When the founders of angel-funded healthcare start-up Medd set out to raise institutional capital from Venture Capital (VC) funds in June, the tide had turned.

The start-up ecosystem was showing signs of trouble, with large start-ups such as Housing, TinyOwl and others laying off employees and struggling to raise capital, as venture funds became stingy.

In October, Medd raised $150,000 in a bridge round from a group of angel investors, while continuing to negotiate with VCs for a larger round.

“We were already negotiating a bigger round at that point, but negotiations were taking time,” said Arpit Kothari, a co-founder at Medd, which helps locate and compare pathological labs. Medd wanted to create a buffer, in case negotiations dragged longer, while also having enough money in the bank to grow the business in the meanwhile.

Medd is one of many start-ups that have tapped bridge finance, offered by existing or new investors to ensure that the company doesn’t run out of cash until it raises the next round of funds. At the angel stage, bridge rounds are normally `1-3 crore.

Raising Series A funds of $1-10 million from VC funds has become increasingly tougher for many angel-funded start-ups.

“A large chunk of angel money these days is actually going towards bridge rounds,” said Lovkesh Kapoor, founder at boutique investment bank WisdomHill Capital, which advises high net-worth individuals and family offices as part of its start-up investments practice.

The reason is that it’s not just large funding deals, venture funds have become cagey about smaller capital infusions as well.

“The bigger Venture Capital (VC) funds, even though they have cash, are saving it for the good bets in their portfolio. Most money from VCs will flow to these start-ups to back them in their next rounds,” said Kapoor.

Although overall Series A deal activity in 2015 has doubled to almost $600 million over last year, according to data from VCCEdge, most of this funding rush came in the first half of the year. The first six months saw 72 Series A deals worth $383 million being closed. Since July, Series A deals worth only $216 million have been reported across 57 deals.

Even as VC deals have slowed, the money put in by angel investors has continued to rise.

The first six months saw $128 million worth of angel investments (across 271 deals) and the July-December period witnessed $169.5 million worth of investments (across 336 deals), shows data VCCEdge. Angel and seed investments in 2015 have increased 60% to $284 million, compared to last year.

Source: Mint