Startups narrow time gap between fund-raises to build war chest

MUMBAI: The time gap between financing rounds across hyper-growth Indian startups has shortened immensely over the past year as entrepreneurs look to amass funds to double down on rivals in a highly competitive market. Since January 2014, as many as 38 tech companies raised more than one round within the span of just six months compared to 13 in 2013 and only four such startups the year before, according to data sourced by TOI from Tracxn!. Businesses like e-commerce, taxi services and on-delivery startups - which are decidedly cash-guzzling - have been at the forefront of raising quick rounds.

Big e-tailers Flipkart and Snapdeal raised funds every three-four months last year while in 2015 younger startups like express delivery venture Grofers mopped up $45 million in a period of 60 days, and the Mumbai-based food ordering venture TinyOwl got investments of about $20 million across two rounds in three months. "This is indicative of the trend that companies which are executing well or are clear winners have no dearth of capital," says Abhishek Goyal, co-founder, Tracxn!, which curates information about Indian startups.

Albinder Dhinda, whose Grofers virtually raised back-to-back rounds from Tiger Global and Sequoia Capital, says, this is a function of the macro market sentiment. "We are in an up cycle. I think the velocity right now is a function of the depth of market and mobile penetration that has come up in the last few years. The battleground will move as a lot of these early stage companies will mature and consolidation will happen." Dhindsa refutes the theory that many startups are raising funds even if they don't need the money immediately. "People are stockpiling for growth in a capital-rich environment. Everything from talent to marketing is expensive in these times," he says.






VCs say companies are preparing a war chest in case funding dries up. This also means founders are getting diluted with each round of funding but as long as the value of their ownership increases, entrepreneurs are not complaining. Hyper-growth startups are burning cash faster to cement their leadership position given several tech sectors tend to be winner takes all. Also, investors believe market leaders will continue to get a huge leadership premium and, hence, are willing to pay up to get a piece of the pie, says Tarun Davda, director at Matrix Partners, an investor in Ola, Quikr and TinyOwl.

Just last week, Slack, a corporate messaging app in the US, raised $160 million valuing it at $2.8 billion (worth $1 billion in its previous fund-raise). Slack's founder Stewart Butterfield told The New York Times that he doesn't have an immediate use for that money, stirring up a debate that the current situation is akin to a tech bubble.

Rehan Yar Khan, general partner, Orios Venture Partners, an early-stage venture fund, says, "With the larger market emerging, burn rates of companies have gone up substantially, prompting venture rounds to come in about six-eight month intervals and even as early as two to three months. This has been common in China for some time, so this playbook of racing to the top is quite well established."