VCs say investment surge in 2015 an anomaly

The market is resetting itself to levels and practices that existed in 2014, according to Shekhar Kirani of Accel Partners

The massive investments by private equity and venture capital firms in India's startup space during 2015 was a one-off. The market is resetting itself to levels and practices that existed in 2014, according to Shekhar Kirani, partner at venture capital firm Accel Partners.

"The normal was what we used to have in 2014, where good businesses are built, entrepreneurs are going after interesting ideas, unit economics are real and VCs take time to put in money. That is back in 2016," said Kirani, during a panel discussion at the Surge 2016 event being held in Bengaluru on Tuesday.

Accel is an early investor in firms such as Flipkart, Swiggy, Ola and Freshdesk.

Indian startups attracted over $5 billion in investments in 2015, largely from overseas funds, which was over twice the amount they attracted in the previous year. An abundance of funding led to startups splurging money in unsustainable ways on marketing and other activities rather than focusing on building products.

While many have attributed the change to the slowing of the global economy, India still remains a bright spot and will draw massive amounts of investments. However, Kirani added that funding will happen in a much more sustainable manner, similar to what the industry witnessed in 2014 and even in years before that.

Investors too got caught in a rut where not making a snap decision could mean losing out on a great startup, according to Vani Kola, managing director at Kalaari Capital. This further fuelled the funding bubble as many call it to the point of bursting.

"At Kalaari we have a certain number of deals we invest in each year, and that hasn't dramatically changed for us year on year. What had probably changed is the compression of time in which the people were expected to make a choice," said Kola, who was part of the panel at Surge.

Moreover, while it is expected that 2016 will see lesser venture capital funding flowing into India, large companies such as Flipkart, Snapdeal, Paytm and others are expected to continue to raise healthy sums of money. Even early stage companies that aren't merely "me-too" firms will see steady backing according to the experts.