The business of venture capital in India isn’t in great shape at the moment. For nearly every early-stage fund manager out there, the past 18-odd months have mostly been about writing down past investments, scrambling to find follow-on capital for portfolio companies, taking a hit on valuations, and cutting back on fresh investments. But it hasn’t all been cold and miserable.
During the same 18-odd months, a whole new generation of venture capital firms have taken root, hoping to usher in the next era of early-stage investing in this market.
Not since 2006-07, when the venture capital asset class returned to India, has the market here experienced such an influx of new firms and especially homegrown firms. In 2016, as many as nine first-time India-dedicated venture capital funds raised close to $300 million, compared with just four first-time funds worth $150 million raised in 2015, according to data compiled by Chennai-based researcher Venture Intelligence. Several more are currently on the road and at various stages of raising commitments from limited partners.
The generation of homegrown venture capital firms entering the market now are different from their predecessors in two important ways:
One, more than a few of the fund managers at these firms have been embedded in the local start-up ecosystem for well over a decade either as angel investors or as fund managers at established firms. They will be far better equipped than their predecessors were in navigating the complexities of the Indian market.
Two, nearly all of them are sourcing a substantial portion of their capital from domestic investors—family offices, HNIs (high net-worth individuals), a few local financial institutions and even a bunch of local corporate houses that are opening up to the asset class.
The combination of those two factors could play a powerful role in altering the character of the country’s start-up market.
Depending on how these new firms choose to deploy their capital, the next generation of home-grown start-up businesses could turn out to be more India-appropriate and less of the global copycat businesses that have plunged the venture capital market into its current crisis.
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