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Rising Uncertainty Puts Indian Startup Funding On Ventilator Support

Rising Uncertainty Puts Indian Startup Funding On Ventilator Support

The monthly growth rate for funding in Indian startups has fallen by -39% as opposed to positive growth in the past two years

The total capital inflow plunged by a whopping 55% between March and April

How bright is the future for Indian startups and VCs in 2020?

The start of a new year fills most with hope to take on the many challenges through the year and while the start of 2020 (and the new decade) — at least the first two months — was no different for the Indian startup ecosystem, the months that followed must have exhausted all that hope.

Exuberance and optimism were flourishing among the various stakeholders ranging from founders to venture capitalists in January and much of February, before the coronavirus pandemic dashed all hopes and made a dent in the world economy so deep that today the top economies in the world are in a recessionary phase.

The inflow of mega funding rounds such as OYO ($807 Mn), ReNew Power ($450 Mn), FirstCry ($296 Mn) and others uplifted the overall value of capital inflow in Q1 2020 compared to the previous quarter, indicating that the macro outlook of the first quarter remained largely un-impacted by the Covid-19 outbreak, but when you look at the capital inflow without the outlier funding (which are the high ticket investments) the total funding raised by Indian startups in Q1 2020 ($3.3 Bn) plunged by 10% compared to the previous quarters — $3.69 Bn.

This was a sign of things to come. The outbreak of Covid-19 pushed India into a stringent lockdown which resulted in the depletion of overall business confidence not only in startups but the economy as a whole. Between February and March 2020, the purchasing manager index (PMI) manufacturing an important economic indicator to determine overall business confidence, plunged from 54.5 (February 2020) to 51.8 (March 2020), furthermore in April 2020, the index shed 23.4 points tumbling down to 27.4, the sharpest deterioration since the data collection began over 15 years ago. Similarly, the PMI for the service sector tumbled to 5.4 in April 2020 from 49.3 in the previous month, well below the market expectations of 40.0.

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