Accel, the early-stage venture capital major, is planning to make investments in as many as 25 Indian startups this year, and may launch an India-focused fund in the next couple of years, an executive at the firm said.
The firm had made 17 investments in 2023 and 51 in 2022, according to data from Tracxn, a market intelligence firm.
“We look at (launching) a fund every three to four years. We still have a lot of dry powder in our current fund and expect to invest in at least 15-25 companies this year,” Prashanth Prakash, Partner, Accel, told Business Standard.
Accel had unveiled its last fund, which was its seventh India-focused fund, back in March 2022 with a total corpus of $650 million. Its next fund, Prakash said, will be launched after all the dry powder from its current fund is deployed.
The Silicon Valley venture capital firm, one of the earliest investors in India, has a large portfolio of unicorn startups in the country.
Some of its notable investments include e-commerce major Flipkart, Freshworks, food delivery firm Swiggy and used-car marketplace Spinny. It also invested in online learning platform Vedantu, business-to-business marketplaces Zetwerk, Infra.Market and Moglix, among others.
Prakash said sectors like agritech, B2B, manufacturing, artificial intelligence (AI), software as a service (SaaS), and climate tech will take centre stage this year. India, he added, is currently one of the most attractive markets for foreign investors.
“Sentiment among foreign investors towards the Indian market has shifted a lot this year, primarily because of two reasons. One, they are finding it extremely difficult to invest in China. Second, they believe a lot of visionary policies have been implemented in India. The stability of our policy regime is a bright spot globally,” Prakash said.
Accel, like many other investors, is spending more time on due diligence. “We do spend a lot more time. Previously, there was a faster pace at which deals would go through — the timeframe from when you meet a company to when you give them a term sheet, and subsequently the final agreements. Previously, that was more like two to two and a half months. I see that now being three-four months. It’s almost doubled,” said Prakash.
The Indian startup world has, of late, been witnessing several cases of corporate misgovernance. Large startups like fintech major Paytm and edtech firm Byju’s are currently in the limelight for governance issues. Investors are, therefore, now more cautious about due diligence before making investments.
Accel’s increased bullishness on the Indian market comes at a time when Indian startup funding has fallen to a seven-year low in 2023.
Investments among fledgling firms fell 72 per cent year-on-year (Y-o-Y) to $7 billion this year, compared to $25 billion, according to Tracxn data.
Global macro headwinds and increased investor scrutiny, due to corporate governance lapses in several startups, impacted deal volumes during the past year.
However, investors say the country’s startup ecosystem is going through market recalibration after an influx of venture capital investments during 2021. Startups raised a record $42 billion in funding in 2021.
According to industry estimates, startups are expected to raise between $10-12 billion this year.
The decline in foreign investments, which make the bulk of Indian startup funding, has, however, opened new opportunities for domestic investors.
“Since foreign capital shied away from India for almost 18 months, big opportunities opened up for Indian investors. Investors were waiting for valuations to come down to levels that they were comfortable with. And, that has happened in the last two years,” Prakash said.
Prakash said a lot of Indian funds, who were previously focused on seed and early-stage deals, are now cutting later-stage cheques.
First Published: Mar 25 2024 | 8:27 PM IST