Funding wave gets bigger

Winter holidays of Christmas and New Year usually bring a lull in overall business activity, but the end of 2018 was all hustle and bustle, with the tempo of deal-making hitting a fever pitch.

The last quarter of the year saw a spate of high-value deals, including $1 billion investment into Swiggy, the largest in the Indian start-up ecosystem so far. The Naspers-led funding round in the food delivery platform threw ample light on the fat cheques that start-ups have lapped up of late.

In September, Budget hotel marketplace OYO announced receiving $800 million in a round led by SoftBank Vision Fund, Sequoia Capital and others, with commitments for another $200 million.

Edtech player BYJU's raised $540 million, while Paytm Mall received $445 million. Others like BigBasket, Zomato, business-to-business marketplace Udaan and insurance start-up-turned-unicorn PolicyBazaar - all raised between $200-300 million through single rounds.

As per industry estimates, Indian start-ups collectively raised $9.57 billion in 2018 across 717 deals, compared to $13.5 billion that was raised in 2017 over 885 deals.

Although the collective amount raised and the number of deals is fewer as compared to last year, the deal sizes have jumped with start-ups raising funds in the $100–250 million bracket.

"We're talking big, very big money here. Upwards of $400 -500 million accrued through single funding round, and up to $1 billion like Swiggy. This trend reflects not only on the maturity of the start-up space but also on the confidence of investors," said an industry expert.

Dhruv Kapoor, managing director, Sistema Asia Fund, says, "Even at the early stage, average deal cheque sizes have increased from $0.350K in 2016 to $0.970K in 2018. Series A deal sizes have also increased marginally from $3.85 million in 2016 to $4.54 million in 2018."

Sidharth Rao, co-founder and CEO, Dentsu Webchutney, says funding this year was majorly concentrated beyond series B. "I think everyone has learned from the madness of 2014 and 2015 when a lot of good money chased bad ideas and execution. We will see money being well deployed and spent going ahead."

Says Nandu R Kumar, CEO, Spice Route Business, "The ecosystem more than doubled the number of unicorns, the exit volume equalled the investments with the help of the Walmart-Flipkart deal and the average ticket size of transactions increased. These are clear indicators of market maturity. The Walmart-Flipkart deal boosted the confidence of venture capitalists and partners in the ecosystem and proved that the sector is mature enough for large-scale investments and exits."

Experts say 2019 should mirror the fundraising momentum of this year with more cheques of amounts greater than $500 million being signed off by investors. "Average ticket sizes should be on the higher scale. We hope the exits increase in the ecosystem to keep the wheels turning," says Manish Singhal, founder partner, pi Ventures.

While 2018 saw sectors like foodtech, edtech, accommodation, e-commerce and insurance surging ahead with massive funding, the New Year will witness an increased investor interest in areas such as DeepTech, Internet of Things (IoT), machine learning, artificial intelligence (AI), predicts Sunil Goyal, managing director and fund manager, YourNest Venture Capital. "Start-ups will change the game by cracking AI at the edge. We also expect regulatory clarity in blockchain paving the way for the widespread use of this technology."

Experts feel going ahead, investors like SoftBank, Tencent, Sequoia Capital, Naspers, etc, will aggressively pump in more funds. "The $100 billion SoftBank Vision Fund has at least three transactions in the pipeline for India. Tencent investments in India may tend to be more strategic, aligned with their plans to bring gaming and cloud services to the country," says Kumar.

However, the sector needs some impetus from the government, feel experts. Rao says the impact of government intervention in creating a "venture capital ecosystem" is often overlooked.

"In the US, the military was involved in the first version of the internet. Areas synonymous with innovation and venture capital in Singapore, Silicon Valley or Israel were all fostered by respective government programmes. For the last two years, almost every start-up I have been involved with has been terrorised by the angel tax. These things should be addressed to invite more funds into the system at various stages of a start-up," says Rao.

PACKED WITH ACTION

$9.57 bn - Indian start-ups collectively raised in 2018 across 717 deals

$4.54 mn - Series A deal sizes increased to in 2018 from $3.85 million in 2016

The New Year will see an increased investor interest in DeepTech, IoT, AI and machine learning