The warning bells are being sounded again: India’s startups, after witnessing a sustained period of enviable growth, are headed towards a slowdown. Raising funds is becoming tougher. Companies like Foodpanda and Swiggy are slashing workforce, cutting costs and soliciting buyers. Hyper-local grocery services such as Grofers are shutting down operations in cities faster than they expanded.

Are these signs of a bubble? Is India’s startup space expected to go pop?

While the answer to these questions shall be revealed in time, there are some who believe that common sense is prevailing as funding slows down and initial euphoria fades. As an opinion piece in Mint says, the apparent slowdown in startup funding in January is “further evidence of the ongoing correction”. Writing about the importance of startups improving their services before seeking sky-high valuations, the Mint article notes that the number of deals and funding size shrunk over 50% in January this year as compared to 2015, according to data by VCEdge, a unit of VCCircle.com.

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However, if one looks at consolidated figures over the past two years, the data tells a different story. According to data collated by VCEdge, seed funding and angel investing in Indian startups grew by over 60% in 2015 as compared to 2014. Also, the number of deals doubled from 359 in 2014 to 662 in 2015. This growth, many say, could have been because of international investors who had money to spare after global Initial Public Offerings did well.

“In the second half of 2014, JD.com and Alibaba went IPO and unlocked nearly $100 billion in investor money,” said Kashyap Deorah, a serial entrepreneur and investor. “A small percentage of this money found its way to India and led to the frenzy in 2015.”

In each of the first three quarters of 2015, the deal size of angel and seed funding was double that of 2014. Only in the fourth quarter was there an apparent slowdown, with the total deal value increasing merely by a $1million. This didn’t, however, indicate that funding has dried up. This year’s first month saw more than 50 angel investment deals, with a total value of $14 million, being inked. Also in January, Prime Minister Narendra Modi launched Startup India Action Plan to invest Rs 10,000 crore in startup ventures in the country.

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Deorah says the situation in India is interesting – funding here often means worse performance in customer happiness. This is why, he feels, a “rude awakening” may be in the offing. “Larger and faster funding rounds are directly correlated with ability to burn money faster at worse operating margins,” Deorah said. “What is worse is there is an inverse correlation between customer happiness and funding – companies raising money faster see a drastic drop in customer satisfaction, which investors sitting outside of India seem [to be] blind to.”

Capitalising on ventures

While more seed funding could be a function of the increasing number of startups in the world’s third-largest startup ecosystem, the amount of venture capital being put into existing companies indicates that all faith is not lost – not just yet anyway.

There were close to 400 venture capital investments in Indian startups in the year 2015, as against about 350 in 2014. The real growth, however, was in investment size, which more than doubled from $1,571 million in 2014 to $3,325.65 million in 2015. The first month of 2016 saw some 15 venture capital deals of $162 million being signed.

Deorah nevertheless cautioned that a slowdown may be on the horizon, though that won’t mean a complete halt in funding deals. “Globally and in India, Q4’15 saw a huge dip compared to Q3’15,” he said. “Q1’16 will follow a similar trend. Tiger Global, one of the most active investors last summer, has not made any new investments in the last 6 months. A slowdown does not mean investments will come to a halt.”