Early-round funding in startups almost doubles in 2 yrs; Chinese lead

The push is coming from the fact that there are far more established entrepreneurs in India today hitting the next venture button then five years ago

Start-ups have seen the size of early-stage funding rounds almost double in the past two years because of increased foreign capital in the system, growing traction of established entrepreneurs, and evolved technology being used across sectors to grow companies faster, bigger and better.

Roopa Kudva, managing director with impact investor Omidyar Network India, says there are a lot more Chinese funds chasing companies today. That includes Fosun RZ Capital, CDH Investments, GGV Capital, Tencent Shunwei Capital, and Morningside Venture Capital.

According to market research by Tracxn, which tracks start-ups and funding, India saw investments of about $1.31 billion till November in calendar year 2019, up from just $65 million in 2017.  “The other driver is that as the landscape has evolved, investors have become much more focused on unit economics, monetisation, and profitability than five years ago, when it was just growth that was chased,” Kudva adds.

Archana Hingorani, managing partner with early-stage venture fund Siana Capital, says that it’s clear that funding rounds have grown in value over the last couple years. “My sense is that two things are happening. It’s no longer just about fintech plays for VCs and investors. The second is there is a need across the board for any business model to improve with the incorporation of technology and that doesn’t matter how you define it whether it is software, AI, or machine learning. Take healthcare, for example, everything on it is being overhauled as we speak, and that leads to a large appetite for capital.”

For instance, Omidyar invested in Healofy, a pregnancy and parenting app that caters to people in regional languages, and just announced another investment in Axio, a medtech venture that uses military-grade technology to stop bleeding immediately.

The other push is coming from the fact that there are far more established entrepreneurs in India today who are looking to start the next venture than five years ago. Examples include Freecharge Chairman Kunal Shah, who started CRED; former Myntra Founder Mukesh Bansal, who started Cure.fit; former Ibibo founder Ashish Kashyap, who started INDwealth; and, Sachin Bhatia, the former co-founder of MakeMyTrip, who co-started Bulbul.tv.

“Once an entrepreneur has had a track record of success, it automatically allows for the next venture to be capitalised and funded at higher levels,” Kudva said.

In addition, while several ventures backed by private equity (PEs) and VCs earlier were copycats of international businesses — including Flipkart and Ola — today the model is about looking to build businesses that solve India-specific problems.

For example, RailYatri, an indian travel marketplace site, provides information on which platform is crowded, what the chances are of a ticket being confirmed.

Sandeep Murthy, partner with venture capital firm Lightbox, which backed Bombay Shirt Company, and Rebel Foods, says that the trend isn’t limited to India. “I would argue that it’s a trend globally and is because of a mix of things,” he says. “What a company used to need has all gone up: cost of customer acquisitions, cost of efficiencies in technologies, and the cost of managerial talent.” The cost of a product head that was Rs 50 lakh three years ago is now between Rs 70-80 lakh.

“The start-up ecosystem has matured and there is a sense of confidence and I’d even go so far as to say that we may not all know it yet, but are in transition from the large older business houses to newer-age tech-driven ventures of tomorrow.”