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Business News/ Companies / News/  Accel India to raise $250 million to invest in e-commerce start-ups
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Accel India to raise $250 million to invest in e-commerce start-ups

Investors have been pouring money into Indian start-ups in 2014 mainly due to the rapid growth in e-commerce

Accel is likely to start making investments from its new fund before April. Premium
Accel is likely to start making investments from its new fund before April.

Accel Partners India, which has backed companies such as Flipkart, Bookmyshow and TaxiForSure, is close to raising its fourth fund of roughly $250 million as the venture capital firm seeks to invest more in fast-growing e-commerce and technology start-ups, three people familiar with the matter said.

Accel is likely to start making investments from its new fund before April, the people said on condition of anonymity. Accel will invest in e-commerce, mobile technology and Saas (software as a service) start-ups from the fund, the people said.

“For its ongoing investments, Accel has started committing money which will come from its new fund. The old fund is exhausted. Only the paperwork is remaining for the new fund," said one of the people cited above.

Accel declined to comment.

After a gap of two years, investors have been pouring money into Indian start-ups in 2014 mainly because of the rapid growth in e-commerce. The rapid sales growth of Flipkart and Snapdeal, the high valuations attached to e-commerce firms in general, and the resulting expectation of large exits either through a public offering or acquisitions have prompted the investor rush.

This change in sentiment toward Indian start-ups has helped some VCs and early stage investors such as Lightbox Ventures, Orios Partners and IDG Ventures to close new funds over the past few months.

Accel, too, is an early-stage investor and makes a majority of its new investments in the first two funding rounds in a start-up. For instance, in Flipkart, Accel hasn’t been pumping money on a so-called pro-rata basis; its stake in Flipkart is significantly lower than what it was in 2008, when it first funded the e-tailer.

A $250 million corpus is adequate for an early-stage investor such as Accel, analysts said.

“I would say $250 million is a good amount for an early-stage investor, especially for a country like India where deal sizes tend to be much lower than in the US," said Mahendra Swarup, managing director and partner at Avigo Capital Partners and former head of Indian Private Equity and Venture Capital Association, an industry body. “An early-stage investor can potentially do more than 15-20 deals with that kind of money. So I’d say they are raising an appropriate amount especially because if you raise too much, it becomes very difficult to deliver good returns."

Accel India has previously raised three funds totalling $235 million since it acquired the operations of Erasmic Venture Fund in 2008. Erasmic executives Subrata Mitra, Prashanth Prakash and Mahendran Balachandran joined Accel India then and are still partners at the firm. The firm raised its third fund of $155 million in late 2011. They added a fourth partner, Shekhar Kirani, in 2011.

Among Indian venture capital firms (VC) firms, Accel has made some of the smartest bets such as that on Flipkart, now valued at $7 billion; Myntra, which Flipkart acquired for more than $330 million in May; and Bookmyshow, valued over $170 million. Some of the firm’s other valuable investments include software provider Freshdesk and cab booking service TaxiForSure.

The VC firm’s US parent Accel Partners is one of the better known investors in Silicon Valley. Accel Partners was an early investor in Facebook and currently has stakes in fast-growing start-ups including Dropbox and Spotify. Accel Partners US raised two new venture funds totalling roughly $1.5 billion earlier this year.

VC firms such as Accel India and Sequoia Capital India can raise money much more easily than their local rivals due to strong demand among limited partners (LPs) for their US parent funds. LPs, which fund VC firms, are encouraged to invest first in non-US focused funds of firms such as Accel and Sequoia.

“Firms like Accel and Sequoia don’t have to struggle because of their US parentage. They take much lesser time in closing a fund than the local VCs. That’s a big advantage, as they can focus almost entirely on doing deals rather than having to spend too much time raising money for themselves," Avigo’s Swarup said.

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Updated: 20 Nov 2014, 12:15 AM IST
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