I had fun moderating the panel on early stage financing at India Internet Day. VCCircle has an interesting article.
The key issues are as under:
1. Too few deals are progressing from accelerators to angel, and from angel to Series A. Only five per cent of deals going from accelerators to Series A might not be very different from success rate without accelerators.
2. Angel stage valuations are stretched relative to Series A valuations. At 20 per cent success in getting to Series A, a Series A valuation of Rs 35 crore would be a breakeven point for angels (Rs 7 crore angel valuation is typical). At Rs 20 crore, the stage is not paying back for itself.
3. It’s taking too long for deals to progress. While accelerators (admittedly apart from Mukund’s Microsoft accelerator ) aim to get to the next round of financing as the startup graduates from the accelerator, it is taking an additional year to get to angel financing. Angel to VC is another two years on average. This slow progression may also be responsible for higher failure rate. Accelerators might do well to extend the runway.
4. Lot of ‘recycling’ – the same company going from one accelerator to another, from one angel round to another. Again points to the time it takes to build companies, and the need for early stage investors to keep supporting the good ones.
5. Too little mortality – ‘fail fast’ seems to be good advice, but little practice.
Of course, the above applies only to startups which are in funding play. Note that the data was gathered from about a dozen ‘premier’ accelerators/incubators and angel funds – so while I believe this is directionally right, it’s not the most comprehensive survey.
Editor’s note: Republished with permission from Venturewoods. Read the original post here.
Isn’t it early to expect accelerators to generate volumes in deal flow? Majority have been around only for 2-3 years. A similar survey in another couple of years may be more appropriate.
The problem with accelerators in India is that they focus on exit through deal flow instead of working on accelerating companies. So the same companies turn up in every accelerator. As a result many good companies that may not need VC get overlooked.