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Bangalore: When Jasminder Singh Gulati, chief executive and co-founder of technology startup NowFloats raised his first round of funding in May 2012, he tapped family members, friends and some rich individuals for the money.

A month later, he raised his first so-called angel round of funding from Mumbai Angels and Blume Ventures.

Gulati didn’t disclose the amount of money he raised on those two occasions. The company is now looking to raise a series A round of funding, for which it is currently getting a lot of interest from investors—both existing and new investors, according to the co-founder.

NowFloats offers an SMS-based set of algorithms to help small businesses set up websites without having to “get on a computer at all", according to Gulati. “All content can be updated on the website just via text messages," he said, adding that the company has six patents pending approval.

The company has set up websites for 4,600 small- and medium-size businesses (SMBs) across India, which pay annual subscriptions of between 6,000 and 12,000 each.

Along with its unique offering, NowFloats also had a team, which includes Nitin Jain, Ronak Kumar Samantray and Neeraj Sabharwal, that could win the confidence of investors, as it prepares for the series A round—which refers to the first significant round of funding from private equity or venture capital investors.

The last two years have seen bursts of investment activity across the country, especially in the e-commerce and technology space, but NowFloats’ plan to scale up comes at a time when funds are becoming cautious about investments in start-ups.

According to Venture Intelligence, an organization that provides investment information, early-stage funding deals fell from 203 in 2012 to 137 in 2013, while later stage funding deals increased from 45 in 2012 to 67 in 2013.

While this trend may not be a dampener for companies like NowFloats, which continues to work on its innovative SMS-text-based small business website development product from its office in Hyderabad, it may create some roadblocks for first-time entrepreneurs.

“We assumed that a typical cohort of companies graduated to a Series A in 12 to 18 months, but this is not the case now. We notice that companies need 6 to 8 months more of shepherding and handholding than the usual. This means much less bandwidth on our end," said Karthik Reddy, managing partner, Blume Ventures Advisors—an early stage fund that invested in NowFloats.

The fund, which started in January 2011, provides early-stage capital of between $50,000 and $250,000.

“Every fund has its fund cycle, internal funding dynamics and external funding. You get check, invest check and harvest check in the eight-year period. We are in our third year and we have reserves for deeper investments now," said Reddy.

India, he added, is “not innovating at a pace that every six months new sectors emerge, we sometimes don’t have the appetite for the sub sectors of the same category of companies".

“It is not that we don’t like risks. We took risks in the first year, but now there are many more accelerators and angels. Why must Blume step in and take such risks?" asked Reddy.

Blume Venture is not the lone fund to think on these lines. According to industry experts, funds like Kalaari Capital Advisors and IDG Ventures India are following suit.

“India is a software superpower, and it is a little unfair, but everything is software these days. You might get tired of one aspect, for example mobile payments, but you never get tired of IT. We, as a fund, are constantly looking for the exceptional ideas," said Rehan Yar Khan, general partner, Orios Venture Partners—a fund that focuses on software technology.

The firm has made significant investments in companies like Druva Software, Olacabs and Sapience Analytics, and plans to invest in about 6 to 8 new technology start-ups this year.

Pankaj Jain, venture partner at 500 Startups, a Silicon Valley-based fund, receives at the least five pitch emails daily.

“Just because you can build a product well does not mean you can build a business well. We are going to be very, very selective this year, in sectors and in investments."

There are some industry experts, meanwhile, who believe the worst is over.

“There are going to be more exits, more investments, quality of entrepreneurs and overall traction, but will things change dramatically for the better? No, but they will be more diversified and will slowly and steadily fill out the white spaces in the ecosystem," said Sharad Sharma, member, Indian Angel Network.

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