Venture capital investors plan $2 billion new funds for Indian startups

By Snigdha Sengupta & Madhav Chanchani

MUMBAI: Venture capital investors are on the road to raise nearly $2 billion, or about Rs12,400 crore, in new funds this year to power the next generation of emerging businesses in India’s booming startup sector.

Top-rung investors such as Accel Partners, Kalaari Capital and SAIF Partners — who recently scored rich returns on consumer Internet ventures such as Flipkart and fund-raising momentum that By Snigdha Sengupta & Madhav Chanchani

MUMBAI: Venture capital investors are on the road to raise nearly $2 billion, or about Rs12,400 crore, in new funds this year to power the next generation of emerging businesses in India’s booming startup sector.

Top-rung investors such as Accel Partners, Kalaari Capital and SAIF Partners — who recently scored rich returns on consumer Internet ventures such as Flipkart and fund-raising momentum that that continues from 2014 when venture funds raised over $1 billion for Indian startups.

The uptrend in fund-raising levels indicates a return of confidence in Indian startups among overseas investors, typically pension trusts, corporate endowments and financial institutions who invest in such funds. “We’re seeing a rekindling of interest in the Indian market in the past 6-8 months,” said Karthik Reddy, managing partner at Blume Ventures, a Mumbai-based seed stage investor. “Exits remain a concern among limited partners (investors in venture capital funds),” he said.

More Than 1,200 New Ventures in 2014

“But they seem optimistic that the path to these exits is being built,” he added. India is in the middle of an unprecedented startup boom with more than 1,200 new ventures coming up across the country in 2014. The success of online retailers such as Flipkart and Snapdeal, along with rapid growth in internet usage and mobile and online shopping, has made the Indian startup space a preferred one for investors across the world.

Accel Partners, which manages $230 million in India-focused capital, plans to raise $250-275 million for its fourth India fund.

Accel Partners, which manages $230 million in India-focused capital, plans to raise $250-275 million for its fourth India fund. “In the new fund, the investment outlay for each company may go up to $10 million against $5-6 million now,” said Prashanth Prakash, partner at Bangalore-based Accel Partners India, an early investor in companies such as Flipkart, Commonfloor and Perfint.

Another Bangalore-based early stage investor, Kalaari Capital, plans to raise $200-250 million. While managing director Rajesh Raju declined comment on the fund corpus, he said, “We will be in the market this year to raise the next fund. But we will not be under pressure like we were in 2011.” One reason for his confidence is that Kalaari has stakes in toprung ecommerce companies Snapdeal and Flipkart (after portfolio company Myntra merged with it).

Industry sources said that the firm has been getting good traction on its new fund after it returned capital to its investors from partial exits from the two ecommerce giants. Delhi-headquartered SAIF Partners, which invests in early and growth stage companies, plans a $300-350 million second India fund. “We are still investing from our current fund. The new fund has been committed and will be announced in due course,” said a company insider with direct knowledge of the development.

SAIF declined comment on the proposed new fund. Some of its key deals include online classifieds and search platform Justdial and ticketing portal BookMyShow. The ongoing fundraising campaign is not restricted to top-rung investors. Smaller players such as Blume Ventures, India Quotient, IvyCap Ventures and KAE Capital are also in the market to raise their second India funds.

Mumbai-based Blume Ventures, which targets pre-revenue stage startups, is on the road to raise $60 million, while India Quotient, as reported earlier by ET, is raising $24.3 million and KAE Capital is in the market for a $50-60 million fund. IvyCap Ventures is raising a $150-million second fund and plans a $40-million initial close in June.

“Some of our existing investors have already committed to the new fund,” said Ivy-Cap managing partner Vikram Gupta. These funds are being joined by social sector-focused investors Elevar Equity, Lok Capital and Aavishkaar. Mumbai-based Aavishkaar, which pioneered social sector investing in India, is raising $400 million across two separate funds, one of which will invest in overseas startups.

Delhi-based Lok Capital is raising a $100-million second fund, of which $45 million is expected by June. Elevar Equity is raising a $125-million fund, dubbed Elevar Equity III, and has already received commitments worth $34 million from investors, according to a December filing with the US Securities and Exchange Commission.

The firm, which has invested in companies such as SKS MicrofinanceBSE 1.35 %, Comat Technologies, and Ujjivan Microfinance, has had a quiet year in terms of dealmaking in 2014. It plans to get more active this year. It is in the process of partially exiting Ujjivan, which is raising Rs 600 crore from a group of investors including CDC Group and CX Partners.

“Nearly 80% of our investments from the current fund are seed. We will continue with that strategy in the new fund,” said Prakash of Accel, which typically invests $1 million at the seed stage. Like Accel, several large investors such as Sequoia Capital, Mayfield Fund, Matrix Partners, SAIF Partners and Nexus Venture Partners, have been targeting seed stage startups in the pursuit of more attractive entry valuations.

Overall investments hit an alltime high of $2.1 billion in 2014, nearly 50% more than the previous year, and the momentum is expected to continue this year, both in seed and mature companies.

Source : ET

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Author:

Neeraj; an entrepreneur & a visionary in the field of Railway, Defense & Automobiles, is a graduate in commerce and a Harvard Business School Alumni. He’s an expert in govt. liasoning & contracting and has an exceptional network & connections at both local as well as global level. He’s an expert in Market Strategy & Planning and has served number of overseas companies as an advisor/consultant. He takes a profound interest in upcoming startups & is very receptive towards ground-breaking ideas & innovations. He likes to brainstorm those ideas and if the values & philosophies matches; he is even ready to invest his resources, serve as a mentor or act as an incubator to futuristic businesses.

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