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With the number of start-ups ballooning in India requiring higher dose of capital infusion, new categories of investors are coming to the fore.
These include sovereign wealth funds, hedge funds, PE firms and family offices, according to data sourced from venture capital firm Sequoia Capital and cited by The Economic Times in a report. Some of the investors include Facebook, Ikea and Qatar Investment Authority, among others.
The Non-Traditional Route
The non-traditional investors have cracked several funding deals in India. For instance, Facebook invested in social commerce start-up Meesho, Ikea invested in home design start-up Livspace and Qatar Investment Authority pumped US$150 million in edtech unicorn Byju’s.
Apart from big companies and giants, many companies started off as non-traditional investors and took their game seriously, thereafter. SoftBank being a classic example of the same. It started off as telecom firm and went to establish the Vision Fund, becoming the biggest investor in the world.
Despite the number of start-ups going up in the country, a recent report by TiE and Zinnov recommended an urgent need to significantly increase the seed and early stage funding, which has tapered since 2017. But, the need for funding at these stages is increasing given that companies are preferring to remain private. Only a handful of companies such as Druva, Mobikwik and Freshworks have shown the intent to go public.
The Big Gaps
India is undervalued, underpenetrated and underbanked. With no dearth of a pool of talent and skill, it is lagging behind US and China despite having a solid and robust start-up ecosystem. There are gaps in the funding stages as well. According to a report by accelerator and VC, 9Unicorns, India gets 20x less funsing than US in Series A. in 2018, India had only US$ 4.1 billion pumped in Series A deals whereas US had a staggering US$84.1 billion pumped.
Additionally, Indian start-ups absorb US$12 billion-US$14 billion ever year as compared with China which has receives almost double the amount in the very first half of the year at US$23.2 billion, leaving the Indian market underpenetrated.
With over 17000 start-ups in India, the demand for capital infusion is bound to rise and here comes the role of non-traditional investors.