The promise of an online retail market that Morgan Stanley sees at $120 billion has attracted a new set of brave souls willing to bet their millions
Mumbai: The venture capital gold rush to India that began with Tiger Global Management’s purchase of a slice of Flipkart in 2010 ebbed five years later, ending in cash crunch, valuation cuts and many shutdowns in India’s start-up landscape.
Leaders of the last surge such as Tiger and Softbank Corp. have since largely pulled the plug on India, but the promise of an online retail market that UBS Group AG expects to touch $48-60 billion by 2020 and Morgan Stanley sees at $120 billion has attracted a new set of brave souls willing to bet their millions.
The relative lack of interest from established venture funds since the peak of 2015 has also opened up space for these investors, who missed the bus in the earlier rounds of fund-raising.
These investors did not burn their fingers in the three waves of venture capital that swept India. In the first era, until 2009, global venture capital firms such as Sequoia Capital and Accel Partners pretty much dominated the scene. The second era started in 2010 when Tiger took a stake in Flipkart, and followed it up with six more investments in the company.
Offshoots of large funds came next, followed by tech investors, sovereign wealth funds, pension funds, funds of funds, hedge funds—you name it. Tiger itself has invested close to $1.8 billion across 50 India-based companies, as per deal tracker Venture Intelligence, mostly in e-commerce and web services firms.
The third era started in 2014 when venture capital from across the world flooded Indian start-ups—of every type, size and description. Last year was the best on record for Indian start-ups in more than a decade, as investors pumped in $5.4 billion, according to data from VCCEdge.
Then came the slowdown.
New investors, who sat out most of the bubble and the bust are now scouting for targets, picking up what they believe are good bets that will stand the test of time. Even though they are bullish on India, they have largely been co-investors with either existing investors in a company or investors that have already established a presence in India, a move that significantly reduces their risk.
Mint takes a look at some of these new investors that are testing the waters in India.
Founded in 2003 by Ken Fox and Daniel Marriott, Stripes Group is a growth-stage investor that looks at Series C rounds of funding.
The New York-based fund made its first investment in India when it participated in the latest round of fund-raising by Mumbai-based BigTree Entertainment Pvt. Ltd that owns and operates BookMyShow. The online-ticketing company raised over ₹ 550 crore in the round.
“There is no macro thesis on timing India for us. We look for great businesses no matter where we are. We identify companies that have great markets that can easily obtain profitability and operate a long-term sustainable model. In that sense, a geographic filter becomes secondary, but if we do find something like this in India, we’d be excited to invest again," Marriott told Mint.
Stripes Group does not want to limit itself to technology start-ups. It is also looking at other sectors in India such as digital advertising, logistics, aggregate businesses and software across different verticals, said Marriott.
With a fund size of $500 million, Stripes Group makes five to seven investments worldwide per year worth $10-$100 million each, with an average ticket size of $40-50 million.
Three-fourths of Stripes Group’s portfolio is in technology business, subscription software, e-commerce and digital advertising, with the rest in consumer packaged goods.
Stripes has backed several start-ups such Craftsy, an online education and commerce platform for creative enthusiasts; MyWebGrocer, a provider of software-as-a-service solutions and digital media services to grocery store chains; Seamless, a web-based platform for ordering meals and catering from local restaurants, which was acquired by Nasdaq-listed GrubHub Inc.
Iron Pillar made a big splash in February when it participated in e-commerce firm Snapdeal’s $200 million fund-raising round, along with Canadian pension fund Ontario Teachers’ Pension Plan.
Founded by former Morgan Creek Capital Management professional Anand Prasanna, Iron Pillar is a mid-stage technology venture investor that focuses on consumer and enterprise companies.
“They are a mid-stage VC essentially doing Series C and Series D; they want to come in situations where they can negotiate hard," an executive at an institutional investor said on condition of anonymity.
Prasanna was previously director at the Shanghai office of Morgan Creek. Sameer Nath, another founding managing partner, was till recently head of mergers and acquisitions (M&As) at Citigroup Global.
Another partner, Mohanjit Jolly, was till recently leading investments for Silicon Valley-based venture capital firm Draper Fisher Jurvetson (DFJ) in India. He is now based in the Valley.
“His mandate essentially is to scout for strategics as an exit option for their portfolio companies," said the investor cited above.
Prasanna declined to comment for this report, citing a regulatory quiet period.
Founded by Lee S. Ainslie III in 1993, Maverick is a hedge fund that also invests in seed, early and later-stage ventures, and also does private equity investments. It manages around $15 billion of assets with a portfolio spread across sectors such as biotechnology, healthcare and technology.
Earlier this year, Maverick was the lead investor in healthcare-tech start-up 1mg’s fund raising, putting up $16 million. 1mg is an online marketplace to buy medicines, book doctor appointments and lab tests at home.
“Maverick has invested in digital health businesses quite actively in the US and they have a lot of understanding of this space," said Prashant Tandon, chief executive and founder of 1mg.
“Having seen digital health and how it has played around the world, they (Maverick) felt we (1mg) were doing something interesting out here, so that is what really got them to look at us in a serious way," added Tandon.
In 2015, Maverick had first tested the Indian market with an $11 million funding round in Mumbai-based Vserv, a business-to-business (B2B) data analytics firm.
US-based Maverick made its biggest exit in 2011, when deals website Groupon went public, raising $700 million.
A Maverick public relations executive declined to comment for the story.
Harmony Partners’ first India investment was in Swiggy in January, an interesting bet for a new investor, given the unravelling of much hyped food-tech companies. Rivals such as TinyOwl and FoodPanda are under stress and several smaller food-tech start-ups have had to shut shop.
“Swiggy was our first investment in India. We saw an opportunity to invest alongside a strong group of existing investors in a company that had many leading indicators for a market winner," Michael Chou, partner, Harmony Partners, said in an email.
Harmony invests in hyper-growth companies with strong unit economics; it primarily invest in Series C and later stages, said Chou. The Swiggy fund-raising was a series C round of $35 million.
Founded in 2010 by Mark Lotke, Harmony Partners is based in New York. Prior to founding Harmony, Lotke led the software group at FTV Capital.
For Swiggy, it was Harmony’s experience of having invested in other on-demand tech companies globally that made it an interesting partner.
“Harmony Partners are strategic partners for Swiggy, since they are already investors in other on-demand companies globally," said Nandan Reddy, co-founder, Swiggy.
The fund has $250 million of assets under management, according to Chou, with a heavy concentration of investments in enterprise software and consumer web or mobile.
Harmony’s other portfolio companies include Swedish music aggregator Spotify Ltd, US-based on-demand delivery company Postmates Inc. and Anaplan Inc., which provides cloud-based business-planning tools.
In May, Harmony closed its third fund at $105 million. Harmony had previously raised an $85 million fund in 2014, according to the website PE Hub.
Beenext is a venture capital fund started by Teruhide Sato, founder of Japanese e-commerce and payments firm Beenos Inc. Beenos, through its investment arm, has invested in Indian start-ups such as ShopClues, Citrus Pay, KartRocket, BuyHatke and Droom.
Beenext’s investments typically range from $500,000 to $2 million. In June, Beenext was part of a $20 million Series B funding round for Bengaluru-based fashion aggregator Voonik Technologies Pvt. Ltd.
The Singapore-based fund has co-invested in housing marketplace NoBroker Technologies Solutions Pvt. Ltd and Eloquent Info Solutions Pvt. Ltd (WorkIndia), a job portal for blue-collar workers, among others.
Beenext plans to invest 50% of its fund in India’s technology sectors, the website YourStory reported in September 2015.
“For a person like Teru who is Japanese, he is running this fund out of Singapore, he is trying to capture the same growth that has happened in US and China in Internet-based companies and having that growth in South-east Asia and India—which can really bring about change, like Alibaba changed China or Amazon changed US. He is trying to capture that change in India," said NoBroker co-founder Amit Agarwal.
An email sent to Yukano Nishijima, a member of Beenext’s Bengaluru investment team, went unanswered.
Gray Matters Capital
Founded in 2006 by Bob Pattillo, Gray Matters Capital is an impact investing enterprise that first entered the Indian market in 2003 by investing in microfinance-focused funds Caspian and Bellwether.
It became involved with affordable private schools in India from 2006.
“Since that time, we have focused on education investments, especially those that will advance the education of women," Pattillo said in an email. Gray Matters recently expanded its focus towards directly investing in start-ups that impact education and women.
In March, AddressHealth Solutions India Pvt. Ltd, a Bengaluru-based paediatric healthcare chain, raised $1.5 million in a Series A funding led by Gray Matters.
It makes seed and early-stage investments ranging from $100,000 to $5 million in scalable enterprises.
While more than half of its total funds will be allocated to India, with plans to invest in at least five additional start-ups by 2017, Gray Matters’ primary focus will be education and women.
“GMC’s mission is ‘an education leading to a more purpose-filled life for 100 million women by 2036’. We are always looking for innovations that can be developed and delivered at scale to schools and students. Examples may include blended learning in classrooms and enterprises that focus on career skills, training, and jobs for women and girls," Pattillo said in an email.
The firm is also exploring Pakistan, the Philippines and Indonesia for investments.
Stanford Angels and Entrepreneurs
Stanford Angels is a network of angel investors started by venture capitalists and Stanford alumni Miriam Rivera and Clint Korver in 2010. The Indian counterpart was formed in July last year.
SA&E India is led by Paula Mariwala (co-president, Mumbai), Chaitra Chidanand (co-president, Bengaluru) and Ajay Lavakare (co-president, Delhi). Of the group’s 100 angel investors, 50 are active, Mariwala said over the phone. Every investor participating in a particular deal will contribute ₹ 10 lakh for the investment.
In March, it participated in Noida-based virtual reality tech company SmartVizX’s $500,000 fund-raising. Its previous investments include a Bengaluru-based data analytics start-up Prophesee, which also raised $500,000 in 2015.
So far, SA&E India has made five investments, Mariwala said over the phone. As a group, it invests ₹ 1-1.5 crore in very-early-stage, technology-enabled start-ups in collaboration with regional investors. Two of its investments were in participation with another angel group, the Indian Angel Network.
“The main goal of our group is that while we invest in innovative companies and also add value by interacting, mentoring, organizing events, we collaborate a lot with other groups within the ecosystem. We look at ourselves as an active part of this ecosystem and not just as an investor," said Mariwala.
The angel group aims at investing in six to 10 more start-ups over the next one year, with a focus on education, healthcare, finance, B2B, Internet of Things and artificial intelligence.
Founded in 2013 by James Bailey, Parminder Basran, Raj Ganguly and Samrat Ganguly, Velos has offices in Los Angeles and Singapore. It makes Series A and B investments in the range of $1-10 million, VCCircle reported in 2014. Eduardo Saverin (co-founder of Facebook Inc) was a founding LP and Chairman of the advisory board of Velos.
Velos, a $100 million fund, made its first Indian investment in 2015, in Hit The Mark Inc.-owned Hopscotch.in, a Mumbai-based online marketplace for baby products, as part of a $11 million funding round.
The fund has made around six investments in the US, which includes Silvercar (an airport car rental service), Surf Air (a California-based membership airline), Pong Research Corporation (a maker of solutions that protect mobile phone users from harmful radiation exposure), ChowNow (which provides restaurants with custom online ordering tools), Twenty20 (a mobile photography marketplace), and Peek.com (a marketplace connecting people with everyday adventures).
In 2015, Raj Ganguly and Eduardo Saverin launched a venture capital firm B Capital Group, which invests in global emerging technology leaders and is backed by The Boston Consulting Group.
Singapore-based entrepreneur Rajesh Bothra founded RB Investments in 2014 and has invested in more than half a dozen companies in India. On 18 July, RB Investments announced that it had participated in the Series D funding round for online jewellery marketplace Bluestone.
Its other investments in the last 18 months include online lingerie store PrettySecrets, food-tech start-up Swiggy, online retailer of branded Indian food products Delight Foods, online furniture start-up CapriCoast.com and laundry services start-up 5-a-sec.
“Their (RB’s) investment portfolio is very diverse because they are not limited by industry and not driven by market sentiment, valuations or exits," said Karan Behal, co-founder of PrettySecrets.
“They assess business fundamentals and invest more like a PE (private equity) investor. The questions that I was asked and the level of discussions we went into (with RB Investments) was more to ascertain my entrepreneurial ability, the business plan and soundness of business models," Behal said.
While RB does venture and growth funding, it also makes seed investments in Internet, mobile, information technology, consumer products and services and hospitality start-ups.
Attempts to reach RB Investments were not successful.
The New York-based venture capital fund was founded by Joshua Kushner in 2009, and makes seed, early-stage, and later-stage investments in Internet and software companies.
Kushner, who co-founded Oscar Insurance in 2012, incubates health insurance businesses and is in talks with healthcare start-up Practo to make its first India investment, The Economic Times reported on 6 July.
On Monday, Thrive announced that it had raised $700 million for its fifth fund, increasing its size to just under $1.5 billion, The New York Times reported.
Thrive was one of three firms to invest in Instagram’s Series B round of funding in 2012 and doubled its money in 72 hours when Facebook bought it, according to Forbes.
Kushner, 31, belongs to a family of influential real-estate developers in New York, led by his father Charles Kushner and brother Jared Kushner, who is married to the daughter of the 2016 Republican presidential candidate Donald Trump. A Harvard graduate, Kushner started investing in companies in college.
Attempts to reach Thrive did not elicit any response.
Other investors that have made their first investment in India this year include Sands Capital, Mcube Capital Advisors, EVC Ventures, NineStarter, Katabole Technology Venture, Lion Ventures, Man Capital, Rothenberg Ventures, Romulus Capital and Idein Ventures.