Start-ups and VCs are relying on investment banks for funding

The funding environment amongst Indian start-ups is at a standstill, which has forced start-ups as well as investors to increasingly rely on investment banks, focused on fundraising and Mergers & Acquisition (M&As).

The rush to these I-banks is seen in deal of all sizes and statures, be it the initial Series-A deals worth $3-5 million or Series B or Series C worth $15 million and above. However, earlier, I-banks weren't approached for initial rounds of fundraising.

"In the last six months, there has been a 70% uptake in the number of approaches to us, in terms of both VCs and startups calling up," Nitin Bhatia, MD of US-based technology-focused midmarket bank Signal Hill Advisors, told ET. "In terms of the actual number of deals going through us, the uptake would clearly be 25% this year." In comparison to last year’s 14-15 deals, Bhatia said that he is expecting to close 18 to 20 deals this year.

India has about 200 to 300 such midmarket banks as of now, and most of them like to handle huge deals, which is also the reason behind the high rejection rates. "The earlier belief that bankers should be employed for Series-B deals and upwards is being negated. But the challenge is that we do lesser of Series-A and more of Series-B deals in the range of $5-25 million, so there is no choice but to say no," said Sumir Verma, managing director at Merisis Advisors. "People are calling us even for Series-A fundraise between $3 million and $5 million."

More and more people are rushing to I-banks because of the fact that more startups have come to realize the need to reach out to a more diverse set of investors, because of the high risk of deals not going through.

Investors, on the other hand, are approaching these banks to seek help for getting next rounds of investment for the companies already in their portfolio.

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