The COVID-19 pandemic, along with several other contributing elements, resulted in a decrease in investment activity for Indian startups throughout the current year.

In contrast to the record-breaking $14.5 billion raised in the previous year, Indian startups concluded 2020 with approximately $9.3 billion in funding. This marks the first instance since 2016 that startups within India, a major global startup hub, have secured less than $10 billion in a single year, as reported by the consultancy firm Tracxn.

The total number of deals decreased from 1,185 last year to 1,088 in 2020. Furthermore, there was a reduction in the number of larger investment rounds. Deals valued at $100 million or more declined from 26 in 2019 to 20 this year (representing $3.6 billion compared to $7.5 billion last year), and rounds between $50 million and $100 million fell from 27 to 13. (These figures exclude investments made in telecom leader Jio Platforms, which independently secured over $20 billion in funding this year.)

Despite this overall slowdown, Indian startups experienced a notable recovery during the latter half of the year. During the first six months, startups in the world’s second-largest internet market raised only $4.2 billion across roughly 461 deals, according to Tracxn.

Beyond the impact of the coronavirus, which affected startups globally, a contributing factor to the reduced deal flow was the limited involvement – or decreased participation – from several prominent investment firms.

Major Chinese companies, including Alibaba and its affiliate Ant Group, as well as Tencent, made fewer investments in Indian startups amid escalating tensions between the two countries. SoftBank also provided less capital, as several of its portfolio companies, such as Paytm, Oyo Rooms, and Ola, did not secure additional funding.

However, the pandemic also spurred growth for certain startups. Byju’s has seen its valuation increase to over $11 billion, up from $8 billion in January of this year. Unacademy, another prominent player in the online learning sector, completed two funding rounds during the peak of the pandemic, elevating its valuation from approximately $500 million in February to over $2 billion.

Bond, a venture capital firm founded by Mary Meeker and other well-known investors, invested in Byju’s this year. Bond projects that Byju’s will be worth over $30 billion within three years, as shared with TechCrunch by an individual familiar with the firm’s assessment. Several India-based startups utilizing a SaaS (Software as a Service) model and serving a global customer base also gained traction this year.

A total of 11 Indian startups, including RazorPay, Unacademy, DailyHunt, and Glance, achieved unicorn status in 2020. (As a related point, both Google and Facebook made multiple investments in Indian companies this year. Google invested in Glance and DailyHunt last week, while Facebook invested in Unacademy. Both firms also participated in funding rounds for Jio Platforms this year.)

“Having experienced the downturns of 2001 and 2008, I recognized a pattern when COVID-19 emerged and initial reports were pessimistic – the emergence of a new wave of entrepreneurs building the next generation of companies,” stated Vaibhav Domkundwar, founder and managing partner at Better Capital. Better Capital, which focuses on early-stage Indian startups, completed 43 initial and follow-on investments this year.

Mergers and acquisitions (M&A) activity also increased this year. Byju’s acquired WhiteHat Jr for $300 million, and Unacademy acquired PrepLadder, a provider of courses for medical students, for $50 million in July. Unacademy also led a $5 million investment round to gain a controlling stake in Mastree.

Reliance Industries acquired online pharmacy Nedmeds and, in a distressed sale, Urban Ladder.

For the first time, Indian startups are preparing for a different type of exit strategy. Zomato, Flipkart, and Policybazaar are among those planning to launch initial public offerings (IPOs) next year. Analysts at Bernstein have identified Paytm, Byju’s, PhonePe, and Delhivery as potential candidates for IPOs by 2022.