With more and more Asian funds showing interest in Indian tech startups, investments in Series A have fallen more than one-fifth as most of the fund houses want to pick stakes at company’s early stage.
According to the data tracker Tracxn, Series A investment in Indian technology companies have gone down from USD 360 million in the December quarter to USD 282 million in the March quarter. A Mint report said in the last five quarters this is the first time industry is seeing such a fall in series A investments. Mint reported that the deal volume is also at its lowest in five quarters, from a high of 64 deals in the September quarter to 42 in the past quarter.
Series A deals have also declined as the pipeline for seed deals, from where such deals originate, has narrowed. The March quarter saw 88 seed funding rounds worth USD 63 million—the lowest in five quarters.
Shivakumar Ramaswami, founder of startup investment banking firm Indigoedge, told Mint, “Hot spaces such as fintech, content and social commerce have already completed Series A in 2018. We are seeing a good amount of activity in the consumer space from investors, but these models tend to scale with a lot less capital than consumer tech companies. This means that the gap between seed and Series A rounds will be much higher."
Increasingly, startups have shown a tendency to raise bigger seed rounds and postpone Series A fund-raising. Marquee VC funds such as Sequoia Capital and Matrix Partners are doing more seed deals. Sequoia has dedicated a fund named Surge to seed investments.
Pranav Pai, founding partner, 3One4 Capital, said there is significant round size drift around Series A and B, with larger investors coming into the seed stage. “We are seeing A rounds creep towards USD 7-10 million range because seed rounds are now hitting USD 2-3 million. Larger funds are more comfortable doing seed rounds.”
Niren Shah, managing director and India head of VC firm Norwest Venture Partners, said Series A deals could be stagnating because several early funds have observed that Series B fund raises have become more difficult and are, hence, raising the bar on new Series A transactions.