By Arushi Chopra and Swaraj Singh Dhanjal Mint, New Delhi
WWR Article Summary (tl;dr) The promise of a multi-billion dollar online retail marketplace in India has attracted a new set of venture capitalists willing to bet their millions. MUMBAI
The venture capital gold rush to India that began with Tiger Global Management's purchase of a slice of Flipkart in 2010 ebbed five years later, ending in cash crunch, valuation cuts and many shutdowns in India's start-up landscape.
Leaders of the last surge such as Tiger and Softbank Corp. have since largely pulled the plug on India, but the promise of an online retail market that UBS Group AG expects to touch $48-60 billion by 2020 and Morgan Stanley sees at $120 billion has attracted a new set of brave souls willing to bet their millions.
The relative lack of interest from established venture funds since the peak of 2015 has also opened up space for these investors, who missed the bus in the earlier rounds of fund-raising.
These investors did not burn their fingers in the three waves of venture capital that swept India. In the first era, until 2009, global venture capital firms such as Sequoia Capital and Accel Partners pretty much dominated the scene. The second era started in 2010 when Tiger took a stake in Flipkart, and followed it up with six more investments in the company.
Offshoots of large funds came next, followed by tech investors, sovereign wealth funds, pension funds, funds of funds, hedge funds--you name it. Tiger itself has invested close to $1.8 billion across 50 India-based companies, as per deal tracker Venture Intelligence, mostly in e-commerce and web services firms.
The third era started in 2014 when venture capital from across the world flooded Indian start-ups--of every type, size and description. Last year was the best on record for Indian start-ups in more than a decade, as investors pumped in $5.4 billion, according to data from VCCEdge.
Then came the slowdown.
New investors, who sat out most of the bubble and the bust are now scouting for targets, picking up what they believe are good bets that will stand the test of time. Even though they are bullish on India, they have largely been co-investors with either existing investors in a company or investors that have already established a presence in India, a move that significantly reduces their risk.
Mint takes a look at some of these new investors that are testing the waters in India.
Stripes Group Founded in 2003 by Ken Fox and Daniel Marriott, Stripes Group is a growth-stage investor that looks at Series C rounds of funding. The New York-based fund made its first investment in India when it participated in the latest round of fund-raising by Mumbai-based BigTree Entertainment Pvt. Ltd that owns and operates BookMyShow. The online-ticketing company raised over Rs.550 crore in the round.
"There is no macro thesis on timing India for us. We look for great businesses no matter where we are. We identify companies that have great markets that can easily obtain profitability and operate a long-term sustainable model. In that sense, a geographic filter becomes secondary, but if we do find something like this in India, we'd be excited to invest again," Marriott told Mint.
Stripes Group does not want to limit itself to technology start-ups. It is also looking at other sectors in India such as digital advertising, logistics, aggregate businesses and software across different verticals, said Marriott.
With a fund size of $500 million, Stripes Group makes five to seven investments worldwide per year worth $10-$100 million each, with an average ticket size of $40-50 million.
Three-fourths of Stripes Group's portfolio is in technology business, subscription software, e-commerce and digital advertising, with the rest in consumer packaged goods.
Stripes has backed several start-ups such Craftsy, an online education and commerce platform for creative enthusiasts; MyWebGrocer, a provider of software-as-a-service solutions and digital media services to grocery store chains; Seamless, a web-based platform for ordering meals and catering from local restaurants, which was acquired by Nasdaq-listed GrubHub Inc.
Iron Pillar Iron Pillar made a big splash in February when it participated in e-commerce firm Snapdeal's $200 million fund-raising round, along with Canadian pension fund Ontario Teachers' Pension Plan.
Founded by former Morgan Creek Capital Management professional Anand Prasanna, Iron Pillar is a mid-stage technology venture investor that focuses on consumer and enterprise companies.
"They are a mid-stage VC essentially doing Series C and Series D; they want to come in situations where they can negotiate hard," an executive at an institutional investor said on condition of anonymity.
Prasanna was previously director at the Shanghai office of Morgan Creek. Sameer Nath, another founding managing partner, was till recently head of mergers and acquisitions (M&As) at Citigroup Global.
Another partner, Mohanjit Jolly, was till recently leading investments for Silicon Valley-based venture capital firm Draper Fisher Jurvetson (DFJ) in India. He is now based in the Valley.
"His mandate essentially is to scout for strategics as an exit option for their portfolio companies," said the investor cited above.
Prasanna declined to comment for this report, citing a regulatory quiet period.
Maverick Capital Founded by Lee S. Ainslie III in 1993, Maverick is a hedge fund that also invests in seed, early and later-stage ventures, and also does private equity investments. It manages around $15 billion of assets with a portfolio spread across sectors such as biotechnology, healthcare and technology.
Earlier this year, Maverick was the lead investor in healthcare-tech start-up 1mg's fund raising, putting up $16 million. 1mg is an online marketplace to buy medicines, book doctor appointments and lab tests at home.
"Maverick has invested in digital health businesses quite actively in the US and they have a lot of understanding of this space," said Prashant Tandon, chief executive and founder of 1mg.
"Having seen digital health and how it has played around the world, they (Maverick) felt we (1mg) were doing something interesting out here, so that is what really got them to look at us in a serious way," added Tandon.
In 2015, Maverick had first tested the Indian market with an $11 million funding round in Mumbai-based Vserv, a business-to-business (B2B) data analytics firm.
US-based Maverick made its biggest exit in 2011, when deals website Groupon went public, raising $700 million.
A Maverick public relations executive declined to comment for the story.
Harmony Partners Harmony Partners' first India investment was in Swiggy in January, an interesting bet for a new investor, given the unravelling of much hyped food-tech companies. Rivals such as TinyOwl and FoodPanda are under stress and several smaller food-tech start-ups have had to shut shop.
"Swiggy was our first investment in India. We saw an opportunity to invest alongside a strong group of existing investors in a company that had many leading indicators for a market winner," Michael Chou, partner, Harmony Partners, said in an email.
Harmony invests in hyper-growth companies with strong unit economics; it primarily invest in Series C and later stages, said Chou. The Swiggy fund-raising was a series C round of $35 million. Founded in 2010 by Mark Lotke, Harmony Partners is based in New York. Prior to founding Harmony, Lotke led the software group at FTV Capital.
For Swiggy, it was Harmony's experience of having invested in other on-demand tech companies globally that made it an interesting partner.
"Harmony Partners are strategic partners for Swiggy, since they are already investors in other on-demand companies globally," said Nandan Reddy, co-founder, Swiggy.
The fund has $250 million of assets under management, according to Chou, with a heavy concentration of investments in enterprise software and consumer web or mobile.
Harmony's other portfolio companies include Swedish music aggregator Spotify Ltd, US-based on-demand delivery company Postmates Inc. and Anaplan Inc., which provides cloud-based business-planning tools.
In May, Harmony closed its third fund at $105 million. Harmony had previously raised an $85 million fund in 2014, according to the website PE Hub.