Private equity funding into startups dips 25% in 2016; Goldman Sachs

Private equity funding has declined by 25% year-on-year from $2.5 billion in 2015 to $1.9 billion in 2016, said a recent report by a global research firm, Goldman Sachs. While the number of deals has picked up by 52% year-on-year in 2016, the average deal size has declined by 51% to $4.3 million. In 2015, […]

Capital flows primarily started ebbing after peaking at $4bn in the third quarter of 2015. The slowdown in the amount of private equity capital inflows into Indian startups in series B/C rounds is forcing startups to lower cash burn rates and also restructure operations to focus on profitability, it said. However, the companies which have attained scale in their operations are being able to raise capital smoothly.

“The newer ones are finding it more difficult,” it said. “Forced consolidation has led players with stronger balance sheets/scale to acquire the weaker companies in some cases,” said the report, According to the report dated June 15, 2016, Indian ecommerce has received healthy capital inflows of over $8.4 billion in 2015 compared to $6 billion in 2014.

Globally the ecommerce market is expected to grow at 20% primarily driven by China and India in the next three years. By 2020, Indian ecommerce market is estimated to touch $100 billion on the back of the increase in consumers’ willingness, occasion to spend online and increase in mobile internet access. Ecommerce penetration in India was 3.9% of the total retail in 2015, while globally it averaged at 8%.

Ecommerce companies are shifting focus to profitability due to changes in the FDI guidelines for online marketplaces in India and relatively slower capital inflows. Online players are now moving away from discounts to gain market share and looking at providing unique services. With the venture environment rationalising and larger companies subsuming resources, India now appears to be entering a phase of consolidation, said the report.

Source: The Economic Times