Data from startup researcher Tracxn show internet and technology companies had raised $12.7 billion between 2014 and November of 2015, when funding started drying up due to a mix of macroeconomic conditions and the inability of the startup ecosystem to offer a sustainable profit model.
The first to get hit were mid- to late-stage companies. For instance, Flipkart ($15 billion), Snapdeal ($6.5 billion) and cab hailing application Ola ($5 billion) – India’s three most valued internet companies – had raised capital from four large funding rounds in 2014 and 2015, but in 2016 none of them could close any large deal as investors baulked at high valuations and losses.
This has led to a painful 12 months for companies, with many shedding jobs and holding back expansion. The focus has turned to cutting costs and improving revenue. Early-stage companies, except those in areas like financial technology, have also found raising capital takes much longer now.
Impact of this pullback by investors is visible in the numbers. Early-stage funding by venture capital investors in startups hit a two-year low in the July-September quarter. The previous low was in the April-June quarter in 2014 when only 63 venture capital investments were closed. In the first nine months of 2016, the number of early-stage VC investments fell by 24% to 290 deals against 381 in the same period in 2015. Total capital invested fell by a third to $1 billion from $1.5 billion, according to data from Venture Intelligence.
But signs of a recovery in mid-stage deals for digital and technology companies are visible. Numbers indicate investors have started opening their purse strings for companies emerging as market leaders in their respective categories. Late-stage financing rounds of over $50 million have been missing since the start of 2016. No deals of over $200 million have been closed since then. Over half a dozen such deals were closed in the first nine months of 2015. The number of deals between $20-50 million have recovered to 2015 levels, with 10 deals closing in the July-September quarter.
Companies that raised significant capital this year include education technology player Byju’s, logistics technology player Rivigo and eyewear brand Lenskart, underlining how investor interest is shifting from just online commerce. Venture capital investors are also betting on sectors like software as a service (SaaS) and business to business commerce as they look for more defensive sectors. And many expect deal-making to pick up in the coming quarters, with sectors like online healthcare, education technology and online content-driven plays attracting financings.
Source: The Economic Times