As many as thousand start-up companies in India will be funded through various sources during the year 2016, according to a recent study.

The VCCircle Network has released key insights from the VCCEdge Q1CY2016 Startup India Funding Report in the run-up to the Bengaluru edition of the News Corp VCCircle Southern Startup Series 2016.

The report forecasts that 2016 will continue to be the year for startups as venture capital funds keep the money coming for an otherwise cash-constrained ecosystem. While venture capitalists will continue funding the startups, ‘small is safe’ is likely to be the defining theme for startup funding, as deal size is expected to be much smaller in comparison to the hyper funding in recent years. The year 2016, thus, will be the year of consolidation with startup valuations getting trimmed, early-stage investors turning cautious and an overall tightening of purse strings.

Key Highlights:

The number of startups that may receive funding this year is likely to reach the 1,000 mark. The forecast is based on the run-rate seen in Q1 2016, and the contribution from first quarter to the yearly deal volume. There have been 255 deals till mid-April this year.
On a quarter on quarter basis, startup funding deals have taken a hit of at least 50%, with deal value falling from $611 mn. in Q1 CY2015 to $301 mn. in Q1 CY2016.
While deal value has headed south, startup funding deal volume has remained fairly unchanged with 234 deals in Q1 CY2016 as against 232 deals in Q1 CY2015.
Angel, Seed, Series A and Series B stage venture funding transactions that peaked with 287 deals, or one every 7.7 hours, in the quarter October-December 2015, have slipped by 19% to 234 deals in quarter January-March 2016. In value terms, the slide is 41%, to $301.5 mn at the end of January-March quarter ended 2016 when compared with the previous quarter.
Venture Capital Series A funding volumes have dropped 52% from 67 deals in Q1 CY2015 to 32 in Q1 CY2016, while in value terms, there has been a 56% drop from $240 mn. to $105 mn. in the same period.
Venture Capital Series B funding has seen a decline from $281 mn. in Q1 CY 2015 to $137 mn. in Q1 CY 2016, a drop of 51%. In volume terms too, there has been a fall of 46% from 24 deals in Q1 CY 2015 to 13 deals in Q1 CY 2016.
Share of startups in the overall private investment pie is on the rise. By volume, startups accounted for 70% of the total transactions in 2015, up from 62% in 2014. While the contribution of the startup deal value too has been on the rise, moving from 7% in 2011 to 11% in 2015, it has slipped in 2016YTD to 6%.
Every fourth startup investment is in Bengaluru. Bengaluru continues to contribute approximately 25% of the total startups deal volume in India in the last five years.