Consolidation should kick in as the market leaders grow: Subrata Mitra

Interview with Partner, Accel Partners

US-based venture capital (VC) firm Accel Partners has been active in India through a couple of India-dedicated funds. Accel has invested in a number of leading e-commerce firms in India such as Flipkart, BookMyShow, CommonFloor, Freshdesk, Letsbuy and HolidayIQ. It is expanding its India presence after raising $305 million for its new fund, Accel India IV. Subrata Mitra, partner at Accel Partners, speaks to Reghu Balakrishnan on the rationale behind large fund-raising. Edited excerpts:

Accel Partners has raised small India-dedicated funds in the past. What’s the rationale behind raising a large venture capital fund for investments in India?

Previous fund sizes were $10, $60 and $155 million. So, we’ve done bigger jumps in the past. I would call it more natural evolution, in terms of size.

Fund size increase is based on several factors such as seed and series A valuation changes between 2011 and now, amount of reserves per new investment, and number of companies we want to invest into from portfolio construction perspective etc.

What’s the fund about? Will the investment size be increased?

This will be quite similar to our past investment strategy — areas of commerce, global SaaS (Software as a Service) and healthcare — all tech-driven companies. Seed investments can be as small as $500,000. With a few much larger checks for later-stage companies, but same sectors, we don’t see much change in size.

What are the potential of start-up investments in India? What’s the success rate?

Historically, we’ve done quite well investing in early-stage tech companies. Obviously, large outcomes such as Flipkart and Myntra weigh in, but we have done quite well across the board. We choose companies after finding the best teams working on areas that we think can scale in a non-linear fashion.

There have been quite a few seed/angel investments. However, Series A funding is yet to pick up proportionately. Why is it so?

Series A and B still have issues, but good companies get funded in most cases. There’s some imbalance, but not big enough to be alarmed.

What about your existing investments and exits in India?

The previous three funds have been good.

Exits are still a concern, but it looks like the growth characteristics are getting stronger. Consolidation should kick in as the market leaders grow and build-versus-buy becomes an easier decision.