VC Investment In India Grew By Whopping 261% To $3.86 Billion In 2014 [REPORT]

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Venture Capital (VC) funding in Indian startups has registered a phenomenal Y-O-Y growth rate of 261% in 2014 and, scaling new heights, touched $3.86 billion, according to research firm Privco.

With internet penetration in India improving with every passing day (though still far short of global average) and a greater percentage of our population being active over the internet, the investors are eyeing India as THE market to watch out for! For a change, the huge population in the country, which was always seen as one of the major hindrances in the way of socio-economic growth, has now become the USP- attracting investors like it never has in the past.

No wonder then that investors and venture capitalists are flocking to the country and taking keen interest in the developments here.

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“If you look at India’s growth and demographic, you can see that the next hot tech market after China is India,” says Matt Turlip, a senior analyst for financial data firm Privco.

The funding in Indian startups which had been falling for the last two years successively (from $2.29 bn in 2011 to $1.51 bn in 2012 and an even poorer $1.07 bn in 2013) has now touched a $3.86 billion in 2014, thanks largely to the huge interest reposed in Indian startups by the Japanese VC firm, SoftBank.

Inspite of the huge 261% increase in VC funding for 2014, $3.86 billion looks tiny when compared to $30-40 billion VC funding in the US, the hotbed of all VC activity.

Earlier, VC investment in Indian startups had taken five years to double and touch a figure of $1.4 bn in 2012, up from $60 billion in 2006.

VC Funding In India 2014: Where Does It Come From?

The exponential growth seen in VC funding in India came mainly from:

SoftBank: The Japanese VC giant has shown a more than casual interest in Indian online retailer Snapdeal which, according to their chairman, functions on the Alibaba model.

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Interestingly, SoftBank was one of the first investors to show some interest in the Chinese e-retailer Alibaba nearly 14 years back and had gone ahead to invest $20 million in the online retailing company. A huge risk at a time when online retailing had not really taken off and the internet connectivity (upon which rests the success of any exclusively online venture) was extremely poor. $20 million looks like peanuts when we see the way Alibaba has gone on to capture the Chinese market almost exclusively and got a WOW! response when it came up with its IPO. Softbank has a 34% stake worth $80 bn in Alibaba as of today.

The largest online retailer in India, Flipkart, functions more on the Amazon model, says SoftBank Chairman Masayoshi Son because of which it is seen to be supporting Snapdeal more actively.

“Snapdeal has the potential to become India’s Alibaba. Other peers like Flipkart have an Amazon-like model and Snapdeal is based on Alibaba’s market place model, which we are more confident about,” explains Son.

Besides Snapdeal in which it invested to the tune of $627 mn in September, the Japanese giant showed love for Ola (the Indian Uber) by investing $210 million in October, $100 mn in the online realty portal Housing.com and a 36.5% stake in ScoopWhoop, the Indian version of Buzzfeed for an undisclosed amount.

Almost $1 bn worth of VC investment in India, therefore, has come from the Japanese colossus. More than 25% of the total funding in India during the last year, so to say.

Son has tremendous faith in the potential shown by various Indian startups.

“For next 10 years this is the country that I am most excited about. I would say this is the century – 21st century, if there are top two countries in the world or the top two economies in the world I think India and China would be the top two economies in the world, that is my belief. India has that much potential. So, with that belief right now India is not in the top two but in the long term view if that is the view people can invest almost in any business industry in India to be successful,” he said.

So convinced is Son about the potential of Indian startups to deliver that he has announced his plans to pump in another $10 bn in various projects in the sector of IT and communications space over the next few years.

Others

Besides Softbank, other major investors in India have been American VC firms Silicon Valley based Sequoia Capital (known to be one if the early investors in the search engine giant Google and the most loved brand in the world, Apple) and Accel Partners (one of Facebook’s initial investors).

The Indian origin Microsoft CEO Satya Nadella also sees a $2 trillion opportunity in the Indian market, following which he announced his plans to open up three data centers in the country during his recent visit.

The leading Indian online retailer, Flipkart, alone had managed to get an investment of $1 bn from venture capitalists across the globe in June 2014- the larger chunk of it coming from firm Accel Partners mentioned above, Morgan Stanley Investment Management, Belgian investment holding company Sofina, technology firm DST Global and Singapore based GIC.

What Has Sparked This Interest In Indian Startups?

There are various factors which explain this huge interest in Indian startups and a faith in the Indian economy.

  1. Over the next three- four years, more than 500 million people will have access to the internet, whether through computers, tablets or inexpensive smartphones. This rapid growth of internet technology in the country will create a revolution which will ‘make the dotcom boom seem lame’, say Vivek Wadhwa, an Indian-American academicians.
  2. Within the next 35 years, India will overtake China and become the most populated country in the world and also the biggest economy, due to which huge volumes of business will be generated here.
  3. The region is the second largest mobile market in the world, with more than 900 million telecom subscriber.
  4. A majority of the already-connected or soon-to-be-connected internet users in the country are less than 25 years of age. That makes them the ideal targets for online retailers- explaining why e-commerce companies in India are attracting funding like never before.
  5. Online retail is expected to touch $6 billion in 2015, $50-70 billion by 2020 and $500 billion by 2050.

With the sun shining brightly on the Indian economy, internet reaching out to more and more people and the e-commerce in the country all poised for a big boom, it looks like a win-win situation for all those who want to make hay while the sun shines!

4 COMMENTS

  1. SoftBank is going gaga…. I am closely monitring this space, lets see how many other companies can close a big round of investment (more than $500 million) in 2015…

    Found this site quite valuable for all writers like me. Loads of statistics and information to grab.

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