Sorry! VCs Don’t Want to Fund Your Bil­lion-$ Idea

Num­ber of ven­ture cap­i­tal deals fell by 35% dur­ing the first quar­ter of 2016 to 90

The Economic Times - - Diruption: - Mad­hav.Chan­chani @times­group.com

VIKRAMVAIDYANATHAN MD, Ma­trix Part­ners In­dia A $25-mil­lion round last year is today at max­i­mum a $9-10-mil­lion round, and those cheques are be­ing writ­ten by tra­di­tional ven­ture cap­i­tal in­vestors like us

Ben­galuru: Ven­ture cap­i­tal in­vest­ments in In­dian star­tups have dropped sharply in the first three months of this year, fall­ing by over one third com­pared to the same pe­riod in 2015.

In­vestors are terming this slow­down as the “new nor­mal,” as it comes on the back of a frenzy of fund­ing in the last two years.

The num­ber of ven­ture cap­i­tal deals fell by 35% dur­ing the first quar­ter of 2016 to 90, as com­pared to 138 in the same pe­riod one year ago, ac­cord­ing to data from risk cap­i­tal data mon­i­tor­ing ser­vice VCCEdge.

The to­tal value of ven­ture cap­i­tal in­vested took a dras­tic fall of over 80% dur­ing the first quar­ter of 2016 to $337 mil­lion from $1.79 bil­lion, as mega-fi­nanc­ing rounds dis­ap­peared and deal sizes turned mod­est.

“A lot of com­pa­nies were over­funded last year,” said Vikram Vaidyanathan, manag­ing di­rec­tor at ven­ture fund at Ma­trix Part­ners In­dia. “A $25-mil­lion round last year is today at max­i­mum a $9-10-mil­lion round, and those cheques are be­ing writ­ten by tra­di­tional ven­ture cap­i­tal in­vestors like us.” The re­duc­tion in the num­ber and size of trans­ac­tions has been the sharpest at growth deals stage or the so called Se­ries-C, where the num­ber of deals fell by 75-80%. In ear­lier stages of Se­ries-A and Se­ries-B, fall in num­ber of trans­ac­tion has been around 50%.

The rush of cap­i­tal for In­dian star­tups be­gan in 2014, af­ter on­line mar­ket­place Flip­kart raised a mam­moth $1bil­lion in July 2014. Soon af­ter China’s ecom­merce giant Alibaba suc­cess­fully listed its stock in the US mar­kets, pro­vid­ing fur­ther fil­lip to the global ecom­merce boom. In­vestors such as Ja­pan’s Soft­Bank which ben­e­fited hand­somely from the Alibaba IPO, turned their at­ten­tion to In­dia lav­ish­ing money on promis­ing star­tups here. Since the the mood has changed with few hedge funds mak­ing new in­vest­ments over the last three quar­ters, and global in­ter­net in­vestors like Soft­bank and DST Global turn­ing cau­tious.

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