Startups put on conserve-and-grow mode

As many as 1,000 startups are expected to be funded this year, but the deal size is expected to be much smaller in comparison to the hyper funding in recent years, a report says.

According to VCCEdge, the financial research platform of the VCCircle Network, which is part of News Corp, there have been 255 deals till mid-April this year and going by this rate, the number of startups that may receive funding this year is likely to reach the 1,000 mark.

Startup funding deals in the first quarter of this year stood at $301 million, registering a 50 per cent decline over the same period a year ago when the figure stood at $611 million, indicating that this is a year of consolidation with startup valuations getting trimmed and early-stage investors turning cautious.

Though the deal value has declined, startup funding deal volume has remained fairly unchanged, with 234 transactions in January-March 2016 as against 232 deals in the year-ago period.

“The deals data indicate that investors are clearly waiting on the sidelines by consolidating their existing portfolios and looking at only meaningful ones in those ventures with strong fundamentals and a good revenue earning model,” Nita Kapoor, Head (India) of New Ventures at News Corp, and the CEO of the VCCircle Network, said.

Ms Kapoor noted that “the decline in series A deals or the first institutional level of venture funding for startups is particularly worrying, thereby making it essential for them adopt the strategy of ‘Conserve and Grow’.

Meanwhile, the share of startups in the overall private investment pie is on the rise.

By volume, startups accounted for 70 per cent of the total transactions in 2015, up from 62 per cent in 2014.

Bengaluru continues to contribute around 25 per cent of the total startup deal volume in India.

The VC Circle report defines startups as companies that have reported raising an angel or seed-stage funding, or a Venture Capital round A or round B over the past five years.