Early-stage funding boom may hit startups’ follow-on rounds

Consolidation On Cards In Over-Funded Categories
Even as Indian ecommerce unicorns like Flipkart and Snapdeal have struggled to shore up their valuations this year, the euphoria around early-stage investing has remained intact -so far.As many as 85 early-stage startups have already raised series A rounds, up from 50 last year, according to Tracxn, which collects data on private companies. But that doesn’t necessarily bode well for these companies as signs of a squeeze in follow-on rounds are already starting to surface. This may even pave the way for early consolidation in over-funded categories like food tech, online services marketplace, budget hotel aggregators and hyperlocal businesses.In the past year, young Indian startups, some of which are not even incorporated as companies, have raked in $3-5 million in funds as investors laid very early bets in search of the next unicorn -those billion-dollar companies which are not so mythical any more. Overnight doubling of valuations, competitive bids and the use of funds to lock out rivals became the new normal or the fledgling Indian star up ecosystem, which has at racted unprecedented capital of late. But now warning signs are coming in thick and fast on he back of a tumbling stock market which has seen US ech stocks plummet.

Investors say they want to prize profit over scale and growth -a rare ask just a few months ago. “Founders need o focus on building a long erm business with their $5million cheques and plan to use it over 12-18 months instead of chasing a quick series Bround. Series A or large seed rounds have been easy to raise because a lot of VC funds have money for that stage.

However, on the flip side, most of these larger funds just don’t want to do series B rounds unless it’s their own deal. I’m hoping that this will change,“ said Anand Lunia, co-founder of early-stage fund India Quotient.

As many as 26 companies have racked up $50-100 million so far this year said the Tracxn data, which shows that not too many larger rounds are being done. Flipkart’s last three rounds have been led by its existing investor Tiger Global, while Snapdeal’s latest $500-million financing took more than six months to close.

Albinder Dhinda, co-foun der of one the most well-funded early-stage companies Grofers, says bigger rounds were always selective. “ And, going forward, they will get more saner in terms of valuations and scrutiny of the business. In general, we will see investors focus on business metrics rather than only growth,“ he says. Grofers raised $35 million in its second round of funding within two months of closing its $10-million series A fund-raise from Tiger Global and Sequoia Capital. The new round earlier this year was entirely done by the two existing investors and valued it at around $110 million post the investment. That was almost four times its valuation in the previous round.

The challenge in India, say investors, is that there has not been any prescribed path to liquidity in venture investing, whereas in the US there is a huge M&A market and option of going public is available. However, at present, staying private has been the norm.

For the full report, log on to http:www.timesofindia.com

source: The Times of India
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Author:

Neeraj; an entrepreneur & a visionary in the field of Railway, Defense & Automobiles, is a graduate in commerce and a Harvard Business School Alumni. He’s an expert in govt. liasoning & contracting and has an exceptional network & connections at both local as well as global level. He’s an expert in Market Strategy & Planning and has served number of overseas companies as an advisor/consultant. He takes a profound interest in upcoming startups & is very receptive towards ground-breaking ideas & innovations. He likes to brainstorm those ideas and if the values & philosophies matches; he is even ready to invest his resources, serve as a mentor or act as an incubator to futuristic businesses.

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