Reading the tea leaves for Series A in 2017

In the first 5 months of 2017, the Indian VC industry saw ~300 deal announcements across multiple stages.

Here’s a drill down on what happened..

Seed — Down 45% as compared to 2016: Annual run-rate for 2017 is just 330 as compared to 593 in 2016 and 770 in 2015. This is in fact in line with the deal volume in 2013. This is healthy, as the conversion to series A, for these companies could be high (when they look to raise in H2-2018)

Bridge — Down 38%: Fewer deals as compared to last year; but as a % of total deals, it’s at 22%, which is the highest proportion of bridge deals seen in the last 6 years.

Series A — Down 25%: 40 deals in the first 5 months. Run-rate of 95 deals for 2017 as compared to 128 in 2016 and 233 in 2015. Top sectors were Healthcare and SaaS.

Series B — Up 36%: Run-rate of 60 deals vs. 44 in 2016. This accounts for 8% of the total number of deals in 2017; highest ever, for the segment.

Rounds post Series B — Down 47%: Both 2015 & 2016 witnessed around ~170 deals in this segment; as compared to just 37 in the first 5 months of 2017.

Seed to Series A Conversion

Out of the 1098 companies seeded in 2015 & first half of 2016, only 87 have reportedly raised Series A — that’s a conversion of just 8%

Vintage wise, seed to series A conversion (Source: WEH Ventures & VCCEdge)

Bigger VCs have moved on from Series A

The top 6 funds in India that lead Series A, did a total of 145 Series A rounds in 2015 & 16….and only 7 announced so far in 2017.

One of the reasons, for the drop in overall seed to series A conversions, has been this inactivity. These funds together, accounted for ~40% of all Series A deals in 2015 &16.

The number of growth rounds (series B and above) funded by these VCs has however remained fairly robust at 23.

The balance (or ratio) between early and growth deals, has remained skewed towards growth for the last 18 months.

We expect the larger VCs to continue supporting their series A investments (of 2015 &16) with growth capital for the next 18 months, at least. Their participation in Series A during this period could be low.

Data for the top 6 VCs that lead Series A (Source: WEH Ventures and VCCEdge)

Timelines & Probability of raising a Series A

Empirically ~70% of all Series A happen within 2 years of the seed round. The probability of raising it in the third year, is just 15%.

Those companies which raise a Series A round, post 3 to 4 years tend to typically not have a very high burn model; in this data set (from 2010 to May 2017), about 6% have managed to raise a Series A post 4 years of the seed.

Data from 2010 to May 201 (Source: WEH Ventures and VCCEdge)

What Next?

Conversions to series A to improve in 2018: Seed deals have reduced since the second half of 2016 and has become more rational in 2017; we expect the backlog of ‘Series A’ for 2015 and H1-2016 vintage to clear out by mid 2018.

Embrace Bridge Rounds: If you’re a startup raising seed in 2017, ensure that the runway is sufficient for at least 18 months, or that the investor(s) have sufficient dry powder to support the company till the next round.

Series A — look beyond the obvious: If you’re a startup looking to raise a Series A, looking beyond the legacy VCs could help.

Newer VCs (no baggage of companies to support) or a culmination of seed funds or strategic minority investments or large family offices, could play an important role in leading Series A investments for the next 18 months.

WEH Ventures is an early stage venture fund based out of Mumbai

If you’d like to understand what happened in 2015 & 16, you can read our earlier analysis here

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