall terms, while 2020 will clearly qualify as a mixed year for Indian startups, there are plenty of positives to draw from the market. Established startup majors such as Paytm, Zomato, Flipkart, PhonePe, Delhivery and the likes are speculated to go public by 2021 or 2022. India has also opened up its space sectors for attractive private investments, which remains a nascent and largely untapped area that can see tremendous growth in the years to come. India’s nascent video conferencing industry also offers an area that can see growth. However, as of this year, the general reliance on more established video conferencing services such as Microsoft Teams, Google Meet and Zoom have overshadowed local players, with privacy being a key factor that Indian players haven’t thoroughly addressed yet.

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    first published:December 28, 2020, 16:49 IST
    last updated:December 28, 2020, 16:49 IST