Is funding in Indian startups rising or falling? Depends on whom you ask

Suspension of disbelief.
Suspension of disbelief.
Image: AP Photo/Andy Wong
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Until a couple of years ago, it was difficult to find any data on Indian startups. Personal logs by investors or entrepreneurs were the best sources. Today, however, we are inundated with data. Yet, the picture isn’t any clearer.

The Indian startup ecosystem—the world’s fastest growing—has attracted global attention. Analysts have increased their focus on the country. In fact, there are even data analytics startups mining data solely on Indian startups, venture capitalists, and private equity deals. Their reports, however, often provide contradictory information.

For instance, several research firms share quarterly funding data of Indian startups. Earlier this month, reports for January-March 2016 by two leading firms were published in the media. The two tell different stories.

  1. Investments in Indian startups declined 24% quarter-on-quarter to $1.5 billion, according to a joint report by New York-based startup research firm CB Insights and KPMG.
  2. Investments in Indian startups rose 14% to $1.7 billion, according to Xeler8, a startup curation and deal intelligence platform.

The difference between the two reports is not merely of a few dollars. It changes the entire commentary.

For instance, in its quarterly funding report, CB Insights concluded that there was a funding slump:

“With mounting investor hesitation and concerns of overvaluation, Indian investment continued to decline in Q1’16 (January-March 2016). Deals slipped 4% while funding fell 24% as VC-backed startups raised $1.2 billion on 116 deals.”

However, Xeler8 sounded positive:

“The opening quarter of the year 2016 has demonstrated a significant uplift in terms of deal volume and total investment size as against last quarter of year 2015.”

These contradictory statements have caused some confusion for the Indian startup community. “I am not sure if I should conserve cash so that we can weather the storm (in case funding is drying) or should I push for faster growth and quickly go for series A (in case funding is growing),” said Avinash Saurabh, founder of IIM Bangalore-incubated healthcare startup

So, are Indian startups going up or down? Are investors still betting on them or staying away?

The devil, as usual, lies in the detail.

They are all correct!

The differing conclusions are due to varied methodologies and sample sizes.

For instance, CB Insights’s report on January-March 2016 funding included only VC-backed companies. Xeler8’s also had startups backed by angel investors and incubators. The vastly varying conclusions can be traced to the robust angel investment activity in January-March 2016.

“Of the total deal scenario, over 62%… that is 214 deals, has revolved around seed and angel stage (along with incubations and accelerators),” Xeler8 said in its report.

Such divergent voices may continue to be around going forward, according to Rishabh Lawania, founder of Xeler8.

“It is hard to narrow down to a single methodology,” Lawania said. “We believe that angel investments will always be higher than VC investments, so we won’t exclude it from our calculations. But someone else may want to focus only on VC investments.”

In such a scenario, those depending on data say they rely on multiple sources and also try to maintain their own numbers. “We crunch a lot of our own numbers but we also use data by (external) firms,” said Siddharth Talwar, co-founder and partner at venture capital firm Lightbox. “Agreements in this space are complex and include many elements that are not easy to explain and therefore are normally not part of the data being shared.”

So, the next time you read a headline about how Indian startups are faring, seek out the devil.