There are two graphs that will define how 2018 was for the start-up ecosystem in India.
This telling graph that I took from a CNBCTV18 article shows that the amount of money raised by Indian start-ups in 2018 exceeded the amount of money raised by companies on the stock exchange. It is a rare occasion to see investors pour more money into unlisted investments over listed ones. This can be attributed to the recent market volatility that has hit pause on the number of IPOs in the last 3-4 months. The IL&FS fiasco led to
However, this is an important moment for our young start-up ecosystem and I will be the first person to state that the recent spate of $1 billion+ rounds is a harbinger of the good times that lie ahead.
However, these summed-up funding numbers are hiding a very important fact that the number of start-ups raising early stage rounds has dropped 39% from its 2016 peak and the amounts raised is down by 52% from its 2015 zenith. Apart from the large SoftBank led funding rounds, we have had a seriously down year.
A major reason for this slowdown in early-stage funding is the exit of many small cheque angel investors that were blindly pouring in capital into early-stage companies. These avoidable angels (as I would call them) barely spend a few hours with start-up founders during the period of their investment and expect disproportionate returns on the sweat and blood of founders alone, a rare occurrence. Now as many of these start-ups have finished their funding runway, haven’t reached their promised goals and therefore unable to raise new money; they are starting to shut down.
An early stage start-up shutting down is a normal occurrence but these types of angel investors have usually dabbled in mid-cap and small-cap stocks too and their portfolios had swelled up spectacularly until the volatility that eroded the gains, and the principals in many cases. Faced with this double whammy many small angels have stopped writing angel cheques or (thankfully!) sworn off angel investing altogether. The recently advertised angel tax fiasco only helped hasten this decision.
I categorically blame angel networks for