India's start-up funding pace has slowed down drastically compared to last year, with number of deals falling nearly 47 per cent in the first quarter of 2017 to 237, compared to the same period last year, data from financial research firm VCCEdge shows.
Combined deal values dipped by 23 per cent to $165 million in the first quarter as opposed to the same period last year, and down 46 per cent from the preceding quarter. The quarterly deal value was the lowest in over three years and fell below $300 million for the first time in nine quarters.
While early stage funding deals have slowed down to a trickle, mid to late stage deals saw an uptick, with Series B funding rounds growing at 22 per cent compared to last year, according to the report.
However, companies that have been focusing on profitability are still finding favour with investors.
"Enterprises which can work on a combination of strong revenue models and continuously updated technological know-how which ensures a great consumer experience will continue to attract investors," said Gaurav Roy, Business Head at VCCEdge.
In the latest quarter, seed funding and angel funding fell both in terms of value and volume. The number of early stage deals fell by more than half with 120 deals in Q1 2017, compared to 245 deals in the same period last year. Series A funding rounds declined by 65 per cent in terms of deal value, while Series B rounds saw a 22 per cent increase in value even as the number of deals fell by 16 per cent.
Ripe for consolidation
After years of aggressive fundraising, the startup space appears to also be showing early signs of maturing, with growing industry consolidation with mergers and acquisitions, which have been a source of much needed exits for startup investors. However, a complete revival in fundraising is still some ways off as investors continue to take a more cautious approach towards investing, according to the report.
Mergers and acquisitions deal activity saw a whopping 75 per cent jump in the quarter compared to last year in terms of number of deals. Top deals include the $130 million acquisition of Citrus Payments Solutions; the $41 million purchase of One Mobikwik, and the $31 million acquisition of ZipDial Mobile Solutions; and the $16 million acquisition of Local Cube Commerce.
The growth in mergers could eventually help attract more investor interest as late stage venture capitalists see value in combining players, increasing the economies of scale of the businesses, and eventually floating possible public offerings. Indian public markets have also seen record highs recently thanks to strong earnings growth and foreign funding inflows, which could be a good avenue for further capital raising for the companies.
Fintech, which covers financial technology services, remained the hottest sector for startup fundraising with 11 deals worth $18.5 million in the first quarter, followed by food tech at eight deals worth $11.1 million, and real estate tech at two deals worth $10 million.
Among Indian cities, Bengaluru was the most active for startups, with 40 deals worth $96 million, followed by Delhi NCR, which saw 38 deals worth $44 million.