Early-stage dealmaking in India’s venture capital market closed on a subdued note last year as investors continued to struggle to shore up returns from legacy portfolios. Overall, venture capital investors concluded 351 deals worth $1.3 billion in 2017, down 27% in terms of volume and 18.7% in terms of value from the previous year, according to data compiled by Chennai-based researcher Venture Intelligence. Investors remain under pressure to generate returns on past investments and that will impact the pace of dealmaking for at least the next couple of quarters.
Still, there’s a fair bit of dry powder available for fresh investments in the early-stage market. Legacy venture capital firms such as Accel, Sequoia Capital and SAIF Partners are currently investing from recently raised India-specific funds. In addition, a bunch of smaller home-grown venture capital firms have entered the market over the past 18 months with first-time funds that are slowly beginning to make their presence felt.
A quick look at some of the early stage dealmakers to watch this year.
1. Fireside Ventures
Bengaluru-based Fireside Ventures, founded last year by former Helion Venture Partners managing partner Kanwaljit Singh, is the only venture capital firm in the country that invests almost exclusively in bricks-and-mortar start-ups that address local consumer markets. Singh, who spent the first 10 years of his career at packaged consumer goods giant Hindustan Unilever Ltd before becoming a venture capitalist, believes that the local market has started to change in favour of home-grown consumer brands and there are more than enough investment opportunities out there for early-stage investors. He’s in the final stages of raising a Rs300 crore ($45 million) fund that is targeting investments in sectors such as food and beverages, personal care and home products. The fund has already invested in start-ups such as baby care products maker MamaEarth and male grooming products maker Bombay Shaving Co. Singh is a bit of a pioneer when it comes to investing in such start-ups. He followed a similar strategy at Helion before quitting the firm more than three years ago over differences with his co-founders on investment strategies. His recent bets have started to draw the attention of other venture capital firms that had sworn off bricks-and-mortar investments about two year ago. But after taking a beating on their consumer internet investments, suddenly bricks-and-mortar start-ups are beginning to look interesting all over again.
2. Sequoia Capital India
Mumbai-based Sequoia Capital India is always a dealmaker to watch in this market, especially now that it is in the middle of deploying a $920-million fund raised just under two years ago. The firm has opted for a slower pace of dealmaking since it raised the fund, its fifth and largest for this market, and closed last year with 21 deals, slightly lower than the 25 it closed in the previous year. The deal run from last year had its fair share of early-stage technology investments. For instance, it led a $11.5 million Series B round in online learning platform Unacademy in September and a $10 million Series B round in recruitment solutions start-up Belong in February. But the firm’s bets on non-technology or bricks-and-mortar businesses stands out. The deal run includes math tutoring start-up Cuemath, bottled juice retailer Raw Pressery, shared office service provider Awfis, LED lighting products maker iBahn, and life sciences companies MedGenome and OncoStem. This year, according to people close to the firm, it plans to continue to be more prolific with its non-technology bets. Technology investments aren’t off the table but they are more likely to be led from Sequoia’s Singapore office where managing director Shailendra Singh holds fort.
3. Aavishkaar-Intellecap Group
Last year was an eventful one for Mumbai-based impact investor Aavishkaar-Intellecap Group. Early in January, the group, which consists of multiple businesses from venture capital funds to investment banking to venture debt, consolidated all its businesses under a holding company that now operates as the single entry point for institutional investors interested in investing in the group’s businesses. Shortly after the consolidation, the group raised $25 million in equity funding from Triodos Bank’s Triodos Investment Management and Shell Foundation. The venture capital arm, Aavishkaar Venture Management Services, is currently on the road to raise a $200 million fund, the largest ever raised for this market. It has already raised commitments worth $95 million from domestic and overseas institutional investors. With more money at its disposal, Aavishkaar, which pioneered the impact venture capital asset class in India, will now have the flexibility to also invest in late-stage start-ups in sectors such as waste management and financial services. Early-stage start-ups, Aavishkaar founder Vineet Rai told Mint in November, will continue to be a big focus.
4. IAN Fund
Last year, Delhi-based Indian Angel Network (IAN), the country’s oldest and largest organized angel network, formally entered the venture capital business with its debut $55 million IAN Fund. The fund raised commitments worth about $27 million in April last year and is currently on the road to tie up the rest. When IAN started up back in 2006, angel investing barely existed in India and venture capital was just beginning to take root. The angel network has grown since then to 450 members—high-net-worth individuals (HNIs) that invest their personal capital through the network—and a portfolio of more than 120 investee companies. The expansion into venture capital is in some ways a natural step forward. Given the large and growing base of HNIs within its network, access to capital shouldn’t be a constraint. Further, the fund gives the angel network the flexibility to participate in larger deals at the Series A stage. Given the acute shortage of capital that currently exists at the seed and Series A stage, the IAN Fund could play an important role in plugging that gap to some extent.
5. SAIF Partners
SAIF Partners, the Delhi based firm that invests in early- and later-stage companies, raised a new $350 million fund in the middle of last year. The firm plans to deploy the fresh resources across multiple sectors including consumer internet, education, healthcare and consumer brands. While the firm has outlined plans to invest 15-20% of the new fund in listed companies, early-stage and later-stage start-ups will continue to be a major focus for SAIF. The firm is coming off an extremely successful year in terms of exits. Last year, it harvested a reported $400 million from the partial sale of its stake in One97 Communications Pvt. Ltd, the company that owns payments platform Paytm, to Japan’s SoftBank Group Corp. Earlier it sold its remaining stake in Nasdaq-listed online travel company MakeMyTrip Ltd. Overall, the firm is reported to have made a total of $400 million over the years on its estimated original investment of $25 million. The exit run should translate into a more-than-decent pace of dealmaking for the firm this year.
Apart from conventional venture capital firms, the other big dealmaker to watch this year (no surprise) will be SoftBank. The Japanese telecom and internet conglomerate typically invests in later-stage companies and has so far steered clear of the early-stage market. Last year, it put more than $4 billion to work in India, snapping up stakes in market leaders such as Flipkart and Paytm. However, SoftBank’s investment run, which is expected to continue into this year, will have a bearing on the early-stage market. More than a few legacy venture capital firms are hoping to book profitable exits from the sale of their stakes in portfolio companies to SoftBank. For their sake, hopefully SoftBank plans to continue with its shopping spree.
Snigdha Sengupta is a consulting writer with Mint. She contributes stories on venture capital and private equity.