Startups Continue To Dominate Deal Making In PE/VC Space
Despite growing speculation over an impending bubble in the burgeoning startup ecosystem, fund managers continue to evince interest in the new breed of entrepreneurs.
Take, for instance, the month of October 2017 as a case in point. As per data available with Grant Thornton, startups (businesses that are less than 5 years old) contributed 65 per cent of the total investment volumes – this is much in line with the trends in the last four years.
To break down the numbers further, as many as 37 startups raised $118 million from private equity and venture capital investors in October 2017, while the total number of companies that received funding from stood at 57 garnering as much as $1,586 million. In terms of value, e-commerce sector dominated private equity funding, contributing to a whopping 74 per cent of investment values.
Top private equity deals of the month include Tencent Holdings and Softbank’s investment of $1,100 million in taxi aggregator Olacabs. It, in fact, marks the second largest investment in the e-commerce space after Flipkart in the current year.
“From a sector perspective, e-commerce still rules the roost…….while startups still continue to draw investors attention,” said Prashant Mehra – Partner at Grant Thornton India.
Boom or Bubble
A plethora of startups have mushroomed in India in diverse sectors in the past few years. While they have garnered a significant amount of funding from risk capital investors, it needs to be seen how many of them actually survive in the years to come. Experts say there will be a shakeout over the next few years as “there is a problem of plenty in the current market scenario”. Today, issues faced by most of the startups are similar as they seek solutions to certain basic questions on how to get enough margins, how to be price competitive and how to keep customer acquisition costs low.
Going forward, there will be some clear winners, who will be able to generate revenue and those who cannot will automatically have to shut shop. “The question is not about funding alone. It’s about exits. Let’s see how many startups give investors the returns that one is looking for,” said an analyst on condition of anonymity.
So far in the current calendar year, 624 private equity/venture capital deals have been sealed in India as against 837 transactions in the corresponding period in 2016. In 2015, which is considered the boom year for startup investments, as many as 864 deals were signed.
