So far, 2018 seems to be reflecting the optimism of last year’s funding environment
Gone are the days when start-ups cried themselves hoarse over a funding crisis and lack of investor attention. If the last few months are anything to go by, then the funding atmosphere appears to be improving in a significant manner. At least on the surface.
A recent report by InnoVen Capital, a venture debt and speciality lending firm, shows that 54% of (surveyed) start-ups claim to have had a positive fundraising experience in 2017, a good progress over 37% start-ups who felt the same in 2016. Last year in fact witnessed over $10 billion being invested into the Indian start-up ecosystem with over 825 companies being funded, as per Tracxn data. This is much higher than the $4.4 billion that was invested across Indian start-ups in 2016.
And 2018 seems to reflect the optimism of last year’s funding environment. The sector has already received $1.17 billion in the January – March period, with an average ticket size of $7.9 million. Healthtech companies like Axio Bio Solutions, eKincare, logistics firm DeeDee, and others like ImpactGuru, ChaiPoint have been funded in 2018.
“The funding environment is getting increasingly positive,”” says Deepanshu Manchanda, co-founder and CEO of raw meat e-tailer Zappfresh, which raised $ 3 million in a round led by Dabur’s Amit Burman and others this year.
Serial entrepreneur Sandeep Aggarwal, the founder of Shopclues and Droom, says the funding environment is “undoubtedly jubilant”, and this is significant considering the lean phase experienced in the recent past, starting in mid-2015. “Considering the huge amount of investment that came in for start-ups in 2013-15, the market was expected to get cautious. The market has gone through a sea change and has become more rational now.” Earlier this year, Droom raised $30 million in series D led by Toyota Tsusho Corporation.
Experts attribute multiple factors to the positive investor sentiment.
‘’The quality of start-ups is better now with deeper customer validation seeking funding,” says Sunil K Goyal, managing director of Your Nest, an early stage fund house. Moreover, there have been visible exits and businesses have proven they can access global markets while funding was slower, says Goyal. “This increases investor confidence and hence the ability to get reassured participation from HNIs and institutions alike, including funding from overseas.
The low cost of experimenting newer ways of doing things with multiple times value added to the life of a customer gives the confidence to commit capital, time and effort as a VC to a start-up.”
According to Manchanda, investor trust and sentiment is upped also due to the enhanced role of data, analytics, machine learning, automation and operational efficiencies (which boost the bottom line) in start-ups and the spurt in ventures with innovative business models.
Automation and increased digitisation, which is seen in new-age start-ups, helps to cut down costs while enhancing the delivery of quality products and platforms. “Investors have always expressed their preference for tech-based start-ups as they consider such companies to be future-ready. Furthermore, a firm that has been able to effectively incorporate, adapt and implement its existing operational framework according to cutting-edge technologies to optimise revenue potential has managed to secure more funding and from multiple investors’’, says Aggarwal.
And most importantly, start-ups are focusing on unit economics, rather than the big valuation figures of the likes of Snapdeal or Flipkart. “Investors are connecting all the dots to arrive at an idea that India will lead the start-up and digitisation growth in the next 15 years,” feels Aggarwal.
But despite the optimism, it is often the big fish in the fray walk out with the fattest deals. In 2017, the likes of Flipkart, Ola and Paytm received upwards of $1.5 billion each, while the next rung of start-ups like OYO Rooms, Swiggy were in the $80-260 million bracket. If the amount received by the big guns is separated, then the rest of the 800 odd start-ups are said to have collectively received only to the tune of around $6 billion (out of the total $10 billion).
Aggarwal believes that a loss of follow-on funding opportunities brings the start-up momentum to a standstill.
IT RAINS DOLLARS
- More than the amount, follow-on funding is what needs to be focused on
- Experts believe follow-on supports a business when it has just started to rev-up
THE RELIEF
- Healthtech companies like Axio Bio Solutions, eKincare, logistics firm DeeDee, and others like ImpactGuru, ChaiPoint have been funded in 2018
- $10 bn were invested in over 825 companies, says the Tracxn data
- $1.17 bn has been pumped in the Jan–March quarter this year
- 54% firms claim to have had a positive fundraising experience in 2017
- 37% of start-ups felt positive about the ecosystem investments in 2016
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