VC Funds Continue To Raise Money Despite Startup Slowdown

The recent chatter about IT baron Infosys’s proposed investment in Indian venture capital fund Stellaris Venture Partners signals a robust outlook for the burgeoning startup ecosystem that has of late been in news for an impending shakeout and consolidation.

The number of venture capital (VC) funds raised so far this year is one-third of what was raised last year. As per data available with research firm Venture Intelligence, as many as 10 VC funds have been raised in the January-July period this year, while the number was way higher at 33 in the same period last year. Some of the VC funds that have been closed this year include those by Accel ($500 million), Aavishkaar ($300 million), IDG Ventures India ($200 million) , Infuse Ventures ($150 million) and Nirvana Ventures ($100 million).

VC funds typically deploy capital in startups or early stage ventures, which are less than 5 years old and where the investment amount is typically less than $20 million.

The total amount raised by these 10 VC funds this year stand at $1402 million, 62% lower than that of last year where funds worth $3662 million were closed. However, the decrease in the value and volume of VC funds raised does not reflect negatively on the sector as each VC fund has an investment an exit cycle of at least 7 years. Moreover, as long as investment opportunities in the VC space is there, VCs will continue to raise funds, said experts.

“Startups with innovative, strong and sustainable business models are more likely to succeed in raising higher rounds of funding in the future,” said Prashant Mehra – Partner at assurance, tax and advisory firm Grant Thornton India.

So far this year, investments in startups witnessed a spurt across various segments, thereby driving investment volumes in the sector. SME-lending firm Lendingkart raised $20 million from a clutch of investors including Mayfield, Saama Capital, India Quotient, Bertelsmann India Investments and others. Power2SME, the first ‘Buying Club’ for SMEs in India, recently received a similar amount from Kalaari Capital, Accel India, Inventus Capital Partners and Nandan Nilekani. At a time when food portals have been in news for struggling to scale up, FreshMenu, food ordering service in and around Bangalore raised $17 million from Lightspeed Ventures, Zodius Capital, Others. In fact, of the total 350 deals sealed this year, as many as 233 comprised startups, as per Venture Intelligence data.