There are early signs of an uptick in start-up funding but at the same time, venture capital (VC) funding is changing. It is moving from growth stage to early-stage; from consumer to enterprise (b2b), to those offering SAAS (software as a service) or artificial intelligence (AI).

Several start-ups in the latter space got funded in recent months, says Rahul Khanna, managing partner, Trifecta Capital. ‘’The B2C (business to consumer) market was overblown, and several start-ups like Housing and Grofers are struggling,’’ says a start-up founder. ‘’What used to be considered negative, like a long sell cycle (business customers take longer to say Yes), is now considered positive,’’ says Suresh Shunmugham, Managing Partner & Co-Founder, Saama Capital, an early backer of Snapdeal, Paytm and SKS Microfinance.

Unlike retail customers who are looking for the cheapest deal, business customers are less fickle minded and are ‘’likely to stay with you if you can demonstrate value to them,’’ says Shunmugham. Investors have burnt their fingers on consumer businesses as these continue to bleed.

‘’Start-ups grew rapidly and raised a lot of capital at high valuations but their business model was such that the more they grew, they ended up losing more money,’’ says another US-based investor. Investors are now asking these businesses to reduce the cash burn to live longer. ‘’They are trading growth for a longer runway and asking start-ups to show a clear path to profitability. Start-ups were showing growth to raise money. That game does not work anymore,’’ says Shunmugham.

Data supports the shift. Growth stage deals (Series-C & above) fell 65 per cent in 2016 (till November) to $1.46 billion, from $4.2 bn in 2015. Early-stage funding (Series-B & below) fell 56 per cent in 2016 to nearly $1 bn, from $2.3 bn in 2015, according to VCC Edge.

That’s because Series-A deals are less susceptible to swings in valuation than growth-stage funding, says Sandeep Murthy, Partner, Lightbox.

It’s not that growth stage deals are not happening. Byju’s raised $50 million from the Chan-Zuckerberg Foundation and four other investors; FreshDesk raised $55 mn from Sequoia Capital India and Accel. Only, they are not as frequent as earlier.

The shift towards early-stage funding is also because most VC funds — barring a few like Sequoia who invest across stages — are focused on early-stage investments and are sticking to their knitting. Many funds which started with $100 mn are now three or four times that size. Helion Ventures raised $135 mn in its first fund; it has raised one of $300 mn. Nexus has gone from $97 mn to $450 mn; Accel from $50 mn to $450 mn. “The funds have grown. They have to do larger deals or more of Series-A,’’ says an investor.

Many investors like SoftBank, Tiger or the hedge funds which led the growth stage deals in 2015 are effectively out of it. ‘’They have put in a lot of money at high valuations and burnt their fingers. They are now much more focused on how these funds are deployed,’’ added an investor.