VCs Keep Investing in Startups Despite Pandemic

By Mariliana Fotopoulou Saturday, January 2, 2021

The persistent COVID-19 pandemic has facilitated a slowdown in startup funding in 2020, but without major disruptions, it seems. Analysts and investors pointed out increased fears among entrepreneurs about launching their companies due to unstable demand and funding amid the pandemic.

Business Activity Still Strong

Data from Crunchbase shows that funding from Venture Capitalists (VCs) fell 6% from the first half of 2019. Once Reliance Jio’s funding of $15.2 billion is excluded, the slowdown increases to 17% in the first half of the year.

“Large venture deals around the globe still occurred during the pandemic. In addition to Reliance Jio’s $15.2 billion raise, Southeast Asia’s Super Apps Grab and Gojek both raised funding rounds over $800 million. Edtech companies Yuanfudao and Zuoyebang, both based in China, raised $1 billion and $750 million, respectively. US-based Stripe and UK-based Revolut also won big in the fintech sector with $600 million and $500 million raised, respectively,” it is said in the report.

According to Anup Jain, a managing partner at Orios Venture Partners, the first quarter of the COVID-19 pandemic created a halt to economic and funding activities.

“Most VCs were busy protecting their existing folios and figuring out the way ahead," he said. As a result, investors put more focus on their current portfolios instead of seeking new deals.

“Established startups with a track record continued to get equity funds from existing investors at tepid valuations...but there was skepticism about backing new ventures in an uncertain market accentuated with lockdowns and supply-chain restrictions," said Ankur Bansal, co-founder and director of BlackSoil Capital.

Broken down by sectors, it seems that tech funding hasn’t slowed down, according to Crunchbase. This is in line with overall historic trends, according to Candace Widdoes, COO of early-stage investor Plug & Play.

She pointed out that tech adoption has surged in each of the previous three economic recessions. Investors and companies were investing in technology and innovation to adapt to new conditions and are expected to do so again. That’s why it shouldn’t be surprising to see VCs investing again. However, the change in the investment process and the markets is clear.

Asia Remains Strong

Certain parts of the world also reflected the same trend. A Crunchbase report shows that funding in Asia increased by 8% in the first half of this year. Although there is a slowdown in the number of startups that received funding, the involved amounts are still quite high.

Data from the tracking platform for startups and private companies Tracxn showed that only 93 tech startups were founded this year in India compared to 332 in 2019, while 170 retail companies were founded this year as opposed to 490 a year ago. Once Reliance Jio is excluded, funding fell to $4.2 billion from $5.6 billion a year ago.

The pandemic has impacted everything from consumers’ way of seeing things to expansion approaches. However, throughout history, we have witnessed that sometimes the best opportunities arise in times like this.

“In past difficult times, entrepreneurs have displayed farsightedness and creativity that could not have been believed to exist. These became the flagpoles of innovation and new technology today,” said Ratan Tata, former chairman of Tata Group.

The pandemic has also prompted Hong Kong startups to amend their operating models; however, these startups were in a much better position to boost demand for their products this year compared to well-established and older companies, according to a report called Transforming Hong Kong Through Entrepreneurship: Third Edition.

The report showed that about 34% of the startups said demand for their products and services increased amid the coronavirus pandemic, compared to 19% of long-standing companies. Also, only 29% of these startups said they were forced to reduce or halt operations, as opposed to 40% of the more-established companies.

Moreover, nearly half of surveyed startups are either working on their new products during the pandemic or are aiding the government to fight it.

Summary

The number of founded startups this year more than halved as entrepreneurs were worried about starting their ventures amid the pandemic. However, some analysts and investors emphasized that this doesn’t mean VCs are not investing.

About the Author


Headshot for author Mariliana Fotopoulou

Mariliana has an MSC in consumer analytics and business strategy. She has a special interest in fast-moving industries and big data.

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