Over 150 traders, together with Singapore’s sovereign fund Temasek and Malaysia’s Khazanah, gathered at Mumbai’s five-star Trident Oberoi lodge on a current Friday for enterprise agency Lightspeed India Companions’ “Lift Off” summit.
The 2-day occasion goals to spark partnerships by enabling “in a short window, many views, ideas and investments to be shared between nC2 connections (every permutation and combination),” described Karthik Reddy, co-founder of Blume Ventures.
The occasion builds on the success of final 12 months’s inaugural Raise Off, which helped spur offers and networking, together with paving the best way for Singapore sovereign fund GIC’s funding in business-to-business market VeGrow later within the 12 months.
The upbeat ambiance this 12 months mirrored India’s rebound in startup funding over the previous three to 4 months. However the lavish setting couldn’t masks urgent questions nonetheless dealing with the trade.
Byju’s, as soon as India’s most precious startup at $22 billion valuation, is in search of new capital by way of a rights problem that may slash its valuation by a whopping 99%. Paytm, as soon as the poster little one of India’s startup desires that went public at a $20 billion valuation in 2021, has seen its market cap shrivel below $3 billion amid the tech market carnage and regulatory upset.
Many late-stage startups stay wedded to their peak 2021 valuations. And lots of extremely valued 2021 seed offers are floundering with out follow-on funding. On the similar time, Indian VCs are presently sitting on a file $20 billion in dry powder, elevating skepticism amongst many traders about extra fundraising.
On VC fund measurement
“Sitting here in early 2024, with the benefit of observing 2023 investment activity levels as well as the pace of start-up creation, I think the answer is yes,” responded Lightspeed accomplice Bejul Somaia when requested whether or not Indian VC companies have over-raised, amassing extra funds than they’ll responsibly deploy.
“The current vintage of funds were raised in 2021/2022, when activity levels and investment dollars were substantially higher than 2023. In 2021, $33 billion of venture capital (early and late stage) was invested in India. In 2023, this number was $9 billion. So we have to keep in mind that funds raised in 2021/2022 were sized for an opportunity that was reflective of that time,” he defined.
“If you look at the number of investments, the number was 2,200 in 2021 and approximately half of that in 2023. Now that doesn’t mean the market will not accelerate again in two-three years….market cycles do happen. So 2023 is also not necessarily reflective of the venture market opportunity in India,” he added.
Lightspeed Enterprise Companions India — which had returned over $1 billion to LPs by mid-last year — was unusually restrained throughout 2021’s interval of hyper-exuberance when offers closed in days with inflated valuations and unreasonable founder-friendly phrases – a frenzy Somaia hopes the market by no means revisits.
“Environments like 2021 make me quite anxious. Investment opportunities move fast and at high prices…..and growth, hype and salesmanship start mattering more than building durable companies. Even as our mark-to-market performance was looking incredible, that’s perhaps one of the few years at Lightspeed when I had the most anxiety. On one hand, these valuations were market-determined, on the other they didn’t jive with our assessment of the business,” he stated.
“So how do you know who is right? Does the market know something we don’t? Fortunately we stayed with our convictions for the most part through that time.”
Magicpin founder Anshoo Sharma, One Help founder Gagan Maini with Lightspeed’s Bejul Somaia (Picture: Lightspeed)
Over the previous three years, many India-focused enterprise capital companies have raised substantial new funds that dwarf their earlier autos – Peak XV has amassed $2.5 billion for the region throughout current closes, whereas Nexus Enterprise Companions pulled in $700 million, Elevation raised $670 million, and Accel garnered $650 million. Lightspeed, which started investing in India greater than 15 years in the past, and later fashioned devoted funds for the nation, unveiled a $500 million fund, its fourth for India, in 2022.
“With respect to Lightspeed India’s most recent fund, I believe that is sized at the lower end of our peers. This sizing is a deliberate choice,” stated Somaia. “That said, maybe our peers see an opportunity that we don’t, or have a more expansive investment strategy – and we are always curious to learn. But we want to guard against the risk of too much capital resulting in strategy drift.”
Somaia stated he anticipates many companies, together with Lightspeed, to take three to 4 years to deploy their funds as an alternative of the everyday cycle of two and a half years to a few. “We need to deliver top-tier returns to our LPs, who have become accustomed to a certain kind of return from a firm like Lightspeed. We will never compromise that to put money to work,” he stated.
India within the international AI race
With AI progress surging in Western hubs, India is lagging in foundational research as only a few of its startups try and construct giant language fashions.
Lightspeed sees parallels to the agency’s early funding in Indian Power Trade – constructing an influence buying and selling platform whose analog didn’t exist in Western markets. “My perspective is that right now we are at a phase with AI where a lot of the infrastructure, and some tooling, is being built. This is primarily happening in Silicon Valley. It has actually been a reminder that the concentration of technical talent in Silicon Valley is unparalleled,” stated Somaia.
“In the time that we have been investing in India, we have observed limited core technical infrastructure innovation. Most of the opportunity tends to be at the application layer – for consumer and enterprise. There are many reasons for this, including market dynamics and the investor community, where we have few technically-strong investors…..so it’s a bit of chicken and egg,” he added.
Hemant Mohapatra, a accomplice at Lightspeed, focuses on deeptech and has backed startups like Rephrase, one of many earliest generative AI startups, and large language model AI startup Sarvam.
Mohapatra agreed that entry to top-tier AI expertise is constrained globally. However just like the cloud computing shakeout, he predicted consolidation round a couple of AI expertise and enterprise paradigms as soon as present hype subsides. Given India’s engineering bench power, focused AI alternatives may nonetheless emerge domestically even when Silicon Valley retains its basic innovator dominance, he stated.
The affected person capital
Lightspeed’s Anuj Bhargava and Rahul Taneja with Darwinbox founder Jayant Paleti. (Picture: Lightspeed)
A priority held by many traders in India is that a number of late-stage startups proceed pushing for up-rounds, exhausting their runways earlier than accepting post-downturn realities.
Anuj Bhargava, Lightspeed MD and Head of India Company Growth, instructed TechCrunch he sees progress in the direction of alignment with the general public markets. “I think this is the year where the financing that will happen will be in more sync with the public markets. For growth companies, the private markets have been slow. But for the names that have really improved their PnLs, have cut the burns and are on sustainable unit economics, I think the public markets offer a great opportunity,” he stated.
India has additionally attracted rising sovereign fund curiosity over the previous three years at a scale it by no means earlier than, he stated, including he was optimistic that they may spend money on many late-stage startups. “We had a lot of funds not based in India but investing in India because of the opportunity the country offered to them outside their own. A lot of companies ended up raising money that didn’t justify their scale or progress. In the last few years, some of the momentum investors have not been investing as much in India, creating a void,” he stated.
“That void has been filled by patient capital – sovereign funds were very quiet in 2020 and 2021; pension funds who were either quiet and probably hadn’t invested much in India earlier; and the growth arms of the private equity funds, many of which earlier weren’t investing much in tech. So these three pockets of capital are mature, long-term and patient and I anticipate we will see more activities from them going forward.”
Whereas late stage funding stays tightened significantly, some traders see shiny spots in India’s early-stage ecosystem. Peak XV, Lightspeed, Elevation, Accel and Nexus signed over a dozen early-stage offers within the month of January alone, in line with an individual conversant in the matter.
“While many in the ecosystem are busy guessing when winter will be over, we however believe there is no time like now to build (and for us to invest),” stated Lightspeed accomplice Rahul Taneja.
The expert expertise and keen capital stay accessible at early levels, he stated. “Founder quality is much better – the folks who are leaving their jobs truly believe in their ideas, and are willing to take the plunge in what most would call a ‘slow year.’ Access to high quality talent is much better, and capital allocators have been waiting to make bolder bets. Every single day, we get to meet exceptional founders at the earliest stages of venture creation – and realize how lucky we are to be in a position to support India & Southeast Asia’s digital growth.”
