In 2016, startup funding in India was dropped by 50% from 2015 while Mumbai startups saw 44% drop in funding deals in the same year and in 2017 early-stage startup funding shrunk sharply -- these were some of the reports which were making headlines for last couple of years. The funding crunch was so loud that in 2016 US-based Tiger Global, which was one of the most active investment body in India in 2015 with more than 30 investments, had almost retreated from India as it did not make any new investments in 2016.
Now, what could be seen as big sigh of relief for both early-stage and late-stage startups in India, funding in the country may bounce back to its happy days again this year as secondary share sales, strong performances by Flipkart and other large internet firms and an expanding internet user base drive an improvement in investor sentiment. Now, how Flipkart alone can improve funding for entire startup ecosystem of India ?, we'll see that further in this article.
The funding market has definitely improved in the past few months and deal volume may increase by 50% or so from last year, said a Live Mint report, quoting Anand Lunia, managing director at India Quotient, an early-stage VC firm. Over the past nine months, secondary share transactions have become a major source of generating returns and this is helping investors.
Investors pointed out that funding boom and crunches happen in cycles. After a cascade of investments in 2010-2011, startups had to struggle for nearly three years until the middle of 2014. That upturn lasted for 18 months till investors pulled back at the end of 2015. Now, investors are slowly regaining the confidence to start investing heavily again.
One of the reasons behind the steep drop in funding was the fear that homegrown startup duo -- Flipkart and Ola, which have taken up a large amount of the capital invested into all Indian startups, would lose out to their rivals -- Amazon and Uber. The startup duo however bounced back strongly over the past 18 months and this has helped boost the investor outlook and winning back the confidence on the entire Indian startup ecosystem.
Additionally, an another big factor for an improvement in startup funding is again 'Flipkart', according to which the American retailer Walmart Inc may acquire 15-20% stake in Indian e-commerce giant amounting nearly $7 billion. If the deal goes through, many top-notch startup investors including Tiger Global Management, Accel Partners and Naspers will see massive gains on their investments and this will further allow them to run a funding spree again.
However, there are still quite a few factors that could create hurdles for improvement in funding volume. While investor appetite may increase, they may not find enough companies to place bets on. IndianWeb2 had reported in October that the number of new internet and technology start-ups launched in the first nine months of 2017 had slumped to 800 from more than 6,000 in 2016 - a worrying sign for the next two years. Additionally, macro-economic and political factors such as an interest rate hikes in the US, the performance of stock markets (for domestic LPs) and the national elections next year could affect start-up funding.
"The funding market will improve this year for sure but for a 2015-type of scenario to happen again, the number of VC firms will have to increase and the startup formation will also have to increase dramatically. I personally think that in the second half of 2019 and 2020, we could see another bubble,” said Lunia.
In 2016, e-commerce sector witnessed a massive 50% cut in fund raising. In 2017, secondary share sales worth thousands of crore of rupees in startups including Flipkart, Paytm, Ola, Lenskart and others have provided funds with desperately-needed returns. These deals helped VC firms prove to limited partners – large investment firms that put money into VCs – that start-up investments in India could be lucrative even though returns take longer to materialize compared with the US and China.
As the consumer internet market adds millions of new users every year with faster and cheaper data, opportunities are opening up for new types of digital businesses.
Now, what could be seen as big sigh of relief for both early-stage and late-stage startups in India, funding in the country may bounce back to its happy days again this year as secondary share sales, strong performances by Flipkart and other large internet firms and an expanding internet user base drive an improvement in investor sentiment. Now, how Flipkart alone can improve funding for entire startup ecosystem of India ?, we'll see that further in this article.
The funding market has definitely improved in the past few months and deal volume may increase by 50% or so from last year, said a Live Mint report, quoting Anand Lunia, managing director at India Quotient, an early-stage VC firm. Over the past nine months, secondary share transactions have become a major source of generating returns and this is helping investors.
Investors pointed out that funding boom and crunches happen in cycles. After a cascade of investments in 2010-2011, startups had to struggle for nearly three years until the middle of 2014. That upturn lasted for 18 months till investors pulled back at the end of 2015. Now, investors are slowly regaining the confidence to start investing heavily again.
One of the reasons behind the steep drop in funding was the fear that homegrown startup duo -- Flipkart and Ola, which have taken up a large amount of the capital invested into all Indian startups, would lose out to their rivals -- Amazon and Uber. The startup duo however bounced back strongly over the past 18 months and this has helped boost the investor outlook and winning back the confidence on the entire Indian startup ecosystem.
Additionally, an another big factor for an improvement in startup funding is again 'Flipkart', according to which the American retailer Walmart Inc may acquire 15-20% stake in Indian e-commerce giant amounting nearly $7 billion. If the deal goes through, many top-notch startup investors including Tiger Global Management, Accel Partners and Naspers will see massive gains on their investments and this will further allow them to run a funding spree again.
However, there are still quite a few factors that could create hurdles for improvement in funding volume. While investor appetite may increase, they may not find enough companies to place bets on. IndianWeb2 had reported in October that the number of new internet and technology start-ups launched in the first nine months of 2017 had slumped to 800 from more than 6,000 in 2016 - a worrying sign for the next two years. Additionally, macro-economic and political factors such as an interest rate hikes in the US, the performance of stock markets (for domestic LPs) and the national elections next year could affect start-up funding.
"The funding market will improve this year for sure but for a 2015-type of scenario to happen again, the number of VC firms will have to increase and the startup formation will also have to increase dramatically. I personally think that in the second half of 2019 and 2020, we could see another bubble,” said Lunia.
In 2016, e-commerce sector witnessed a massive 50% cut in fund raising. In 2017, secondary share sales worth thousands of crore of rupees in startups including Flipkart, Paytm, Ola, Lenskart and others have provided funds with desperately-needed returns. These deals helped VC firms prove to limited partners – large investment firms that put money into VCs – that start-up investments in India could be lucrative even though returns take longer to materialize compared with the US and China.
As the consumer internet market adds millions of new users every year with faster and cheaper data, opportunities are opening up for new types of digital businesses.
Advertisements