Indian Startup Wave, No drop in Early-stage Funding deals: Study

The year 2016 might not have been a big one for large scale funding, but there hasn’t been much of a roadblock for early-stage funding deals, which continue to ride the startup wave. According to data analytics firm Venture Intelligence, there were 107 funding deals this year, almost at par with last year’s figure of 117 deals, for investments within $1 million.

The top deals in this category were raised by Bengaluru-based self-publishing platform Pratilipi which raised $925,000 in seed funding from Nexus Venture Partners,and others, this June.

The trend changed as the deal size increased. For instance, funding rounds between $1 million and $10 million saw a drop from 205 deals last year to 170 deals this year. The big ticket funding rounds of more than $10 million saw only 56 funding rounds this year, compared to last year’s 93.

Parag Dhol, managing director at Inventus Capital Partners, said that 2016 was a good year barring the big deals. “Indian economy is big enough to support several smaller early stage deals whereas it is not big enough to support several above $100 million deals,” he said.

Dhol added that while the big private equity funds or hedge funds have retreated, the interest of small Japanese funds and the Chinese tech companies supporting several Indian startups make him hopeful of the ecosystem doing well. “They have the money and the right intent. Even Softbank, despite the setbacks, has made the right noises,” he said.

NoBroker, a Bengaluru-based home rental platform, was one of the top companies to raise the maximum funding in the $10-50 million category. The company, which raised its initial funding in 2014, had to face a lot more heat this year when it raised two separate funding rounds of $7 million and $10 million each from two different investors.

“The funding environment has been very tough. When you look at the consumer startup space, many have shut shop that has made investors all the more cautious. Investors are focusing unit economics and revenue generation, hence the funding discussion cycles were elongated. Since we had overseas investors on board who wanted to get an understanding of the Indian perspective, the discussion to deal closure took 3-4 months,” says ‘NoBroker’ co-founder Amit Agarwal.

Karthik Reddy, managing partner, Blume Ventures, said that while the early stage deals not slowing down is an encouraging sign, lack of deals at the series A (first substantial institutional funding) stage might choke a few startups. “It has been a perpetual problem in India’s startup ecosystem and we have seen this not changing in the last five years. Either the startups shut down or they are forced to get acquired.”

The VC firm was one of the top five active investors of 2016, according to another data analytics company Tracxn. Reddy added that while there is enough capital with venture funds, investments have not happened. The percentage ratio of series A funding has to go up substantially.