Investments in start-ups declined significantly in volume (28%) and value (44%) in calender 2016. The deal sizes got smaller as angel and early-stage funding dominated and late stage funding took a backseat, said VCCEdge in its year-end analysis.
In 2016, start-ups witnessed a 44.3% decline in investments at $1.452 billion from 928 deals compared with $2.606 billion from 1,026 deals in 2015, the analysis said.
Investors continued to back start-ups till Q12016. However, the value of investment has dropped significantly across all quarters this year compared with 2015. Investors seem to be sitting on the sidelines, being selective in making investments and focusing more on realising investments.
Given the fact that both the volume and value of deals continue to slip across the early-stage spectrum, the trend clearly suggests that investors have started writing smaller cheques. Hence, clearly raising capital was not at all easy this year.
The number of investments in start-ups fell to 181 deals in the last quarter of 2016 from 346 a year earlier. Likewise, the total amount of funds deployed slid to $411 million in Q4 this year as against $648 million in the stipulated period of 2015.
In Q12016, it was $400 million from 303 deals and in Q2 it was $332 million from 232 deals. Q3 of this year saw a deal size of $309 million from 212 deals, the analysis said.
Investors are writing smaller cheques and conservation is expected to continue as a theme for the next couple of years, showing a clear trend of “cautious money” available in the market, the VCCEdge analysis said further.
FinTech leads in terms of the number of deals with a total of 67 investments worth $183 million as compared with $122 million from 65 deals in 2015. HealthTech start-ups attracted about $69 million across 60 deals in 2016 as against $99 million from 54 deals in 2015. EduTech stood at third position with $21 million through 41 deals in 2016 as compared to $40 million from 47 deals in 2015, said VCCEdge.
“We are already a service economy. Be it EdTech or HealthTech or FinTech, with 70% to 80% of the capital going into consumer tech. These start-ups are improving either the front-end or the back-end services of a business. They are getting ready for a bigger game,” said Nita Kapoor, chief executive of News Corp-owned The VCCircle Network.
Among the top cities, metros lead as funding destinations. The National Capital Region (NCR) topped the list, recording 268 deals, followed by Bengaluru with 208 deals and Mumbai with 136 transactions. Hyderabad saw 27 deals while Chennai recorded 22 transactions.