Accel India venture fund to close 25 deals in four years

Accel India venture fund has closed its third venture fund worth $60 million to invest in seed and early stage opportunities in India. The venture fund, which was formed after Accel merged with Google-backed Erasmic in July 2008, will invest these funds in 25 to 30 early stage companies over the next 3 to 4 years, said Prasanth Prakash, partner at Bangalore-based Accel India venture partners.

However, Prakash believes that there may not be any fund-raising for at least the next one year because of the challenging liquidity environment. “The environment is extremely challenging right now to raise funds. In fact, our last fund saw more of high networth investors or angel investors (as they are called in the West) across Europe, Asia and the US apart from Google. However, this fund has attracted the top institutional investors. Institutional money tends to be more long-term in nature. We feel that good funds are built by institutional investors,” said Prakash.

Several major funds that have raised money recently include Clearstone, Nexus India Capital, Helion Ventures, Matrix Partners. However, these funds are growth funds and usually invest in publicly listed companies or bigger private companies.

“We are telling our portfolio companies that they should compromise a little bit of growth to make sure that they have enough money to last their business model," said Prakash. Companies typically raise early stage or seed funding, then try to "prove" some aspects of their business model and subsequently raise more money from other funds.

However, seed funding has not picked up in India, the way it has in the West and Accel India is one of the first few funds of this kind.

Typically, Accel will invest $ 200,000 to $ 500,000 in companies and stay invested for more than 5 years. Accel India is not even thinking about exits right now, especially in the case of companies that Erasmic had invested in.

Typically, in India, the track record of exits is weighed in favour of mergers and acquisitions and initial public offers (IPOs). We will stay invested in our portfolio companies for 5 to 6 years. In some cases, we have invested in companies for 2-3 years and we feel that the market conditions will improve in that much time," said Prakash..

Accel has invested in 20 companies in India so far through the last two funds. Some of the companies that Accel has invested in India include Myntra, Cnergyis, Dovetail and Kirusa among others. The fund will be managed by Mahendran Balachandran, Gagan Kumar, Subrata Mitra and Prashanth Prakash.

Accel is bullish on technology, technology-enabled services, internet, mobile, media, life sciences, consumer products, services and other high growth sectors of the Indian economy.