Investors focused on Indian startups have been a busy lot this year. They have closed 380 deals between January and June 2015, compared to 304 deals in 2014.
With internet and mobile continuing to dominate, it is not surprising that technology-focused investors make up most of our list of Top Investors according to deal numbers.
Sequoia Capital India, which raised its fourth India-focused fund worth $530 million last year, heads the list with 26 deals. The US-based Tiger Global Management, which almost single-handedly sparked the e-commerce fund rush in India, made 20 investments in the first half of the year. Tied at the second spot is Helion Venture Partners with SAIF Partners rounding up the top three with 18 deals.
Nexus Venture Partners confirmed 29 deals in the January to June 2015 period. However, Nexus declined to disclose the number of investments it made in non-Indian startups. For the purpose of this analysis, YourStory will be considering only the 10 announced deals.
Some of the investors in our Top 10 have shared data on the deals they closed before June but have not announced yet. We have included this data in our analysis.
India shining, at least the startups are
Investors say the rise in deals is primarily due to one reason—Indian entrepreneurs have become world class.“Indian founders have always been hard working, frugal and displayed strong engineering capabilities,” says Mohit Bhatnagar, Managing Director at Sequoia Capital India Advisors. “Now, in addition to these, they have developed an ability to build beautiful products and have a deep hunger to succeed globally.”
Sequoia’s investments this year are focused on mobile, hyperlocal and e-commerce, but the fund has also announced investments in firms in other categories like online financial services firm Capital Float, which provides working capital loans to small businesses.
The success of the likes of Flipkart, Mu Sigma, Just Dial and others has also emboldened investors. “There is now confidence that you can build such companies from India,” says Alok Goyal, Partner at Helion Advisors.
Relatively large exits like the Ola acquisition of TaxiForSure and the Snapdeal buyout of Freecharge are also helping, says Navin Honagudi investment director at Kae Capital. Kae had nine deals this year.
Helion’s Alok also points to the increased availability of quality angel investors as yet another reason for the rise in deals. Entrepreneurs like Flipkart’s Sachin Bansal and Binny Bansal, Snapdeal’s Kunal Bahl and Rohit Bansal and former redBus chief executive Phanindra Sama turned active angel investors in the last couple of years. The Snapdeal founders have made a number of investments this year, including in hyperlocal firm UrbanClap. Accel and SAIF participated in this round.
The hope is that such angels will help scale up startups faster. In 2011, Kunal and Rohit invested in Ola, then a newly launched little-known online taxi aggregator. Ola raised $400 million this April and is engaged in a pitched battle with global biggie Uber for dominance of the India market.
Mobile all the way
While web and e-commerce were the buzzwords even a couple of years ago, now it is all about mobile technology.India has 243 million Internet users, of which 57% access the Internet from their mobile phones, according to a recent report by Goldman Sachs. Since June 2012, the report states, 76% of incremental Internet users are from the mobile channel.
The growth of mobile is reflected in the deals this year. Sequoia’s Mohit says the common theme for the investment firm this year has been mobile. “India is undergoing an inflection with millions of users getting onto the Internet from their mobiles for the first time,” says Mohit. “Whether it’s searching for food, personal loans, cars or houses—people start their search online first.”
Mukul Singhal, Principal at SAIF Partners, echoes this view. “It’s interesting now to invest at early stage because of the ability to do product market fit in capital light manner as digital channels have scaled up,” he says.
In fact, the smartphone has hatched a number of digital segments like hyperlocal—one of the hot sectors of the year. The ability to use location is critical to this industry and that is possible only with the smartphone. “Industries are getting created with mobile Internet as part of the industry structure. Companies therefore grow faster and have larger opportunities,” says Vikram Vaidyanathan, Managing Director at Matrix Partners India.
Online Services and hyperlocal capture attention
While e-commerce companies continue to see investor interest, online services and hyperlocal startups have cornered a chunk of the investments especially in the early stage.
For IDG Ventures India, consumer, technology and media accounted for 85% of investments, while software accounted for the rest. “Over the full 2015 we expect about 60% of our investments in the digital and 35% in the software area,”says Sudhir Sethi, IDG’s Founder Chairman and Managing Director. IDG has invested in eight online services firms, including Asaanjobs, Nestaway and Tripoto.
The new kid on the block is hyperlocal, a vertical that is already seeing segmentation. Helion’s Alok says hyperlocal is giving offline retail a chance to take advantage of e-commerce. “Hyperlocal is enabling everything from food to grocery deliveries,” says Alok.
This sector has also seen some companies raise funds twice in the January to June period. Hyperlocal food delivery service Swiggy, grocery delivery service PepperTap and handyman service UrbanClap are some of the firms that have raised two rounds, including seed investment, this year. Mukul of SAIF says these quick follow-on rounds are just a reflection of the current market. “Wherever investors are seeing clear global comps and quick scale up, investors are coming and investing ahead of the curve,” says Mukul, warning that this trend need not continue for long. SAIF is an investor in Swiggy, PepperTap and UrbanClap.
Early vs growth
Seed and Series-A accounted for 46% of the deals made by the Top 10. However, the deal mix of early stage investors like IDG, India Quotient and Kalaari were skewed towards seed and Series A. For instance, almost 80% of IDG’s deals fell in the early-stage category.
Indian consumer demand is not a concern anymore, says Anand Lunia, Founder-Partner at India Quotient, which focuses on tech-driven consumer businesses. He says overall investments in early stage will continue. “We may see some stress in some large deals, but that won’t temper enthusiasm for smaller deals,” says Anand.
With companies like Ola entering the late investment stage, many of the larger funds like Sequoia, Tiger, SAIF and Matrix made higher number of follow-on investments. The $400 million Ola fund raise in April is the largest for both Tiger and Accel. Ola’s $400 million fund raise was its fifth round, with global majors like Softbank, GIC, Falcon Edge and Steadview participating, apart from Tiger and Accel.
A number of e-commerce firms like ShopClues and Urban Ladder raised large follow-on rounds leading to a bump in growth stage deals.
The next six months
Investors do not expect a slow down in deals. Mobile will continue to dominate with investors showing interest in categories like commerce, content, social and games. Deals can also be expected in fintech, education and Software as a Service.
While these 10 investors have dominated in terms of number of deals, it remains to be seen who has picked winners. “It is the quality and not quantity that matters,” says Vani Kola, Managing Director of Kalaari Capital. “We made just one investment in 2009. That was in Snapdeal.”