BackUnicorns becoming a rarer breed as VC investments in start-ups plunge
Venture capital firms ploughed $583 million into India in April-June, down 58% from $1.4 billion in January-March, said the report
Premium
Bengaluru: Venture capital (VC) investment in India plummeted 58% in the June quarter over the previous three-month period, according to a report by KPMG and CB Insights released on Tuesday, mirroring increasing investor caution towards funding start-ups.
VC firms ploughed $583 million into India in April-June, down from $1.4 billion in January-March, said the report.
VC investments in India have been on a decline since October-December. Investments in the December quarter halved to $1.5 billion from $2.9 billion in July-September.
Investors have turned cautious towards putting money in start-ups and are questioning their business models and valuations. Apart from demanding that start-ups slow expansion, slash costs and cut discounts, many VCs are setting performance milestones; some investors are only releasing funds in instalments, Mint reported in January.
Investments may rebound in the second half of 2016 as cab-hailing service Ola (ANI Technologies Pvt. Ltd) and healthcare start-up Practo Technologies Pvt. Ltd seek large funding.
“The Indian investment market is still optimistic with strong interest by the investor community," said Sreedhar Prasad, partner, e-commerce and start-ups at KPMG in India, in a statement.
“We see increasing interest in the online business for financial services products, healthcare, consumer goods and specialized verticals in e-commerce. Uniqueness of the business proposition and multiple revenue streams from the same product/platform are of higher interest today," he added.
Barring Snapdeal, which raised $50 million from Iron Pillar in February, none of the unicorns (start-ups worth at least $1 billion) have raised funds this year.
The lull in India is reflective of investor sentiment globally. In the June quarter, $27.4 billion was invested across 1,886 deals, only a marginal increase from $26.5 billion across 2008 deals in the previous quarter. The increase was thanks to some multi-billion-dollar funding rounds by cab-hailing companies Uber Technologies Inc. and Didi Chuxing and messaging app Snapchat, among others.
Uber has raised $4.6 billion since June in two rounds, Snapchat mopped up $1.8 billion in May and Didi Chuxing raised $7.3 billion in June, together accounting for $13.7 billion, half the entire money start-ups attracted in the June quarter.
“The story of this quarter is the continued decline in deal activity. Unless you’re one of five companies for which there is insatiable investor appetite, it is becoming tougher to raise money from VCs and the assorted cast of characters who’ve entered the investment fray, i.e., hedge funds, mutual funds, sovereigns, corporations, etc," said Anand Sanwal, chief executive officer at CB Insights, a a venture capital and angel investor database.
“Expect to see lots of companies talking about profitability and taking on cost-cutting measures in the coming quarters," Sanwal added.
The overall slowdown in funding has taken a toll on the number of new unicorns created in the quarter gone by. The number of new unicorns increased to seven from five in the previous quarter. This was, however, a significant decrease from 24 in the corresponding period last year.
Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!
