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A huge fall in the flow of angel and Series-A funding continues to be a concern for the National Association of Software and Solutions Companies (Nasscom).
Last year saw a dip of about 50 per cent in angel funds with issues such as taxes proving to be roadblocks.
Funding slowdown
“There is a distinct slowdown in two areas. The quantum of angel funding has fallen by 50 per cent in the last one year. This is not good news because angel funding is the embryonic energy that makes the start-up ecosystem grow,” R Chandrashekhar, President of Nasscom, told BusinessLine .
“The other slowdown happened in the Series-A funding. It has fallen to a three-year low. This, again, is bad news. It’s key because that’s when angel investors exit from their early investments and cash it out. We are not seeing these exits,” he said.
The Nasscom, however, sees a silver-lining. Despite a discouraging investment scenario, there is no dearth of start-up enthusiasts. “The supply of entrepreneurs has not gone down significantly. It is good news,” he pointed out. “If other signs (poor angel, series-A funding) continue, that will be a concern.”
Investments cyclical
Experts, however, see this as not a long-term phenomenon. “Start-up investments are always in cycles. Investors are looking for meaningful exists for their existing investments and are also consolidating their positions in some of their successful investments in Series B or C,” Pari Natarajan, Co-Founder and Chief Executive Officer of Zinnov, a research and consultancy firm, felt.
He said start-ups needed to pick ideas that can scale organically and not take too much upfront investment. Zinnov and Nasscom had done a survey of start-ups in 2017, reflecting the bright spots and pain points that the start-up ecosystem faces.
“B2B start-ups will do well in investment constrained environment as it is easier for them to sustain their business with a handful of customers,” Pari Natarajan said. As the start-up ecosystem in the country matures, there is a spurt in business-to-business start-ups. Almost half of the 1,000 start-ups born in 2017 belong to this category.
The total start-up funding came down by 14 per cent to $1.8 billion in the first half of 2017 from $2.1 billion in the same period in the previous year. However, funding in B2B start-ups increased to 31 per cent from 27 per cent.
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