Monsoon is yet to arrive for Indian start-ups that have been waiting to see venture capital firms flushed with cash open up their purse strings after a reality check on investment euphoria dried up early-stage capital flow. The number of start-ups that got funded in the last three months dropped to the lowest level in a quarter in almost four years, according to data collated by VCCEdge.
An Indian start-up got funded every 13 hours in the second quarter of 2017 against every 10 hours at the beginning of the year. This is a far cry from a peak in 2015 when a start-up found an investor every five hours, data compiled through a mix of public announcements and regulatory filings of transactions still under wraps reveal.
Investors are getting more cautious in taking bets on new start-ups with angel and seed stage investments becoming the worst affected in the quarter ended 30 June 2017.
“On the early-stage side, investors are becoming more cautious about growth prospects and use of money. Also, there is a low preference for B2C business models as the operating bleed and the ever increasing time to break-even are making them unattractive,” says Amit Varma, Co-Founder of Healthquad, a healthcare-focussed venture capital fund.
According to VCCEdge, just 163 start-ups got funded during the three months ended 30 June 2017, a fourth less compared with the previous quarter and a massive decline of 76 per cent from the same period in 2016.
The cumulative deal value also decreased to $471 million during the same period from $870.6 million in the preceding quarter.
The number of transactions, however, gives a better picture on deal-making as the value of investments can be skewed by a few large funding announcements.
Internet-based SaaS start-ups attracted most of the investors’ attention with over half of the start-ups that got funded last quarter operating in the domain.
The largest VC investment last quarter was in Bundl Technologies Pvt. Ltd, which operates online food ordering and delivering platform Swiggy.com. It raised $80 million in a Series E round of funding from investors including Naspers, Bessemer Venture Partners and SAIF Partners.
Interestingly, the drought in start-up funding is not associated with thinning supply of capital. Limited partners (LPs)—whose money is reinvested by private equity and VC funds—committed near record money to Indian VC funds early this year. In the first three months of 2017, LP commitment to Indian VC funds surged almost seven times sequentially to Rs 1,449 crore marking it the second-best ever quarter, as per a separate VCCircle analysis.
LPs had committed a record Rs 7,356 crore or well over $1 billion to Indian VCs in the third quarter of 2016.
As a result, Indian VCs are sitting on deployable cash of close to $2 billion. This figure does not include several VC funds that are yet to register in India but manage over $500 million in assets in the country.
Srikrishna Ramamoorthy, partner at Unitus Seed Fund, is optimistic about the overall start-up ecosystem in India and still thinks that it is a great time for starting up a venture in the country if the business idea has the potential.
“Safe to say that investor exuberance is wearing off from the unrealistic highs of 2015-16. But it remains a great time to be starting up in India simply because so many real problems are still waiting to be solved and for a great idea and team focussed on cracking a large problem, raising capital should be the least of challenges,” Ramamoorthy says.
Source: vccircle
