Besides large venture capital funds like Prosus Ventures, Tiger Global and SoftBank that have made big bets on a bunch of local start-ups, many institutional investors and pension funds are investing in online businesses.
Investors infused a whopping $4.4 billion into Indian start-ups in the January-March quarter, according to data sourced from market research firm Venture Intelligence. This is a decent 26% increase over the same period last year. Firms had last raised $4.1 billion in funding in Q4 2019 calendar year and $4.2 billion in Q3 2018, the data showed. The momentum continued well into April with as many as six companies joining the ranks of the unicorn in a week after collectively bagging fresh funding worth about $1.5 billion. Barely four months into the current calendar year and the sector has already birthed 10 unicorns, with the pandemic-led digital push continuing to support tech businesses and a clutch of ‘soonicorns’ in the queue. Industry experts estimate more start-ups to attain a valuation of $1 billion and beyond. The segment added a total of about 11 unicorns in 2020, nine in 2019 and eight in 2018.
As more consumers across the country signed up for digital services adding significantly to companies’ user base, it became relatively easy for start-ups with bankable businesses to get investor backing. The spate of investments is also due to availability of a wider pool of capital.
Besides large venture capital funds like Prosus Ventures, Tiger Global and SoftBank that have made big bets on a bunch of local start-ups, many institutional investors and pension funds are investing in online businesses. Today, there is even money coming in from LPs or Limited Partners including domestic family offices to domestic venture funds. Also, emergence of micro VCs is “making it easy for pedigreed, seasoned and new emerging hot founders to access capital easily,” says Sajith Pai, director at Blume Ventures. PN Sudarshan, partner at Deloitte India points out that with big conglomerates, both global and domestic, are now willing to make significant stake purchases in established start-ups, investors have lucrative exit options, a route which was earlier not visible, thereby restricting risk appetite. “The resurgence of SPACs (special purpose acquisition companies) giving start-ups an opportunity for alternate listing has also added to the investor interest in startups,” adds Sudarshan.
Analysts estimate companies operating in the health tech space to get a sizeable share of funding this year. Some segments of the sector has grown by as much as six times amid the pandemic, says Aryaman Tandon, managing partner and co-founder at Praxis Global Alliance. Generally, smaller sub-segments like teleconsultation, hyperlocal deliveries will be in demand and see broader growth.
Many internet companies will use the funds to expand globally, especially in the Middle-East, Australia, South East Asia and South Asian markets. Tandon points out that once companies are able to scale up their operations in the top 20-30 Indian cities, the opportunities for growth get restricted. “After the top 50 cities, where do you go? In the remaining pockets, the growth will be comparatively slow,” explains Tandon.
Even as access to funding gets easier, start-ups will need to play the cards right to stave off competition. Jio is going aggressive on all categories and the Tatas are willing to make aggressive bets. For instance, companies should be able to build strong omni-channel businesses like Lenskart has done, say analysts. To support business growth, firms will also need to focus on establishing sound back-end operations, says Sudarshan.