There’s a start-up funding revival in 2017, and it is being driven by Chinese and US tech companies. In 2015, it were hedge funds and pension funds that played a big role in large funding rounds, and it was their retreat that led to the slowdown of 2016. But now, corporate funds have come to the rescue of select start-ups in the country.
Consider these cases: Microsoft, Tencent and eBay-led Flipkart’s recent $1.4 billion funding. SoftBank bankrolled Oyo and Ola. Tencent puts money into Practo, again, in 2017. Alibaba infused more cash into Paytm late 2016 and again this 2017. Logistics start-up Delhivery raised $100 million from Chinese firm Fosun. In the second half of 2016, Tencent and Foxconn had invested in Hike.
“Microsoft and Tencent look for strategic opportunities and have a 15-20 year cycle. This is in line with the general optimism of India as a market. Hedge funds are opportunistic and invested in the Indian market because of the fear of missing out on a great opportunity,” said Rutvik Doshi, Director at VC firm Inventus Capital Partners.
He said it’s good the correction has happened quickly. He described the hedge fund boom in 2015 as India’s version of the dotcom boom.
“The hedge funds came to India at a time when the consumer industry over-estimated India’s market size, as well as growth prospects of the Indian online consumer companies,” Doshi said.
Funding led by corporates rose to nearly $1.6 billion in the first four months of 2017, from just $510 million in the whole of last year, according to estimates by start-up research firm Venture Intelligence.
On the other hand, funding led by hedge funds peaked at $2 billion in 2015, came down to $432 million in 2016 and was $116 million in the first four months of 2017. There is a similar drop in participation of family offices, pension funds and sovereign wealth funds.
Companies like Flipkart and Ola raised substantial amounts from hedge funds during 2014 and 2015. But once the competition turned the heat on them, none of these investors came back for another round of funding.
“They saw putting more funds as risky , as it was a money game for them and not strategic,” said a venture capital investor who did not wish to be identified.
“A corporate fund will back you even when the odds are against you,” he added, citing the case of SoftBank’s continued backing of Ola and Oyo.
Source: Times of India
