Just two months back an India Startup Outlook Report 2018 released by InnoVen Capital said that many startups in India, especially early-stage ones, expected the fundraising environment to be difficult in 2018 compared to the previous year. The study seems to come out true when it comes to total investment amount infused in first half (H1) of 2018.

According to a report by Economic Times, although the first half of 2018 has given a thrust to the capital flow in the ecosystem with investments worth $3.6 billion made across 411 deals in startups, it however saw nearly a 36% drop in investment year-on-year. The year-2017 had seen 571 deals in the space totalling investment of $5.6 billion.

It is to be noted that the investments in the first half of last year were mainly driven by large ticket deals including e-commerce giant Flipkart, online payments and financial services firm Paytm and ride-hailing platform Ola’s massive fund raises. Flipkart and Paytm had both raised $1.4 billion last April'17 and May'17, respectively. In contrast, this year's largest deals, be it Policybazaar, Swiggy, Zomato or Paytm Mall, have all reportedly ranged between $150-400 million, at best.

Going forward with the report, when it comes to early stage startup funding in H1 2018, the deals in seed and angel investments reportedly continue to struggle with only $137.8 million invested in startups this year, against over $200 million in the first half (H1) of 2017. Investments in the seed stage and angel money are, in fact, down 45% from H1 2017 and stand 57% lower than the 528 deals struck in H1 2016.

This is the lowest, and thus worst, half-yearly investment record by deals, at the seed stage in the past four years in India's startup ecosystem. According to investors this is due to due to the lack of quality companies, as startup formation still remains pending.

"Formation of new startups is picking up ever so slightly after having been dormant for a long time. We are hence, in a bubble where the amount of capital available to India stays strong but where will it go?" says the Economic Times report citing an unnamed angel investor.

This, in turn, made investors to sign larger cheques offering high valuations to selective market winners across early to mid stage venture capital funding rounds contrasting the fall in seed and angel investments.

However, on a positive side the data of the report also shows that investments across series-A, -B and -C stages have fared far better, with 165 deals fetching up investments amounting $1.6 billion, which is a 60% jump from the capital pool of $1 billion across 140 deals that flowed into these stages during H1 2017.

Startups across financial services, content and digital media are witnessing a spike investor interest driven by the rush of Chinese venture capital bets in these spaces, especially in the past six months.

In order to spur startup formation and boost confidence among entrepreneurs, early-stage venture capital funds including Matrix Partners and India Quotient have been making investments in startups at the pre-product stage itself, across consumer brands, fintech, content and social media sectors, according to investors in the know.

The role of government is also crucial for creating better fundraising environment by addressing challenges faced by startups such as giving some recognition to 'angel tax', providing some more favourable policies for the startups such as tax holidays etc.

Last month, we reported how India’s largest lender State Bank of India (SBI) made a joke of itself when after two-years of setting up a Rs.200 crore startup fund, it could not made any investment and said that "investing in startups is RISKY”.

Besides this, the goods and services tax (GST) introduced last year is also one of the factors that impacted startups.

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