VC investors cautious globally; India investment recovers in Q3

In India a dearth of mega-rounds pushed funding below USD 600 million in Q2CY16, but Q3CY16 saw the total rise above USD 1 billion once more. However, this is still well below the USD 3.4 billion figure of Q3CY15.
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Oct 18, 2016, 03.29 PM | Source: Moneycontrol.com

VC investors cautious globally; India investment recovers in Q3

In India a dearth of mega-rounds pushed funding below USD 600 million in Q2CY16, but Q3CY16 saw the total rise above USD 1 billion once more. However, this is still well below the USD 3.4 billion figure of Q3CY15.

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VC investors cautious globally; India investment recovers in Q3

In India a dearth of mega-rounds pushed funding below USD 600 million in Q2CY16, but Q3CY16 saw the total rise above USD 1 billion once more. However, this is still well below the USD 3.4 billion figure of Q3CY15.

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In a sign that the venture capital market is becoming a realistic play, investors are betting cautiously on deals. They are applying more filters, and scrutinising deals with a view to avoiding investor minefields. Understandably, unicorns (or companies with over a USD 1 billion valuations) are falling out of favour, too, finds a report by CB Insights.

Companies backed by venture capitalists received little funding post the fourth quarter of 2015. This trend was equally evident in the third quarter of CY16 as well.

The India investment story saw a rebound in the third quarter of CY16 compared to the earlier quarter, although investment dollars are still more than 75 percent below the peak experienced in Q3CY15.

While investment dollars might be down, the quality of investments has increased dramatically as venture capital investors have focused on companies with clear business models and greater profitability potential.

In India a dearth of mega-rounds pushed funding below USD 600 million in Q2CY16, but Q3CY16 saw the total rise above USD 1 billion once more. However, this is still well below the USD 3.4 billion figure of Q3CY15.

Over the next few quarters, Series B and C deals are expected to increase as high-quality early-stage companies grow and seek out new funding.

Sequoia Capital India and 500 Startups tied for most active investors in Asia, with each making investments in more than 10 companies including, Druva, Zilingo and Iterable. Blume Ventures was the most active investor in Q2CY16, but dropped to the bottom of the most active list in Q3CY16.

Unicorns Not the Flavour Now

In its 'Venture Pulse Q3 2016' report, CB Insights assessment says that unicorns which were prominent in the Q3CY15 have lost their lustre with investors less interested in making sure they do not miss the boat on specific VC trends.

Rather than fighting to attain unicorn status quickly when they might not be ready for it, companies are instead getting more realistic valuations that reflect their current value.

"In 2015, companies fought to achieve unicorn status, when perhaps their real valuations did not warrant it. The impact of failed unicorns and unicorns not being able to achieve their private sector valuations upon IPO led to a dearth of unicorns in the first 3 quarters of 2016," the report said.

There has not been a quarter in 2016 till now with double-digit entrants to the unicorn club.

This means that companies that do achieve unicorn status should be in a better position to keep that status and to achieve strong results upon exit. On the investment side, with the clamour to find the next unicorn decreasing, investors are becoming more tactical with their investments.

This tepid investor sentiment has been there also because of uncertainty born by the US Presidential election, Brexit, the banking crisis in the Europe.

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VC investors cautious globally; India investment recovers in Q3

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