If you are an Indian entrepreneur who is looking to raise seed funding for your startup do it now. There’s been no better time to raise money for technology product startups than this year and possibly part of next year.
I understand the issues entrepreneurs face with Indian investors in the seed & early stage. They take too much time to make a decision, they ask for too much of your company and wont fund anything pre-revenue.
There are 3 major trends that are making it easier to raise capital now than any other time.
1. The number of accelerators has grown tremendously over the last year. There are 30+ privately funded (6+ in Bangalore alone), for profit entities, who are all keen to add bigger batch sizes to their portfolio.
2. Many Venture capitalists, stung by criticism that they are not taking enough risk and are not early adopters are eager to engage with startups earlier in their evolution, and are tweaking their investment thesis to add a few more pre-revenue and pre-product stage companies to their mix.
3. Angel networks, seeing over 15+ VC’s raising over $100+ million funds to focus on India, are signing up new angel investors in droves, and expanding their footprint. 2 years ago only 3 large angel networks existed in India. Today there are 15, and each of them has over 25 angel investors and some have over 150.
Seed stage of the Indian startup ecosystem has never had so many things working for it in confluence.
The demand side of the equation is fairly consistent. Our database indicates that after the eCommerce boom of 2010 and 2011, this year has seen a modest fall in new product startups being formed, from over 700 to little over 600, which means fewer companies chasing more investment options.
Now, lets look at the valley.
1. There has been a boom in new product startups, and the competition is fierce. The number of new startups has increased from over 1700 per year in the valley alone to over 3000. As I mentioned in an earlier post, VC’s are seeing nearly 150+ companies in the SaaS market, each of whom are doing more than $1 Million in revenue. There are 2 times as many companies fighting in the valley for the same quantum of funds.
2. Venture investors, seeing the boom in the seed stage and seeing also far fewer exits are adopting a wait and see approach to series A.
3. The VC freeze on series A in the valley has led to many sapling round investments from seed and micro VC’s and super angels, who are increasingly picking and choosing the companies they put seed money in for an extension round or “sapling round”.
If you are an entrepreneur, raise your seed round NOW. Things will get more “sane” by June next year and there will be many who start to take a more cautious approach to seed stage investments.
The equation on series B in India, is not as rosy though.
Funding for eCommerce companies, many of whom raised series A at HUGE valuations last year has pretty much dried up. Most companies are doing inside series B rounds (from their existing investors) and 3 of the CEO’s I spoke with claimed down-rounds (where valuation of this round is lower than the previous round).