Investors Galore For Indian Startups

A host of investors are in queue to raise exclusive venture capital funds to invest in emerging businesses and promising ideas of budding entrepreneurs to cash in on the burgeoning startup ecosystem that has of late attracted eyeballs from all stakeholders including the government.

As many as 32 venture capitalists are in line to raise as much as Rs 4,432 million, as per data available with research firm Venture Intelligence. In 2015, five dedicated venture funds were closed to invest in the startup world. This is significant as fundraising by risk capital investors – both PE and VC funds – witnessed a blip after a slowdown in investments and exits that began in 2008 and continued till the end of 2014. As many as 4 PE funds were raised in 2015 worth $951 million, while another 17 are in line to raise $4,660 million.

Venture capital funds typically invest in the startup ecosystem where the capital requirement in a single tranche is typically lesser when compared to private equity funds which are categorised as growth capital that are used for expansion purposes. The cycle of risk capital investments is such that first an angel or VC funding happens after which they exit and pave way for private equity investors to take over. The cycle of a VC or PE funding is typically 5-7 years.

Situation for risk capital investors, on the whole, improved for the better in 2015 with investment opportunities opening up in the startup and venture capital space. What’s more, even exits opened up for investors helping them to cash out profitably. “We are in an interesting phase right now. There are opportunities galore in the startup world which investors are willing to bet on. In fact, the nature of an emerging business is such that even if one out of 10 becomes a blockbuster, the purpose is served,” said Arvind Mathur, President at Private Equity and Venture Capital Association.

Indian start-ups are growing and need capital to scale up. Year 2015 has clearly been a year of startups with the number of investments in the startup space going up significantly. In the first half of 2015 alone, as many as many as 363 venture capital deals were sealed – more than three times the number of private equity deals, which stood at 99, according to data available with accounting firm Grant Thornton.

The Road Ahead
While investors are gearing up to raise funds, the true test will be when they cash out profitably from their investments. While the first round of capital is coming in handy for startups, already some of them are facing challenges while raising the second round to scale up. This is leading them to adopt some drastic measures to curb their expansion plans to keep their bottomline intact.

In 2015, the total number of investments stood at 685 worth $16,957 million while in 2014 investors pumped in as much as $11,258 million in 542 deals, as per the Venture Intelligence data.