The gloomy and sluggish global economy hasn’t stopped the investor community from cherry picking opportunity in the India growth story. Venture capital (VC) funding, which saw a slump in the last few years, witnessed a 38% jump in deal volumes in 2011 compared to the previous year. With technology sector leading the pack, industries like BFSI, energy, healthcare, education, food, and beverage were the top grosser of 2011.
Last year saw a strong flow of funds across sectors, mostly in growth-stage companies focusing on consumer-driven business models. According to data from Venture Intelligence, the total number of VC deals cracked during the year was 182, amounting to $998 million compared to 132 deals in 2010. IT-ITes industry saw a total of 97 deals, followed by BFSI (15), energy (14), healthcare and life sciences (13), and education (10).
Lured by immense growth potential and high-margin business model, investors sensed a serious business in the Indian e-commerce space, which dominated the funding scene last year. ?2011 can be called the year of e-commerce as far as the VC funding is concerned. This space saw several dozens of investments as well as high valuations. E-commerce will continue to be a very interesting space in 2012, but investors will look for differentiated models and valuations will certainly become more reasonable,? says Kanwaljit Singh, managing director, Helion Advisors.
According to experts, there were about 32 investments in the e-commerce space in 2011. Among the big-ticket deals in November online fashion and lifestyle retailer Fashionandyou.com raised $40 million from a group of investors led by Norwest Venture Partners and Intel Capital. Sequoia Capital India and Nokia Growth Partners also participated in the round. Group buying portal Snapdeal.com also managed to attract funding of $40 million, led by Bessemer Venture Partners, along with existing investors Nexus Venture Partners and Indo-US Venture Partners. In 2011, Snapdeal raised the most VC funding totaling up to $52 million. In June e-commerce retailer Flipkart managed to rope in $20 million from its existing investor Tiger Global. While shopping site Naaptol.com also raised $25 million from investors including New Enterprise Associates (NEA),Canaan Partners and Silicon Valley Bank.
Sanjeev Krishan, executive director, Transaction Services, PwC India, pointed out that in 2011, deal values have gone up approximately 13% owing primarily to investments in the e-commerce and the internet software and services space. ?The higher valuations in the e-commerce segment caused the increase in deal value in 2011,? he says.
With growth-stage companies attracting major funding, technology start-ups, also caught the fancy of investors last year. A study by IDG Ventures indicated that India will witness $70-75 billion of PE/VC investment between 2010-2015, nearly $10 billion of it from VC players and a large portion of that in the technology space.
Ashwin Raghuraman, vice-president, of India Innovation Fund feels, angel groups have been more active than in the past. ?Early stage funding is slowly kicking off. The maturity of the business ideas in the early space getting funding is higher and the number of entrepreneurs putting out start-ups is strong as well. The quality of technology offerings has seen a marked improvement and we are seeing more venture capital fundable ideas,? he says. Among major deals in the tech-startup space, former MindTree chairman Ashok Soota’s new venture Happiest Minds Technologies raised $45 million in its first round of funding led by private equity major Canaan Partners. Intel Capital, the global investment arm of the American chipmaker, Soota and other founders of the company also invested in the round.
2011 also saw VC investments in inclusive business models like rural BPOs. In September, Lok Capital, invested $3 million in Karnataka-based rural BPO firm RuralShores. Vishal Mehta, co-founder and partner, Lok Capital, feels that many new entrepreneurs are taking on inclusive businesses as serious career opportunities. ?Investors are also starting to think about inclusive businesses more broadly and have ventured beyond the favorite sectors like microfinance,? he says.
Going forward, investors are looking at 2012 on a high note and expects technology or technology enabled businesses to be the prime focus area for VCs. ?In 2012 venture investments in India would be further focused around areas such as internet, digital media, mobility, software based enterprise products such as SaaS based systems,? says Subrata Mitra, partner at Accel Partners.
Experts also feel that there would be higher private equity (PE) activity in 2012, due to the inactive public markets, and the high cost of debt funding. ?While in some cases, potential investors are delaying fund raising owing to the economic slowdown and the fall in consumer demand and slower capital cycles, valuations are expected to taper and create opportunities for PE funds,? says Krishan of PwC.