[Funding update] Q1 2019 was all about larger cheques, and the trend is here to stay
Q1 2019 funding trends: key takeaways
- Early-stage funding has been hit, but investors remain confident - we discover why.
- The big startup hubs continue to corner the biggest funding rounds.
- The average deal size has been getting bigger.
- Funding in women-led companies declines to Q1 2017 levels
- FinTech remains an investor favourite; food-tech sees a revival
The first quarter of 2019 proved to be a stellar one in terms of funding raised – in all, $4.1 billion was raised across 190 deals. While the number of deals fell on a quarter-on-quarter and year-on-year basis, the average deal size increased, and quite a bit at that. In fact, data gathered by YourStory Research shows a ‘redistribution’ of sorts, across stages and sectors.
Nevertheless, as we wrote in Part 1 of the YourStory Q1 2019 Funding Update, early-stage funding (Pre-Series A and Series A) saw a decline. Ashish Fafadia, Partner at early-stage VC firm Blume Ventures, says there is a new trend emerging if one were to observe the funding over a longer period:
“Series A checks are usually $3-5 million, but we are seeing a few exceptions where the round sizes are larger… Our portfolio has quite a few companies founded by former senior team members and CXOs of successful unicorns.”
Pranav Pai, Founding Partner at 3one4 Capital, though, believes early-stage funding has been hit:
“While experienced operators and founders with established networks have managed to raise larger seed rounds, the slowdown has certainly hit the average early-stage (fund) raise.”
The bulk of funds in the previous quarter continued to be poured into late-stage companies as investors backed proven strategies and category winners. The 11 companies that raised more than $100 million during the quarter accounted for 70 percent of all funding raised. (The chart below shows where the money went across stages.)
There is a clear trend, as more capital is poured into growth-stage and late-stage companies (Series C and beyond) across a fewer number of deals.
All charts by the author.
Sectors in favour this time around
In terms of popularity, Fintech and Financial Services continued to remain in favour, closing 32 deals worth $679 million in January-March 2019. Ecommerce came in second with 14 deals, but closed nearly as much in funding, at $625 million. At the top of the heap, though, with $844 million, was Logistics.
With just six deals, funding in the logistics sector was accounted for almost entirely by Delhivery’s $807 million raised in March. In Transportation too, of the $600 million raised across 13 deals, Ola accounted for $502 million raised across five rounds.
Funding was a lot less concentrated in FoodTech, which is seeing a revival of sorts. The $183 million raised was spread across nine rounds in eight companies (Zomato had two rounds).
As Ashish of Blume puts it, “There is enough space for specialists in a particular vertical to do well, and beyond a point, consolidation will happen as well.” Overall, he adds, “Quite a few B2B companies have also been acquired by unicorns and soonicorns. India will be a market where there will be a company or two dominating a space, and then a handful of companies in the $150-750 million valuation range in each of the sub verticals.”
The Bengaluru vs Delhi-NCR tussle continues
Some things don’t change. Bengaluru and Delhi-NCR went toe-to-toe this time around as well. While Bengaluru clocked a higher number of deals, Delhi-NCR raised more funding: $1.5 billion across 46 deals, versus the $1.07 billion raised across 66 deals in Bengaluru.
Boosting Delhi-NCR’s performance were some of the largest rounds raised in the previous quarter: Delhivery, Zomato, OYO, DMI Group, Grofers, Rivigo, and Aye Finance, among others. Bengaluru held its own with a larger number of deals, and bigger funding rounds raised by the likes of Ola, Zilingo, BYJU’S, Zolo, and others.
Earlier this year, we began a series on YourStory called Startup Bharat to discover amazing ventures from beyond the half-dozen startup hubs in the country. These ventures clearly show how innovation need not be curbed by location, but talking to them, we also discovered that scaling is a different ballgame altogether.
In Q1 2018, cities like Chennai and Ahmedabad found favour with investors. This time, only Jaipur clocked three deals, one Series B and another Series C. What was encouraging, however, was the spread. New cities - Raipur (Chhattisgarh), Indore, Thiruvananthapuram, Bhubaneswar, Patna and Jodhpur - appeared on the funding map, mostly with one deal apiece.
In the Pre-Series A and Series A space, barring two deals, most of the funding went to companies based in the big-five startup hubs. With early-stage funding limited, we can only hope that Q2 presents a more encouraging spread.
Not an encouraging quarter for women founders
Q1 2019 proved to be a disappointment when it came to funding raised by women-led companies. Only six women-led companies raised funding, closing a total of $31.9 million. Close to half of this was the $14 million that ecommerce player Nykaa, founded by Falguni Nayar in 2012, closed towards the end of the quarter.
In 2018 too, Nykaa had held fort, raising over $35 million. It also provided an exit to investor TVS Shriram Growth Fund, when Lighthouse India Fund III bought it out for Rs 113 crore. Lighthouse India invested Rs 113 crore to acquire a secondary stake in Nykaa.
As always, the number improved when it came to companies where women were co-founders: 25 deals raising a total of $488 million. Here too, more than half the funding ($225 million) went to just two companies - Zilingo and Northern Arc. In contrast, the numbers were much better in Q1 2018 (see chart below.)
As we wrote in the HerStory report on the state of women's entrepreneurship in India, published last month, globally, women entrepreneurs remain a minority, and more so in the startup ecosystem. When it comes to fund-raising, that number falls even further.
Data from YourStory Research shows that funding for all-female founding teams in India last year was an abysmal 0.63 percent of the total $13 billion raised (down from 1.6 percent raised in 2017). That percentage improves to 5.4 percent when you take into consideration companies with at least one female co-founder. That’s still less than the 12 percent in the US.
(The numbers include private equity and other funding, but not debt finance. Comparative numbers are also higher than what appeared in last year’s report dated April 2, 2018, following the disclosure of un-announced deals and the amount of funding raised.)