VCs with long-term view & domain expertise step in
A new set of global venture capital investors armed with deep pockets and a longterm view of the market is stepping up to back Indian Internet companies at a time those who poured money into the sector in recent years are slowing down the pace of investments.
New York-based Stripes Group and Thrive Capital, and Sands Capital from Virginia, US, are among those taking a bet on a slew of companies such as ticketing platform BookMyShow, healthcare technology venture Practo and grocery portal Bigbasket.
These funds with their unhurried investment style, deep domain expertise and focus on minute due diligence are introducing a strikingly different flavor to the Indian startup sector, accustomed to the frenetic pace of investments led by investment firms such as Tiger Global, hedge funds and strategic investors like Japan’s SoftBank.
Take, for instance, the recent 550-crore invest` meant in BookMyShow led by Stripes Group. The deal was two years in the ma king with talks advancing in the final six months. “This was not a deal which happened with a gun to everyone’s head,“ said Dan Marriott, managing partner at Stripes Group. The New York-based investment firm manages a corpus of $1.2 billion and has backed companies like online meal kits provider Blue Apron and education technology company Udemy. Stripes has looked at a number of businesses in India, and currently has three people evaluating opportunities here.
According to Marriott, discussions with BookMyShow started when the market “was very hot“, but although “things have cooled down, it didn’t change our conviction on the company“, he said.
Sands Capital, which focuses on “concentrated growth” investments over the long term, has over $47 billion under management. Entrepreneurs who have engaged with the firm say metrics sought for evaluation include NPS (Net Promoter Score, a measure of customer satisfaction), while the firm also commissions’ independent surveys of customers. “We haven’t come across any investor (seeking) such deep analysis of the sector and company,” said an entrepreneur whose company has been evaluated by the firm twice in the past four months.
”We are still engaging with them, since they take their time before making bets,” he added.
Sands Capital has also evaluated an investment in India’s most valuable startup Flipkart. Its venture arm is also an investor in logistics player Opinio. In the US, the firm has backed startup unicorns such as Lending Club, AppDynamics and DocuSign.
The entry of this new breed of investors is filling a yawning gap in the market for growth capital, which has grown acute this year, as firms that closed mega rounds beat a retreat. Venture capital investment dropped to $1 billion in the first half of 2016 compared with $2.85 billion invested during the same period last year.The number of deals also fell by 35% to 183, according to data from risk capital data monitoring service NewsCorp VCCEdge.
“Hedge funds were a large set of investors 18 months back, and they are no longer present. They were looking at an opportunistic game with valuations going up rapidly ,“ said Vipul Parikh, cofounder at Bigbasket, which raised a $150-million round earlier this year from investors including Sands Capital and Abraaj Capital.
Domain expertise is the other attribute these new funds are bringing to the table. HBM Healthcare Partners, which recently backed online pharmacy 1mg, is a case in point.
Earlier this month, ET reported that Bengaluru-based Practo is in talks with Thrive Capital for a new round of funding. The deal will be the first India investment for the firm founded by Joshua Kushner. The 31-year-old Harvard graduate had earlier set up technologyenabled health insurance company Oscar.
Stripe Group’s Marriott was a member of the board of Nasdaq-listed Ticket master, and also led corporate strategy and development for the firm.
“We didn’t have any thematic or macro focus on India, but we just found a great business which happens to be in India,“ said Marriott.
Industry experts believe the entry of these conservative but committed funds into India will act as a shot in the arm for a sector where skyhigh valuations have driven away several investors.
“Now, larger private equity investors, who were on the sidelines, and later-stage tech investors, who have been missing in India, will start to pay more attention as the market matures and valuations become sensible,“ added Parikh of Bigbasket, which has held talks with hedge funds but consciously decided to go for a PE firm when raising capital.
The entry of long-term investors is also expected to help drive more modest and sustainable valuations for Internet companies.
For instance, when Practo raised its last round of financing, its valuation jumped over three times to over $500 million. But in the current round it is likely to be around $600 million, a more modest but significant upside given the current environment.
“The number of investors coming in are fewer, and they are more seasoned players who will do 1-2 deals and not pepper the market with 8-10 deals like the last time around,“ said Niren Shah, managing director at Norwest Venture Partners, which has backed companies such as furniture retailer Pepperfry and online travel portal Yatra.
Source : The Economic Times (Delhi)