Pent-up demand driving VC funding

As economies begin to digitise and several organisations get more connected, there is a huge opportunity to adapt to smarter services.

It is true that nobody can predict how the current year’s fundraising marketplace is going to behave. The starting of the year reflected a trend towards a blockbuster beginning, similar to the one seen during 2018. But after the pandemic hit the world, especially after April 2020, there was no clear road map on how venture capital and funding agencies were going to react. Another hit came when the Chinese investors started to pull the brakes on investing in Indian start-ups. But fortunately, the investors from the US, Europe, and Singapore have been filling up the gap by pouring in fresh funds on Indian unicorns.

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E-commerce to the rescue

During the past few months, veteran investors such as New York-based hedge fund Tiger Global Management, Singapore’s Temasek Holdings, and others like Bond and Silver Lake, DST Global, have stepped up to invest in Indian start-ups. As the economies begin to digitise, several organisations get more connected, and there is a huge opportunity to adapt to smarter services. The e-commerce sector has performed extremely well during the Covid-19 since it was the only method to deliver the products or food to customers despite rising supply chain costs.

Investors have been evaluating unicorns based on their scope for growth, their stamina to withstand competition, and their path to profitability. Companies such as BigBasket and Byju’s have reflected this very well. The growth of the grocery delivery agency BigBasket despite the existence of e-commerce majors such as Flipkart and Amazon have been phenomenal. They stuck to their business model, created a strong and dependable supply chain, and created maximum market share in the online grocery.

Edtech start-up Byju’s has raised more than a billion dollars this year. It is a classic example of an Indian unicorn raising capital from an array of global investors. After having raised funds from Mary Meeker’s fund Bond along with DST Global, it had recently raised $500 million led by the US-based Silver Lake, present investors General Atlantic, Tiger Global, along with other new investors like Sands Capital, BlackRock, and Alkeon Capital at a valuation of $11.1 billion.

With education and shopping gaining popularity online during the pandemic, even the Foodtech sector has seen a relatively marginal boost. Foodtech Unicorn Zomato recently raised almost $165 million from MacRitchie Investments, a branch of Temasek and Tiger Global.

Expectations from Q3 and Q4 based on current trends

There is generally an increase in the founder activity during the late summer, leading to a high level of VC interest during the fall season. Currently, the founder activity has been up and down, and the interest of VC has been steadily growing, which shows that there is still pent-up demand to deploy capital in start-ups. There are even many founders who have delayed their fundraising efforts to enter the marketplace in the coming months.

If the pandemic worsens, there might be founders who decide to push their fundraising efforts to the next calendar year moving their timelines ahead. If the present level of interest reflects the new normal for VCs, then it is expected to increase as the fall season begins. With more founders entering the online platform in the early to late fall period, that pent-up demand may increase the market activity.

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Disclaimer: The views expressed herein constitute the sole prerogative of the author. They neither imply nor suggest the orientation, views, current thinking, or position of FICCI. FICCI is not responsible for the accuracy of any of the information supplied by the author.

Dr Param Shah is Director – UK, Federation of Indian Chambers of Commerce & Industry (FICCI).