VCCircle PE-VC Outlook Survey 2016 Reveals Waning Investor Interest in E-Commerce Start-ups
While 62% of investors are raising fresh capital, the survey has found that there’d be increased focus on profitability rather than valuations of companies in 2016
New Delhi, 8th March, 2016: VCCircle Network, India’s leading publisher of start-up and private equity news, data and information, and an integral part of global diversified media, news, education and information services group, News Corp, has today released the findings of the VCCircle PE-VC Outlook Survey 2016. This is the first such survey on venture capital and private equity investments in India for the year 2016.
This survey, which has been released as a pre-cursor to the VCCircle India Limited Partners Summit 2016 scheduled to take place on 9th - 10th March, 2016 in Mumbai, has pointed to the waning investor interest for ecommerce start-ups and has indicated a general consensus among private equity and venture capital investors that valuations of companies will drop and investments by limited partners will moderate.
The survey confirms recent trends mapped by VCCEdge, the financial data and research platform of VCCircle. Angel, seed and Series A stage venture funding transactions that peaked with 100 deals or one every seven hours in November halved to just 51 last month in the first month of 2016. This is the lowest level in 15 months, as per data collated by VCCEdge.
Highlights from the VCCircle PE-VC Outlook Survey 2016:
Lower Valuations making exits difficult
* About 92 per cent of venture capital investors believe valuations for Series B, C and D rounds will drop.
* About 62 per cent VC and PE investors believe exit valuations will come down or remain flat this year.
* About 92 per cent believe more strategic investors will do deals this year. Close to 62 per cent of the VC firms who participated in the survey believe the most relevant exit channel in the current year will be sale to strategic investors while the remaining 38 per cent believe it would be secondary sale to other VC/PE investors.
Circumspection in Fund raising and Allocation
* About 62 per cent of PE and VC investors said they will raise funds this year and57 per cent said they will do more deals this year than in the last year
* A majority of the survey participants feel allocations from limited partners will stay flat or decline. 38 per cent of survey participants felt that allocations from limited partners will stay flat and 19 per cent predicted a drop. The remaining 43 per cent believed that allocations from limited partners will increase.
The Start-up radar: Focus on Profitability rather than rising valuations
* 46 per cent of VCs believe that the defining theme for this year for Indian start-ups will be ‘increased focus on profitability’. About 31 per cent think it will be ‘mergers & acquisitions and consolidation’ while 23 per cent predict it will be ‘shutdowns, job cuts and scaling down of operations’.
* Nearly 70 per cent of the VCs believe the seed stage will see the most activity in the current year and 77 per cent are of the view that the average deal size will be between $1 million and $5 million.
* 46 per cent of survey participants have indicated their interest in investing in start-ups in the consumer service and product space with only 23% showing interest in investing in the e-commerce space.
Explaining the import of this survey and what it portends for 2016, Mr. Sahad P V, Founder, VCCircle Network said, “The survey has predicted more challenges for start-ups in 2016. While midstage venture funding deals had hit a speed bump a few months ago, earlystage funding had remained robust keeping hopes alive for start-ups looking for initial financing support. However, if the first month of 2016 is anything to go by, even angel and seedstage investors seem to have tightened their purse strings. The VCCircle India Limited Partners Summit 2016 would give us insights into how Asia focused deal makers are recalibrating their strategies and shifting their focus to survival strategies, profitability, and mergers & acquisitions and consolidation of their holdings in India.”
Methodology: This is the result of a questionnaire sent to heads and partners of Asia focused PE and VC firms. The survey elicited responses from 21 firms over a span of eight weeks (Jan-Feb 2016). Some of the questions on startups and early stage investments were specific to VC respondents.
