3 min read.Updated: 27 Oct 2021, 12:31 AM ISTSunil K. Goyal
It’s raining unicorns amid a fantastic funding spree for startups across sectors
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The Olympics continually reinforce the belief that there is no greater sporting spectacle than the Games. In fact, a sportsperson aiming for an Olympic medal is akin to a startup founder: both enter the field with a burning passion to accomplish something that no one has done before. Failures and defeats strengthen both, and both believe in that magical trait called timing.
There is also no better time than now from an investment perspective: a July Venture Intelligence report said that the first half of 2021 witnessed 693 private equity, venture capital (PE/VC) investments in India worth $28.9 billion, up by 33% compared to H1 2020, when $21.3 billion was invested across 708 deals.
In the Indian VC space, it’s raining unicorns amid an unprecedented funding spree for startups across sectors. Well over $20 billion has been raised till July, with several of the rounds producing unicorns in 2021.With 13 large startup deals worth $2.9 billion, the first half of this year broke all records. Consequently, the average deal size was also the largest-ever in H1 at approximately $24 million—double the previous year’s average.
We are also fortunate to be living in a time when India’s startup ecosystem saw most investors waiting for VCs to begin delivering cash exits for their early finds and a year with a record number of IPOs (initial public offerings) from young entrepreneurs who have scaled and demonstrated unwavering commitment to their mission.
At the same time, we are also witnessing acquisitions of startups by legacy business houses and domestic corporations in addition to the well-funded startups themselves.
The size of cash acquisitions touching $1 billion or a Zomato IPO raising over $1.25 billion has set new benchmarks for startups to cross. The Indian ecosystem has matured and is now headed upwards—for investors who supported these entrepreneurs, their patience is being handsomely rewarded.
Apart from investments and exits, records continue to be broken on a third front as well. This accelerated pace is already evident in the number of unicorns being added every year: from eight, 11 and 12, respectively, in 2018, 2019 and 2020, the first 10 months of 2021 saw 32 unicorns joining the league. It is further supplemented with exits similar to dragons (a company that returns the entire fund in an exit—a fund maker) in startups, such as Uniphore (YourNest: 16x/6.6x), Purplle (Ivy Capital: 22x), Policybazaar (Inventus: 22.3x), WhiteHat Jr (Nexus: 14.4x) and boAt (Fireside part exit to Warburg Pincus).
International studies have shown that having a dragon in the portfolio is 4-10 times more complicated than having a unicorn. While we consider at least four startups as dragons from the YourNest portfolio, there are many others emerging across our peer early-stage funds: nothing gives us more pleasure than to see the ranks swelling with such large potential exits.
The VC ecosystem has also seen stellar acquisitions this year: the Tata group buying a 64% stake in BigBasket for $1 billion and then 1mg; Reliance Jio acquiring at least 23 startups in the telecom vertical alone… established business houses are acknowledging and acquiring startups that have scaled and stood out.
Family offices are stepping out boldly to invest in tech-enabled software-as-a-service (SaaS) sector. There are several more mega startup IPOs lined up that will give handsome exits to early investors. And, last year, Google allocated $10 billion for investments over 5-7 years in India—the impact of it will be felt now.
All these can be summed up in a single word: timing. All indications are that 2021 is a landmark year for startup investments and as an alternative investment class, early-stage funds are bound to perform exceptionally well. For any investor, there is no better time than now to enter the field.
Because only when we believe and invest in the India tech-enabled startup story can we live up to the Olympics motto: Citius, Altius, Fortius… Swifter, Higher, Stronger.
Sunil K. Goyal is managing director and fund manager, and Mohit Hira is venture partner at YourNest Venture Capital.