PE-VCs back 25 mega deals last year betting on India’s long-term story

Photo by Josh Appel on Unsplash

Even as the pandemic-induced recession in India has left a lasting scar on diverse sectors, risk capital investors did not shy away from pouring growth capital into some of the big names in the burgeoning startup ecosystem.

The country witnessed 25 big-ticket transactions (touted as mega deals) that attracted over $100-million, according to data available with research firm Venture Intelligence. The combined value of the transactions stood at $4.89 billion.

While this is a tad lower than the numbers of 2019, experts say that investments last year go on to signal fund managers’ long-term commitment to the country. In 2019, as many as 27 big-ticket transactions were clocked worth $5.79 billion.

The much-talked-about Facebook-Jio deal played a key role in reviving investors’ confidence in Indian startups in the last two quarters of 2020 even as the world was reeling under an economic crisis due to the COVID-19 pandemic. Since April 2020, Reliance Industries raised Rs 152,056 crore ($21 billion) by selling 32.97% equity stake in Jio Platforms to several investors, including Google, Facebook, Silver Lake Partners, General Atlantic, among others.

“Consumption patterns in the country were always turning digital but were forced more into the digital mediums during the lockdown. Never before had we seen people consume content (education, entertainment, gaming), staples (groceries), apparel from home at this scale,” said Skanda Jayaraman, managing director & head — Investment Banking, Spark Capital Advisors (India) Private Limited. “The forced shift in consumption patterns has accelerated an already existing trend, and the digital tech businesses at the heart of this change have benefitted immensely.”

The deal count of mega-rounds, except for 2020, had been on an upward streak since 2017, recording a historical peak of 27 by the end of 2019. Their value has, however, deteriorated from the peak of about $8.29 billion across 12 mega deals in 2017, the data showed.

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VC Investments in Indian Startups ($100M+ deals)

YearNo.of DealsAmount ($M)
2020254893.29
2019275790.88
2018247238.34
2017128292.7
201671296.94
2015164287.62
Source: Venture Intelligence
Note: VC includes: i) Seed to Series F investments in companies less than ten years old; and ii) Late Stage tech investments

The $100-million plus deals in 2020 were dominated by four sectors—education, e-commerce, logistics, and food.

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Top Sectors with VC Investments > $100M

Sector2020 ($M)2019 ($M)
Education1604.3150
E-Commerce1528.642305.81
Logistics1322.64782.58
Food1179.24355.49
Real Estate507-
Gaming225-
Healthcare210.6340.49
Source: Venture Intelligence

What’s interesting is that transactions over $100 million last year were dominated by US investors, a trend that experts say is expected to define the investment landscape over the next few years as well.

Earlier, the $100-million was a sweet spot for strategic Chinese investors such as Tencent and Alibaba, among others. “After Tiger Global’s exit from Flipkart in 2018, there was a drop in investments from the US. COVID-19 struck and then the Jio deal happened. Reliance had no Chinese investors in their cap table both in the retail and Jio businesses. They brought a whole set of new US investors,” Venture Intelligence founder Arun Natarajan said.

In the past, India was never on the radar of firms such as Silver Lake and Vista Equity Partners.

In 2020, the biggest single round of $603 million was raised by food delivery and ordering platform Zomato from investors largely from the US, including Bow Wave Capital Management, Luxor Capital, Kora Management, Mirae Asset Global Investments, Baillie Gifford, Steadview Capital, Tiger Global, and Temasek.

In the edtech space, Byju’s raised over $1 billion across four rounds in 2020 from several investors, including Tiger Global, Bond Capital, DST Global, Silver Lake, Owl Ventures, Sands Capital, and General Atlantic. Edtech was among the few sectors, which benefitted from lockdown that forced the nation to shut schools and colleges and switch to online mode of learning.

Others to have secured mega-rounds in 2020 included hospitality major OYO, Ecom Express, fantasy sports platform Dream11, used car platform Cars24, salon software Zenoti, edtech platforms Eruditus and Vedantu, media firms Glance and Dailyhunt.

Total venture capital investments in 2020 stood at $10.7 billion across 694 deals compared to $12.5 billion across 832 deals in 2019, according to the Venture Intelligence data.

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Top VC Investments in Indian Startups - $100M+ (2020)

CompanySub SectorInvestorsAmount ($M)Date
ZomatoFood Delivery ServicesBow Wave Capital Management, Luxor Capital, Kora Management, Mirae Asset Global Investments, Baillie Gifford, Steadview Capital, Tiger Global, Temasek603Aug/2020
Oyo RoomsOnline Aggregator - Budget HotelsSoftBank Corp507March/2020
Byjus ClassesE-LearningTiger Global300Jan/2020
Byjus ClassesE-LearningBond Capital, DST Global, Silver Lake299.86June/2020
Ecom ExpressLogistics Services - E-CommercePartners Group250Dec/2020
Byjus ClassesE-LearningOwl Ventures, Sands Capital, Tiger Global, General Atlantic, Others234.72Sep/2020
Dream11.comGaming - Fantasy SportsTPG Capital, Tiger Global, ChrysCapital, Others225Sep/2020
Cars24Auto Sales - Used CarsUnbound, DST Global, Others200Nov/2020
Byjus ClassesE-LearningGeneral Atlantic200Feb/2020
ZenotiSaaS - Salon & Spa ManagementSteadview Capital, Advent International, Tiger Global160Dec/2020
Source: Venture Intelligence

“As businesses adopt digital and technology not just as an enabler but embed on the business, the digital world is experiencing a transformational adoption by users ad business as digital and tech businesses like e-commerce, fintech, edtech, health-tech, etc are experiencing growth and hence, backing of PE and VC investors,” Grant Thornton India partner Raja Lahiri said.

Absence of Chinese capital

Going forward, Indian companies would largely have to depend on US companies for growth capital with India amending its foreign direct investment policy (FDI), making it difficult for Chinese investors to write new cheques.

Take the case of Zomato. The foodtech unicorn had received a capital commitment of $150 million from existing backer China’s Ant Financial in January last year but could only receive $50 million.

Meanwhile, Alibaba, which has invested over $2 billion in Indian startups since 2015, has also reportedly put a freeze on its investments in the country.

“With Chinese investors no longer around, India will have fewer options. Internal rounds that keep on pumping up the valuation of a company make the LPs nervous. It’s like overvaluing own company,” Natarajan said.

Retying with US investors

Post ban on fresh Chinese investments, a slew of new players outside Tiger and others are entering the country. These include names such as Bow Wave Capital Management, Luxor Capital, Kora Management, Bond Capital, Silver Lake, and Owl Ventures.

This shows how US-based funds across categories such as hedges, late-stage VCs, family offices, buyouts, late-stage growth and even special purpose acquisition companies, are increasingly looking to occupy the space vacated by Chinese investors.

However, the road is not devoid of challenges – Too much dependency on US capital may also pose risks to Indian startups if US markets sink, said experts.

However, Indian companies don’t have an alternative source right now with an ‘unsaid’ halt on Chinese investors. Besides, startups can’t keep going back to the same set of investors because they will also eventually run out of the cap limit that fund managers have set per company, added experts.

“If US market collapses for whatever reasons, the effects will be seen here too. If Silicon Valley freezes, automatically it will lead to drying up of capital for such deals for no fault of Indian companies,” Natarajan said.

VC strategy in 2021

This year, VC investors are expected to put more emphasis on reducing their cash flow and on providing clear paths to profitability.

“Of course, the pandemic continues and as the Indian and global economy struggles with de-growth, corporates will continue to face challenges around growth and profitability this year. However, as businesses will need to move to digital mediums, new investments are expected in digital, technology products and platforms that is expected to trigger robust deal-making in 2021,” Lahiri said.

While 2020 performed above expectations for fund managers, risks seem to outweigh the rewards right now in terms of how the public markets are positioned.

“Markets are priced to perfection, largely driven by the US. There has also been a change in the political economy of the US. If things stay steady and the bubble doesn’t build up further, I would be happy for the year. If there’s a correction in the public markets, it will quickly translate into exits going into freeze for PE investors who have bet very big on some of these companies,” Natarajan said.

The biggest challenge for most companies would be to realistically assess the long-term impact of the pandemic (positive or negative) on their business and set expectations accordingly for themselves and the stakeholders.

Deals in pipeline

“I do see cross-border and inbound deals to be moderated as overseas corporates will be cautious and see much more due diligence before M&A and new investments are made. Clearly, US investors and corporates are expected to play more active role in deals from India especially in sectors like technology, healthcare as well as financial services, payments and fintech,” Lahiri said.

A couple of $100-million plus deals are in the pipeline. While Byju’s is reportedly looking to raising $200 million from American investment firms BlackRock and T. Rowe Price, Vedantu is said to be in talks with private equity major KKR along with existing investors Tiger Global and GGV Capital to raise $100 million in fresh funding. Meanwhile, Indian content-sharing platform ShareChat is reportedly in advanced discussions to raise about $200 million from tech giant Google, SnapChat’s parent Snap Inc, and existing investors including Twitter.

“2021 is expected to continue the trend seen in 2020, with a lot more money coming into stories which capture the shift from offline to online across all categories. However, there is also a counter view that the global liquidity surge may not continue for too long (given the hyper-inflated valuations across all asset classes) and that a correction could be due. Should that happen anytime in 2021, we will see a temporary pause in the music,” Jayaraman said.

 

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.