Flow of funds into startups on the decline

Flow of funds into startups on the decline
Highlights

Even as the central and various state governments are trying to encourage startups through various innovative initiatives, the flow of venture capital funds which is a crucial ingredient  for growth of startups seems to be fast receding.  

Tech startups in India have raised just $959 mn during Oct-Dec, 2015, against $3.2 billion in the same period a year ago

New Delhi : Even as the central and various state governments are trying to encourage startups through various innovative initiatives, the flow of venture capital funds which is a crucial ingredient for growth of startups seems to be fast receding.

Tech startups across the country raised just $959 million in the final three months (October-December) of last year, according to data firm Traxcn. That represents less than a third of the $3.2 billion they invested in the previous quarter, and roughly half the $1.9 billion invested in the fourth quarter of 2014.

The fall in funds is said to be a part of a global reassessment of investor appetite for tech startups from Silicon Valley to China. It marks a sharp reversal from earlier last year, when funds were falling over each other to give money to Indian entrepreneurs. It is getting more and more difficult to raise the new rounds of funds, said Saurabh Kumar, one of two founders of Grofers India Pvt Ltd., a grocery delivery startup.

The startup received $120 million in funding in November from SoftBank Corp., Sequoia Capital and Tiger Global Management. In January, the company shut down operations in nine cities to focus on more profitable cities. The company has raised a total of $166.5 million from investors till now, but is yet to turn profitable.

However, the cash crunch works in the favor of some well-funded startups. With fewer competitors they can increase discounts. But new startups may face tough times. With funds drying up and investors becoming more demanding, some existing companies are also being forced to change their game plans.

Zo Rooms, an aggregator of small hotels, raised close to $50 million a few months ago. Now, it is searching for new investors and is also considering selling out to the competition before it runs out of cash in the next few months, one of the company’s investor said on condition of anonymity.

PepperTap, which delivers groceries and consumer goods, has frozen expansion plans and is concentrating on becoming profitable. It has become fairly clear that the next year is going to be difficult for capital-raising, according to Navneet Singh, PepperTap’s chief executive. The startup mopped up more than more than $50 million from Sequoia, Snapdeal.com and others.

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