Early-stage investing in India - back to business as usual?

2015’s funding frenzy may have been followed by a funding freeze in 2016, but investments look like they’re back on track. This year, startups have raised $11.2 billion, with investors picking India-specific companies in sectors like healthcare, finance, logistics, education and retail. Dig deeper, though, and the numbers tell a different story.

Indian e-commerce leader Flipkart wrapping up a record ~$4 billion in funding fed the news cycle for days. But it wasn’t the only one in the limelight this year. BYJU’s, the nine-year-old online tutoring startup, has raised over $170 million in funding since March 2016, not to mention an undisclosed round from Tencent Holdings last month. In May, Acko, a general insurance company registered last year, announced a $30 million seed round of funding—one of the largest seed deals in the Indian startup ecosystem. Larger seed rounds, bigger late-stage deals and companies raising big rounds of funding in quick succession seem to be the new trends. It’s a far cry from last year’s gloom-and-doom scenario when close to 1,000 startups, including those who had raised funding, shut shop.

Combine this with the fact that companies have raised over $11 billion in funding in 2017 to date (compared to just $4.9 billion in 2016 and $8.6 billion in 2015) and it would seem that the startup ecosystem in India is in for good times once more.

But look a bit closer and the picture is a little different. Just 10 companies accounted for 80 percent of the deal value in 2017 until August. All the other deals put together totalled just $2.3 billion. At the same time, VC firms have raised fresh funds in the past couple of years—smack in the middle of the downturn. According to the Grant Thornton Fourth Wheel Report 2017, as of December 2016 India-focused investors were sitting on dry powder worth about $25 billion. It does not seem to matter that India lags not only the US but also China by a long distance. YS Decodes, YourStory’s new editorial product for in-depth and analytical articles, spoke to a handful of India-focused early-stage investors, especially those who raised new funds in 2016, to understand what the investment climate is like, at least based on their sentiment. And we discovered a few rather interesting trends. Read the full article here: What’s driving early-stage investment in India.