Flipkart to Zomato: E-tail Davids take victory baton in this year's fund-raising party

Right towards the end of the year, when we thought 2014 is done with investments and acquisitions, Flipkart raised $700 million and Zomato expanded in Italy by acquiring Cibando. This says a lot about the Indian start-up eco-system - for one, that the Indian entrepreneurs are restless, and secondly, the good guys, called angels and VCs, are showing a lot of confidence in these entrepreneurs. According to an Ernst and Young report, titled ‘PE Trends’, the first half of 2014 saw $4.9 billion of private equity and venture capital investments across 229 deals. It is 16 percent more in deal volumes compared with the first half of 2013. Sanjay Nath, Managing Partner at Blume Ventures, said approximately $100 million was invested in just seed and angel stage deals. E-commerce, its off-shoots and other tech-based product start-ups were the centre of attention for investors this year. “At present, around a third of VC-backed investments are in software and e-commerce,” the EY report said. Flipkart took everyone by surprise in July, when it raised $1 billion from an array of investors, one of the largest VC funding in an Indian company. It has raised around $2.45 billion until now, of which $1.91 billion was raised in 2014 alone. [caption id=“attachment_1640877” align=“alignleft” width=“380”]  Image from Flipkart[/caption] “The E-commerce boom, fuelled by large investments in horizontal marketplaces such as Flipkart and Snapdeal, also translated into sizeable investments in vertical e-commerce companies, new pure online brands and enablers like logistics and merchant tools,” said Nitin Sharma, Prinicpal, Lightbox. Eco-system growth Sharma said the ecosystem as well as the experience and quality of entrepreneurs continued to improve and mobile really helped in customer acquisition. “The fact is that the quality of opportunities (deal flow) has significantly improved,” he added. There have been talks that this year a lot of easy money poured in, on the back of sudden e-commerce boom, garnering interest of everyone from local investors, to foreign funds and even HNIs. Nath of Blume Ventures said more VCs are interested in early stage investments “As Series B and C are becoming expensive. Foreign funds have become bullish and have increased early stage investments in India this year.” Even though this year saw increase in the number of deals, investors say India needs a lot more angel groups, VCs and entrepreneurs to scale to its full potential. “We have less than 300 start-ups funded every year, which should be in 1,000s. India needs 5,000 angel investors instead of the 500 that we have today, and of which only about 50 are really active,” said Prajakt Raut, Co-Founder, The Hub. Raut said there is a large gap in the market and that the eco-system needs more investors to cater to the small size needs of entrepreneurs. “We need more individual angel investors to invest in the Rs 25 lakh-50 lakh deals. Cost of starting up has reduced significantly, and a number of ventures can just start with such capital. Angel groups and VCs just cannot do such small deals,” he added. Online funding To increase the number of deals sealed every year, a few serial entrepreneurs and investors have come forward to solve the problem with the help of technology. Early in January, Manish Singhal, Shanti Mohan and Sanjay Jha started an online marketplace of investors and entrepreneurs called Let’s Venture. This technology-based platform helps investors and founders find each other. None of the co-founders replied to the detailed questionnaire sent by Firstbiz. Raut agrees digital is the way to go forward if the volume of investments has to be increased. He will soon launch his own such online platform, “Applyifi” where investors and founders can meet each other online. “The current model of working offline cannot scale. There is a limit to how many startups they can engage with and invest in every year. Unless we are able to take the deal-discovery, assessment and review process online, we will not be able to increase the number of angel investors as well as increase the number of startups funded every year,” Raut said. Crowd funding, though small and has its limitations, is another alternate for entrepreneurs to raise money with the use of technology. Crowd funding is, literally, a company that is funded in small amounts, over internet, by a bunch of unknown people. SEBI has already proposed regulations for crowd funding, which says a start-up has to be less than four years old and can raise maximum Rs 10 crore a year. New sectors Logistics, product companies, Internet of Things (IoT), recruitment technology, etc. are a few new sectors that got invested this year. “More product companies, energy and renewables are a few sectors which are spoken about. The 100 Smart Cities program and Make in India programmes, if progressed well, are likely to create new entrepreneurs and innovators across multiple sectors,” said Raut. Sharma from Lightbox says there was increased openness from investors towards pure engagement or ad-driven models. “We saw investments in localised messaging apps, content platforms and video MCNs (multi-channel networks on YouTube for example),” he said.