Why the best is yet to come for India’s early-stage startups
The concept of starting up is not alien to India but was once frowned upon. Entrepreneurs struggled with selling their vision to prospective investors, job seekers, corporates, and prospective customers. But isn’t this how a revolution starts? Everyone begins by ignoring and criticising before finally converting into believers. Indian startups have undergone a similar rollercoaster ride.
In the early-2000s, there were a few brave souls who ventured into the unknown space of starting up and there were only a handful of VCs to raise funds from. This era, which continued for almost a decade, was marked by large funds like Sequoia Capital, Accel Partners, Nexus Venture Partners and Matrix Partners making early bets on Indian startups.
Some early wins started the confidence-building process both in founders and angels. By 2010, prominent angel groups started to make their presence felt. The likes of Mumbai Angels and Indian Angel Network were placing serious bets and identifying potential winners of this marathon. This also led to another trend of local angels cropping up.
Even VC firms started noticing potential in the Indian market. Global VCs, mostly from the US, began scouting for opportunities in India. The likes of Tiger Global made some bold investments in e-commerce/consumer internet companies like Flipkart and Snapdeal, making their founders the poster boys of the Indian startup scene overnight.
By 2015, investors both from the global and Indian market started firming up plans to place larger bets on startups right from their early days. On the one hand, SoftBank entered India while on the other hand, domestic VCs like Blume Ventures, Kae Capital, YourNest, India Quotient and Unicorn India Ventures launched operations between 2010 and 2015. In addition, many domestic VCs announced large kitties to invest in early-stage startups.
Unlike growth-stage investments, early-stage bets demand complete commitment from both investors and entrepreneurs. Early-stage investors are typically the first institutional investors in the company and their money and mentoring really decides the fate of the startup.
Our work is far more in depth as growth-stage investors rely on the early-stage investors’ due diligence and their mentoring to a large extent.
With the expansion of the investor pool, eye-popping fundraises and increase in early-stage investment activity, the effect was multi-fold. Not only are more startups getting launched, a new set of angels has also emerged. They are entrepreneurs-turned-angels who formed much smaller groups and scouted for limited investments.
A case in point is the Bansals of Flipkart, Vijay Shekhar Sharma, Bhavish Aggarwal, and Naveen Tiwari. After 2015, individual angels started investing, formed a small group and started investing in select deals. We also saw respective field experts take the plunge in early-stage investments either directly or through funds.
Startup India, an initiative by the Indian government, provide further momentum to investor interest. The series of headline-grabbing exemptions and the whole spirit of entrepreneurship made everyone across the globe take note of a formidable power emerging. Startup India pretty much put India on the global startup map.
Following this, many large VCs from other markets entered India with deep pockets. Startup India not only helped Indian startups attract top dollars but also for the first time perhaps opened investment opportunities for startups in Tier-2 and 3 cities. The VC ecosystem reached a certain level of maturity and openness to evaluate investment opportunities beyond the three hubs of startups.
Of course, players like LetsVenture and Venture Catalysts played a role in furthering this trend. They also helped in expanding the investor pool further by bringing in wealthy individuals from pockets like Nagpur, Surat, Lucknow and Ranchi.
We are now in 2019. And the signs couldn’t be clearer. The new trend which started taking shape in the latter half of 2018 will see more takers in the coming year -- the emergence of fund houses and the formation of sector-specific VC funds. Some of the notable names are Pi Ventures (AI & IoT), Omnivore (agri-tech), Aavishkar, Ankur Capital and Unitus (social entrepreneurship), and Kaizen (education), among others.
These are positive cues that the ecosystem is maturing on both ends of the spectrum. This also means we can expect more global funds to enter India.
Many pure-play VCs have transitioned into a fund house where they are launching dedicated funds for promoting cross-border investments and even debt funds, which is a relatively new investment concept but has been lapped by entrepreneurs across the board.
We will see the pace of investments not only pick up in 2019 but the pool of investors will expand as well, making entrepreneurs better placed for raising funds from seed to growth stage.
The writer is a managing partner at Unicorn India Ventures. The views expressed are personal.