US-based venture capital (VC) firm Accel has raised $550 million for its sixth India fund as it seeks to ramp up its investments in the country’s booming startup ecosystem.
The latest fundraise topped the $450 million Accel raised for its fifth India fund in late 2016. Accel India currently has assets under management of about $1.6 billion. Some of its top portfolio companies include Swiggy, Freshworks, Cure.fit and BlackBuck.
“With a robust digital infrastructure firmly in place (and expanding rapidly), we expect digital adoption in India to only accelerate. We see this trend playing out not only in categories like food delivery, digital payments, and e-commerce, but also sectors like agritech, education, insurance, logistics, healthcare, real estate and manufacturing," Accel said in a statement on Monday.
One of India’s oldest VC firms, Accel is also among the most successful. It netted more than $1 billion from the $16 billion takeover of Flipkart by Walmart last year. Accel was the first institutional investor in the online retailer. Accel started in India in 2008 by buying Erasmic Venture Fund. Erasmic’s founders Subrata Mitra, Prashanth Prakash and Mahendran Balachandran joined Accel as partners. In the past decade, Accel has expanded its team and now has nine partners and employs 51 people.
Since its first fund, Accel has maintained consistency in its investment strategy by primarily being a seed-stage investor. The fund was the first institutional investor in about 85% of startups in its portfolio.
“Globally, there are very few investors who have consistently invested only at the seed-stage for this long and at our scale. We are a specialist seed-stage investor, and that is our clear strength. With the sixth fund, too, we will primarily invest in seed-stage startups," Prakash said in an interview.
The latest fundraise by Accel comes amid talk of a funding slowdown for startups globally after several years of robust investments. Benefitting from record low interest rates in the US, investors led by SoftBank have been continuously raising tens of billions of dollars from limited partners (LPs), which are institutional investors such as pension funds that invest in VC firms, to bet on internet startups in US, China, India and other markets. Many of these startups pursued a growth-at-all-costs strategy and have unprofitable business models. But, after a long funding boom, startups such as WeWork, Uber and Lyft that had binged on capital have received a reality check from public markets in the US.
In India too, most internet startups are yet to make profits, which is reflected in the dearth of IPOs. Despite that, many VC firms have secured exits through secondary share transactions. “Overall, LPs’ perspective on India is that they would like to see consistent IPOs from startups here," said Shekhar Kirani, a partner at Accel India.
Accel has invested in five large categories in the past decade: consumer internet, software, business-to-business, healthcare and financial technology. It will continue to invest in these spaces and more, said Anand Daniel, a partner at Accel India.
“If you look at the numbers of transacting users, it shows that the consumer market is huge and a large part of it is underserved. The business models to serve the market aren’t obvious but we’re coming across many entrepreneurs who are striving to find the right models. And we’re seeing that the newer generation of firms are scaling much faster compared with the firms that came before. So, the consumer market is still at a very early stage," Daniel said.