The impact of the coronavirus pandemic has reflected in the startup funding in the March quarter of 2020, with venture capital investment dropping 22 percent in value and 36 percent in volume year-on-year, according to a report from Venture Intelligence.

VC funding saw a drastic drop of 50 percent from February to March, signalling the slowing down of fund infusion as startups across sectors endure the coronavirus contagion.

Total VC funding in the March quarter touched $1.74 billion across 126 deals, compared to $2.22 billion across 196 deals in the first quarter of 2019. The funding trends showed a quarter-on-quarter drop as well.

The funding in the March quarter was 7.5 percent lower in terms of value and a massive 40 percent lower in the number of transactions as compared to the December quarter of 2019.

”While VC investors in India seemed to have shrugged off the chilly winds emerging from the US (owing to the WeWork IPO fiasco and Uber stock price slide of late 2019), the coronavirus contagion infected the ecosystem sharply starting mid-March," Arun Natarajan, founder, Venture Intelligence, said in a statement.

"We can expect VC investors to be highly selective when it comes to making new investments in the months ahead and to be focused more on helping existing portfolio companies survive the downturn," he added.

Funding has been slowing down since early last year due to the WeWork fiasco as well as as the country seeing a consumption slowdown amidst a economic tumult. Even as sentiment picked up, the global coronavirus pandemic has come as an unprecedented disruption for businesses across sectors.

“There is a short-term and a long-term impact with respect to startup funding. In the short term, companies will find fundraising cycles to be long and tough,” said Rahul Chowdhri, partner at early-stage VC firm Stellaris Venture Partners.

“Chances of a successful fundraising will depend on factors such as whether the startup has a strong business model, whether it is benefitting from the current work-from-home environment, and whether the company is a clear market leader and needs money for growth,” Chowdhri added.

The data from Venture Intelligence also highlights sectors that have received more funding as those that will be less impacted form the current lockdown and, in fact, may also benefit from the current environment.

Fintech companies attracted the most investments with 19 deals during the March quarter, followed by health tech (19), e-commerce (15) and edtech (13). The fact that these sectors do not have big offline presence and can cater to demand even in locked down cities will help them emerge out of the storm with fewer problems than others in sectors such as co-working, ride-sharing and mobility, among others.

But as global economies reel from the COVID-19 impact, investors say startups may have to brace for 12 months of hard fundraising environment. However, for many startups, this could be an opportunity to increase their digital presence and customer base. Moreover, VCs say investment activity has not completely been suspended and they will only be more selective in the future.

“In the long term, we feel companies that survive this period will come out much stronger and will also benefit from the growing online usage during this period. We ourselves have not put a pause to investment activity and are continuing to look for new investments,” Chowdhri said.

Highlights from Venture Intelligence report on VC funding

VCs invested $1.74 billion in Indian startups in March quarter

Q1 2020 funding 22 percent lower YoY

Volume of investments 36 percent lower YoY

Q1 2020 funding 7.5 percent lower QoQ

Q1 2020 investment volume 40 percent lower QoQ

Month on Month investments fell 50 percent in March

March 2020: $354 million

February 2020: $714 million

Largest funding rounds in Q1 2020

Curefit raised $114 million from Temasek

Unacademy raised $110 million from Facebook, General Atlantic etc

Bounce raised $97 million from B Capital Accel India etc

Digit Insurance raised $84 million from A91, TVS Capital, etc

BharatPe raised $74 million from Ribbit, Coatue, etc