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Venture Recap 2012 - E-commerce, Accelerators, Cabs … and More!

2nd Jan 2013
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Soumitra Sharma

While the year 2012 took some macroeconomic sheen off the India growth story, the Indian entrepreneurship juggernaut only moved from strength to strength. As per Venture Intelligence, close to USD 750 million was invested in the Indian VC space across 200 deals in CY2012. Be it the full page coverage by Economic Times every Friday, networking platforms such as Facebook, Twitter and LinkedIn, or freshly minted Indian engineers and MBAs, everyone seems to be bitten by the entrepreneurship bug! This is great news as across the world, entrepreneurship has been a key driver in building great economies and nations.As a tough and hectic year comes to an end, here’s presenting a venture investor’s view on key highlights and tectonic shifts seen in the Indian entrepreneurship eco-system over last 12 months.

Founders getting younger … hungrier … savvier

It is refreshing to see conventional grey-haired founders from large IT services companies being rapidly replaced by a young generation of fresh entrepreneurs. Founders who don’t have the luxury of falling back on decades of experience (and assets built during that time); who sometimes are starting companies even before they have worked anywhere else.

These new age founders don’t necessarily identify with Narayan Murthy and Azim Premji as much as they do with Zuckerberg, ‘the Bansals’ and Naveen Tewari. They are looking to be disruptive, go global fast and be savvy in using social and professional media to generate buzz and acquire early customers. They have no baggage of being in awe of certain VC funds and grey-haired VC Partners. They treat people on merit, aren’t afraid to seek out help, work with people they are comfortable with and who resonate with their passion and understanding of businesses.

Going forward, this fresh entrepreneurial talent will define the Indian venture eco-system in this decade.

e-Commerce – the dust settles down 

As per Allegro, 52 e-commerce companies raised close to USD 700 million in Venture Capital over past 3 years. With this amount of deal activity, the space has been the subject of intense scrutiny. The proverbial ‘investing’ dust has settled down for good in 2012. Both Founders and investors are now putting their heads down and working together to build robust e-commerce businesses with healthy growth, strong margins, capital efficiency, customer stickiness and differentiated brands. The focus has decisively shifted from ‘capital, capital and more capital’ to ‘delivering a superior customer experience’. It’s still very early days in the fledgling Indian e-commerce industry – the shakeout will only do a world of good for the space and all stakeholders.

Rise of ‘THE ACCELERATOR/ INCUBATOR/ STAR ANGEL’

This year saw several accelerators/ incubators bursting on to the scene. The number of ex-entrepreneurs/ senior technology executives turning into angels also increased dramatically, with the good ones getting a star angel status. These developments have received mixed reactions from the eco-system.

My take as an investor – in the first 6 months of 2012, the US saw 27,280 businesses raising USD 9.2 billion of angel investments. As per the Planning Commission’s recent report on entrepreneurship, India has less than 500 angels investing a mere INR 100 Crores or USD 22 million annually. If anything, we need more angels/ accelerators/ incubators as an economy. And not only to fill the seed stage financing gap, but also to make young Founders savvier, more networked and hopefully, wiser.

The ‘Cab’ wave

2012 saw an interesting investment wave – a spate of online cab booking ventures getting funded. Olacabs, TaxiForSure, BookMyCab, Savaari, TaxiGuide, all got either angel or VC funding. The market opportunity definitely seems to be there, although scalability, maintaining uniform customer experience and business model economics could be key question marks. However, similar to e-commerce, the few winners will be known pretty soon.

Healthcare – the new sunrise sector for entrepreneurs

Traditionally, education, energy and healthcare have competed with each other as top sectors where huge demand-supply gaps exist in India, lending them to exponential value creation. Healthcare seems to have risen above the other two in 2012, with Venture Intelligence reporting close to USD 100 million VC investments in healthcare in 2012. Driven primarily by private enterprise, leading to high-growth and scalable business models with minimal government interference, the space has increasingly attracted the attention of Founders and investors alike. What’s even more heartening is to see variety of segments getting funded – delivery (NationWide, Mewar, Aswas), medical devices (Forus, Consure), enterprise software (Attune, Practo), and Life-sciences and biotech (Vyome, Shantani Proteome).

Cloud continues to remain hot

Investor interest and entrepreneurial activity in the cloud space continued to grow in 2012. The maturity of investment community has also improved, with VCs increasingly differentiating between ‘cloud posers’, ‘low-end services delivered over the Internet’ and true-blue SaaS/ PaaS. Indian cloud companies are also increasingly looking to go global early on, which is a great sign for building global cloud companies out of India.

Bangalore cements its position as India’s No. 1 tech hub

Bangalore continues to be India’s ‘Silicon Valley’, with VC investors seeing heavy deal flow across variety of technology segments (Enterprise Software, Internet, Mobile, Medical Devices) from the city. Several prominent global VC funds have actively expanded their Bangalore coverage this year, including opening up offices and parachuting investment professionals from other regions. The city is blessed with quality technology and entrepreneurial talent from global software companies, domestic IT services giants as well as homegrown fast-growing companies such as Inmobi. This, combined with the presence of a mature funding and business eco-system, has cemented Bangalore as the No. 1 destination to start a technology company in India.

Large technology players actively engaging with the eco-system

From a series of pan-India Summits by Amazon Web Services (AWS), to the Microsoft Accelerator and Intel Developer Days and Hackathons, large technology giants increasingly positioned themselves as active contributors to the entrepreneurship eco-system in 2012. While it makes sound business sense (small businesses are increasingly becoming valuable customers and product evangelists), it also gives them a perfect ear to technology inflexions in their segments. At a macro level, such initiatives will hopefully sensitize these behemoths to Indian startups, creating potential exit opportunities in coming years.

Skewing in Series A and B round sizes

As investors, we saw the start of increasing skew between A and B rounds this year wherein, tech ventures are raising relatively smaller Series A’s and then raising larger Series B’s. In addition to higher availability of small-ticket institutional or organized capital, one of the other key reasons behind this is the advent of Cloud, Internet and Mobile, which has dramatically lowered the cost of early product/ business model experimentation and achieving early traction. Having said that, entrepreneurs have also smartly realized that scaling up is proving to be much more capital intensive. Hence, B round sizes have consequently increased.

Going global imperative for scaling B2B Indian companies

Leaving aside the domestic consumption thesis for a bit, investors have realized that most enterprise segments in India have relatively small market sizes and slow adoption. Therefore, rapid scaling of their B2B portfolio is possible only if companies go global and open up international revenue streams as fast as possible. Obviously, a strong global presence will also command premium valuation multiples from acquirers at time of eventual exit.

Going forward over next couple of years, expect efforts from Boards to swiftly move fresh Series A funded companies towards international markets. With US being the primary cross-border market for most Indian startups, this could even mean one or more founders moving to the Valley.

Distinctions between mainstream and impact investing continue to blur

Whether it’s IDG Ventures and Accel investing in Forus, Matrix investing in Waterlife or Omidyar investing in Healthkart, 2012 saw increasing convergence of mainstream and impact investing. While mainstream investors are fast realizing that commercial returns can be generated by investing in companies started by ‘impact-oriented entrepreneurs’, socially-focused investors are coming to appreciate that aspects such as favorable unit economics, large market sizes, differentiated technology interventions and innovative business models are imperative to creating large scale and sustainable impact. Expect the lines to blur even further, especially in the healthcare and energy sectors.

Finally … the year of ‘entrepreneurship’ events!

2012 can be safely termed as the year of entrepreneurship events. Apart from the usual suspects such as TiE and NASSCOM, platforms such as YourStory took the game to another level by introducing multiple formats, including sector specific events (Mobisparks, Edustars), closed door events, Hackathons etc. With a buzzing event circuit now firmly in place, it has never been easier for Indian entrepreneurs to network, showcase their products, interact with investors and engage global technology giants.

Would like to conclude by wishing a very happy and prosperous 2013 to all readers of YourStory. The entrepreneurship eco-system is looking sound and improving by the quarter; it probably has never been easier to go global as an Indian company; there is a talent pool that is more open than ever before to starting companies and working in startups; domestic consumption is vibrant and Indian enterprise customers are much more open to believing in small companies; raising the pre-Series A round too, is much easier. Of course there are challenges, but since when has that deterred Indian entrepreneurs!

 

Disclaimer

The views and opinions expressed in this column are strictly personal, and not those of any organization/institution the author is or has been a part of, nor is made in any official capacity of such organization/institution, unless explicitly stated otherwise. None of the information, views and opinions in the column should be construed as business or legal advice.

If you would like to discuss your venture or business plan, or simply bounce off any ideas, Soumitra can be reached at soumitra_sharma@idgvcindia.com. You can also follow him on Twitter @soumitra_sharma.

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