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Venture capital inflows into Indian Start-ups drop by 35%

April 5
7:48 AM 2016

Start-ups in India have faced a sharp decline in venture capital investments during the first quarter of 2016. The number of investment deals in India dropped by 35% in the first quarter, declining almost more than one-third over the previous year period. According to investors, this drawback appears to be a "new normal" since it shadows a series of funding turmoil in the past two years.

THE ECONOMIC TIMES quoted a data from VCCEdge, which said that the number of venture investment deals totalled 138 in the corresponding period in 2014. The net value of investment deals in Indian start-up firms fell drastically to $337 million, a decrease of more than 80% from $1.79 billion in the previous year period. The data portrayed a draconic decrease in the size of investment transactions due to vanishing mega funding rounds.

The number of transactions in Series C funding round dropped by 75% to 80%, while deals in Series A and Series B rounds declined roughly 50% during the period. Managing director of Matrix Partners India's venture fund Vikram Vaidyanathan said that many firms were overfilled with venture capital investment in 2015. "A $25-million round last year is today at maximum a $9-10-million round, and those cheques are being written by traditional venture capital investors like us," he added.

Meanwhile, investments from private equity firms also plunged during the first quarter of 2016. Private equity spending into Indian market decreased 48.8% to $2.3 billion from $4.5 billion in the previous year period. The total investment value in the first quarter amounted $2.29 billion in 319 companies, down from $4.48 billion in 347 companies in the same period in 2015.

Investors were mainly lured by sectors like industrials, IT, financials, and consumer discretionary and healthcare during the period. However, the number of investment transactions by seed and angel investors increased from 138 to 188, while its net value fell from $86 million to $58 million, International Business Times said. The number of mergers & acquisitions deals fell to 211, while the value increased propelled by two major deals - the Indian oil and gas firms purchasing stake in Roseneft and the UltraTech deal with JP Associates cement.

However, Red Hat, an IT company in America, is planning an additional investment into technology start-ups in India with an aim to boost its business portfolio across the country. According to Arun Oberoi, VP global sales at Red Hat, the growing market in India has attracted the IT Company, which seeks to invest in infrastructure and innovation space, as reported by livemint.

The race for venture capital stemmed in 2014, when Flipkart raised $1 billion in July 2014. It was then followed by Alibaba, which boosted the ecommerce sector by listing its stock in the US. Soon, investors like SoftBank started investing their money into Indian start-ups. Indian tech-start-ups have been the source of attraction for many foreign investors over the past few years. However, things have changed in the recent period as investors keep waiting for Indian stock markets to regain its normalcy.

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