Venture capital firms (VCs) have demonstrated a clear preference for ed-tech startups for investments in the first six months of 2020
Venture capital firms (VCs) have demonstrated a clear preference for ed-tech startups for startups in the first six months of 2020, with $795 million raised compared to $108 million in the year-ago period.
Although there has been no dramatic increase in the number of deals, it is the only sector apart from healthcare to show an increase in the number of deals according to data from Venture Intelligence study. Many industries largely raised funds before the full effect of the pandemic started playing out in April, while e-commerce announced a 70 percent decrease in deal sizes and half the amount of transactions compared to last year’s same period.
At H1 2020 (data up to June 26), there were 272 investments generating $4.1 billion across sectors compared to 393 investments valued at $4.6 billion during H1 2019. H2 2019 announced a much better performance on $5.4 billion worth of 356 transactions. Most sectors raised funding in H1 2020 before the full effect of the pandemic began in April.
Compared with $296 million in H2 2019 (23 deals) and $108 million (19 deals) a year ago, ed-tech startups have already raised around $795 million (25 deals) investments in funding in H1 across education. Edtech financing was primarily led by Byju’s, now estimated at $10.5 billion following Tiger Global’s January investment of $200 million into the company.
Last week, BOND, a multinational technology investment fund co-founded by Mary Meeker, invested in BYJU’s. Unacademy received an additional $110 million investment from Facebook and General Atlantic, valuing it at $510 million.
In response to schools being shut down as a result of the COVID-19 crisis and lockdowns, ed-tech networks have stepped in to fill the void in live classes for more student engagement giving investors some opportunities too. On Thursday, Mint reported that Byju’s is set to hire around 4,000 employees in the next six months as demand for its online courses has skyrocketed since the March lockdown.
Experts agree that investments in start-ups will eventually be in favor of late-stage companies, with solid unit economics, over first-time entrepreneurs who are still trying to develop their model.
Vivek Soni, partner and national leader of EY’s private equity services, said that there is still considerable uncertainty in the environment over the spread of the disease and, subsequently, government policy response, both at the central and state level. As a result, companies in various stages of shutdown and recovery will find themselves competing with several different markets.
“In these unpredictable times, startups with distinct business models are more likely to receive VC funding. In addition, with increased unit economic scrutiny, VC investors will be more vigilant. Strong current investors on the cap table and entrepreneurs who previously demonstrated their execution skills will also find favor as differentiating factors,” Soni said.
E-commerce funding, last year’s biggest gainer, dropped by 77 percent from $1764 million (66 deals) in H2 2019 to just $393 million (32 deals) in H1 2020. Funding was led by $150 million from the likes of Tencent and Ant Financials each from Swiggy and Zomato.
This clearly shows that startups with distinctive business models are likely to be funded by VCs as investors are looking to fund startups with growth during this time of the pandemic.