‘Seed-stage funding for startups to be tough’

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Investors are inclined towards startups with a steady track record, says ProfitBoard Ventures managing partner Alok Patnia.

Hyderabad: Indian startups have raised $8.4 billion between January 2020 and mid-November 2020 which is a 30 per cent decline as compared to the funding raised by startups in 2019. In terms of the number of deals, startups registered a total of 765 deals between January and November 15, 2020 which is a 14.5 per cent decline as compared to the previous year. In this scenario, seed-stage and early-stage startups will find it difficult to raise funds for some time, says an expert.

Early-stage investments saw a sharp uptick in the August-October period with 101 deals worth $323 million, compared to $180 million across 75 deals in May-July, according to data by Venture Intelligence. “We are seeing that there is enough dry powder in the market and investors are now investing the same in later stage deals,” Alok Patnia, managing partner, ProfitBoard Ventures told Telangana Today.

Covid-19 has put many things under perspective. People are going on back foot, re-evaluating their decisions. Investors are no different. In many cases, investors who had already committed money to startups and signed term sheets before the outbreak have put these deals on hold. Valuations are taking a hit.

“Investors are more inclined towards startups with a steady track record or with an existing history of fundraising. That is bad news for seed/idea stage startups. Although venture capital (VC) sentiments are pretty much supportive, these factors may continue to be challenging for startups,” Patnia added.

Pharma & health

While several sectors have taken a hit due to Covid-19, healthcare and pharmaceutical sectors have shown resilience and strength. Eight Indian digital health companies received VC funding in Q3 2020 totaling $40 million while global VC funding for digital health companies in the first nine months (January-September) of 2020 broke all previous nine-month funding records, bringing in $10.3 billion.

Similarly, Private Equity (PE)/VC investments in pharmaceutical companies have grown by more than 3.5 times in 2020 and for the first time crossed $1 billion to touch $1.69 billion during January to September 2020. Some of the major deals reported in 2020 include Carlyle’s $490 million investment in Piramal Pharma, KKR’s $414 million investment in JB Chemicals, Carlyle’s $210 million investment in SeQuent Scientific, ChrysCapital’s $132 million investment in Intas Pharmaceuticals.

Patnia noted that the pharmaceutical market is huge. Over the past three decades, India’s manufacturing has had a phenomenal journey establishing it as the world’s third largest manufacturer of drugs by volume. India presently accounts for around 40 per cent of generic drug approvals in the US (drug master filings) and one in three pills consumed in the US is produced by the Indian generics industry.

“Valuations in this segment are seen to be quite resilient even during the present crisis. Investors have remained positive on the pharmaceutical manufacturing activity in India, which further strengthened during the Covid-19 period, on account of restrictions imposed on pharmaceutical imports from China. We expect this sentiment to continue and grow in the coming years as well,” he added.


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