Home / Companies / VC funds see strong exits from tech, e-commerce investments

Mumbai: As fresh capital chases the Indian start-up ecosystem, venture capital (VC) funds, already invested in technology and e-commerce firms, are finding it easier to exit and make profits on existing investments.

VC firms invested in Indian technology and e-commerce firms saw among the highest exits from their investments globally in 2014. India ranked fifth in terms of exits from technology-backed investments globally, according to data by CB Insights, a venture capital database backed by National Science Foundation.

“There were around 25 mergers and acquisitions with a total value of nearly $750 million in the Indian digital and technology space in 2014. One of the biggest developments of the past one year has been the ramp-up in strategic activity in the Indian digital and tech space," said Karan Sharma, vice president-financial advisory at Avendus Capital Pvt. Ltd, an investment banking firm.

Most of these exists have happened via the acquisition route as larger firms seek to expand and corner a greater share of the market.

Facebook’s acquisition of Little Eye Labs, an Indian start-up that makes a software tool for analysing the performance of Android apps, in January 2014; Yahoo’s acquisition of Bengaluru-based start-up Bookpad, makers of Docspad (that helps users view documents online), in September 2014, are examples of this trend, said bankers.

According to Sharma, investors have been able to generate returns of 4-8 times in some of the good exits that they have made last year.

Along with acquisitions, secondary market deals have also picked up, allowing existing investors to churn their portfolio. A secondary market sale is a transaction in which the existing private equity fund sells its share to another fund.

Technology exits are panning out well in India, says Sudhir Sethi, chairman at IDG Ventures India. According to Sethi, from 2004 to December 2014, 177 tech exits have been announced.

“Interestingly, over 60% were from strategic sales, 17% from secondary transactions and 10% through IPOs," added Sethi.

Sethi expects the pace of exits to gather steam in 2015, with secondary market deals and merger and acquisition activity expected to remain strong as existing firms look to add newer verticals or markets to their portfolio. Investors are expecting the bulk of the deals to happen in the areas of mobile technology, app development, digital payments, product and design, and analytics segments.

“Larger valued deals are expected to happen for market access and expansion. We are already seeing market leaders in the e-commerce, digital services marketplaces and classifieds bulk-up their war chests for acquisitions and strategic investments," said Sharma of Avendus.

While investors are securing exits, sealing deals at the right price remains a challenge, says Karthik Reddy, managing partner at Blume Ventures.

“The pace of exit activity has improved dramatically in the last 24 months but these are not easy from the point of view of integration of the acquisition and the lack of appetite within Indian buyers to pay a fair value or premium for good quality assets," said Reddy.

Blume Ventures was among the investors who exited during Bengaluru-based mobile marketing and analytics company ZipDial Mobile Solutions Pvt. Ltd’s acquisition by Twitter Inc.

Meanwhile, new investments also continue to be strong as a larger proportion of capital is being allocated from the global pool towards India, which is still considered an under-penetrated market.

“India is the last under-penetrated online consumer market left in the world which has scale and size. And that is driving global investors and strategics to come and invest here. People who have been successful in the US and China are wanting to capture the opportunity in India and also those who have missed the wave in these countries," said Sanjeev Aggarwal, senior managing director at Helion Venture Partners.

VC investors and hedge funds from the US and Asia-Pacific have been the most active among the new set of investors in India last year. As per a Mint report on 5 January 2014, VC funds invested $2.1 billion across 1,108 deals, an rise of 47.7% from 2013, when VC funds invested $1.4 billion across 246 deals, as per data compiled by VCCEdge, the financial research unit of

“There are lots of people who have not tested the Indian market yet. We have been approached by many investors, who have previously not invested in India, and are very keen on the opportunity in India," said Vikram Gupta, founder and managing director, Ivycap Venture Advisors Pvt. Ltd.

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