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Bangalore: VCs look for new areas to invest

Thursday, 9 January 2014 - 1:31pm IST | Place: Bangalore | Agency: dna

Looking to get funded by venture capitalists? If you are working in areas like mobile payments, mobile wallets, or socially-relevant businesses, you stand a better chance with today’s venture capitalists.

As more startups approach venture capitalists for funds, the latter are left with little choice but become extremely choosy in their selection process. Though sectors like ecommerce and quick service restaurants still witness a lot of startup activity, venture capitalists are looking at ‘different’ areas to invest in.

“I think venture capitalists are always looking at new areas to invest in. They try and gauge where exactly the market is heading,” says Kunal Walia, managing partner, Khetal Advisors, a firm which advises startups on how to get funded.

According to him, there is lot of activity going on in the digital space. “This space has seen a lot of consolidation. Even big data and analytics are areas which are of great interest to VCs nowadays,” he points out.

With transformation taking place in the world of electronic payments, there is a lot of interest being shown in the mobile payment space. In fact, in the past two years or so, about 60-70 startups have come up in the mobile payment and mobile banking space alone.

Experts say that one of the primary reasons for VCs to show interest in this space is the fact that India has over 920 million mobile subscribers. However, about 41 per cent of the population has no bank accounts. Hence, mobile payments has a huge potential in India. The market is estimated to grow from $86 mn in 2011 to $1.15 bn in 2016 at a CAGR of 68 per cent, says a study by Knowledgefaber, a research firm.

The growth of mobile money in India has historically been stymied by regulatory red tape and consumers that have been reluctant to go cashless. But now the Reserve Bank of India(RBI) seems increasingly supportive of innovation in mobile payments and we are seeing a new breed of startups focused on building truly customer-centric products.

“Mobile payments is really interesting to us. We think that startups are particularly well-placed to take advantage of existing mobile payments infrastructures to build products that users actually need. It is an incredibly exciting time for mobile banking in India, and we are thrilled to be able to support entrepreneurs in the space,” says Vikas Raj, Senior Investment Officer at Accion Venture Lab, a seed-stage impact investment initiative.

“With the proliferation of mobile devices among lower income groups in India, mobile banking is clearly a significant and growing opportunity here, and we are evaluating a number of promising startups that are using mobile technologies to pioneer new financial services products and delivery models,” Raj adds.

Venture capitalists are also looking at funding socially relevant businesses. “Profits are important. This is the only way the business will survive and sustain itself in the long run. Gone are the days when venture capitalists would shy from investing in these ventures. In fact, I guess this is the new blue eyed sector for the VC community,” says Sushma Kaushik, senior investment manager, Aavishkaar, which is into early stage funding.

Rahul Chowdhri, director at Helion Advisors, says that companies which have tier-II and tier-III focus are also favoured by VCs.

“The market in these cities is still largely untapped. Hence, there is a big potential. Also, enterprise technology companies in SAS, Cloud space are good for investment at this point in time.,” says Chowdhri. Travel, according to him, is another area which is seeing good VC funding.

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