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May 27, 2016

Early Stage Startup Funding - The Bad News and Good News

We had a quick peep into the Venture Intelligence Venture Capital Deals database to check on the Early Stage funding momentum in 2016. And noticed both Bad News and also Good News for Entrepreneurs seeking Early Stage capital. 

The bad news first:  2016 has witnessed a consistent decline in the number of Series A rounds (ie, first round VC investments of typically $2 million or more in size) with the median number of such deals falling to just 11 compared to 20 in 2015 (which was of course a record year) and 14 in 2014. 

We also looked into our Fund Raising database to check if it provided any clues on why Series A funding is declining so sharply, but found that some of the most active Series A investors in recent years have all raised new funds recently: Nexus Ventures ($450 M), IDG Ventures India ($150 M), Sequoia Capital India ($920 M) and Kalaari Capital ($290 M).  So, lack of investible capital ("dry powder" in VC industry jargon) is clearly not the reason. 

Now for the Good News!

Specialist seed funds - like YourNest Angel Fund, Blume Ventures, India Quotient, etc. - have been maintaining the brisk pace they set in 2015 (of between 11-13 investments per month). YourNest for instance has announced as many as 5 investments this year – in contrast to 3 early stage investments by Sequoia Capital and 2 by Nexus Ventures. So much so that, the number of seed investments are outpacing Series A investments in 2016 – something that has never happened in the past!  

 Mar 2015: 7 Seed deals and 20 Series A deals

 Mar 2016: 10 Seed deals and just 9 Series A deals. 

 We were therefore wondering if the reasons could be that  
  • VC Investors are awaiting entrepreneurs to reset their valuation expectations lower, and/or 
  • They are busy sorting out challenges at existing portfolio companies (especially in e-commerce, hyperlocal, foodtech and real estate segments)

ET Now invited us to join a conversation on the topic with Sunil Goyal, Founder of YourNest Angel Fund, on its StartUp Central show. Catch the segment below:

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