Venture capital firms launch separate seed-stage funds, accelerators and mentorship schemes.
Bengaluru | New Delhi: Venture capital firms are rushing to snap up startups early by launching separate seed-stage funds, specialised accelerators and mentorship programmes, in a hyped up deal-making market.
The push to spot companies at the seed-stage comes at a time when a bunch of new early stage funds like Stellaris VP, Pi Ventures and Waterbridge are scouting for the same set of founders, making the market extremely competitive.
ET reported earlier this month that early-stage technology and startup deal activity is set to intensify, with venture capital firms such as Accel Partners and Lightspeed Venture Partners expected to raise fresh capital, and several other funds, both old and new, stepping up investment in the country.
Accel, an investor in homegrown online retailer Flipkart and food delivery platform Swiggy, has started an accelerator called ReBound, exclusively for second- and third-time founders.
ReBound, launched in July, is a peer-led programme helmed by Dinesh Katiyar, a five-time startup founder himself.
Silicon Valley-based Katiyar is a partner at the VC fund, which has traditionally made hundreds of seed bets. Accel also separately runs Launchpad, where it funds early-stage ideas and offers a co-working space to startups. Accel did not comment on the ReBound initiative.
Orios Venture Partners has brought on board MakeMyTrip founder and group CEO Deep Kalra as a mentor for its Misfits scale-up programme.
The investment firm, which counts the likes of PharmEasy and Country Delight in its portfolio, has also brought in founders of its portfolio companies. They include Dharmil Sheth, chief executive of online pharma major PharmEasy, and Anupam Mittal, who has co-invested in a number of ventures alongside Rehan Yar Khan, to help the ventures scale, hire talent and raise funds.
The seed-stage accelerator programme will see the Mumbai-based investor putting in between $50,000 and $1.5 million in seed capital in 7-10 select ventures across three cohorts, with three-day bootcamps held across three cities for each session.
Accel and Orios have launched these initiatives just months after marquee investor Sequoia Capital launched its $200-million initiative Surge, the rapid scale-up programme for startups in India and Southeast Asia.
Sequoia had earlier this year appointed former Google India and Southeast Asia head Rajan Anandan to lead the high-profile effort. It has also brought on board a number of its top portfolio entrepreneurs, such as FreeCharge and Cred founder Kunal Shah and Oyo’s Ritesh Agarwal, to mentor the companies selected under Surge.
Over the last few years, Matrix Partners too has focused on seed deals, and built an on-ground network to access deals early.
Valuations likely to go up
The focus of venture capital firms on seed investments is likely to intensify the fight for early-stage deals and push up valuations of young companies, industry watchers said.
“India’s growing startup ecosystem has changed on its expectations from VCs over the last 10 years since the birth of the first wave of unicorns. Today’s startup founders demand more than just funds from investors,” Anup Jain, managing partner at Orios Venture Partners, said.
In a bid to differentiate and also add value to deals, most early-stage funds prefer to co-invest with VCs from the United States, Japan, China and South Korea, which add an element of international exposure or open up new investment avenues.
These include General Catalyst, GGV, Akatsuki Entertainment Technology, Korean Investment Partners, Qiming Ventures, Morningside and a clutch of family offices. Steadview Capital, Falcon Edge, Shunwei Capital, Ribbit Capital, Venture Highway, Mirae Asset Management and Beenext are some of the others.
“It’s important to structure these rounds along with super angels or other small venture funds,” said a founder who recently raised money from these accelerators and is now on his way to close a $30 million round. “If it’s just one fund alone, and they refuse to back you later, it’s a huge signaling risk for other funds,” he said.
Separately, these funds are also closely tracking AngelList — a website for startups, angel investors and job-seekers looking to work at startups — and several job sites to scout for founders in a more organized manner. They are also building an extensive network in large companies like Flipkart, Ola, Byju’s, Swiggy to source deals.
Growth stage funds going early
Investors and entrepreneurs told ET that one key reason to go early is that later-stage funds are also coming down earlier in the funnel to back companies, a trend that puts pressure on everyone to get in fast and take a better share in the company.
“Today, a $100 billion fund (SoftBank) is cutting a $100 million cheque; Tencent, Falcon Edge and Steadview are making $20 million bets. If you don’t get in early, founders have no incentive to get you in later,” said a top venture fund partner, requesting anonymity.
According to startup industry tracker Tracxn, the money poured into Indian startups increased by 30% to $4.7 billion in the first six months of 2019, compared with the same period last year.
Read More: Economic Times