Risk
capital investments in India in the first half of this year have
surpassed the money inflow in all of 2014, setting the stage for another
record funding year as global interest in domestic technology startups
peaks.
But the frenetic pace of deal-making, on the back of increasing smartphone adoption and internet penetration, is also dragging down funding benchmarks as investors jostle to place bets on the next potential Unicorn — industry jargon for a billion-dollar valuation firm.
Venture capital investors funnelled Rs 15,600 crore, or $2.46 billion, into Indian startups this year till June 26, compared with Rs 14,850 crore, or $2.34 billion, in 2014. They closed 197 deals between January and now, as against 297 last year, at significantly higher average deal sizes, show data from financial research firm VCCEdge.
"We have just seen a cycle where people are very excited to invest in India internet, especially mobile, which has unprecedented availability of capital," said Shailendra Singh, managing director at venture capital firm Sequoia Capital India.
"Even for most parts of the world, so much capital has never been available, where a $50-million round is impressive but not surprising. Five years ago, it was a rare event."The expanding deal sizes are driven by the increasing competition in emerging high-demand segments such as local services, online budget stays, food technology and express delivery, where at least half-a-dozen startups are getting venture funded in hopes of becoming market leaders.
"The biggest hope is that you raise so much money that the competition goes out of business, but then you need to grow at a higher pace of over 100% to raise these rounds," said a venture capital investor on condition of anonymity. Entrepreneurs say their aggressive capital raise is a function of the scale they are chasing. For online food delivery application Swiggy, its number of orders has grown 25 times between January and May, reaching more than 2,000 orders a day earlier this month. It plans to expand to 12 cities by the end of this year.
"Hyper-local deliveries are largely a city-centric concept and no one has expanded beyond 5-10 neighbourhoods or a city, let alone go across double-digit number of cities in one year. In order not to slow down and continue to scale, fundraising continues to be necessary," said Swiggy's CEO Sriharsha Majety. The Bengaluru-based company raised two successive funding rounds in less than seven months, Rs 12 crore and then Rs 105 crore earlier this month.
Entry valuations have surged
Overall, 60 technology startups have raised VC funds twice or more in the past 12 months, according to startup research firm Tracxn. With these segments becoming essential components of an investor's checklist, the entry valuations of early-stage consumer internet and mobile companies have surged 2-4 times in the past two years.
Companies offering software-as-a-service solutions have seen relatively moderate valuation increases of 30-50%. At later stages, this is being driven by the rising valuation of US and Chinese companies such as Uber ($41 billion — online cabs), Instacart ($2 billion — grocery delivery) and Blue Apron ($2 billion — ready-to-cook meals).
"What has changed is that the valuation of global comparables of Indian startups have increased significantly over the last year," said Mohan Kumar, executive director of Norwest Venture Partners India. As a result, the size of the first major institutional investment in a startup, a series-A deal, has increased from $2-3 million to $5-10 million, even as revenue and growth targets a startup needs to achieve to reach this stage have dropped.
"Even companies which have 15,000 (mobile application) downloads are getting series A, and 100,000 downloads are getting series B. Earlier, 100,000 was the bare minimum benchmark for a series A," said a venture capitalist with a seed-stage investment firm.
But the frenetic pace of deal-making, on the back of increasing smartphone adoption and internet penetration, is also dragging down funding benchmarks as investors jostle to place bets on the next potential Unicorn — industry jargon for a billion-dollar valuation firm.
Venture capital investors funnelled Rs 15,600 crore, or $2.46 billion, into Indian startups this year till June 26, compared with Rs 14,850 crore, or $2.34 billion, in 2014. They closed 197 deals between January and now, as against 297 last year, at significantly higher average deal sizes, show data from financial research firm VCCEdge.
"We have just seen a cycle where people are very excited to invest in India internet, especially mobile, which has unprecedented availability of capital," said Shailendra Singh, managing director at venture capital firm Sequoia Capital India.
"Even for most parts of the world, so much capital has never been available, where a $50-million round is impressive but not surprising. Five years ago, it was a rare event."The expanding deal sizes are driven by the increasing competition in emerging high-demand segments such as local services, online budget stays, food technology and express delivery, where at least half-a-dozen startups are getting venture funded in hopes of becoming market leaders.
"The biggest hope is that you raise so much money that the competition goes out of business, but then you need to grow at a higher pace of over 100% to raise these rounds," said a venture capital investor on condition of anonymity. Entrepreneurs say their aggressive capital raise is a function of the scale they are chasing. For online food delivery application Swiggy, its number of orders has grown 25 times between January and May, reaching more than 2,000 orders a day earlier this month. It plans to expand to 12 cities by the end of this year.
"Hyper-local deliveries are largely a city-centric concept and no one has expanded beyond 5-10 neighbourhoods or a city, let alone go across double-digit number of cities in one year. In order not to slow down and continue to scale, fundraising continues to be necessary," said Swiggy's CEO Sriharsha Majety. The Bengaluru-based company raised two successive funding rounds in less than seven months, Rs 12 crore and then Rs 105 crore earlier this month.
Entry valuations have surged
Overall, 60 technology startups have raised VC funds twice or more in the past 12 months, according to startup research firm Tracxn. With these segments becoming essential components of an investor's checklist, the entry valuations of early-stage consumer internet and mobile companies have surged 2-4 times in the past two years.
Companies offering software-as-a-service solutions have seen relatively moderate valuation increases of 30-50%. At later stages, this is being driven by the rising valuation of US and Chinese companies such as Uber ($41 billion — online cabs), Instacart ($2 billion — grocery delivery) and Blue Apron ($2 billion — ready-to-cook meals).
"What has changed is that the valuation of global comparables of Indian startups have increased significantly over the last year," said Mohan Kumar, executive director of Norwest Venture Partners India. As a result, the size of the first major institutional investment in a startup, a series-A deal, has increased from $2-3 million to $5-10 million, even as revenue and growth targets a startup needs to achieve to reach this stage have dropped.
"Even companies which have 15,000 (mobile application) downloads are getting series A, and 100,000 downloads are getting series B. Earlier, 100,000 was the bare minimum benchmark for a series A," said a venture capitalist with a seed-stage investment firm.
Comments
Post a Comment