Investments in growth stage startups breach $1 bn mark in September quarter
3 min read.Updated: 10 Oct 2019, 11:01 PM ISTM. Sriram
Growth stage funding boom is due to new investors in this space rather than broad-based funds, say investors
The funding boom comes in the face of a macroeconomic slowdown in India, and an internet funding slowdown in China and the US
Mumbai: Investments in growth stage startups crossed the billion-dollar mark in the September quarter and hit a four-quarter high, driven by a handful of investors deploying capital more aggressively than ever, data indicates.
Series B and C rounds, generally defined as the growth stage for startups, saw $1.13 billion in funding in the September quarter, more than double the capital raised two quarters ago, and 33% more than the $848 million raised last quarter, according to Venture Intelligence, a startup data tracker.
According to investors, the growth stage funding boom is due to a number of new dedicated investors in this space, rather than broad-based funds, as well as existing investors, such as Tiger Global, Steadview Capital and Ribbit Capital becoming more aggressive this year, after a hiatus or selectively investing in the last few years.
“Till about a few years back, the same set of venture capital (VC) funds would invest across multiple stages. As it has happened in other large venture markets, several Series B and C specific funds like A91, B Capital, Epiq, Fundamentum, Vertex, Avtaar, Iron Pillar etc have now emerged in India," said Rahul Chowdhri, partner at Stellaris Venture Partners, an early stage investor.
“In addition, several Series A companies over the last couple of years have scaled very well which has attracted the attention of several global investors. Both these factors have led to an increase in B/C investments," he added.
The growth stage boom has been one of 2019’s biggest funding themes.
Growth stage investments in Indian startups breached the billion-dollar mark in the first half of this year, Mint reported on 8 July. However, this time, funding crossed a billion dollars in a single quarter.
To be sure, despite more investors and capital coming in, the deal pipeline does not seem to have broadened, with only 40-45 growth deals in each of the last eight quarters, the data indicates. This is in contrast with the general expectation that as the ecosystem matures, more founders and companies will come in.
“(I am) surprised that the number of investments is the same. The quality of entrepreneurs is vastly improved and while one can question valuations, even the biggest critics acknowledge that some high-quality and valuable businesses are being built leveraging technology. Which is why it is surprising that the opportunity pipeline has not widened. It should improve overall as a lot many ideas are now getting the initial funding and purchasing power continues to improve," said Abhay Pandey, partner at A91 Partners, a growth investment firm.
Pandey added that “three to four firms have been super-active over the last few quarters, causing a frenzy in parts of the growth market."
The funding boom comes in the face of a macroeconomic slowdown in India, and an internet funding slowdown in China and the US. These are beginning to make investors more watchful, as valuations rise with young companies raising hundreds of millions of dollars rapidly.
“The capital from India-based funds has been stable. Strong flows from overseas over short periods cause the frenzy as we are witnessing today. With China certainly slowing and doubts emerging on valuations of a few large global companies, it is only a matter of time before the India sentiment gets sober," Pandey said.
To be sure, investors continue to see the Indian market’s long-term value, with valuations being cyclical.
“Valuations are like stock prices; they go through their own cycles of highs and lows. As a long-term investor, we are more focused on value that the portfolio will build over the next decade. More late-stage investors mean Indian startups will have enough cash to scale up in the later stages of their evolution," said Chowdhri of Stellaris.