India’s early-stage investors struck 405 deals worth $1.4 billion in 2016, a year that marked the return of reason to the venture capital market. The overall volume and value of investments are down from the previous year by 21% and 28%, respectively, according to data compiled by Chennai-based researcher Venture Intelligence.
But what’s important to note is that a fair number of early-stage start-ups continue to find capital. There’s a little bit of concern around the funding crunch at the Series A stage, the first serious institutional capital round that goes into a start-up. The number of Series A deals last year declined 45% from 2015. On the other hand, the number of seed-stage deals, which precede Series A, have more or less stayed at the 2015 levels. That spells some pain for seed-stage start-ups in the market for their next round of funding.
It is unlikely that venture capital investors will throw caution to the wind in terms of deploying fresh capital over the coming 12 months. The focus will remain on getting more exits out of the door. Last year such investors struck 89 exit deals worth $900 million, according to data compiled by London-based researcher Preqin. By most accounts, investors will continue to be extremely selective on how they put the estimated $3 billion-plus dry powder or uninvested capital available in the market to work.
We take a quick look at the early-stage dealmakers to watch in 2017.
1. Aarin Capital: The Bengaluru-based family office has in a few years emerged as one of the most prolific players in the venture capital market. Backed by a reported $100 million in proprietary capital from former Infosys Ltd board member and chief financial officer T.V. Mohandas Pai and Manipal Group’s Ranjan Pai, the firm invests directly in early-stage start-ups and also in venture capital funds as a limited partner.
In September last year, Pai told The Economic Times that the firm has direct and indirect stakes in 145 companies. He expects investments, both direct and indirect, to exceed $600 million in two years from over $300 million now. Some of the funds in which Aarin is an investor include Saha Fund, Ideaspring Capital and Exfinity Venture Partners. Last year, Aarin notched its first big exit—it sold a part of its stake in Sequoia Capital-backed online education start-up Byju’s and multiplied its original investment by a reported ten times.
2. Accel Partners India: The local franchise of Palo Alto, California-based Accel Partners has been on a scorching deal run over the past two years. It ran through its last fund, $325 million raised in March 2015, in less than two years and is now sitting on a fresh $450 million corpus that it raised in December last year. The firm has since inception had a preference for entering companies early, usually at the seed stage, and rolling up the investments to later funding rounds. The fresh corpus at its disposal, which it intends to start deploying this year, is expected to follow the same pattern. Accel was the first investor in Bengaluru-based e-commerce company Flipkart and remains a significant stakeholder in the company.
3. Blume Ventures: Mumbai-based Blume Ventures arrived on the scene about six years ago with a tiny $20 million fund. Founded by former Bennett, Coleman & Co. executive Karthik Reddy and Sanjay Nath, co-founder of legal outsourcing firm Loxodrome (both were also prolific angel investors with Mumbai Angels), Blume decided to invest exclusively in seed-stage start-ups and ushered in the era of micro venture capital funds in India. It pursued a strategy of investing very small sums in a large number of companies. This earned it the unfortunate tag of being a spray-and-pray investor, one that it has not yet been able to shrug off.
In October last year, the firm raised its second fund, a $60 million corpus. With the new fund, there’s also been a shift in the firm’s strategy—seed-stage investments remain its mainstay but it has also been pursuing Series A stage deals and has become far more selective in its deal-making.
4. Endiya Partners: Hyderabad-based Endiya Partners entered the venture capital market in 2015 and is currently raising its debut fund. It raised about $15 million of its targeted $30 million last year. Endiya is co-founder Sateesh Andra’s third turn in the venture capital business. The former technology entrepreneur started in the business with Draper Fisher Jurvetson (DFJ), the iconic Silicon Valley venture capital firm. When DFJ decided to shutter its operations in India, Andra moved on to start an early-stage fund for Ventureast, a local venture capital firm. About two years ago, he started Endiya with former Ventureast partner Ramesh Byrapaneni. Endiya focuses on underserved technology products start-ups and has already made four investments —Hansel, Darwinbox, Celes and InnerChef.
5. Growth Story: Serial entrepreneur duo Krishnan and Meena Ganesh have over the past few years turned early-stage investing into yet another money-spinner. Growth Story, their proprietary investment platform, isn’t a venture capital firm but rivals most venture capital firms in terms of deal-making. The platform makes angel investments in start-ups across sectors and also incubates new businesses. Grocery e-tailer BigBasket, online QSR FreshMenu and at-home medical services company Portea are among some of the more successful products to come out of the platform. In the last two years, Growth Story has become an important feeder for early deals for several leading venture capital firms.
6. Inventus Capital Partners: The Kanwal Rekhi-led venture capital firm is generally conservative in its deal-making pace but is considered among the more serious early-stage technology investors around in the market. Last year, as the start-up funding market underwent a correction, Inventus upped the ante and got more aggressive with deal-making at the Series A and selectively at the Series B stages. It is currently on the road to raise its third successive fund for this market and is targeting a reported $150 million.
7. Lok Capital: Among impact venture capital firms, Lok Capital stands tall as one of the few to have successfully exited a fund completely and delivered a respectable 15% IRR (internal rate of return) to its limited partners. This is rare even by conventional venture capital standards in India. The firm, whose operations are led by co-founder Vishal Mehta and managing director Venky Natarajan, is now in the final leg of closing commitments for its $100 million third India fund. Expect lots of interesting deals in healthcare, education and financial inclusion.
8. Matrix Partners India: It is going to be an important, even crucial, year for Team Matrix India—Avnish Bajaj, Tarun Davda and Vikram Vaidyanathan. The Mumbai-based firm survived the departure of co-founder Rishi Navani last year, raised a $110 million top-up on its second fund and, has been concentrating on getting exits out the door. It goes to market later this year to raise its third fund and has a target corpus of $300-400 million. The current team’s disposition will see the firm engage more actively in early-stage deals than it has in the past, a process that started in earnest about a couple of years ago.
9. Saama Capital: Bengaluru-based Saama Capital is always interesting to watch for the kind of deals it strikes. The firm has just raised its third India fund, a modest $31 million. Across the three funds it has raised so far, its total funds under management stand at a little over $150 million. Size has never been a constraint in the past for the firm, which is led by co-founders Ash Lilani and Suresh Shanmugham. Mobile payments company Paytm and e-commerce marketplace Snapdeal were early bets in its portfolio. Some of its more recent interesting bets include online lending platform Lendingkart, packaged juice retailer RAW Pressary and speciality food ingredients maker Veeba Foods.
10. Sequoia Capital: The Mumbai-based venture capital firm is poised to dominate the early-stage deal market again this year armed with a $920 million war chest raised early last year. It is expected to continue with its early-stage focus, seed and Series A, in the technology sector but equally flex some muscle in the growth deals segment which is currently crying out for some serious money due to the absence of hedge funds and other non-traditional start-up investors. Sequoia India is also making some inroads into the South-East Asia market from its perch in Singapore and the deal momentum there is likely to pick up this year.
Snigdha Sengupta is a consulting writer with Mint. She contributes stories on venture capital and private equity.
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