[Editorial Notes : The Indian startup ecosystem has boomed in a big way – atleast the funding part. Below is a great piece of analysis by Anupam Rastogi. Anupam is a VC investing in growth stage mobile, internet & technology businesses in India and globally.]
There has been a surge of mega growth stage financing rounds globally, especially in the Internet, mobile and SaaS spaces. Venture capital funding in 2014 was up over 60% year over year across major markets globally. Average VC deal sizes have grown by over 50% on average over the past five years.
It is certainly true that funding for private tech companies is going through a phase of exuberance and globally there is significantly more risk capital available than in the last several years.There are many reasons for this. Business cycles are complex, and this can be the topic of an entire book. In this blog post, we’ll focus on the other side – why raising more money earlier in the life cycle could be a good idea for certain companies once critical mass is achieved.
Here are some good reasons to invest larger amounts of capital than before into companies where the basic model (product market fit, business model) is proven and market opportunity is perceived to be large:
Scale as a competitive barrier
A large number of growth stage companies (especially in segments such as Marketplaces, SaaS) are being built upon previous layers of platform innovation/adoption e.g. ubiquitous smartphone + social are key enablers for unicorns such as Uber, AirBnB. A vast majority of growth stage companies today
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