Start-ups are back on venture capital investors’ radar once again. A scrutiny of recent VC deals indicates how start-up businesses are becoming the new playing ground in the VC space. Here’s the lowdown: 93 deals worth $510.98 million already between January to July 13, compared to 69 deals worth $282.21 million in the corresponding period in 2010. As per VCCEdge data, total investments in start-ups in 2010 were 147 deals worth $728.52 million.
And, the story has moved on from just e-commerce to consumer discretionary, consumer staples, financials, healthcare, industrials, telecommunication services and utilities and more. Even though information technology is still taking the lead with the maximum?34 deals worth $164.26 million contributing 36.56% of the total investment in the start-up space?others too are finding investors, reveals VCCEdge data. Consumer discretionary clocked 21.51% of the investment kitty with 20 deals amounting to $125.81 million, and industrials managed 11.83% of the investment pie with 11 deals worth $41.28 million in 2011.
Sanjeev Bhalla, founder indiape.com, says this form of VC funding hints at a maturing market. He explains that historically, Indian entrepreneurs relied on family and friends for seed funding and at times entrepreneurship in exotic sectors emerged from the affluent class. But this trend has changed now and first-generation entrepreneurs are getting help from VC funds. ?With the Indian entrepreneur getting innovative, VC funds are lately feeling more optimistic and confident in investing into various start-ups across sectors,? he feels.
The sentiment is echoed by Darius Pandole, partner, New Silk Route Advisors, who feels segmentation of the VC market in India into various stages like angel, start-up or early stage investing is a sign that the Indian market for venture funding is maturing.
He says a resurgent Indian economy has spurred entrepreneurship by providing opportunities in newer sectors, whilst at the same time increasing the risk-taking ability and confidence of Indians. This has led to a significant increase in start-up businesses and unprecedented opportunities for risk capital in all forms. Pandole explains, ?Investments in start-ups involves a radically different mind set, orientation and skill base than investments in growth capital. Typically investments in start-ups have a much greater degree of volatility and are undertaken with a much higher risk-return threshold than growth capital investments that are made in relatively more stable, established companies. Business segments like social media, consumer services, mobile offerings, etc, that are targeted to the growing mass of upwardly mobile Indians are all segments receiving substantial capital infusion.?
In January, New Silk Route Advisors, along with Bessemer Venture Partners India, Argonaut Ventures LLC, invested $50 million in Kiran Energy Solar Power Pvt Ltd.
The biggest start-up deal of 2011 in the IT space so far happened in February?the $20-million investment by Avalon Ventures, Silicon Valley Bank, Nexus India Capital Advisors and Intel Capital in Kaltura Inc, an online video platform provider.
Sudheer Kuppam, managing director, India and south-east Asia, Intel Capital, says Intel is bullish about the long-term opportunity in India. ?We are seeing an e-commerce boom in India with rising Internet penetration and access to 3G devices and consequently new e-commerce and other website ventures. These ventures can be attractive investment opportunities for VC firms looking to profit from the growth of e-commerce in India.? Intel in 2011 has invested across sectors in the start-up space, the latest being in SSARSC (Sudhir Srivastava Robotic Surgery Centre), a provider of advanced robotic surgery procedures. Other investments include PolicyBazaar, an online insurance comparison site that assists customers in making informed decisions about insurance purchase, and follow-on investments in mobile media company July Systems and in online travel company Yatra.com.
Future areas of interest include education, healthcare, medical technology, mobile technology and consumer Internet, etc.
And though experts say investments in start-ups are likely to grow exponentially, this is not without a rider.