Overview
Today, India is known to have the largest & inclusive start-up ecosystem globally after countries like USA & China. Over the last decade, the business landscape in India has seen startups across sectors blooming with innovations and investments that have left the ecosystem buzzing, creating employment and inspiring more entrepreneurs to take a leap of faith and fulfill their dreams of starting a business of their own, and undoubtedly investors such as venture capitals who have supported start-ups with necessary funding and guidance are the primary reason for this unimaginable growth.
Since, most of the studies support the fact that despite the most promising start-ups with a great team, fail in the early years of their operation due to the lack of funding. Thus, funding is extremely crucial a significant amount of money is required to enable them to escalate further smoothly at each stage of the business. Wealthy investors keep an eye on the start-ups offering commercially viable innovative products/services, and invest in businesses to get a higher return on investment in the future. The capital so invested is known as the venture and the investors are called venture capitalists.
Before this, banks and other related sources were the only forms of funding available for small businesses and start-ups. Thanks to the evolvement of angel investors and top venture capital firms in India start-ups have access to more reliable forms of funding, and presently India has 100+ start-ups with unicorn valuations with their humungous growth & success.
Speaking of VC investments, the year 2021 was a watershed year for private equity (PE) and venture capital (VC) investments in India. In 2021, Indian startups raised a record level of funding of $42 billion across 1583 deals, and 42 startups joined the unicorn club, while the total seed-stage or early-stage funding alone exceeded $1 billion in India.
Thus, these VCs are not only helping the start-ups to raise funds effortlessly but also empowering the Indian startup ecosystem, thereby making it the most prominent and budding entity in the global landscape.
Understanding Venture Capitals
Venture capital is either a private or institutional investment made into any start-up or a business by venture capital companies/firms for various purposes such as expansion, scaling up, product development, etc., depending on the stage of the business in exchange for a percentage of ownership in the business in the expectation of a sizeable gain. Typically, venture capital money comes from a group of institutional investors and high-net-worth individuals and is pooled together by dedicated investment firms.
Since the early stage businesses are more prone to failure, venture capitalist provides the funding despite the significant risk of the failure of the business which may also make him lose their investment in case of failure, and in other cases, it takes around medium to the long period for the investment to fructify. Thus, venture capital is also known as risk capital or patient risk capital.
Unlike other investments, Venture Capital is the most suitable option for funding a costly capital source for companies, and most businesses have large up-front capital requirements and have no other cheap alternatives. Apple, Google, and Facebook, all were once start-ups that were supported by venture capital firms. Likewise, start-ups like Nykaa, Paytm, and Zomato were only able to reach higher with the support of venture capital investments. Therefore, Venture capital funding is most widespread in the fast-growing technology and biotechnology fields.
Features of Venture Capital Investments
- Not for Large Scale industries-VCs particularly offered to small and medium-sized businesses.
- Invests in medium to high risk/high return businesses-Start-ups that are eligible for VCs are usually those who offer high returns but also present a high risk.
- Offered to commercialize ideas Businesses looking to commercialize their business idea of any product or service, seek investment from VCs.
- Disinvestment to increase capital-VC firms/investors may also disinvest in the company once it shows promising growth. But, such disinvestment may be undertaken to infuse more capital and not to just generate capital.
- Long-term investment-VCs are long-term investments that could be realized after 5-10 years.
How does venture capital work?
Entities offering venture capital investments in early-stage businesses including other businesses until it attains a significant position and then exits the business with their expected returns. Ideally, most VC investors infuse capital in a start-up for around 2-5 years, with the expected returns of up to 10x of the capital sum invested.
Venture capital firms together create an investment pool by collecting funds from other investors, companies, or funds. Although sometimes these firms also invest from their funds to show commitment to their clients.
When should one consider VC Funding?
- Requirement of strong mentorship-Generally VCs bring in a lot of expertise, knowledge, and networking along with the capital investment for the start-ups and other businesses. Thus, their guidance could be utilized by start-ups to build their network, promoter their business and ultimately help it to reach new heights.
- Considering business expansion-If your next plan is to expand your business, opting for funding through VCs will be a good option. Getting a VC on board will help the start-up to encash their business, financial & legal expertise which is usually required during undertaking business expansion.
- Surviving Competition-Once a start-up has gained a substantial reach and is most likely to face competition in the real market, it is the right time to go for VC for surviving and giving tough competition to others.
Which are some of the Leading VCs for start-ups in India?
If you are a start-up or entrepreneur looking to raise capital for your business, it is indeed essential for you to identify the right funding partner who could offer maximum benefit for your business. Here are some venture capital firms that are enabling new-age startups to grow and scale with the necessary investment & necessary guidance-
Blume Ventures
Blume Ventures is a premiere venture capital firm founded by Karthik Reddy and Sanjay Nath in the year 2010, with its headquarters in Mumbai India. Primarily, Blume ventures partners with early-stage start-ups and founders to achieve product-market fit and power past the first point of the scale. It seeks to invest across business sectors such as financial services, information technology, manufacturing, blockchain, cybersecurity, e-commerce, b2b payment, gaming, TMT, mobile commerce, cannabis, business services, business products, consumer services, and technology-based sectors in India.
It also has a vast experience in B2B businesses and ventures that are capital light, and usually invests for a longer term anywhere between 8 to 10 years, as long as the founders of the start-up have an equally passionate vision for the business. It’s portfolio start-ups include notable names such as Dunzo, Unacademy, Exotel, LBB, Purplle, HealthifyMe, etc.
Sequoia Capital
Sequoia Capital is a US-based venture capital firm established in the year 1972 in Menlo Park, California, whereas its first office in India was set up in the year 2006. This venture capital has a vast majority of experience in advanced technologies and usually partners with early-stage start-ups as well as late-stage start-ups working on innovative products or services across sectors such as Cleantech, consumer internet, crypto, financial services, healthcare, mobile, robotics, etc. This VC firm has a program known as “Surge” which undertakes investments and mentorship to around 15-20 shortlisted start-ups across Southeast Asia, including India every six months, and each start-up is offered a capital investment of $1M-$2M with participation from other investors.
Since its inception, Sequoia Capital has invested in thousands of start-ups and other businesses such as Faaso’s, FreeCharge, Grofers, Healthkart, Practo, Blinkit, Purplle, Meesho, Apple, Cisco, Google, LinkedIn, WhatsApp, Zoom, PayPal, Reddit, Instagram, Tumblr, BYJU’s, CleverTap, Citrus Payment, Druva, etc. who now control around $3.3 trillion of combined stock market value.
Kalaari Capital
Kalaari Capital is another tech-focused venture capital firm founded in the year 2006 by founder Vani Kola. Kalaari Capital primarily partners with early-stage start-ups as well as later-stage businesses working across sectors like Information technology, mobile, healthcare, software products and services, e-commerce, media, clean technology, etc. It has made as many as 214 investments across 3 funds and witnessed 27 exits from start-ups like Workday, Myntra, and Truebil as on Sep 2022.
Kalaari capital is truly passionate about investing in early-stage start-ups and entrepreneurs who are poised to be global leaders in the future. Its start-up portfolio includes names such as Cure. fit, SimpliLearn, Dream11, Haptik, MilkBasket, Bluestone, Urban Ladder, Vogo Automotive, etc. In 2015, Kalaari Capital even funded $290 Million in 2015, which was one of the largest funds by an Indian VC at that time.
Trifecta Capital Advisors
Trifecta Capital Advisors is a venture capital firm headquartered in San Francisco, USA, and is primarily focused on early-stage technology ventures in India working across business sectors like Technology, consumer, and healthcare domain. To date, they have made around 112 deals till date and have seen 2 exits from Guilded and Urban Ladder. Their start-up portfolio includes companies like BharatPe, Big Basket, Bizongo, Blackbuck, Box 8, and Cure. fit, Country Delight, GOQii, etc.
Tiger Global Management
Founded by Chase Coleman in the year 2001, Tiger Global Management LLC is a VC investment firm focused on early-stage start-ups as well as a later stages. This VC firm is passionate about building a global investment platform that invests in promising start-ups so that they could benefit from powerful secular growth trends and are led by excellent management teams.
To date, it has made around 1107 investment deals across the globe with 9 designated funds and 131 exits across business sectors such as Consumer Internet, software, consumer, and financial technology industries. In the year 2020, Tiger Global Management helped its investors to earn around earn $10.4 billion, more than any other hedge fund on the list of London fund-of-funds firm LCH Investments’ top 20 managers.
Its portfolio includes notable names such as Urban Company, Grofers, Sirion Labs, Osmind, Arcadia, Shippit, Pristyn Care, Slice, Upstox, Spinny, No Broker, Mensa Brands, CoinSwitch Kuber, Vedantu, Apna, BharatPe, Blackbuck, Moglix, ChargeBee, ShareChat, Groww, Infra. Market, and Innovacer, including a $90 Million round in agri-tech startup Ninjacart and a $60 Million infusion in B2B industrial goods marketplace Moglix in the first half of FY19.
Matrix Partners
Matrix Partners isa private equity investment firm that was founded in the year 1977 in San Francisco, USA but entered India in the year 2006 under the able leadership of its general partners Avnish Bajaj and Rishi Navani.The VC firm partners with seed and early-stage companies across industries such as software, communications, semiconductors, data storage, Internet, or wireless sectors. To date, it has made 632 investments in seven funds while making exits from 146 businesses such as Apple, HubSpot & FedX.
Its startup portfolio includes names such as Canva, Flex, Hubspot, Oculus, Quora, Zendesk, etc. in the USA whereas in start-ups such as Country Delight, itilite, DSLR Technologies, RocketLane, Chumbak, DailyHunt, Dukaan, FIITJEE, etc. among others in India.
Nexus Venture Partners
Also known as the first India-US venture fund, Nexus Venture Partners is a venture investment firm focused in early stage start-ups working across business industries such as Consumer products, consumer services, information technology, e-commerce, big data, B2B payments, SaaS, internet of things, artificial intelligence, machine learning, etc. It invests in early-stage start-ups with an average investment size of $500K-$10 Million and claimed to hold more than $1.4 Billion in assets under management as per FY 19.
Nexus ventures have to date have made 314 investments across notable start-ups such as WhiteHat Jr., Rapido, Delhivery, Zomato,FingerprintJS, Entos, Apollo.io, Growth Book, StackBlitz, Unacademy, Postman, Snapdeal, Rapido, OLX, Hasura, Urbanic, Zeptoincluding 43 exits from Gluster, Gitter, ElasticBox, MapMyIndia among others.
Accel
Formerly known as Accel Partners, Accel is another US-based venture capital firm having its headquarters in Palo Alto, California, and operates VC funds in China & India. It primarily partners with early-stage start-ups working in business sectors such as Consumer, Infrastructure, Media, Mobile, SaaS, Security, Customer care services, Enterprise software, E-commerce, etc. in developed nations that need a larger amount of capital to expand their business. Presently, Accel holds assets of more than $1.6 billion under management.
To date, Accel has made 1864 investments in 33 funds in noteworthy start-ups such as Facebook, Flipkart, Atlassian, Slack, Spotify, Etsy, Swiggy, Blackbuck, and Cure. fit, etc. including 354 exits from businesses such as Meta, CrowdStrike, and Razer.
Elevation Capital
Elevation Capital is an early-stage venture capital firm based in Gurugram India, which was originally founded in the year 2011 by its founder Ravi Adusumalli. This venture capital partners with early-stage start-ups across business industries such as consumer products and services, technology, media, education, telecom, financial services, healthcare, travel and tourism, and manufacturing. To date, it has made 119 investments in notable start-ups such as Country Delight, Meesho, Sprinto, Mintifi, Acko, BookMyShow, FamPay, Brite, Journeyfront, etc., and made seven exits from start-ups such as Indiamart, Toppr, and CARS24.
100X VC
Founded in the year 2019, by its co-founders Shashank Randev & Sanjay Mehta, 100X.VC is a venture capital firm that partners & invests in early-stage startups using India SAFE Notes, which are a substitute for the convertible notes used for making investments. 100X VC is passionate about funding tech-focused start-ups working across sectors like Femtech, Wellness, AgriTech, Cyber Security, and HRTech sectors, and has made 38 investments to date. Some of the notable investments includePilk, Papa Pawsome, WayFr, Paperplane, Broomees, Pension Box, etc. among others.
Hellion Venture Partners
Helion Ventures Partners is an India-focused venture fund which is based in Port Louis, Mauritius. Primarily, this VC firm invests in early to mid-stage start-ups working across business industries like Outsourcing, internet, mobile, technology products, retail services, healthcare, education, and financial services. To date, it has made 137 investments in notable businesses such asWhatfix, Slintel, Livspace, Railyyatri, etc. across 2 funds including 32 exits from companies like Housing.com, MakemyTrip.com, BigBasket, ShopClues, etc. among others.
Light Box Ventures
Lightbox ventures is another early-stage dedicated start-up that was founded by its co-founders Sandeep Murthy &Siddharth Talwar in 2014. This VC is focused on investing in Indian start-ups working across business sectors such as healthcare, fintech, commerce, and AgriTech sectors. To date, Lightbox has made 49 investments across 4 funds in start-ups such as Dunzo, PayMate, Magic Bus, Furlenco, Rebel Foods (formerly Faasos), Melorra, Clear trip, etc.
Gemba Capital
Gemba Capital is a venture capital firm founded in the year 2018 by its founder Adith Podhar, with its prime focus on making investments in post-seed later-stage startups looking for angel/bridge and pre-series A funding. This VC firm primarily focuses on start-ups & businesses working across business sectors such as Consumer tech, SaaS, FinTech, and DeepTech.To date, it has made 32 investments in start-ups such as Plum, Sleepy Cat, Strata, Airmeet, Inai.io, Finlly, Unnati, etc.
Conclusion
Undoubtedly, raising funding is an important business function and every start-up at some point needs to raise funds to succeed and survive among competition. Hence, when it comes to business funding, no one size fits all. While some startups may be looking for a small push with a loan, others may need a larger chunk of VC investment to launch their product and enter markets. Thus, it is up to the founders to find the right source with the right approach at the right time while understanding the implications, which could become the reason for its success and higher growth over time.
