India's Tech Startups Ecosystem Propelling the Venture Capital Industry

The Indian startup ecosystem has shown an exclusive capital infusion across the spectrum. Even though the growth of India’s tech startup has not only centred entrepreneurship, still it has incited prosper in the local venture capital industry. The various technical startups serve the nation on a large scale and help millions get a comfortable lifestyle. The Covid crisis has created disasters for countries across the globe. However, startup firms and a host of online firms in segments of entertainment, groceries, and edtech have made phenomenal growth.

In the last 30 months, the top 10 Indian venture capitalists have participated in almost 600 funding rounds and backed over 420 ventures. Mumbai-based Blume Ventures has been the most active venture capitalist. It has participated in 91 rounds from 2019 till July this year, data from market intelligence platform Tracxn show. The firm is a decade old and launched by Karthik Reddy and Sanjay Nath, both consulting professionals who were former members of the angel investing network Mumbai Angels – presently has 57 companies in its portfolio, ranging from segments such as e-grocery, online pharmacy, logistics, and ed-tech. Blume Ventures has concealed 145 startups, and significant numbers are gained in the last two years.

Matrix Partners India, set up in 2006, pursues Blume Ventures in the Indian venture capital industry with 86 deals and 55 portfolio firms, as per Tracxn. The investing experience of Matrix dates decades back, though since it’s the Indian segment of an American venture capital established in 1977.

While much of the capital being invested into the world’s third-largest startup ecosystem is still foreign, with the likes of New York-based Tiger Global and Japan’s Softbank funding big-ticket deals, Indian venture capitalists are also raising their contribution. Interestingly, their investments are not just considering the number of contracts the size of the cheque.

Over the years, the Indian venture capitalists have evolved with their strategies and believe in getting a unique perspective that their foreign counterparts cannot.

Domestic technical startups

Around a decade ago, there were hardly four or five mainstream Indian venture capital funds, and they were predominantly making very safe bets, chiefly in the enterprise space. A few of the more interested ones backed e-commerce player Flipkart, digital wallet Paytm, and ride-hailing company Ola that had already caught the attention of universal investors. 

A significant cause for the scarcity in Indian venture capitalists was that the startup landscape was beginning, and there were lesser options of attractive investment. “If you asked people even back in 2016 how many unicorns India would have by 2021, they would guess eight or nine,” stated Pranav Pai, founding partner, and chief investment officer of Bengaluru-based 3one4 Capital. 

At present, India has at least 55 unicorns. The world is witnessing rapid development in the number of startups being launched and various technologies they are experimenting with. 

The growth in investment options has encouraged Indian investors to place bets on local companies. For example, 3one4’s portfolio consists of online meat delivery firm Licious, human resources software platform DarwinBox, digital banking app Juniper, and digital media company Pocket Aces. 

Besides, with bets paying off, investors’ risk appetite is increasing. The upcoming decade “will still see investment in fintech, but the profile will evolve. Newer platforms like insurance, savings, and brokerages will emerge,” Pai stated. “There will also be new types of consumer-facing companies, and single-brand models like Licious and Mamaearth will grow.”

In 2020, Indian startups increased by USD ten billion across more than 1,200 deals. Although the summed investment was lesser than 2019’s $14.5 billion, the number of deals was raised by 20%.

“The momentum that impact investing had gathered even pre-Covid-19 has only accelerated with far more attention now on building resilience and catering to the needs of lower-income populations and small businesses,” stated Roopa Kudva, managing director of Omidyar Network India, which invests in tech startups working on social comprehensive. 

National versus International

While many of the budding Indian venture capital players are free from any ultra deep-pockets like their foreign rivals, they have faith in assistance in one way: they are considering their experience.

“Startups here scale up differently to those in the US or Europe,” stated Arpit Chundawat, co-founder of Meteor Ventures, a seven-month-old seed fund, and incubation company. “We know the consumer mindset. For instance, we know that irrespective of the segment, giving discounts means there is a higher chance of conversions.”

Local venture capitalists would also assist entrepreneurs with their understanding of regulating processes and with the networks.

“Every international market is different and has its own intricacies,” stated Pai. “It would be almost comical to just sweep into a new domicile to compete. We have aimed to be India-specialists in venture capital and we invest seriously to understand this ecosystem very well.”

“We have built a bottom-up graph of the reality of the market, like how and why a lot of activity is still run offline, what it is like to be working with controls and administrative systems to secure permissions, and so on,” commented Pai. “It matters whether or not the banks work with you, or whether the market makers and investment bankers will work with you when a company is IPO ready.”

In spite of the leaps that happened, there is still work to be done.

Absence of diversity

Similar to the west, Indian venture capital firms have an absence of gender diversity. Eight out of the top ten most performing Indian venture capital firms are led by men. The absence of diversity is a fragment of a significant problem. 

Indian tech startup ecosystem consisted of far fewer female entrepreneurs. A negligible 13% of unicorns in India have a female co-founder, and women are individual founders of less than 6% of startups in the country. This gender problem has a profound. At India’s premium IITs, which nourish the startup founding pool, two out of ten students and one in ten faculty members are female.

Meteor Ventures co-founder Sonal Bali realizes she’s a variance but believes in a universal constant idea, i.e., change. “You will see more and more female-driven venture capital firms and startups impacting the ecosystem,” she stated.

Erasing the inequality of gender, age, race, caste, and ancestry could prove to be the key to success for Indian venture capitalists. It might lead to a step further in getting the local strengths of India to the table.

“The more varied the thinking, the better the startup and products, and the better for all of us,” stated Girish Mathrubootham, CEO of Freshworks. “If a singular group of people has access to capital, their investments are likely to be in businesses founded by the same group. By closing the gap among race and gender, the world will see an influx of new ideas and increased creativity in business models.”

Hence, start-ups are making generous, creative offers to attract venture capital industry.

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