• Top 6 VCs refuel with $2.5bn in a year despite few exits

    Venture capital firms may have cooled off from the heady investing days of the past two years, but they continue to shore up capital amid a slackening funding environment. Flipkart’s early backer Accel, one of the most prolific venture investors in the country, is on course to raise a $400-500 million fifth India-focused fund, which is expected to close by the year-end, sources familiar with the matter told TOI. Accel’s new fund comes at a time when the top six VCs have amassed more than $2.5 billion in the past year to be ploughed into Indian startups, raising hopes that the sluggishness in deal activity is temporary.

    One of Silicon Valley’s most prominent venture funds, Accel doubled down on seed-stage investments last year, writing numerous cheques for $500,000 to $1-2 million. A majority of these startups will be in the market to raise subsequent rounds of financing at a time when entrepreneurs are being asked to batten down the hatches and spend every dollar judiciously.

    “Initial conversations about the new fund have already begun with limited partners, or LPs (investors in funds). The amount is yet to be finalized, but it will be larger than their previous fund size,” a person privy to the information said. Accel had officially announced its Indian Fund IV in March last year. An emailed questionnaire sent by TOI to Accel on the new fund did not elicit a response.

    In March, Accel US famous for its early wager on social networking site Facebook in 2005 announced it had raised around $2 billion, split between a $500-million early-stage investing corpus and $1.5 billion for later-stage, growth investments. Most of the bigger sized venture funds are able to reserve far more capital for their existing portfolio companies and are able to participate in growth-stage financing rounds.

    Accel began life in India in 2008 when it acquired Erasmic Venture Fund, and has since backed hundreds of companies like BookMyShow, Freshdesk and Myntra, besides its most famous bet on Flipkart where it put $1 million in 2009. It is currently deploying its $305-million India Fund IV, which has invested in startups like food-delivery venture Swiggy, local services app UrbanClap, and rental marketplace RentoMojo.

    Exits still few & far between

    While these funds have bulked up with billions of dollars in dry powder for India investments, exits remain imperceptible for most VCs here.

    “The lack of exits for investors in India is a symptom of the problem. The real problem so far was the lack of depth in the market. So a lot of money was invested without a deep enough market opportunity. However, looking out at the next ten years, investors in the VC asset class in India realize the market depth has arrived and exits shall follow. So one has to look forward, else it will be a rear-view mirror-based decision,” says Avnish Bajaj, MD at Matrix Venture Partners, an investor in transportation app Ola and online classifieds firm Quikr. Matrix recently topped up its $300-million India fund by $110 million and will raise its third India fund of around $300-400 million after a year.

    General partners who steer India-dedicated funds say LPs fundamentally believe in lndia’s internet story, buttressed by a growing smartphone penetration. As against international outfits which invest from a global corpus like Norwest Venture Partners, India-focused funds have empowerment which gives them the speed and helps them adhere to the local nuances. India funds have a better construct and hence chances of better returns and exits, says a veteran VC who did not want to be identified.

    Last year saw unprecedented fund-raise activity among venture funds in India as Kalaari Capital, SAIF Partners, Lightspeed Venture Partners, Nexus Venture Partners and Accel were awash with new capital to pump into the fast-growing domestic startup ecosystem. But the largest one of them all came in December last year when Sequoia Capital raised $920 million.

    In 2015, these investors along with Tiger Global, SoftBank, DST Global and a posse of hedge funds provided a slug of money to consumer internet firms. Together, $7 billion was scooped up by these tech-based startups, according to Tracxn, which collects data on private companies. The first quarter of this year though has been evidently slow paced, with a drop of at least 50% in deal value at $301 million. Arthur Moats Womens Jersey

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