DSA Summit: Calibrated growth, not caution, is the order of the day for VCs in India

DEALSTREETASIA's Asia PE-VC Summit 2017 held in Singapore. In the panel: Sudhir Sethi, Prerna Bhutani, Sanjay Nath, Nikhil Kapur, Abhijit Ray and Ishita Russell.

The number of early-stage deals in India may have declined in 2017 but venture capital players are undeterred and feel that this phase is more of a “calibrated growth”.

“I would replace the term caution with strong calibrated growth. VCs should not be in a rush to invest,” Sudhir Sethi, founder & chairman, IDG Ventures India Advisors said at DEALSTREETASIA‘s Asia PE-VC Summit 2017.

The emergence of rupee capital, which is Indian investors investing in India, has also aided in boosting the Indian investment circuit as they are equipped with local knowledge, added Sethi.

“The number of early-stage deals is going down. Now it is more about quality than quantity. Last year, every uncle, niece & nephew had become an angel investor. It’s good that now we have more of entrepreneurs,” said Sanjay Nath, co-founder and managing partner, Blume Venture Advisors.

Talking more about the VC investment climate in the country, Sethi said, “It is a very exciting time to invest but VCs should not rush in. This strong calibrated growth is driven by the exit market becoming much more aggressive and active in M&A and IPOs. Also, Indian rupee investor has started putting in money reasonably actively through the structure which the government calls AIF (alternative investment funds).”

Exits have evolved in the last 2 years

Talking about the exit landscape in India, Sethi said, “Too much importance is given to Flipkart. It has $3 billion-plus cash, so you shouldn’t expect an IPO tomorrow morning. In India, it is not about multiple returns although blockbuster exits have happened. There are 40-50 companies in the fashion, furniture and jewellery space that can be potentially acquired.”

Abhijit Ray, co-founder and MD, Unitus Capital says the India public markets are beginning to offer an attractive exit route. “If you look globally at exits, IPOs are hardly 20-25 per cent and it is majorly M&A. However, the India market is opening up and I think it is the right time for a bigger push,” he added.

Attractive sectors in India

Nikhil Kapur, senior investment manager, GREE Ventures said, “Our LPs are mostly corporate and institutional investors. When they look at India, they see the consumer sector. There are lots of opportunities in the mass market segment like affordable housing and healthcare, and in tier 2 and tier 3 cities right now and that is what our companies are focusing on.”

How LPs’ interest has developed in the last two years
“We don’t have a challenge that the capital is not coming in. There is lot of availability of capital for domestic funds and people are interested. This was a class which nobody explored earlier as people were cautious about what is happening in the ecosystem, where is the fund getting deployed and key structure,” said Prerna Bhutani, partner, India Quotient.