Venture capitalists eye late-stage startup deals in 2019
Startups scaled up faster in 2018, leading to bigger funding rounds, say venture capital funds
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In 2018, India witnessed mega funding rounds for high-growth homegrown startups, which led to the creation of eight new unicorns, or companies which were valued at $1 billion or more.
According to investors Mint spoke to, the funding in late-stage startups during the year was not only justifiable, but may have set the tone for an even better 2019.
“2018 was a year of building. Startups able to build and become growth category leaders, attracted late-stage capital. Swiggy and Oyo were two notable examples," says Sanjay Nath, managing partner, Blume Ventures, an early-stage investor.
Nath says Blume expects its portfolio firm GreyOrange to near unicorn status next year. In September, Mint reported that the robotics startup had raised $140 million led by Peter Thiel’s Mithril Capital. “The year has validated India’s most sustainable and high growth startups," he added.
The year 2018 saw several internet companies, such as food delivery apps Swiggy and Zomato, hotels platform Oyo, online insurer Policybazaar, B2B marketplace Udaan, software provider Freshworks, online retailer Paytm Mall and education technology startup Byju’s, enter the unicorn club.
According to venture capital investors, startups have been able to scale up faster and that has resulted in bigger rounds. “Unicorns aren’t created overnight. What’s different now is that startups are scaling much faster than five years ago," said Dev Khare, partner, Lightspeed India Partners. Apart from backing Oyo and Byju’s, Lightspeed is also an investor in regional content startup Sharechat, which raised ₹ 720 crore in a round led by Shunwei Capital and Yuri Milner’s DST Global in September 2018.
“There is already an infrastructure present for payments, logistics, infrastructure. When Flipkart started, say 10 years ago, they had to build the infrastructure. Today, startups can scale faster because the infrastructure is already present," Khare added.
According to Anand Lunia, managing partner, India Quotient, 2018 marked a shift in the startup industry with the number of startups, rounds of late-stage funding and deal sizes going up. “Late-stage capital has spread out. And we have seen that unicorns will not just be restricted to e-commerce. This looks like the start of a good cycle," he said.
Besides the usual suspects in the consumer space, such as Swiggy, Ola and Byju’s, 2018 also saw a healthy number of B2B startups rapidly scaling up to grab investor interest. While B2B startups Udaan and Freshworks became unicorns last year, logistics companies Rivigo and Delhivery have held discussions to raise large cheques. “While B2B start-ups are not as ‘visible’ as their consumer counterparts, they can have wide-ranging impact. Their switching costs and enterprise stickiness are very high," said Blume’s Nath.
However, investors have not been swayed by high valuations, and expect startups to spend responsibly. “Our companies use cash to reach significant milestones such as Oyo’s expansion in China," said Khare. “Late-stage startups need to be much more disciplined about valuation than early-stage ones."
Every now and then, large funding rounds spark fears of a bubble, like the one in 2015, but this time, investors were cautious. “This is not a bubble. All the companies getting funding are backed by good numbers and performance. It’s only the ones that can justify these valuations that are attracting these rounds," said Lunia.
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