Until two years ago, start-up advisors, indeed many angel investors, had a word of caution for fresh entrepreneurs eyeing the consumer Internet market. "Don't show a B2B revenue plan in the investor deck," they often said. "The valuation is zero."
Times have changed. Nearly 50 per cent of the 1000 start-ups India added in 2017 were in the B2B segment, up from 34 per cent last year, a new NASSCOM-Zinnov report on the 'Indian Start-up Ecosystem - Traversing the maturity cycle', found. The average funding for B2B start-ups in 2017 saw an increase of 5 per cent, while B2C average funding saw a decline of 10 per cent.
The report buttresses the fact that the world of venture investing in India has gone from irrational exuberance in the consumer Internet industry to a sense of normalcy. For example, in 2015, many food-tech companies got funded by some form of institutional investment. That is unlikely this year, or even in 2018. At a seed level, investors are looking at fairly differentiated and defendable Intellectual Property (IP)-driven play. Which is why B2B is in fashion - the NASSCOM-Zinnov report says that "growth of B2B start-ups are being driven by Fin-tech, Health-tech, and B2B enterprise products and the rising focus on advanced technologies such as Analytics, AI, IoT, AR or VR, Blockchain, among others".
In the first half of 2017, the flowing tap of easy money was down to a trickle. Venture Capital investments slid 32 per cent to 162 deals worth $624 million during the first six months compared to the same period in 2016, data from research company Venture Intelligence stated. The first half of 2016 had 238 investments worth $693 million. Compare this to the hay days of 2015 and a correction period emerges: 253 deals were struck in the first half of 2015, worth nearly a billion dollars. In the last six months of the year, 283 investments totalled over a billion dollars again. Investments by angel networks and super angels subsequently declined nearly 50 per cent to 57 deals in the first six months of 2017 compared 106 in the same year-ago. Seed investments dropped 53 per cent, Series A by 7.5 per cent while Series B slid 43 per cent.
There was always plentiful of capital available in the system. Now that the dust has settled on the Consumer Internet front, newer themes such as Health-tech and deep-tech have emerged stronger. The total base of advanced tech-startups is pegged at over 700 in India and it is growing at 25- 30 per cent, the NASSCOM-Zinnov report found. Little surprise that Artificial Intelligence is the fastest growing - at 75 per cent.