Apr-­June VC-funding in India plummets 60%

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BENGALURU: Venture capital (VC) investments in India plummeted nearly 60% between April and June 2016, recording the sharpest drop over the last four successive quarters.

According to a report released by KPMG and CB Insights, the three months ending June 2016 saw the total value of investments in India by VC funds hit a new low of $583 million from $1,402 million raised during the first three months of 2016 (see table). The number of deals funded during this period however dropped less sharply from 126 to 111.

Though the drop in VC funding in India is part of a global trend, the fall in India has been sharper than anywhere else in the world. India also proved to be an exception where both value and number of deals fell simultaneously.

According to the report, global deal activity fell to 1,886 deals, the lowest volume of deals since April-June 2013 and down 6% from the 2,008 deals seen in January-March 2016.

Globally, value of funding showed a 3% rise to $27.4 billion, mostly buoyed by the $1 billion plus funding rounds of “decacorns” such as Uber, Snapchat and Didi Chuxing. Decacorns refer to private investor-backed companies with a private market valuation of greater than $10 billion (₹67,000 crore).

Explaining the sharp drop in VC funding in India, Sreedhar Prasad, partner, e-commerce and startups at KPMG said, “(Unlike China and US) no large deals happened in India during the quarter. The decision to go ahead with investments in Series A (or bootstrap funding) is taking more time than earlier which is a cause of concern for start-ups, who typically require money quickly to scale up.”

Recent reports suggest that large and established ecommerce players in India like Flipkart are looking for the next round of large funding but are unable to find investors due to differences in valuation of the business. A series of devaluation by US-based investors earlier this year has already pushed Flipkart’s valuation below $10 billion from around $15 billion a year ago.

“The story of this quarter is the continued decline in deal activity. Unless you’re one of five companies for which there is insatiable investor appetite, it is becoming tougher to raise money from VCs and the assorted cast of characters who’ve entered the investment fray such as hedge funds, mutual funds and sovereigns . Expect to see lots of companies talking about profitability and taking on cost-cutting measures in the coming quarters,” said Anand Sanwal, CEO of CB Insights