Early-stage investments rise during lockdown, even as investments in start-ups plunge 57% in May

During the lockdown, when most VCs were strictly focused on bailing out their portfolio start-ups with sustenance funding to cope with the Covid-19-created slump in business, there has been no let-up in seed investments by early-stage VC firms like Venture Catalysts, Inflection Point Ventures and Eagle10 Ventures.

Venture Catalysts invested in 14 start-ups over the last four months, of which seven were done during the lockdown, including in start-ups like Qin1, Insurance Samadhan, OmBhakti, Power Gummies, Pariksha and MyKaam. Having invested between $2,50,000 and $2 million in 63 early-stage start-ups in calendar year 2019, Venture Catalysts says it is on track to invest in more than 63 start-ups in calendar year 2020. It was recognised among the top seven most-active early-stage investors globally by Crunchbase.

“For the right ideas and the right founding team, there is no dearth of capital that we can provide. We are on course to fund over 63 start-ups with the best ideas at a better valuation in 2020. Please remember that 30 per cent of the 36 plus unicorns and semi-unicorn firms in the country were funded between 2008 and 2010, during and after the Lehman Brothers financial crisis which led to a global economic slowdown. The India story is intact for us. While Covid-19 will create a short-term impact for 6-12 months, we are investing in start-ups with a long-term view of three to five years. If India has to become a multi-trillion dollar economy, only the start-up ecosystem can enable that by creating jobs in new sectors and new businesses,” Anuj Golecha, co-founder, Venture Catalysts, told BusinessLine . Venture Catalysts was founded in 2016 to foster entrepreneurship in Tier II and III cites.

“From presence in 22 cities pan India, we will expand to 40 cities by the month end, ending 2020 with a footprint in 75 cities. During the lockdown, we added operations in nine more cities, including Bhubaneswar, Cuttack, Goa, Kochi, Coimbatore, Guwahati, Udaipur, Jaipur and Bilaspur,” he said. Asked if any of its 100 plus portfolio companies required additional funding to survive during the lockdown, Golecha said, “Only three of our portfolio firms required bridge rounds to survive, others are sufficiently capitalised to see them through these rough times.”

Given that investments in Indian start-ups plunged by 57.3 per cent in May 2020 due to Covid-19, compared to investments in May 2019, as per data from start-up tracker Tracxn, one would assume early-stage funding would also be negatively impacted. Angel investor PG Ponnapa, who has invested in 14 start-ups, says early-stage funding will remain positive in 2020.

“Given the uncertainty in the equity and debt markets, senior corporate executives in India are looking to diversify their investment portfolios with angel investments, and hence, the universe of investors will increase. These new investors will focus on start-up categories that are gainers in the current Covid-19 situation. For instance, One Eight Technologies, one of my portfolio companies, which had raised ₹7.5 crore pre-Covid-19 has added ₹2 crore in angel funding during the lockdown to close the round. They have a software-based solution built on SDN/NFV that enables high-speed internet for any existing fibre partner which can meet the exploding demand for high-speed internet for online education and WFH,” said Ponnapa.

Inflection Point Ventures (IPV) has invested ₹30 crore in 11 start-ups during the lockdown, including in Phable (healthtech), Milkbasket (online grocery), Pedagogy (Edtech), Toch (mediatech) and Fabbox (F&B). “Real estate, as an asset class, has not grown in the last seven to eight years, the stock market hasn’t delivered in the last five years. People want to invest in an asset class that promises good returns and are turning to start-ups, as they have seen first hand the wealth creation in private markets for investors by start-ups like Flipkart, Ola and Swiggy,” observed Vinay Bansal, co-founder & CEO, IPV.

Eagle10 Ventures, which typically invests ₹1 crore to ₹3 crore in revenue-generating, early-stage tech start-ups, has finalised three investments in medtech and collaboration solution start-ups during the lockdown. “In the last five months, we have evaluated over 20 start-ups and finalised three investments. We focus on start-ups with the right team, market opportunity and business idea. We are very positive on the prospects for early-stage funding in 2020 and plan to launch a micro VC Fund for India very soon,” said Pramod D’Souza, co-founder, Eagle10 Ventures.

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