MUMBAI: Risk capital investments in India in
the first half of this year have surpassed the money inflow in all of 2014,
setting the stage for another record funding year as global interest in
domestic technology startups peaks.
But the frenetic pace of dealmaking, on the
back of increasing smartphone adoption and Internet penetration, is also
dragging down funding benchmarks as investors jostle to place bets on the next
potential UnicornBSE 0.00 % — industry jargon for a billion-dollar valuation
firm.
Venture capital investors funnelled Rs 15,600
crore, or $2.46 billion, into Indian startups this year till June 26, compared
with Rs 14,850 crore, or $2.34 billion, in 2014. They closed 197 deals between
January and now, as against 297 last year, at significantly higher average deal
sizes, show data from financial research firm VCCEdge.
"We have just seen a cycle where people
are very excited to invest in India Internet, especially mobile, which has
unprecedented availability of capital," said Shailendra Singh, managing
director at venture capital firm Sequoia Capital India.
"Even for most parts of the world, so
much capital has never been available, where a $50-million round is impressive
but not surprising. Five years ago, it was a rare event."The expanding
deal sizes are driven by the increasing competition in emerging high-demand
segments such as local services, online budget stays, food technology and
express delivery, where at least half-a-dozen startups are getting venture
funded in hopes of becoming market leaders.
"The biggest hope is that you raise so
much money that the competition goes out of business, but then you need to grow
at a higher pace of over 100% to raise these rounds," said a venture capital
investor on condition of anonymity. Entrepreneurs say their aggressive capital
raise is a function of the scale they are chasing. For online food delivery
application Swiggy, its number of orders has grown 25 times between January and
May, reaching more than 2,000 orders a day earlier this month. It plans to
expand to 12 cities by the end of this year.
"Hyper-local deliveries are largely a
city-centric concept and no one has expanded beyond 5-10 neighbourhoods or a
city, let alone go across double-digit number of cities in one year. In order
not to slow down and continue to scale, fundraising continues to be
necessary," said Swiggy's CEO Sriharsha Majety. The Bengaluru-based
company raised two successive funding rounds in less than seven months, Rs 12 crore
and then Rs 105 crore earlier this month.
Entry valuations have surged
Overall, 60 technology startups have raised VC
funds twice or more in the past 12 months, according to startup research firm
Tracxn. With these segments becoming essential components of an investor's
checklist, the entry valuations of early-stage consumer Internet and mobile
companies have surged 2-4 times in the past two years. Companies offering
software-as-a-service solutions have seen relatively moderate valuation
increases of 30-50%.At later stages, this is being driven by the rising
valuation of US and Chinese companies such as Uber ($41 billion — online cabs),
Instacart ($2 billion — grocery delivery) and Blue Apron ($2 billion —
ready-to-cook meals).
"What has changed is that the valuation
of global comparables of Indian startups have increased significantly over the
last year," said Mohan Kumar, executive director of Norwest Venture
Partners India. As a result, the size of the first major institutional
investment in a startup, a series-A deal, has increased from $2-3 million to
$5-10 million, even as revenue and growth targets a startup needs to achieve to
reach this stage have dropped. "Even companies which have 15,000 (mobile
application) downloads are getting series A, and 100,000
downloads are getting series B. Earlier, 100,000 was the bare minimum benchmark
for a series A," said a venture capitalist with a seed-stage investment
firm.
Citation from Economic Times : http://goo.gl/hjLMbK
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