The start-up scene in India is growing quite fast. The number of start-ups increases by 17% annually. Despite the pandemic, venture capital investments totalled roughly $10 million in 2020. According to statistics, companies, even ones with great ideas, typically fail for a lack of finance.
Financial tycoons and businesspeople with the moniker “venture capitalists” invest money in venture capital funds. The money raised here is used to invest in early-phase enterprises with the potential to become successful companies. Over 650 VCs provide early-phase business capital. VCs are recognized by SEBI and are regarded as the best source of funding for start-ups and early-phase companies needing a sizable financial commitment.
Approximately 650 venture investors have shown active participation in sponsoring Indian companies since 2015. Here, we will solely pay attention to the best venture capital firms in India that finance early-phase start-ups and small companies. Venture capital firms are managed by wealthy businesspeople and financial experts referred to as “venture capitalists.” The funds generated here are invested in start-up companies with the potential to grow and become hugely successful companies.
SEBI recognizes that VC firms are the most effective sources of finance for small enterprises and start-ups seeking significant capital investment in their early growth phases.
What is venture capital?
Venture capital, sometimes referred to as VC financing, involves putting money into start-ups or companies with limited operational experience but high growth potential in exchange for equity. From a seed investment to a Series F investment, it can be granted at different phases of their growth. A crucial aspect of venture capital investing is that it extends beyond only offering financial support to young, typically tech-focused companies. Institutional and high-net-worth investors, as well as speciality investment organizations, are often the sources of VC financing. This pooled funding is known as a “venture capital fund.”
The people that actively look for investment prospects for the company and assist in raising funding for venture funds are known as venture capitalists. Investment capitalists, sometimes known as venture capitalists, are frequently more concerned with the expansion of a whole sector than with the success of a single business owner. To invest, they watch for companies that are booming in particular industries. They often sit on these firms’ boards and make operational and strategic decisions.
Venture capitalists may be categorized into three groups: domain specialists, operators, and networkers. Domain experts are people who have years of experience in your area and have a thorough understanding of all the requirements for launching a business there. Operators are people who have a history of growing and scaling companies in the industry. Networkers are those who have a vast network of contacts who can help connect business owners with subject matter experts and operators.
Throughout the investment, venture capitalists typically anticipate a return of 25% to 35% every year. The plan is to invest for 8–10 years, or until the company and its returns grow to a scale that benefits the venture capital firm’s investors, and then to sell it off or go public. Continue reading to learn the methods venture investors use to wind down a firm.
Venture capital funds are governed by the Securities and Exchange Board of India (AIF) Regulations, 2012. (Alternative Investment Funds Regulations). These limitations apply to all pooled investment funds that are registered in India and that have received capital from domestic or foreign investors.
Types of venture capital funding
A firm may get venture capital investment at various stages. Early-phase finance, growth financing, and acquisition/purchase out financing are the three main categories of venture capital financing.
This venture capital investment often takes place at the seed, start-up, and first-phase fundraising levels for brands. Typically, a firm is only a concept at the seed funding phase. Before a brand is ready to debut, cash is provided for the prototype’s development and completion during the start-up phase. When a firm is finally going to turn a profit and requires money for product development, it is in the initial phase of fundraising. In this blog, we have further information regarding how seed funding functions.
Venture capitalists offer this kind of funding to help companies dramatically expand their operations. This typically happens when a company experiences exponential expansion and needs more money to meet the rising demand. First-phase finance, bridge financing, and second-phase financing are the three categories under which expansion funding is categorized. For example, bridge financing serves as temporary capital while a firm raises another round or applies for an IPO, whereas first- and second-phase investments are for continued business expansion.
As the name implies, acquisition financing is a sort of financing in which venture capital is invested in companies that purchase a portion or the entirety of another company. Another name for it is “purchased out finance.”
Venture capital exit strategies
Investors are encouraged to decide when they will sell for a profit and when they will sell for a loss before engaging in a trade. Venture capitalists have a variety of exit options for their investments, depending on the phase of development and exit strategy. The following are some of the tactics that are most frequently used.
IPO (Initial Public Offering)
An initial public offering (IPO) or stock launch is a public offering in which shares of a company are made available to institutional investors and generally to individual investors. The shares are often underwritten by one or more investment banks, who also arrange for their listing on one or more stock markets. Investors wait for the best time to launch an IPO to ensure they obtain the most significant possible return.
A secondary market approach involves a venture capitalist selling their ownership to a third party in a secondary market, usually other venture capitalists (where investors purchase securities or assets from other investors). The critical thing to remember is that a third party would purchase the shares at a lower price if the venture investor is anxious to depart or take returns.
Share purchase back
In this tactic, the company purchases the venture capitalist’s stock back. While it facilitates the investor’s speedy exit from a company, it benefits the latter by raising earnings per share.
When a business purchases anything from you, you surrender ownership to that business. In this scenario, the acquiring business issues a tender offer to all shareholders, frequently in the form of cash, at a premium above what the investors paid to acquire their shares.
The Growth of Venture Capital in India
Since the 1990s, venture capital has existed in India. Today, it has effectively evolved for all company organizations that take on hazardous ventures and have bright futures. Venture capital is made available in India in the form of shares, seed money, and other comparable forms.
The Unit Trust of India assisted ICICI in becoming a provider of venture capital in 1988. India presently has several venture capital organizations. Financial institutions like ICICI have joined this industry with their venture capital arms. In addition to Indian investors, foreign companies have also established themselves in India as financial institutions, providing investments to major corporate enterprises.
Global investment has dramatically increased the size of the Indian financial markets.
Only foreign investors contributed to the introduction of western financial philosophies, stringent contracts, a focus on successful ventures, and active engagement in finance. Over time, India’s financial investment mechanism has seen significant development.
With the introduction of venture capital investment companies, India has advanced substantially; previously, there were just commercial banks and a few other financial organizations. Business organizations increasingly focus on expansion since they may get financial support through venture capital.
In India, both the size and calibre of commercial firms have grown. Many growth-oriented corporate enterprises have made venture capital investments in response to the increased level of world-vast competition. All companies engaged in information technology, product production, and modern service provision are eligible for venture capital investment in India.
- Sequoia Capital
Sequoia Capital is an American venture capital firm headquartered in Menlo Park, California. Investments are made by Sequoia Capital in both public and private companies. Sequoia Capital has backed more than 1,000 companies since 1972, including Apple, Google, Oracle, Nvidia, Github, and others. The technological sector is the primary emphasis.
Byju’s, Bira 91, OYO, Khatabook, Rupeek, Meesho, and CRED are notable investments. They provide funding for the seed, late-phase, and early-phase venture phases. The American venture capital company, Sequoia Capital, has its headquarters in Menlo Park, California. They handle seven funds with a combined value of $5.4 billion in India alone.
To mentor and invest in companies throughout Southeast Asia, including India, the venture capital firm also runs an accelerator program called the Surge. Sequoia selects 15 to 20 firms for shortlisting every six months and offers a financial investment of $1 million to $2 million with cooperation from additional investors. According to the IVCA study, Sequoia Capital made the most investments in start-ups in 2020. On March 25, 2021, it concluded the second seed round of its 16-week accelerator fundraising program, Surge, at a $195 million valuation. Its primary investments are in technology, the consumer internet, finance, and healthcare. Four funds with 45 investments each and five leaves are available.
- Tiger Global Management
An investment firm called Tiger Global Management LLC focuses on public and private companies in the global Internet, software, consumer, and financial technology sectors. World-class, long-term investment returns are desired. It develops a unique global investing platform. They invest in reputable companies that have solid management teams and long-term growth patterns.
They often fund growth, late-phase, private equity, and post-IPO investments in the technology, telecom, media, consumer, and industrial sectors. According to reports, the corporation used seven allocated funds to invest in almost 442 enterprises throughout the world. Tiger Global Management invested $50 million in Zenoti. Some well-known VC companies have made some well-known investments, including Urban Company, Flipkart, Moglix, OPEN, Ninjacart, Razorpay, etc.
- Accel Partners
Accel, formerly known as Accel Partners, is an American venture capital company with its headquarters in Palo Alto, California. The company works in India, China, and London, in addition to having offices in Palo Alto and San Francisco. Over the years, Accel has made investments in several well-known firms, including Facebook, Flipkart, Atlassian, Slack, Spotify, Etsy, and others.
They made $450 million in major investments in Swiggy and Flipkart in 2016. When VenWiz raised $3 million on January 27, 2021, it was the most recent investment in India. It has made approximately 1,556 investments, 311 loans, 605 lead investments, and 29 fundings to date.
Accel now oversees assets worth more than $1.6 billion. It has closed about six funds in India. Many Indian companies, including Flipkart, Swiggy, Blackbuck, Cure, Fit, and others, have received funding from the firm. The company’s growth capital investments are mostly focused on stronger, more established companies that need more money to grow.
- Nexus Venture Partners.
As a venture capital business, Nexus Venture Partners was founded in 2006. The first venture capital firm with Indian and American investors was founded in Silicon Valley and Mumbai as Nexus Venture Partners. The business has developed into a renowned venture capital firm that helps other companies get financing, including WhiteHat Jr., Rapido, Delhivery, Zomato, and others.
The company invests in early-growth phase companies, with typical ticket sizes ranging from $500K to $10M. The business raised $100 million for its inaugural financing. WhiteHat Jr, Delhivery, Rapido, Unacademy, Druva, Jumbotail, Bolo App, Pratilipi, Zomato, and others are major investments made by the firm, with a total of 80 agreements. They make early investments in tiny enterprises.
Later on, the business takes part in more financing rounds. The business raised $100 million in its initial round of fundraising and closed its fifth fund with $450 million in May 2019. With 113 lead investments and 36 leaves, the organization has 254 investments.
- The Indian Angel Network
Founded by Padmaja Ruparel, IAN is a SEBI-registered network of angel investors who are eager to fund start-ups and small companies with innovative ideas. By bringing together investors and businesspeople from across the world, IAN makes investments in promising early-phase start-ups and enterprises.
The club had 450 members from 11 countries as of 2017. Investments by the organization have been made in companies including PregBuddy and SuperProfs. One of its founders, Padmaja Ruparel, was included in Fortune magazine’s 2018 list of the Most Powerful Women in India.
On November 8, 2020, a relationship between the Indian Angel Network (IAN) and the Bangladesh Angels Network was created. (BAN). To build a venture funding-friendly environment, it is critical to collaborate in sourcing, cross-referring, and developing relationships with technology-enabled companies in Bangladesh and India.
Amazing investments include WebEngage and Wow! Little Black Book, Druva, Box8, Faballey, and Momo. They are in charge of more than 470 investors. They make investments in companies with typical ticket sizes of $400K to $600K and exit after three to five years via a tactical sale. It also manages a venture capital fund, which has so far raised $33.2 million.
- Matrix Partners
The American private equity investment firm Matrix Partners specializes in venture financing. The company finances seed and early-phase companies in India and the United States. The software, communications, semiconductor, data storage, Internet, and wireless sectors are its main areas of interest. Apple, Alteon WebSystems, and Office Club are all owned by Matrix. It is estimated to handle assets of around $4 billion. The company has made investments in over 549 companies world-wide with its second fund.
In addition to providing financing to companies with strong growth potential, they also assist in crucial areas like hiring, strategy, collaborations, etc. Ola, Practo, DailyHunt, Mawipe, Five-Star Business Finance, Treebo, Limeroad, Razorpay, Zip Loan, OfBusiness, etc., are among the companies they have invested in. Its members are testbook.com, justdial, and shopclues.
It made a $110 million investment in Ofbusiness in April 2021. Two further recent investments are Antwalk and Crijo. Vogo, Save, Captain Fresh, Fun, OZiva, etc., Helion Venture Partners. Over 129 investments have been made by the organization, with a lead of 65 and 9 leaves.
- Helion Venture Partners
Helion Advisors Pvt. Ltd. (Helion Venture Partners), an Indian-focused venture capital company with its main office in Bengaluru, was established in Mauritius in 2006. The venture capital business invests in consumer services and high-growth Internet companies. A total of $519 million has been raised by Helion Venture Partners across two funds, with Fund IV being the most recent. On April 16, 2015, this fund was announced, and it raised $300 million.
The company has invested in 139 companies. On December 12, 2019, Slintel raised $1.5 million through their most recent investment. Five investments in diversity have been made by Helion Venture Partners. On December 12, 2019, Slintel raised $1.5 million in funding for diversity. Thirty-one leaves were made by the venture capital company. Among the notable leaves from Helion Venture Partners are BigBasket, Simplilearn, and ShopClues.
- Mumbai Angels Organization
India’s top investment platform, Mumbai Angels Network (The MA Network), was established in 2006 and specializes in investing in start-up companies. The venture investing platform now has a portfolio of more than 160 companies with 25 leaves. The Mumbai Angels contributed $1.5 million to the series funding round for military technology company Big Bang Boom Solutions in the third quarter. The companies that have received money from the investing platform include Myntra, Purplle, InMobi, and Dhruva Space.
The most recent contribution made by Gameeon was $320K on September 9, 2021. The business has invested in diversity four times. On January 1, 2019, when the exclusively financed Mumbai Angels Network had 25 members, they made their most recent diversity investment. The most well-known Mumbai Angels Network leaves are Myntra, BabyChakra, and NowFloats.
- Chiratae Ventures
The business was started by Sudhir Sethi and TCM Sundaram. They invest in a range of sectors, including mobile, engineering, media & technology, health tech, etc., and have more than 15 years of experience in this field. They are well-known throughout India. They have so far invested in over 200 companies, some of which include First Cry, Yatra, Lenskart, Myntra, Zivame, etc. They invest somewhere between $1 million and $10 million.
Chiratae Ventures has 114 firms in its portfolio. On September 15, 2021, Pyxis One raised $17 million, which was their most recent investment. Seven investments in diversity have been made by the VC company. On September 29, 2020, SquadStack raised $5 million in financing for diversity. To date, it has 36 leaves to its name. Among Chiratae Ventures’ most notable clients are Shazam Entertainment, EverString, and Flyrobe.
- Elevation Capital
On October 20, 2020, Elevation Capital, previously SAIF, underwent a name change. It is a phase-and sector-agnostic Asian private equity fund. The business, which has its headquarters in Gurugram, Haryana, India, plans to make modest investments in companies at the seed, early, and later phases. The Softbank Asia Infrastructure Fund (SAIF), which later became Elevation Capital (formerly known as SAIF Partners), was established in 2001 with a $400 million fund, the only limited partners of which were Cisco Systems and Softbank Group.
Since 2001, one of India’s most prosperous companies has been The VC. The company oversees assets totalling USD 400 billion. SAIF, which has offices in China and India, invests in companies using seed money and high-growth capital. Capital Float, Firstcry, Industry Purchasing, Aye Finance, Rivigo, Cleartax, Just Dial, MakeMyTrip, Meesho, Paytm, ShareChat, Swiggy, and other notable investments are just a few examples. According to reports, the corporation has $4 billion in capital.
Venture capital firms, or VCs, continue to be a key component of India’s thriving start-up ecosystem. According to statistics, even the best company ideas with an excellent team fail in the first few years of operation owing to a lack of funding. Funding is essential; once start-ups and small companies have entered the development phase, a sizeable sum of money is needed to allow them to continue to expand smoothly.
Banks and other related sources used to be the only sources of funding for small companies and start-ups. Due to the growth of angel investors and top venture capital firms in India, start-ups now have access to more reliable sources of funding. The proportion of venture capital investments in India has skyrocketed. Small companies and start-ups in India have created new growth opportunities, and the future seems very promising. The aforementioned top VC firms in India are ranked strictly on the number of investments made.
Edited by Prakriti Arora