Startup funding may bounce back
2015 *Till 15 March 2016
two successive years of poor investment activity, startup funding may start improving later 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.
Mint had reported in November that early-stage funding of internet companies dropped to a three-year low in 2017, partly as startups were still struggling to justify their excessive valuations and venture capital (VC) firms who burned their hands in 2015 were still cautious.
Over the past three months, investor sentiment has shown signs of improvement.
Some startups such as education content platform Unacademy, online loans provider Lendingkart, social network ShareChat and a few others have raised successive rounds of funding in a short span — something that had stopped happening after the funding boom ended in late 2015.
Online retailer Flipkart and cab-hailing app Ola have maintained their lead over Amazon India and Uber India, respectively. One of the reasons behind the funding slowdown was the fear that Flipkart and Ola, which have taken up a large amount of the capital invested in all Indian start-ups, would lose out to their rivals. Instead, the strong showing by Flipkart against Amazon over the past 18 months has helped boost the investor outlook on the entire ecosystem.
Now, the trigger for an improvement in startup funding could be the proposed multibillion-dollar deal between American retailer Walmart Inc. and Flipkart, investors said.
Walmart wants to buy a 2017 2018* Source: Tracxn
BENGALURU:After
majority stake in Flipkart in a deal that could value the online retailer at more than $20 billion. If the deal goes through, many influential start-up investors including Tiger Global Management, Accel Partners and Naspers will see massive gains on their investments.
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.
“I believe that the Walmart investment in Flipkart is definitely very positive for the Indian VC ecosystem,” said Niren Shah, managing director at Norwest Venture Partners. “It will prove that M&A exits for scaled internet companies is only a matter of time and will provide secondary exits to VCs.”
Shah added that the “ripple impact of the deal on the earlystage ecosystem” may take a few more quarters.
“The funding market has definitely improved in the past few months,” said Anand Lunia, founding partner at India Quotient, an early-stage VC firm. “This year, I wouldn’t be surprised if (deal) volume increased by 50% or so from last year.”