Funding down, deals up for on-demand in Q1 2016

Uber, Didi Kuaidi, and Airbnb dominated venture capital raising in the space for almost a year

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Now it’s all but certain: we’re unlikely to see anything like the vast flood of funding we saw poured into on-demand companies last year.

Venture capital funding dropped for the second straight quarter, according to CB Insights, from $2.0 billion in Q4 2015 to $1.3 billion in Q1 2016, a 35.0 percent decrease. Though it’s a far cry from the precipitous drop seen between the previous two quarters ($7.3 billion in Q3 2015 to $2.0 billion in Q4 2015, a 72.6 percent decrease), the continuing downward trend reinforces both broader market forces tightening up VC wallets as well as micro views of the on-demand space.

In 2015, on-demand companies raised a total $17.9 billion from VC firms.

Notably, while funding amount is down, number of deals actually rose from 42 completed deals in Q4 2015 to 56 last quarter, a 33.3 percent increase. That’s nearly on par with the 59 deals completed in Q1 2015, though funding is significantly down year-over-year. To me, this provides further evidence that the widespread signs of a slump in startup funding doesn’t necessarily mean that the bubble is popping, but rather that VCs are simply being more picky (and perhaps more realistic) about their investments.

In addition to reinforcing perspectives on the overall market, the data from CB Insights also indicates that the on-demand market is already maturing. If it’s not clear through the overall data, it’s clear through the fact that most of the dollars being raised are going to a few behemoths in the space.

Three on-demand companies—Uber, Didi Kuaidi, and Airbnb—account for 65 percent of all on-demand funding from Q1 2015 through Q3 2015. With these three companies alone raising multiple $1 billion rounds from VCs through this nine-month period, it’s clear how that could be the case. Even more recently, Uber’s chief U.S. competitor Lyft raised a $1 billion round led by General Motors (GM) in the beginning of the year.

Even so, smaller upstarts continue to pull in capital for their on-demand services, from early stage to late stage. Some examples from the past week include:

• TaskEasy, an online platform for booking home maintenance professionals, closed a $12 million Series B round led by Delta Electronics Capital. (Ed. note: The company’s CEO Ken Davis will be joining us at Vator Splash Spring on May 12.)
• UrbanStems, providing bouquet delivery in Washington, D.C. and New York City, closed a $6.8 million Series A round led by SWaN & Legend Venture Partners.
• Cabify, a ridesharing company operating in 17 cities across Spain, Chile, Peru, Mexico, and Colombia, raised a $120 million Series C round led by a $90 million investment from Rakuten.
• Rinse, provider of on-demand dry cleaning and laundry services, raised a $6 million Series A round led by Javelin Venture Partners.

With some of these companies just starting out, it will be interesting to see how funding in the on-demand space continues to be circulated. And with the giants exploring services beyond their core models (as with Uber launching UberEATS for on-demand food delivery), it will be even more challenging for the upstarts to compete for cash and customers.