Series A Crunch: Why and What’s next?

2015 was a banner year for startup funding with over $2.3bn invested across 1000 deals. Things are much slower in startup land now and startups are complaining about how it’s getting really difficult to raise series A. We lay out below, our analysis of what’s happening and why:

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First things first, the series A crunch is real. According to VC Edge, Angel deals have increased 5x times, from just ~130 in 2011 to over 700 in 2015, following a steady upward trajectory. Whereas, the series A deals have remained fairly range bound and the peak was probably in 2012/2014 where ~86 companies got funded. Series A is a much more deliberate round and can definitely be considered as a very important milestone for a startup. The seed to series A conversion for a mature market like the US, is 35% (average for the 2009-12 vintage, source: Mattermark).

In India, driven by the meteoric rise of seed deals (50% CAGR, 2011-15), the series A conversion has dropped steadily from 34% in 2011 to 22% in 2014 to just under 10% in 2015. Data suggests that, ~ 85% of the series A rounds are raised within 2 years of seed funding; this is in line with the general thought process of seed funding as well, wherein seed investments are expected to give a startup a runway of 12-18 months and a bridge round might help extend it by a few more months (hence, we might not see the conversion for 2015 to be very different from what it is currently).

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Going a step further, we decided to analyze the portfolio by the type of seed investment that the startup received. This is where the seed to series A conversion metrics gets really interesting.  Across the years, around 60% of the companies seeded by a top tier VC seem to convert to a Series A. While other fairly large VCs reveal a conversion of 30% to 45%.(One caveat here is that some of the seed deals by VCs might not be reported publicly and hence the conversion rate could be overstated; it still nevertheless, should be higher than the average).

On the other hand, smaller early stage funds witnessed a sharp decline in conversion (of their seed deals to series A) from over 40% in 2011 to just over 15% in 2014. One of the primary reasons for this was the unprecedented increase in the launch of new early stage funds (over 40) in 2014 & 2015. The funds raised had to be deployed soon enough and accordingly institutional seed deals increased from ~80 in 2013 to 120 in 2014 and 180 in 2015. The other reason could be attributed to the general behavior of tier I VCs during upturn and downturn. 

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Seed Investments: Tier I VCs led just 13 deals in 2013 and this went up by 3x to 41 deals in 2015. When the investor confidence is high, VCs tend to get in at an earlier stage to enjoy possibly oversized returns.

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Follow on Investments: We also looked at the series A investments across multiple years, for one of the Tier I VC, and went back to see how many of these companies had previously raised seed funding from the same VC. In a slow year, the VC tends to prefer leading the next round for its own seed deals and in a good year, it tends to lead a lot of deals led by other smaller early stage funds as well.

2014 to Q3-2015 saw new early stage funds, ramping up seed investments along with tier I VCs, who had increased their own seed activity as well. The euphoria subdued and 2016 so far, has been a ‘slow’ year; the VCs naturally have led follow-on funding for their own seed deals as compared to that of other early stage funds. Going forward, we expect series A investments to pick up steam in Q1-2017. 

For startups in general, and especially those who have raised seed funding during a ‘boom’ period, importance of bridge rounds and ensuring amicable relationship with angel investors, cannot be overstated; read more on the number of rounds it takes to series A, here.

On a positive note, Indian startups are now getting early and growth funding from a number of VCs situated out of Japan, US and Singapore; Maverick Capital, Beenext, Gray Matters Capital, Velos Partners, RB Investments, Thrive Capital and Mistletoe are few such players. Most of them do not invest in seed rounds and usually have in the past invested in companies with an existing institutional seed investor based out of India. Increased participation of such players, can lead to a higher and a more ‘even’ series A conversion over time…

Rohit Krishna, Equity Crest

Data for the analysis had been sourced from VCCircle and Venture Intelligence 


Creating an effective pitch document for an early stage business

Pitching is an art – one that not all founders are very good at. Many a time, founders know it all but find it really hard to articulate the stuff that is most important. The initial pitch document becomes extremely important as it is this piece of paper that could determine whether the investor would like to spend his time even having a conversation with you or not… The pitch document therefore needs to be interesting enough to arouse interest in the business and its potential.

I will try to outline a few principles that I believe may be followed to make a good pitch document.

  1. Keep the audience in mind – Founders are living their business night and day; therefore one of the commonest mistakes that founders tend to make is to assume that the reader will understand the business just as they do. The pitch must be simple enough for a third person to comprehend – any technicalities must be simplified and details best left to the follow up conversation.
  2. Great start – Probably the most important part of the pitch is the first two to three slides. Founders must use this to highlight the pieces that could be most interesting to the reader – this could be the problem being solved if its unique, highlights of the team if the team is very capable, or highlights on the traction if that has been very impressive.
  3. Storyline – It’s always best to structure a pitch document to read like a story; the content on any slide should ideally follow from the central message given in the previous slide. The best way to do this is to start off by writing a crisp executive summary (of maybe 7 to 10 points) of the opportunity and then to build a slide each around each of those points. For example
    • The problem existing currently is ______
    • Current available solutions are ineffective because ______
    • To solve for these problems we are building ______
    • The team building the product is a great mix of domain knowledge and experience
    • Our initial trials have validated the product….
    • The use case and the market opportunity are _____
    • Going forward, our key focus areas are going to be _____
    • We are therefore looking to raise _____ to be used primarily for _____
  4. Don’t miss on the important things – While the content for the presentation may vary to ensure continued investor interest, some of the pieces that I believe need to find their place in the pitch are the problem being solved and the solution (with the USP), the make-up of the founding team, stage of business and traction, brief on the market opportunity / use case & competition, fund raise details and planned quarterly milestones / use of proceeds.
  5. Use data intelligently – Data tables and charts in themselves may not be useful unless they are interpreted in the manner in which it was intended. Always ensure data is accompanied by the takeaway…
  6. Cut the ‘Gyaan’ – Probably the easiest way to lose an investor is to start the presentation with a ton of slides talking about the economy and the market size, etc. Stuff like this may be important but certainly not important enough to take the focus off the business and the team.
  7. Own the document – Finally, not everyone has the skill to create the best pitch document – if one has to outsource this task, please ensure that you understand every last comma mentioned in pitch – fumbling for information during a follow up call or not knowing what is in the pitch is the greatest injustice a founder can do to his fund raise…

While different investors may definitely look for varying levels of detailing and information, I believe that a well drafted pitch document has the ability to draw the investor into a conversation. There’s never an assurance but that doesn’t mean one must not try.

Wishing you the best for the raise!

The Road to Series A


by Deepak Gupta, Co-Founder Equity Crest

Over the past few quarters, we have been digesting commentary, or, in case of founders, dealing with the uphill task of fund-raising and wallowing in a ton of advice from various sources on how to deal with the situation.

I believe we are essentially at a place which is the old normal, hyphenated with an exuberant period between 2014 and the first half of 2015. Using Venture Intelligence data for the vintage years 2012 through 2015, I looked at the financing steps needed for a company to get to Series  A.



For those of us in the market at the time, one may recall that 2012 was quite a tough year for venture financing. Then we had the “bull-run” of 2014 and part of 2015. So what was it like to raise Series A financing if you got seeded in 2012. On average, it took you two years and 1.4x rounds of seed funding to get to Ser A (defined as a round >$2M).  In 2013, the time taken to get to Ser A fell to about 1.5 years with a similar number of average rounds to Ser A as in 2012. Things of course, turned a lot better for the 2014 and 15 vintages, where it took much less than 12 months to get to Ser A from seed and correspondingly the vast majority of companies that got to Series A did it with just one seed round injection.


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The average quantum of funding needed to get to Ser A, while somewhat variable, was not nearly as volatile as the time to get to the milestone. The range for this number is $650K to $1.03M.

I don’t know if we are exactly in the mode of how things are in 2012-13 but it does seem that 2014-15 was an aberration and the direction of the data points gives us some lessons to draw from. So what can we learn?

  1. You need to be doubly sure about the idea you are pursuing and the fundability of the team. Just the first seed round does not mean a lot in terms of the success of the business. Also, you probably need something north of INR 4 crores to get to Series A regardless of the market, so be looking out to raise the second seed if your first raise was modest.
  2. In case of an angel round, one needs to ensure that the lead investor is truly committed and understands the company’s business, has the ability to rally folks to fund a second time prior to Series A.
  3. Founders need to invest time and energy keeping all investors on board with the Company’s progress all along, else its hard to re-engage when the time comes for a second dip.
  4. Frugality is a trait that needs to be in the DNA of the company. Need to spend money in drip fashion until signs of product-market fit are getting abundantly clear. Over-hiring is probably not the best idea at the seed stage.

The data above is intended to drive pragmatism, but not to discourage. Some of the breakout companies such as Urban Ladder, Grey Orange Robotics and E-com Express were seeded during these tough years and there will be invariably many more to follow. One has to be up to  battle against the odds…

How JBN got funded?

I am glad we could contribute to the first fund raise of an interesting startup (JBN), founded by two solid entrepreneurs from Delhi. I wish them all the best for the journey ahead. JBN will always be special for us at Equity Crest, as one of the first startups we took on board, and also helped raise funds.

In the initial phase of launch, one is always in a hurry to get on and execute, and we at Equity Crest are no different. After we on-boarded the company, a couple of times self-doubt crept in — why are we backing them? Isn’t it too niche? E-commerce is out of favour at that early stage, does it fit Equity Crest strategy overall? Will we be able to create enough interest – were some questions that ran in our heads. All this, ofcourse played out well in the end, but it wasn’t cake walk.

We gathered some interesting learning during the process, which also helped us onboard and back several other businesses in last 6 months – especially from the operations and strategy perspective. The main lesson from the entire process was, to be at it and keep the fire going! The tide was turning, while news makers comprised of mobile and tech ventures, our basic understanding of how business works egged us on to fund this niche ecommerce venture.

Feedback on the Equity Crest model

During our initial interaction with all stakeholders, our curation model was highly appreciated. Equity Crest has significant focus on making a business work and hand-holding the entrepreneur. If some appreciated the model, others thought we take too much time in deal-evaluation. I felt this feedback was natural, given the mad rush in market to close deals.

We could constantly feel the pressure from entrepreneurs for raising funds asap (as of yesterday – a cliché that everyone uses for immediate deliveries) Some entrepreneurs are not bothered about spending any time on understanding the pitfalls of their business model, gathering market intelligence, etc. That’s where, I guess, our background helped significantly and we could address all apprehensions….and even fix them in case of JBN. We actually started saying more ‘No’ than ‘Yes’ to the businesses we took on. Internally this led to redrafting some guidelines to make our process more robust. One thing was always clear – that the focus was on quality than quantity.

Things have changed since we started, and I hope this renewed approach would help us in our endeavour to create a better environment for startups to flourish.

Amit Banka

How to start angel investing?

Angel investing is being discovered as an asset class in India. As private valuations rise, stories of early investors making >100x do the rounds, and real estate and the stock market falter- there is all the more reason to think about this if one has some cash to spare. At the same time, the volume of startups is growing, thousands being created everywhere and it can be really painful to cut through and have a method to the madness.

I wanted to share some thoughts on the how and certain rules. Before you start, remember:  You could lose all your money and there is no assurance of liquidity- so be prepared to invest only a small single digit percentage of your net worth in this asset class.

Also please think through the motivations of why you are considering to do this: making money can be one for sure, but there are many other motivations/benefits- learn about the latest trends, make someone realize their dreams, etc.

Given the high mortality rate it may make sense to not just invest in one or two deals but in 8-10 deals over a year or two and then take stock of where you want to go from there.

Things to look for:

  • Try to initially invest behind a lead who has credibility and is also putting in a fair chunk of the deal (10-15% or more)
  • Check if the lead was also an investor in the last round, this can create a conflict of interest on the valuation and terms on the deal.
  • Do you understand the opportunity? Have you spoken to the founder. Its important not to just do this on blind faith.
  • Helpful/not necessary if the deal is referred to you by a credible source; you can also source deals from platforms which curate deals  to give you that added assurance (e.g. Equitycrest)
  • Be comfortable with the valuation of the deal, do also realize that a 30%+ dilution in the angel round can be counterproductive in the long-run, so a low valuation is not always a good thing.
  • Do not get hung up over too many other terms and rights other than the basics: valuation/dilution and Liquidation Preference (to a lesser extent). Too much time is spent negotiating so many terms which are anyways going to be overwritten in the next round (if the company does well), else its a write-off anyways so why bother. Also speed is very important to the success probability of a startup and there is no room for wasting time on things that do not matter.

(This article is targeted at first time investors in seed stage equity)

– By Deepak Gupta

Should I invest in this company?

About a year ago, I stepped into angel investing from a career in venture capital. Based on my experiences, there are potential new angel investors who might want to get a method to evaluate seed stage deals. So, I am sharing below my thoughts on areas and questions to consider while evaluating seed stage deals. Also sharing how I might assign weights to the score from each of these areas to arrive at a composite score. There is no good or bad method- I would only say that one suggestion would be that its always better to have your personal version of the investment thesis and vision and not rely solely on a “famous” person being an investor in a company to decide to back it.

1. Team – For a venture seeking seed stage funding, the team is absolutely critical. You cannot pursue a great idea if the team is not strong. Here is what I think is a way to look at the team aspect:

A What is the founder’s motivation to do this? What is the extent of ambition? Is there a credible and large vision?
B Founders track record? Academic brilliance, past career achievements? Is the founder presentable and capable of multiple fund raises?
C Skillset completeness and relevance? What is the coverage of skillsets among the existing founders to that demanded by the business? (The core skills need to be covered else it’s a problem)
D Is there an X-factor to the team? (Evidence of brilliance in some form)

2. Idea and Market – Its important to be an interesting idea and also a potentially large enough market. The nature of the impact of the solution is also key.

A Is this the 5th startup in the same space? How incremental or transformative is the idea? Is this a 10x or incremental value proposition to what exists today?
B Market potential- how large is the addressable market?
C Scalability? How will the idea scale, quality of scaling (through tech) or manpower addition?
D How saleable is the idea? Is there an existing parallel in another market which is successful which can be told as an analog to the idea?

3. Execution & Validation – Execution is a key indicator of founder ability- even if its is only a couple of months data. Any kind of validation is helpful in evolving the riskiness of the idea forward

A How well has the team executed recently? What are the growth trends- are they accelerating? What is the capital-efficiency of execution? Are the numbers precise or do they change in every conversation?
B What level of customer engagement and acceptance has been established? Are the customer engagement metrics accelerating?

4. Competition & Defensibility – As the environment is dynamic, one can only have a static view of competition- which is nevertheless to be taken into account. Even more important is to see what would make this company defensible (other than just capital, ideally)

A Are there significant competitors that need to be dislodged? What is the level of funding/backing of competitors and what is the companys position relative to them? Is there a good sense on why this will win against competition and has a shot at being the leading player in the medium term?
B What moats can be created to defend its market position? (switching costs, network effects, ease of use,etc, analytics, etc)

Would love to hear your thoughts on this subject. Pls write in your comments. I can be reached at

– By Deepak Gupta

Thoda Khao Thoda Pheko -The Great Indian Food Revolution

The last couple of years are seeing a great interest among VCs in the food space-in particular the B2C area. This is largely inspired by by the Valley trends- Open table, Yelp, Munchery, Spoonrocket and more recently the likes of Instacart. Also cracking the fine dining market in India has been mostly challenging for the earlier investors, while the online version is seeing traction. We are also seeing M&A action already with transactions from the likes of Justeat (domestic) and Zomato (overseas) and doubtless more to follow.

So what is to be made of all this. While food is a very large part of the average Indian family’s budget, spending on branded/prepared food is relatively modest (QSR spending is currently estimated at $10Bn a year- $8 per capita), the well-established international fast-food brands in the country are still doing sub $500M a year business. With rising incomes, more women in the workforce and less time at hand, there is going to be a serious growth in food- perhaps more than the pundits estimate as more online models get funded (akin to earlier ecommerce forecasts which always lagged reality).

The popular categories for funding nowadays seem to be the online dabba service (holachef, yumist, et al); the home delivery service from existing restaurants (tastykhana, zomato (pivot) – but this is fast reaching a point of scale which is hard to penetrate for newcomers) and the shopping valet (a la instacart). The difference I suppose between food delivery versus e-commerce in general is that food is perishable and needs to be delivered fresh and hence is a more proximal, higher touch business than the large warehouse, few locations e-commerce supply chain. Hence it takes effort and time to capture a location and then scale out- especially if its about getting the food made and delivered. Some of the action here is quite nascent and hard to pick a winner, at the same time there do not seem to be many barriers to entry- though there is the promise of decent margins and capturing the customers interest through high repeats.

IMHO while the opportunities are still fairly open and some of them will likely be very successful, it may be worth considering possibilities which are not purely inspired by what’s worked in the valley. The areas here are: platforms, brands and new business models. In terms of platforms there are examples like Posist which provides billing and inventory management to 1000+ restaurants through a cloud based solution and can integrate the new delivery models into its core software. As the basket of consumption evolves along with shopping from an organized format- there is opportunity to back brands which are distributed both online and offline- it could be in packaging, higher value products (we are seeing examples in seafood, ice-creams, baked goods), etc. There are newer business models emerging as well entirely borne out of the Indian context- for example Freshworld has an innovatively designed non-polluting electric cart along with route optimization which drives door to door fresh food delivery at high margins.

All in all looks like we are seeing the second “green” revolution in India which should last a couple of decades as we emerge as a more prosperous country.

– By Deepak Gupta