Overcrowded Funding: Startups Feel the Heat in India

Times of India reports that as the funding cycle for Indian Internet companies starts to slide off its peak, investors and entrepreneurs anticipate a wave of mergers and acquisitions, particularly in the crowded and highly competitive hyper-local delivery and online classifieds segments. Startups in these sectors have emerged as must-haves for venture capital firms.

However, securing follow-on financing could become tougher as investors turn selective about which companies to bet on. Experts say this is a fallout of back-to-back capital infusions, overheated valuations and a thrust on growth over profitability, which investors fear could come back to haunt them. A round of consolidation could bring focus back on building a business and improving unit economics, or the key components of a consumer Internet business, according to venture capital investors ET spoke with.

"The funding climate is drying out. In all these sectors (food-tech, home services, logistics) there is a lot of overcrowding happening without any real differentiation, so players which are not at a high scale and not differentiated enough will either shut down or consolidate in the next few months," said a Bengaluru-based VC investor, requesting anonymity since his firm holds investments in these segments.

Although, total funding for VC-backed tech companies in 2015 reached $5.4 billion by the middle of August, as compared to $4.7 billion invested in entire 2014, according to startup analytics firm Tracxn.


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