The October-December, 2015, period saw a drop in investments by venture capitalists in India by $600 million to $1.51 billion against $2.12 billion in the same period in 2014, according to a report by CB Insights and KPMG International.
Promoters of Indian start-ups interpret the drop in investments as a cautious move from VCs amid mass layoff and cash-crunch in the start-ups industry. Numbers show that VCs have become conservative in signing new deals and raising fresh capital for existing ones.
“The entire VC community has become cautious of investing in start-ups. They are analysing company’s strategy thoroughly, prior investing in them,” said Peesh Chopra, managing partner at Peesh Venture Capital.
Following the retrenchment at food-tech companies such as TinyOwl, Zomato and Foodpanda and scaling back operations at Grofers and Zomato, VCs have become wary of splurging money into start-ups and have started scrutinising their business model much more closely.
The domestic start-ups industry is home to eight unicorns with Flipkart, Snapdeal and Ola Cabs leading with $15 billion and $5 billion valuation each, respectively. Snapdeal, Ola Cabs, and PepperTap had managed to grab headline with their funding activity in the latter half of 2015.
In August, Snapdeal has raised $500 million largely from Alibaba, Foxconn and Softbank. Existing investors Temasek, Myriad and Premji had also participated. In December, PepperTap closed its Series B funding of $40 million from Snapdeal, Innoven Capital, Sequoia India, SAIF Partners, Ru-Net, Beenext and Jafco Asia.
During the October-December quarter Ola Cabs had raised $275 million from Baillie Gifford and Didi Kuaidi, China-based taxi-hailing service, according to the report. Existing investors such as Falcon Edge Capital, Tiger Global, SoftBank Group and DST Global also participated in the Series F funding at Ola.
Shopclues, which recently raised between $100-120 million from GIC, Tiger Global Management and Nexus Venture Partners is the most recent entrant into the Unicorn club.
Radhika Aggarwal, co-founder and chief business officer said, “building a sustainable model will continue to be our focus and the drop in VC investments is just a recalibration move.”
Milind Sharma, co-founder and vice president of business at PepperTap reiterated the sentiment and said that VCs were earlier following a ‘herd mentality’ and were pouring investment in the start-up ecosystem. “The drop in investment does not mean lack of funds but they are just closely watching the basic fundamentals of companies they are investing in,” he said.
Industry experts believe that the quality of investment have improved against last year even it means fewer deals. Going forward, we can see VCs from US and China opening up to invest in India.