Fundraising During the Pandemic: Debunking Some Common Myths
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Almost every individual alive on this earth is aware that the COVID-19 triggered pandemic led to the worst ever health and economic crisis in human history. The world had entered an unmapped terrain, and no one knew what to expect. People and organizations were playing on the backfoot. Consumption had slowed down, and the global equity markets nosedived in the first half of 2020 when the outbreak was at its peak. Even the investment sector was not left untouched by this negative sentiment, as investors adopted a more conservative outlook to counter uncertainty in the market.
However, things started changing by the second half as the world started getting used to the new normal, whether it was about maintaining physical distancing, remote working, branchless banking, or increased focus on health and sanitation. All these changes also started reflecting in the larger business ecosystem as well. Despite the challenges, new-age innovators took the adversity head-on, committed to converting it into a string of opportunities. Public and private players, including investors, decided to put the state of disorientation behind them to direct their focus on reviving the economy. The result? In 2020, Indian startups went on to secure funds worth $9.3 billion.
As is apparent, most of the beliefs people took for reality in the early months of the pandemic proved to be mere myths. Against this backdrop, let us look at some of the investment-centric myths that failed to stand the test of time:
Myth 1: "Slowdown in the economy has suffocated early-stage venture investments"
While investors were indeed treading softly and being mindful of their investments to tide through the sluggish economy, they had not stopped altogether funding promising ventures. Other than a slight bump in the first quarter of the year, investors did not shy away from sustainable financing, high-potential and digitally driven businesses. By mid of 2020, the situation started improving considerably, and the year ended on a positive note.
Amid the lockdown-led restrictions, the demand for digital services surged and innovators rose to the occasion to address the need-gaps. At the same time, many businesses either onboarded the digital bandwagon or pivoted to stay relevant. Consequently, deal activity gained significant traction from April-June, dominating the second half of 2020. During this time, there were approximately 4,640 active investors in India. According to The Economic Times, early-stage venture investments picked up significantly since July 2020, after a relatively slow period in the previous quarter.
Startups such as Zolostays and Muse Wearables (which successfully developed a COVID-19 wearable tracker) raised $56 million and $3 million, respectively. Video sharing platform Mitron TV gained attention after TikTok's ban in June-end and grabbed investment in July. Reliance Jio's outstanding fundraising for the Jio platform also helped to pique many new investors' interest more than eager to grab a share of the country's growing digital and technology sector.
Myth 2: "Overall startup funding has become mute in the wake of the COVID-19 crisis."
Contrary to this belief, the Indian startups' performance in 2020 surpassed all expectations, and the ecosystem showed significant recovery in the second half of the year.
A report by TiE Delhi-NCR and Zinnov revealed that the industry underwent gradual recovery from September 2020, with most segments recovering back to pre-COVID levels. According to the report, about 75 per cent of startups have seen incremental recovery post lockdown. Around 30 per cent of them are moving to newer markets searching for alternative revenue streams, and 55 per cent are more focused on driving profitability and reducing cash burn. Deal activity—both in terms of total investments and the number of unique funded startups—also reached pre-COVID levels during the third quarter of 2020.