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Indian startup funding hits two-year high at $4.2 billion in Q1

Investments in Indian startups have hit a two-year high. Data from Venture Intelligence shows that the first three months of 2021 recorded a capital flow of $4.2 billion. This is 40% higher than that in the first quarter of 2020 when it was $3.5 billion. It even exceeded the investment of $4.1 billion in the last quarter of 2019.

The recent quarter figure is almost 45% higher compared to that in the last quarter of 2020 ($2.9 billion). Indian startups are surely emerging strongly from the Covid-19 induced slowdown in the middle of last year.

Startup investments had come to a near halt in the June quarter last year. The latest quarter’s figure was last matched in the September quarter of 2018.

Industry executives involved in these investments stated this is also a ripple effect of the increased global liquidity with investors to make investments in technology companies in emerging markets.

“There is a lot of appetite among the investors to put money in India and local startups. People who were sitting on the sidelines are also ready with cheques (of large size). Companies that would have raised $50-$100 million are now raising $100-$300 million,” said Mohan Kumar, founder and managing partner at software-focused Avatar Ventures. He added that global investors are watching for new investment avenues, beyond the expensive BigTech shares like Amazon and Apple.

“Globally, a lot of limited partners or LP (who invest in venture capital funds) and other origins of funds have seen low-cost capital flowing into funds. So, the LPs have been telling fund partners to go aggressive in both public and private bets in the tech space. In the private tech sector in India, it’s now clear to people that tech and the new economy are the places to bet,” a senior investment banker stated.

According to him, public market investors are also increasingly looking at internet startups, mentioning recent investments in companies like Zomato and Byju’s.

The investments are also arriving at a higher valuation than before, leading to certain startups achieving the unicorn status (startups valued at $1 billion or more) sooner than expected. “Valuations have gone high definitely but it’s also happening in early-to-mid stage startups. Having said that, the quality of startups has also improved,” another venture capital investor stated. So far, India has seen four unicorns this year officially, but several other startups are anticipated to join the coveted club in the forthcoming quarter.

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