A snapshot of venture capital investments in India in the past year
2 min read.Updated: 01 Jan 2020, 10:50 PM ISTM. Sriram
SoftBank faced a serious reckoning of its investment model after its largest bets in many firms flopped
2019 saw software and business-to-business firms raise large amounts of capital at an early stage
Mumbai: The year gone by continued to be a record-breaking one for Indian startups, even as it became a story of two parts. In the first half of the year, startups raised nearly $4 billion in venture capital, across sectors and from a relatively diverse set of investors. Post-September, however, the narrative shifted almost overnight, with the meltdown in WeWork’s proposed initial public offering (IPO) and other tech listings, such as Uber and Lyft, performing poorly. Mint takes a look at the defining venture capital trends through the year.
Tiger Global’s comeback: Tiger Global Management roared back to India in April, after halting fresh investments in the country for over two years. However, its strategy is markedly different this time. The New York-based hedge fund chased business-to-business and software firms almost exclusively, pumping in over $500 million across 22 deals. The new deals, from salon software provider Zenoti to industrial goods marketplace Moglix, were also spearheaded by Scott Schleifer, after Tiger’s private equity chief Lee Fixel, known for his close involvement with Flipkart’s growth and its eventual sale to Walmart, left Tiger in March this year.
SoftBank’s reckoning: Japan’s investment giant SoftBank faced a serious reckoning of its investment model after its largest bets in many companies, including Uber and WeWork, flopped. While WeWork had to abort its IPO and slash its valuation by 80% in a month, Uber’s shares have slid 30% post-listing, putting SoftBank’s model and ability to make money under serious question. “The bull market run fuelled by SoftBank and large deals seems to be ending, but that makes it an excellent time for investing in early-stage deals as valuations will cool," said Anirudh Damani, managing partner, Artha Venture Fund, an early-stage investor.
The rise and rise of incubators and accelerators: With fewer early-stage firms getting funded, venture capitalists doubled down on incubators and accelerators—programmes which fund 20-100 startups in a year, creating a pipeline for other incoming investors. Multinational and Indian investors were aggressive on these themes, including Sequoia’s Surge, Lightspeed’s Extreme Entrepreneur, 100x VC and Venture Catalysts. “Early-stage incubators and accelerators became mainstream this year, but their overall quality needs to be proven. To do 100 idea-stage deals a year by one investor requires excellent deal sourcing, but also a solid team for qualitative analysis," Damani said.
Enterprise software and Bharat come of age: 2019 saw software and business-to-business firms raise large amounts of capital at an early stage. Partly driven by Tiger’s new focus, this stems from Indian businesses being comfortable with a digital life and growth more than ever. For instance, the likes of OkCredit, Khatabook, Locus and Zenoti, all of which help automate some sort of business. “Small businesses in India now need technology to help with compliance. These businesses are already comfortable with storing data on cloud, making it an emerging opportunity," Anand Lunia, partner of early-stage firm India Quotient, said in an interview in November.
Profit over growth, say investors: After a three-year funding overdrive, wherein venture capitalists chased startups growing rapidly, a slowdown is expected in 2020, after global tech companies saw investor backlash, and decade-old firms in India still burning thousands of crore in losses. Venture capitalists expect 2020 to consist of lower valuations, fewer large cheques, consolidation, as smaller firms shut shop. Investors are also telling entrepreneurs to build sustainable firms which don’t depend on seemingly limitless investor money, and prepare for exits through public offerings. This will be a sea change from secondary share sales, and mergers and acquisitions, which have been the prevalent exit route for venture capitalists so far.