Indian startups witnessed a golden period in 2019 as the community raised a whopping $14.5 billion worth of funds from Venture Capitalists and Investors.
Data collated by research firm Tracxn also shows that almost half of the startups founded in 2019 received funding. However, the bullish outlook was soon phased out by the coronavirus outbreak which strangulated an Indian economy that wasn’t in its best shape even before the pandemic. Consecutive quarters of low growth coupled with shortened gross capital formation and high inflation were making things worse since 2018. The pandemic led lockdown further increased woes of Indian businesses.
In March, Indian startups managed to raise $354 million that is almost half of what they raised in February.
Investors became bearish and tight-fisted. Funding fell 81.1 percent in March 2020 in comparison to March 2019. The curbs on movement degraded consumer demand and damaged the outlook of the startups. A similar trend continued in April and May as well.

Investors get sector-wary
The pandemic has undoubtedly changed the way we live. A similar change can be noticed in the investment pattern as well. Venture Capital firms are now more attracted to online grocery delivery services, online pharma services, FMCG startups, food delivery startups than conventional tech-based startups.
Other major sectors to have got major attention include edtech, fintech, and cyber-security based startups. As the lockdown kicked in towards the end of March, many new video conferencing services raised their heads. Even the Indian government offered $130,000 for developing an encrypted substitute of the Zoom app after it faced allegations of the privacy breach.
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FDI rule backfires
The first ones to get hit by the pandemic were stocks of businesses. As the nation-wide lockdown started in India, stock market indices tumbled like a house of cards. In order to prevent “opportunistic takeovers/acquisitions of Indian companies” at the undervalued position, the Indian government tweaked the FDI rules.
The new FDI policy requires investors from the countries sharing direct borders with India to get approval from the Ministry before raising an existing or fresh investment. A policy with a good intent worked against the startups.
Chinese investors hold more than $8 billion worth of investment in Indian startups.
Most of the Indian Unicorns are funded by Chinese VCs.The new FDI policy will force the Chinese investors to first approach the Indian government, which they may choose to avoid.
Time to Adapt
As the startup ecosystem is struggling, here are the few ways that Indian startups can ensure investor support.
User-Centric Services: During the lockdown, the biggest jolt was received by the non-essential service providers. Startups need to re-strategize having the consumer needs in the center. The focus should be given more prominently towards the over-all customer satisfaction.
Cost Cutting: Startups can prepare to brace the impact of lowered investment only by cutting costs. Unnecessary expenditure will lead to shortened runaway for these budding companies. No investor would like to put his money into a financially distressed firm.
Long-term Vision: This pandemic has brought a perfect opportunity for brainstorming on new ideas and geographical expansion. Startups need to have a long-term vision of sustaining in the market rather than a short-sighted view for obtaining funding.
Adapt to the New Order: Startups adapt pretty fast as they don’t carry heavy baggage with them. As soon as the lockdown started, online food delivery apps started delivering essential items; and fitness apps started providing gym like experience at home. Any significant event comes with its own opportunities, and we have to identify it and capitalize on it. In order to stay valid in the market, startups need to adapt to market dynamics.
Watch: Vani Kola, MD, Kalaari Capital on the way forward for startups
The Silver Lining
Despite an overall slump in investment, the edtech startups have leveraged pretty well. Recently, Byju’s and Unacademy raised $400 million and $100 million, respectively, through a round led by Facebook.
A KPMG report said that even during the current challenges, edtech is likely to remain a very hot sector for VC investment. Due to the closure of schools and colleges, these platforms are witnessing higher traffic. During March, Byju’s enrolled 6 million new students on its platform, while Unacademy clocked 1 billion watch minutes.
Along with Edtech startups, online pharma and grocery startups have also started doing well. Startups like BigBasket. Grofers, Medlife, 1mg, and PharmEasy have come up with a contact-less delivery option that has shot the demand.
Things change whenever we pass through unprecedented times. Indian startups have been facing a cash crunch for a while now. However, more than any external interference to make things better, they need to adapt to the new order. This pandemic and government’s ambitious ‘Atmanirbhar Bharat Abhiyan’ may bring the good old times for the Indian startup ecosystem.
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