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“Show Me The Money”: India’s Big Promise to VCs

According to CBInsights, there are seven Indian startups are already valued at more than $1 billion. If you include Micromax, Mu Sigma, and InMobi, the number would be ten. Merely 2 years ago, there were only five unicorns.

It won’t be long before large exits confirm India’s ability to deliver meaningful returns to startup investors. There have been more than sixty mergers and acquisitions in India’s tech sector worth more than $800 million in just 2015. Indian IPOs increased nine times in 2015. Also in 2015, “21 IPOs were launched on the BSE, the Bombay Stock Exchange, compared with five in 2014, the highest number since 2011, when 37 IPOs were launched.” Sure they weren’t tech startups but it shows that the domestic appetite for IPOs is on the rise – something, tech startups are very excited about.

While many Indian startups may not take the typical path to an IPO, the opportunities for exits are real and more options continue to emerge. Here are a few of these promising signs for Indian startups and investors.

IPO Me, Please

In September, the Securities and Exchange Board of India (SEBI) approved e-commerce firm Infibeam’s plan to sell US $68 million in shares. Infibeam was India’s first e-commerce IPO in March 2016, clearing the way for future e-commerce companies. Snapdeal hopes to go public in India within the next few years. It was valued at nearly $5 billion last year, and has said it is likely to IPO in India rather than on a foreign exchange. Flipkart is, also, likely to IPO in the next few years, although rumors of a merger between Amazon India and Flipkart keep making rounds. Other tech unicorns like PayTM, MuSigma, Micromax may also entertain IPOs either in India or in the US. As they go public, they will act as proxies for the broader digital startup sector where many larger investors can’t easily participate.

Acquisitions and Investments by Major Players

India’s major startups are spending significant amounts of money to round out their portfolios as they prepare for their next, more public phase of competition. Snapdeal acquired mobile prepaid recharge provider, FreeCharge for $400 million in April, then launched a digital wallet for their bundled  services in September. They’ve acquired ten more firms over the last year, such as online loan platform RupeePower, luxury goods retailer Exclusively, and MartMobi, a mobile apps developer and TechStars alum.

Meanwhile Ola, another member of India’s Unicorn club, acquired rival rideshare service TaxiForSure for $200 million. Ola also acquired Qarth and trip-planning company, Geotagg.

According to Crunchbase, Flipkart wasn’t sitting on the sidelines either, publicly announcing three acquisitions in 2015 as well as PhonePe so far in 2016.

MakeMyTrip, the NASDAQ-listed travel firm, picked up last-minute booking site MyGola, 500 Startups’ first investment in India back in 2011, and has launched an “innovation fund” to invest in more startups.

It’s not just Indian firms who are doing the buying – Twitter picked up ZipDial, an Indian firm that turns missed calls into smartphone alerts, for an undisclosed amount (also a 500 Startups portfolio company). Yahoo bought Bangalore based, BookPad in 2014.

Times Internet, part of the media heavyweight, Bennett, Coleman and Company, recently announced leading an investment of $11.2 million in Haptik, an Indian concierge service. FreshDesk, another Tiger Global backed startup, recently announced its 5th acquisition.

What’s In It For Investors?

The Reserve Bank of India recently made it easier for foreign investors to sell or transfer their stakes in Indian startups, and loosened disclosure requirements. Relaxing rules like these should go a long way in attracting new investment dollars from overseas investors as well as continuing to make investing in startups attractive to local investors.

Prime Minister Narendra Modi, has promised to make it even easier for investors to both enter and exit startups through its Startup India Plan. This initiative, launched in January, intends to expand the country’s culture of innovation in technology startups to other areas, such as agriculture, manufacturing and healthcare.

India Accelerating

There were 141 M&A deals worth US$1.26 billion involving Indian tech startups in four years from 2010 to the end of 2013, a stark increase from years prior.  If you consider the massive growth in mobile phone penetration, the second largest Internet user base in the world, acceleration of e-commerce in India (which is expected to top $17 billion this year, having quadrupled since 2010) and a government that is committed to creating the next “Startup Nation” of 1.3 billion people, then the future of exits in India starts looking far more interesting.

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Angel Investing Bangalore Business Entrepreneurship India Investing New Delhi Startups Venture Capital

Geeks on a Plane India 2013: Big Opportunities, Optimistic Investors, and a Government that’s Finally Waking Up

Gateway of IndiaThis post originally appeared on the 500 Startups blog

Geeks on a Plane is a 10-12 day trip to various parts of the world with 20-25 “Geeks” (entrepreneurs, techies, designers, angels, VCs, mentors). The trips are planned and run by 500 Startups and have been going on for a few years now. The first Geeks on a Plan (GOAP) to India was in December 2011. That’s when I first met Dave, Paul, Christen, George, Anu, Samir, and a bunch of other really awesome geeks. Fast forward 14 months and I got a chance to be a “geek” on the February 2013 GOAP India trip.

GOAP India 2013 also had some really awesome people on the trip as well as hosts across India. Here are some of the things that I learned from these people during our visit to Bangalore, Mumbai and Delhi with Geeks on a Plane.

India: A Land of Contradictions

The poor are all over India. It’s still one of the poorest countries in the world. However, the rich are obscenely rich. Driving a $200,000 car is no big deal in a city like Mumbai. On your way to a swanky hotel where you’ll pay $900 for a single malt, you may drive by open sewage, dirt piled up on the side of the road for impending construction, barking stray dogs in packs, etc. However, you will also pass by massive skyscrapers, gorgeous temples, educational institutes galore, and many people hustling to make a buck. You can feel the buzz in the air and the excitement of young people who see multiple opportunities all around them.

I didn’t witness these contradictions being any more pronounced than they have in the past. Instead, I saw young people that are hopeful and welcoming of bright future for their country, their families, and themselves. As risk averse as their parents are, more and more people are willing to take significant risks to enact change and get rich while trying. For example, at Startup Weekend Bangalore, we saw many ideas pitched, of which, two of which stood out in my mind.

  • Ghati, to enable safe and clear passage of ambulances.
  • Garbage-busters, which uses mobile phones to alert civil authorities of garbage that hasn’t been cleared.

Two years ago, very few people would have considered quitting their jobs to pursue ideas that will make life better for people while at the same time, having a real chance at making money. Instead, most of them wanted to build the “Twitter of India” or the “Facebook of India”. More and more Indians are cognizant of the problems surrounding them in their daily lives and they are taking the first steps at solving them.

Great Raw Entrepreneurial and Tech Talent

Flipkart
There’s no question that India is full of geeks with great raw entrepreneurial and tech talent. Look at the number of Indian engineers in the Valley, doctors and Wall Street quants that flourished in the US. In India, having their chidren go into the “IT” industry has been the hope of many middle class Indian parents since the 90’s. That usually meant working at Infosys, Wipro, TCS, HCL, etc. Then came along PWC, E&Y, Accenture, Goldman Sachs, JP Morgan, Dell, Microsoft, Google, etc. Today we have Facebook and LinkedIn as well as hundreds of other great US tech product companies. Most tech entrepreneurs in India prior to 2005 built their fabulous businesses selling services to companies big and small around the world. These successful tech entrepreneurs built businesses to be envied and made India the outsourcing capital of the world.

What they didn’t do was build an ecosystem that fostered entrepreneurship or creative thinking.

ZipDial

All that started changing sometime in 2010. Some amazing companies have been built in the last few years by incredible people (some of the companies go back to 2006/2007) – Druvaa, Slideshare, FusionCharts, InterviewStreet, ZipDial, Flipkart, SnapDeal, InMobi, Innoz, ZoHo, Freshdesk, Wigify and Komli Media.

Some of these companies have exited. Some are incredibly cash rich. Some are growing like a weed and continue to raise larger amounts of growth capital.

Beyond some of the marquee names above, quite a few amazing founders are building great companies. A few are InVenture, WebEngage, UberLabs (gazeMetrix), Ketto, InstaMojo, ChargeBee, and Practo.

Founders’ Communication & Confidence Need to Improve

Rajat, Kavin, Aloke at 91 Springboard
Most first time founders in India still lack confidence and it shows in their pitch and their communication style. Paul has mentioned this before in his Observations on India and he also talks about gaining confidence. I continue to see this being a problem and a tremendous opportunity for founders. The founders that can communicate the most effectively, will have a much better chance at selling to their customers, their investors, and prospective co-founders, employees, mentors/advisors and importantly, in India, to their families. The good news is that in the last 7 years I’ve been here, I’ve seen pitches and communication styles get better. Although the ecosystem is still nascent, it’s maturing and giving young entrepreneurs the shot in the arm they need.

Investors are Optimistic

The Bombay Stock Exchange (BSE)
Investors across India that I met during GOAP continue to remain bullish on the long-term opportunity. Ecommerce, education, travel, personal finance, Universal ID (UID), family tech, rural tech and, of course, tech built in India for a global market are some of the broader themes that investors expressed significant interest in. Sorry folks, “social media” just wasn’t at the top of anyone’s list.

However, as bullish as investors are, most of them still aren’t very founder friendly. Some of the deal terms being offered are still quite onerous. Doing an investment in tranches is another favorite past time of Indian investors. Most founders still complain of angels behaving like series A VCs and VCs behaving more like private equity shops.

The bright side is that a few founders I met with and spoke with during GOAP, mentioned two VCs by name who work more like startup founders than VCs. They make decisions quickly. They present terms that are fair. They tell founders when and how much they should raise to minimize dilution. They make themselves available by not hanging out in their ivory towers. You might say that two VC firms in a country of 1.2+ billion people is statistically insignificant. However, if you said that, you would be wrong. It’s quite significant. VCs running their funds like real startup founders is a massive mindshift and their success will only inspire more to do the same (or lose deal flow).

Investors are also Cautious

Geeks on a Plane at the BSE
During some of the investor events at GOAP, I spoke to investors about things that concerned them. Investors are a little bearish about the short-term. Macro-economic conditions, the lack of exits, corruption in the government, the bureaucracy, rising costs all play an important part in dampening the spirits of investors. However, these also present considerable opportunities for daring entrepreneurs. Investors realize this and continue to hunt for deal where they can deploy funds in India.

The Indian Government is Finally Waking Up

During our trip, the Indian Government announced its budget. Though, not a big deal in most western countries, in India, the budget makes or breaks economic sentiment for the year. No one was terribly excited or distraught over this year’s budget. However, there were a few things added that raised the hopes of startups and early stage investors.

  • Preferential tax treatment for angels when investing together or “pooling” their capital and registering with the government.
  • Corporations are required to spend 2% of their income on CSR (Corporate Social Responsibility) investments or donations. Incubators at government or recognized universities qualify for claiming the 2% spend.
  • Startups can potentially find some liquidity by listing on the SME exchange. The BSE (Bombay Stock Exchange) runs one and had 11 companies listed as of December 2012.

A much more detailed analysis of the budget and some opinions can be found on VCCircle.

For more information on Geeks on a Plane and when they are heading to your region, check out the website and also some of the videos from GOAP South America Summer 2011, GOAP Asia 2011 and GOAP India 2011.


Geeks on a Plane India 2013

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Web 2.0 Summit 2010: “Point of Control: Finance”

Here’s a great video from the Web 2.0 Summit 2010 of John Doerr and Fred Wilson discussing all things vc/angel/startup.

Web 2.0 Summit 2010: "Point of Control: Finance"

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