Why 2021 could birth many IPOs by local startups

Indian startups raised about $12.8 billion across nearly 1,350 funding rounds from investors last year, as per data from Tracxn Technologies. Though deal value and volumes in 2020 were less than those in 2019, the New Year is predicted to bring a transformation. 

Despite a drop by deal volume and in overall investments, numbers are still surprisingly healthy for a pandemic-hit year. When the covid-19 crisis had begun in March 2020, public markets collapsed across the planet and investors froze private investments. India had put restrictions on investments from China. Between March and June, when a nationwide lockdown was imposed, deal-making remained suspended. However, because the lockdown ended, deal-making picked up rapidly, especially within the last half. By the top of 2020, nearly a dozen startups had become unicorns—the most in any year.

Macro factors played a crucial role. The surge publicly markets led by the US helped prop up investor confidence. Low-interest rates also allowed investors to take care of risk investment funding. The most important reason was that covid triggered an acceleration of digitization across sectors. Digital education, enterprise software, content and logistics were the most important beneficiaries, while sectors like cab and bike aggregation and financial technology struggled to draw in capital. A number of the most important fund-raises included $660 million by Zomato; $500 million by Byju’s; $300 million by Firstcry; and $225 million by Dream11.

Reliance Industries Ltd (RIL), which raised a mammoth $26 billion last year (not included within the Tracxn data) for its digital and retail ventures, has become a serious player in India’s internet ecosystem. Many of its consumer-facing services may start rolling out this year. RIL has already bought several startups and is competing with incumbents during a wide selection of sectors.

For now, startup funding may still be strong due to the glut in available capital. Till covid prevents an entire return to normalcy, sectors like digital education, content and software will prosper. Others like consumer transportation will devour only the pandemic is essentially over. Speed of vaccination programme, the fate of proposed initial public offerings by leading startups, the performance of companies that have raised huge funds, and therefore the strength of consumption would determine to fund, going ahead.

IPOs are the grail for startups. But aside from a couple of exceptions like Makemytrip and Indiamart, Indian startups did not go public. Companies have built weak business models that yielded huge, increasing losses per annum. that's now changing, albeit slowly. a couple of profitable firms like Freshworks, Druva, PolicyBazaar and Delhivery have announced plans to list their shares within the near future. If they're ready to achieve successful IPOs, it'll mark a turning point which will cause more capital for Indian startups.