Venture Capitalist inflows tumble to just $2.2 bn in Mar quarter

After record USD 6 billion inflows into the country in the December 2019 quarter, VC investments plunged to a meagre USD 2.2 billion in the March 2020 quarter due to the coronavirus-driven uncertainties, according to a report.

However, despite these challenges, the domestic market saw a number of large deals during the period under review, according to the report by KPMG.

Though initially, India was not as affected by the COVID-19 pandemic as China in the reporting quarter, concerns grew later because India receives a significant amount of venture capital (VC) from international firms and corporates. As a result, many deals got deferred as these investors wait to see how the pandemic affects their businesses.

"While the pipeline for deals is expected to remain relatively robust, deal flow is expected to become very slow, particularly in Q2 (second quarter). Though VC investments may be challenging in the short term, it is expected to remain robust over the longer term," Nitish Poddar of KPMG India said in the report.

Education technology (edutech) is expected to remain a very hot sector for venture capitalists, in addition to auto-tech, and health-tech related to fitness. Gaming can also see an uptick in interest, said the report and underlining the USD 400 million fundraising by Byju's in the quarter, USD 110 million by Unacademy, and Aakash Educational announcing its acquisition of Meritnation during the quarter. Then there was the mobility firm Bounce raising USD 150 million, the report noted.

"With the lingering COVID-19-spawn uncertainty, (venture capitalists) are expected to become even more risk averse now and will take time to re-evaluate their portfolios given the current situation. However, with the pandemic basically slamming the IPO (initial public offering) market door shut at least for the short term, some companies may require bridge funding to get through the market turbulence where comes the role of the VCs," Poddar said in the report.

The report also noted that given the travel and movement restrictions, cross-border VC investment will be very challenging heading into the second quarter. The inability to conduct in-person due diligence and face-to-face meetings will likely curtail a significant amount of cross-border activity, with some VC investors choosing to stick closer to home.