Early-stage funding gained momentum in terms of the number of deals signed in the nine months ended September 2016, though the average investment nose-dived, indicating that risk appetite has reduced. The 568 deals signed so far this year mopped up only $223 million compared with $654 million across 390 deals in the same period last year. Average ticket size fell to $393,000 vs $1.6 million in 9M 2015.
The momentum at a pre-Series A level indicates that investors have lots of choices to pick from. However, just a few get to graduate to Series A level – what we at YourStory refer to as a ‘Series A bottleneck’. Early stage (angel and seed) money is available to many players but few graduate to Series A. It’s the chasm few startups cross, as the availability of investor money is restricted to more adroit entrepreneurs. The falling risk appetite was again reflected in the decline in Series A investments, with just 67 deals being signed for a total of $254 million.
Series B investments slowed down too, with 49 deals raising a total of $405 million. That’s less than half of the $1.04 billion that startups raised across 63 deals in 9M 2015, indicating that the average cheque size was halved to $8.27 million.
What’s encouraging is that where scalability and unit economics are in place, follow-on funding is not an issue. Institutional investors are coming in with bundles of cash to participate in Series C and D rounds. Series D was the stellar performer this time around, with $730 million being raised from 16 deals, including Shopclues, Swiggy, Hike, Lenskart, and BigBasket, among others. Last year, the dollar-investment totalled just $446 million over nine deals.
Series C funding, however, was very difficult to come by, with 16 deals garnering just $237 million (vs. $922,000 from 26 deals in 9M 2015). These included biopharmaceutical venture Vyome, online financial services platform FundsIndia.com, rural financial services provider Chaitanya, and dialysis service provider NephroPlus.
Food ordering and delivery platform Swiggy cornered a significant amount in late-stage funding, raising a total of $50 million across Series C and D funding rounds in January ($35 million) and September ($15 million), respectively.
Overall, we don’t see a steady flow of growth capital, and it remains to be seen if the momentum of the previous quarters is maintained. Indian funds and family offices have been active this year compared to foreign hedge funds last year.