Investors rekindle their love affair with start-ups

PE funding in Indian start-ups shows vigour after a lull.

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Start-ups continue to rule the roost in the private equity (PE) funding space in India for the month of January this year, accounting for the largest volume of deals. This just indicates continued investor interest in this segment.

Grant Thornton, the global consultancy and accounting firm, in its deal tracker report for January 2017, said start-ups continued to rule PE deals by reporting 18% of the total PE deal values and 44 transactions, contributing to 52% of the PE deal volumes.

Pankaj Chopda, director, Grant Thornton India, said, “Increasing customer penetration in online transactions and increasing solutions to simplify online transactions will attract interest in start-ups engaged in retail, fintech, foodtech, on-demand services and travel and logistics.”

As per Grant Thornton, the increased volume of deals for start-ups is in line with the trends of the past four years. Private equity deals recorded 4% increase in deal volumes and 23% increase in deal value in January 2018 as compared to January 2017.

Private equity funding in Indian start-ups has shown renewed vigour after a certain lull in 2016 and early part of 2017. This was largely visible among the B2C e-commerce companies, which continuously showed expanding losses while requiring huge amount of capital.

On the continued interest in start-ups by the investing community, V Balakrishnan, chairman, Exfinity Venture Partners, a private equity fund, said the investor groups in India are becoming more widespread with high net worth individuals and family offices now pursuing start-ups. “These groups have started to allocate a part of their portfolio for investing in start-ups,” he remarked.

Investors in the Indian start-up ecosystem has largely been venture capital firms and PE firms, but there has been increased interest from angel investors as well, who largely provide the seed funding.

Start-up funding in India has also started to change its focus from B2C firms to B2B companies. Manish Singhal, founding partner of Pi Ventures, said there has been a pick up in the funding of B2B start-ups with VC firms seriously looking at these firms, adding that B2B companies are more capital efficient. As per industry observers, a significant number of VCs have raised fresh funds and are keen to deploy the capital.

Balakrishnan said B2B start-ups have started to gain prominence, as there is maturity in the venture capital ecosystem in the country. “B2C start-ups have become an investment playground for the big boys club,” he remarked. This has been a trend among B2C companies, as only large PE or VC players are able to put in the capital, with a classic example being that of SoftBank.

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