Author Archives: Aristotle Consultancy

Delhi-NCR is most funded city for startups in 2016

Startup IndiaDelhi-NCR has emerged as the most funded city in 2016, according to a report by startup analyses firm Tracxn. In the first six months of 2016, Indian startups raised $1.8 billion, out of which Delhi-NCR received $917 million.

This was helped by $250 million and $200 million funding raised in February by Gurgaon-based Ibibo Group and Delhi-based Snapdeal respectively.

Bengaluru was the second most funded with $489 million, followed by Mumbai with $296 million.

Pune and Hyderabad took the fourth and fifth spots, with $59 million and $4.6 million respectively.

The country’s capital also led in the number of deals (155). The average ticket size was $5.8 million.

This mirrors last year’s results for the same period, when Delhi NCR had been the most funded city, having raised $1.1 billion with an average ticket size of $10 million. Bengaluru and Mumbai had followed with funding of $951 million and $490 million respectively.

The funding amount has significantly reduced this year.

In the first six months of 2015, startups in the top five cities raised $2.7 billion, a billion more than this year’s figure.

Delhi/NCR most funded city in 2016

Out of top 10 funding rounds this year, six were raised by e-commerce companies, four of which were based out of Bengaluru.

“Delhi-NCR has a disproportionate number of ecommerce startups. E-commerce is a mature sector and most of these companies were raising later stage funding rounds,” said Tracxn co-founder Neha Singh. “The other cities have more technology-centric startups.”

However, the number of funding deals rose to 402, from 324 last year.

This signifies that the space is seeing a correction in the investment size and not in the general attractiveness of Indian startups.

Nitin Sharma, principal at venture fund Lightbox Ventures, said this was a good sign for the ecosystem since the angel, seed, pre-series A round funding flow is still healthy.

“A correction was bound to happen since the funding had expanded almost eight to nine times between 2013 and 2015, faster than what the ecosystem could absorb efficiently and sustainably. It’s a good time to invest. Valuations aside, startups being built right now are more lean and mean, and hopefully more product UX (user experience) focused than discount-dependent. Of course, the near-term challenge has to do with later stage rounds,” he said.

In June, Lightbox Ventures had participated in a $30 million funding round for Gurgaon-based used car marketplace Droom.

The study finds that Ahmedabad, Chennai, and Jaipur are emerging as new startup hubs.

The three cities raised $34 million and accounted for 30 deals this year.

Source – The Economic Times

Startup funding: Applying for a bank loan? Here is what you need to know

Startup fundingStartups in India for long have been the favorites of private equity and venture capital investors doling out funds. Banks, however, have been tough players on the funding scene. While banks in India (both private and public) are beginning to introduce initiatives to cater to startups, the efforts remain largely limited to regulatory guidance and corporate banking incentives. Some of them have stretched out as an incubator for startups but extending loans has been missing from most banks’ strategy to attract entrepreneurs. 

Industry experts say that banks look forward to debt repayment capability from the underlying business of the company, when considering extending debt to any borrower. In other words, there needs to be positive cash flow from operations to have sustainable debt servicing capability. Till then, it would be seen either as bridge funding or kind of equity funding (essentially). Debt being cheaper than equity, they say, holds true only for businesses with positive cash flows and debt itself can become a cause for the business to go down even faster. 

A section of industry observers opine that banks have always found it tough to lend to startups. Globally, banks have withdrawn from startup loans after a string of experiments due to high risk involved. Meena Ganesh, partner at Growthstory and CEO of Portea Medical, says that banks just cannot take the principal capital risk that startups have, given the fact that they make their profits from the spread of the borrowing and lending they do. “So, unless we change the norms of lending , account for the risk, perhaps have different terms of startup lending such as taking some warrants or equity to compensate for the additional risk , it becomes difficult to do startup lending,” she says.

According to Meena, startups that have broken even and are making cash profits, would be more amenable for bank loans, and so would banks that need funds not for product or concept development but purely for working capital or growth. Banks look for comfort on safety of principal and reasonable ability to service the interest from the cash flows. So essentially, until a company starts making profits, bank loans may be difficult to get. Unfortunately, common perception is that most of funds granted to startups are used for marketing, paying salaries and building technology. 

Nagaraja Praksam, an angel investor and member of the Indian Angel Network, says that most funded startups go through due diligence and that widely eliminates the risk for banks. Hence, being funded by venture capitalists could be one of the criteria for banks to extend loans to startups.

“One of the major needs for startups is working capital. Banks should come forward in helping startups as mostly, these are short term needs. Also, when the VC investment money comes into a bank, they could come forward in managing that and extending working capital based on that,” says Prakasam. 

Ash Lilani, co-founder and managing partner of Saama Capital, says that difficult bank loans for startups is a global problem and not just restricted to India. “The primary issue with banks are cash flow and collateral lenders and usually, startups have neither. Banks typically get excited once a startup reaches profitability and has built a collateral base through receivables and inventory,” adds Lilani.

There is a silver lining in the cloud for capital-constrained startups, though. 

Emergence of niche lenders such as the Silicon Valley Bank has helped create global venture ecosystem. Innoven Capital in India, for example, was the first player to establish venture debt in India. It focuses on startups and has built expertise in understanding the different cycles of capital raising and growth such companies experience, which has helped them create specific products that work for young companies.

Ajeet Khurana, an active angel investor who has invested in firms such as Koonk Technologies, Rolocule Games and Karmic Lifesciences, says that banks could take a leaf out of the venture debt industry and can definitely come up with a debt product for startups. “Three specific features that can go into a startup specific debt product are a moderate rate of interest of 12-14 percent, lending to funded startups and working closely with investors to encourage repayment compliance. Startups can provide limited equity warrants– in addition to the interest–to provide banks with a small additional incentive to loan them money,” he says.

Source – Kotak Business Boosters

JSW Ventures Gets SEBI Nod To Invest $15 Mn In Early Stage Startups

JSW Ventures gets SEBI nod JSW Ventures has received mandatory clearances from SEBI to invest $15 Mn (INR 100 crores) in early stage startups over a period of three years. The initial focus will be on technology-enabled startups operating in education, healthcare, financial services, SaaS and enterprise software space.

The fund will be overseen by Parth Jindal, son of group chairman Sajjan Jindal, and Managing Director, JSW Cement. Gaurav Sachdeva, a former executive of Brand Capital, has been appointed as Managing Partner.

As per an earlier announcement, JSW Venture Fund is eyeing a sweet spot of INR 3- 6 crore per deal, investing across seed to Series-A rounds of funding.

“Technology innovation is happening across sectors, from old-fashioned verticals like real estate to research-driven work being done in machine learning and artificial intelligence. We think that the opportunity to innovate across sectors and businesses is immense and want to be a part of this transition,” said Parth.

He further added that, “As an early-stage fund, we will not only provide capital but will remain strong partners of our investee companies as they grow, leveraging the JSW Group’s expertise and experience to help them blossom into world-class companies.”

Team, product-market fit, scalability and technology innovation will be the key criteria while assessing companies. “We typically like to lead investment rounds and work with founders helping them discover and solve business critical problems,” said Gaurav.

JSW Ventures is part of the $11 Bn JSW Group with interests in steel, energy, infrastructure and cement. The cue for launching this fund came in late 2015. The fund will invest proprietary capital of the family and not as a strategic investment vehicle.

Source – Inc42

Tier 2/3 cities see rise in number of angel investors: LetsVenture

Angel Investor in IndiaAngel investors don’t just reside in big cities. Investors from smaller cities such as Guwahati, Kanpur, Vadodara, Raipur, Visakhapatnam, Agra, Jaipur, Chandigarh are increasingly ready to bet on innovative business ideas, says a study by deal making platform LetsVenture. According to the study which looked at deals struck by investors and startups on its platform, 13% of the investors in 2015-16 were from tier 2 and 3 cities.

Among the metro cities, Mumbai-Pune region and NCR have reported the highest number of angel investors at 337 and 307 respectively. In comparison, Bangalore came third with 298 angel investors.

It was a similar story when it came to the home base of startups. While Bangalore was leading with the number of startups in 2015, Delhi-NCR has moved to the top spot in 2016. Tier 2 cities saw an increase in the number of startups setting up base in these towns across India, with Pune recording the highest.

The study also looked at sectors that were most preferred by startups. E-commerce followed by healthcare, marketplace and data analytics were the most active sectors. Furthermore, seed funding in the first and second quarters of 2016 have seen a rise in seed deals versus those made in the same year-ago period. The year 2016 also saw a higher number of business-to-business (B2B) startups set up shop, as compared to 2015, when business-to-commerce (B2C) firms dominated.

Source – TechCircle

Early-stage entrepreneurs rationalize funding expectation

It’s not only investor appetite that has taken a turn of caution in the past few months, but entrepreneur expectations have been rationalised too, data from around 10,000 start-ups on deal-making platform LetsVenture shows.

Start-ups at ideation, beta, and proof-of-concept (POC) stages (early-stage start-ups, essentially) in the consumer sector have been seeking a lower amount when raising funds this year, compared to the last, while those making revenues are doing the opposite, given the investor-interest in companies that would turn a profit quickly.

The percentage of stake dilution that start-ups are offering has also come down in start-ups across the board.

Comparison Valuation B2B

In the business-to-business sector, however, expectations for fund-raise have largely remained the same, or even increased compared to last year, in line with the trend of investors looking to fund B2B start-ups which need far less cash to expand, many of which are even profitable, compared with cash-heavy, loss-making consumer Internet start-ups.

Comparison Valuation B2C

To be sure, entrepreneurs don’t always get the valuation they ask for or expect—the final number may look very different, but this is a fairly accurate representation of expectations.

Source – Livemint