MUMBAI : Indian startups raised a record $2.5 billion in capital in the third quarter of calendar year 2019, the highest in any quarter this year, as a number of new investors have increased deal-making and exits have provided liquidity to investors.

Startups raised $2.55 billion in the quarter ended 30 September, 25% more than the $2 billion and $2.13 billion raised in the preceding two quarters this year, according to data from Venture Intelligence, a startup data tracker.

While deal values have increased, volumes have fallen during the same period, from 160 deals in Q1 to 117 this quarter, a trend seen over the past year or so, where large amounts of money are flowing, but to fewer firms.

Graphic by Paras Jain/Mint
Graphic by Paras Jain/Mint

The growth in fundraising indicates that venture investors continue to remain bullish on Indian startups despite concerns of a slowdown in the economy.

“Investors are generally long on India. Despite slowdown concerns, venture capital investors are taking a seven year view and expect consumption-led growth in that period. There have also been significant exits and liquidity created for investors, which brings even more capital back in," said Arpan Sheth, partner at consultancy firm Bain & Co.

The largest deals of the quarter include business-to-business marketplace Udaan, which raised $414 million from Altimeter Capital, Hillhouse Capital and DST Global; Ola Electric, the ride-hailing firm’s electric vehicle arm, which raised $250 million led by SoftBank Group, and Rebel Foods, known for its Faasos rolls and Behrouz Biryani, which raised $130 million led by hedge fund Coatue Management.

These rounds also indicate far more aggression than before in growth stage rounds from overseas investors.

“Once the company reaches $100 million in valuation, large ticket investors- private equity funds, overseas VCs from US and China, etc are happy to come in. Earlier this happened when valuations crossed $250-300 million that select strategics like Alibaba, Tencent, Naspers, used to come in," said Karthik Reddy, managing partner at Blume Ventures, an early stage investor.

Late stage capital and valuations are also led by a few winners, Reddy added.

“Valuations have also risen because as the market has grown, a few companies have received heavy investor interest, creating a supply demand mismatch," Bain’s Sheth agreed.

Another emerging theme has been the growing interest of investors to back experienced founders with large early stage cheques, because of the track record that these entrepreneurs come with.

For example, Cred, which raised $120 million in August, was founded by Kunal Shah, who started payments platform FreeCharge and sold it for $400 million in 2015.

“Even if they weren’t founders there (at previous firms), they played a key role in growth, and that experience gives investors confidence that giving them a few tens or even hundreds of millions of dollars will lead to a massive scale rapidly and a successful outcome. Traction and pedigree are both seeing huge amounts of growth risk capital," said Blume’s Reddy

To be sure, while fundraising has been growing sequentially every quarter this year, the total fundraising in Q3 was lower than the $3 billion each that startups raised in Q3 and Q4 last year, which was driven by a slew of large-ticket investments in food delivery startup Swiggy, hotelier Oyo and education firm Byju’s, among others.

The last quarter of 2019 could still hit a record, given that Oyo, Swiggy, Zomato, Dream11, Lenskart and other large firms are negotiating fundraises currently, according to previous Mint reports.

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