After a buoyant 2018, late-stage fundraising for start-ups could be hit this year in the wake of a 20-30 per cent fall in valuation of tech stocks and investor concerns over the planned Uber IPO. Nearly half the start-up founders (46 per cent) surveyed felt that fundraising will be difficult this year, reveals a survey by Temasek-backed venture debt firm Innoven Capital.
It reached out to 100 start-ups that had raised money from angel investors and venture capital (VC) funds. “There are three-four things playing out that could make fund-raising more challenging this year, especially during late-stage funding,” said Ashish Sharma, CEO, Innoven Capital.
Firstly, the macro-environment is getting tight, with tech stocks falling 25-30 per cent from their peaks. Secondly, late-stage investors would like to see how the Uber IPO plays out. “Investors would like to find out if Uber can have a valuation higher than its current (high) one,” said Sharma.
Uber is targeting a valuation of between $76 billion and $120 billion in its IPO compared to its previous valuation of $72 billion.
Thirdly, changes in FDI rules on e-commerce could discourage investors as they like stability in the regulatory regime. “We closed a large round of $100 million in our Series-C recently. So, we don’t see a problem. High quality start-ups in growing sectors will still attract capital on a case-by-case basis, depending on competition,” said Farid Ahsan, founder, ShareChat.
Dhruva Agarwala, founder, PropTiger, is of the opinion that funding will not be a challenge for the top two in each category.
“Valuations are high in Series-C/D. The government keeps on changing policies. So, investors will be cautious,” said Rahul Jain, founder of media-tech start-up Flickstree Productions.
Meanwhile, Arunprasad Durairaj, founder, Flintobox, said there won’t be a lot of money chasing me-too start-ups.
There are a few other takeaways from the Innoven survey. A good 85 per cent of the founders want to prioritise growth over profitability; up from 50:50 in 2017. This shows that there’s enough funding available and they can continue to stay private for a longer period.