2021 is many things to many people. For Indian startup entrepreneurs, it’s the year that brought unprecedented amounts of capital, investor interest, growth opportunities, and IPO ambitions. But there was also mounting pressure to perform, justify valuations, become profitable, and offer good exits.
The local startup community sizzled throughout the year as unicorns kept popping up, one after another, on the back of fat checks and expensive valuations. As we write this piece, 40 unicorns have been created in India in the first 11 months this year, and the number is expected to climb. Among the investor community that pumped over USD 30 billion into the country so far this year, a few stand out with their ability to churn out unicorns. It is these bigwigs of the VC world that fueled the funding deluge in the world’s third-largest startup ecosystem.
KrASIA looked at these unicorn-hunters—the VCs that turned the most numbers of Indian startups into billion-dollar companies this year—and their investment theses.
Tiger Global, the ring leader
Tiger Global has turned 18 startups into unicorns, often leading the funding rounds. This is nearly half of all the companies that joined the billion-dollar club in 2021. One of its portfolio companies, logistics firm BlackBuck also became a unicorn, although Tiger didn’t chip in during the follow-on round.
Since its entry into the South Asian nation almost 15 years ago, 2021 has turned out to be perhaps the most eventful year for the New York-headquartered hedge fund. Just last month, it led funding rounds along with other marquee investors worth USD 838 million and minted five unicorns in a row. The list includes credit card startup Slice, stock trading Upstox, used car retailing platform Spinny, and proptech startup NoBroker, as well as D2C rollup startup Mensa Brand.
Earlier in April, Tiger Global created six billion-dollar companies. The American VC co-wrote eye-popping checks totaling USD 1.28 billion for credit care payments startup Cred, stock trading app Groww, social media platform ShareChat, enterprise conversational firm GupShup, SaaS-based billion platform ChargeBee, and home service firm Urban Company, turning them into unicorns.
There was hardly any hot space that Tiger didn’t cut checks for. And now it has unicorns across online stock trading and wealth tech, B2B e-commerce, SaaS, edtech, grocery, hiring, gaming, healthcare, D2C rollups, insurance tech, social networking, and proptech. Overall, Tiger completed 52 deals between January and November 2021, compared to 19 last year, per the data collated by Venture Intelligence, a Chennai-based research firm tracking funding.
According to Arun Natarajan, founder of Venture Intelligence, Tiger Global is flexible, aggressive, and fast at making decisions.
“Startups can land checks from Tiger really fast if they have Sequoia or Accel as existing backers,” he told KrASIA. “Because of its flexible mandate [to invest across stages] and hedge fund origin, they can keep putting money in a company multiple times a year.”
By pouring in billions of dollars into the Indian startup ecosystem, Natarajan believes Tiger has set the tone this year, which is why other VCs followed its lead and significantly stepped up their game in the country. This is not the first time for Tiger to flush local startups with money and create a funding boom. The firm bet big on India’s internet story and invested more than USD 1.5 billion in over two dozen startups in one and a half years, beginning May 2014. However, it almost turned off its capital supply in 2016 and 2017, which led to a funding crunch.
Tiger Global’s funding spree is linked to liquidity in the US, said Natarajan, because LPs have funds to invest after they glean profits from blockbuster IPOs. If the environment changes, and Tiger closes its checkbook like in 2016, we may not see another funding crunch as there are more VCs in India now. However, there may be fewer major funding rounds with sky-high valuations.
Meanwhile, as long as Tiger is able to raise money, the firm will keep backing startups by betting on founders and hot sectors, even when these companies have yet to earn revenue, Natarajan added.
Since Tiger Global isn’t likely to be drained of funds anytime soon, the party will go on for some time. In October, the firm completed the first close of its largest fund yet with USD 8.8 billion, barely six months after raising USD 6.65 billion for its 13th global fund.
Sequoia Capital, the ubiquitous investor
Sequoia Capital catapulted 14 startups into the unicorn club in 2021. In every case, it was a repeat investor, and half of these deals involved Tiger Global in the past 12 months. Sequoia was on the cap tables of most of these billion-dollar companies by their Series A rounds. In one case—Cred—it cut a check for the company’s seed funding.
The 50-year-old VC firm has been one of the most active and dedicated investors in India over the years, writing checks for startups across stages. In the past year, it has signed 99 checks, per Venture Intelligence.
Some of the high-profile firms that gained the elite tag with Sequoia’s financing include social commerce startup Meesho, job marketplace Apna, gaming platform Mobile Premier League, cloud kitchen firm Rebel Foods, and cryptocurrency trading startup CoinSwitch.
“Sequoia would typically like to come in during the early stages, but even if they miss some companies early on, they don’t hesitate to enter in a later round,” said Natarajan. In the past, Sequoia missed out on Flipkart, Ola, and Freshworks in their early stages, but still decided to back Ola at Series C and Freshworks at Series F.
The fact that Sequoia launched the Surge program in India and Southeast Asia in 2019 to provide seed capital to startups means they have “spread their money over far more companies.” In fact, Sequoia has likely backed more startups than any other investor in India.
In October, Sequoia announced a new structure for its US and Europe business, under which it would establish a single fund, the Sequoia Fund, that will raise money from LPs and then channel it down to a series of smaller funds that would invest by stage. This eliminates the ten-year fund cycle and the timelines for returning capital to outside investors, and hence allows it to hold on to public companies longer.
“Sequoia wants to back companies from seed all the way to IPOs and beyond. It is likely that they will bring the same strategy to India because, in the past, they have already backed Indian companies in the late stages directly,” Natarajan added. “Because of its US strategy and large funds, they have the ability to write checks across the board.”
Accel India, the accidental unicorn hunter
Accel became an accidental unicorn hunter of 2021. The US-based VC firm, which is often under the radar, was a key investor in 14 new unicorns this year, including D2C beauty brand Glamm Group, insurance tech firm Acko, edtech startup Vedantu, and B2B marketplaces Infra.Market and Zetwerk.
Half of its newly minted unicorns are in the enterprise tech and SaaS space, while the rest are consumer-focused startups across D2C, insurance, edtech, and home services. Overall, Accel has 19 unicorns in its portfolio.
One of the oldest VCs in India—like Sequoia—Accel is known for writing the first check for iconic Indian startups over the last decade, like Flipkart, Freshworks, Myntra, Ola, and Swiggy. In fact, the Palo Alto-headquartered VC firm has consistently been the first investor of promising startups in the last two decades.
“It is only incidental. They have a focus on early-stage; it is just that their companies have gone on to become unicorns—thanks to parent company Accel USA, which Accel India brings in whenever there is a need for a larger round because Accel India by itself has a limited fund size,” Natarajan explained.
“Accel has been a pioneer in the country, having bet on the e-commerce story since early on,” he added. “But unlike Sequoia, Accel sticks to only those companies it has backed right from the beginning. It participates in the follow-on rounds of its portfolio companies to the extent that it can, but doesn’t invest in a late-stage directly.”
Moreover, Accel has maintained a good relationship with Tiger since the early days of the Indian startup ecosystem. While Accel was the seed investor in the homegrown e-commerce giant, Tiger was the one to lead the next follow-on round. This year, Accel and Tiger were the co-investors in eight startups that have entered the unicorn club.
Accel is currently on its sixth India fund. Although the VC firm had been investing in the country since the early 2000s. It set up Indian operations in 2008 by acquiring local early-stage VC fund Erasmic. In the last 13 years, it has honed its skills in picking potential unicorns early. This year, it carried out 52 funding deals, as opposed to 31 in 2020.
SoftBank, the goliath
With its penchant for leading bulky funding rounds, SoftBank minted six unicorns in India this year. Some of the unicorn-creating investments that stood out from the Japanese conglomerate’s portfolio include Meesho’s USD 300 million financing, banking tech startup Zeta’s USD 250 million round, and edtech platform Eruditus USD 650 million Series E.
Three of the six new unicorns belong to B2B and enterprise tech space, implying a significant shift from SoftBank’s fancy for consumer internet startups. Reportedly, the Tokyo-headquartered investment giant acknowledged that it has been missing out on SaaS space in India, which is where it plans to focus more.
Last month, SoftBank said it may invest up to USD 10 billion in the South Asian nation in 2022 if they find opportunities at the right valuations. As such, the company has been looking at writing smaller checks from its SoftBank Vision Fund 2.
“Unlike Tiger, which is a velocity-driven investor, SoftBank cannot do too many small deals. Being a large fund, SoftBank typically writes a large check,” believes Natarajan. “SoftBank is likely to remain picky and choosy, based on the size of the opportunity.”
Indeed, SoftBank has led or participated in 14 deals between January and November 2021, compared to seven deals last year, Venture Intelligence data shows. The Masayoshi Son-led conglomerate has already deployed over USD 3 billion in the Indian startup ecosystem this year, highlighting the massive size of SoftBank-led funding rounds.
Tiger Global, which has closed 52 deals this year, was reported to have deployed USD 1.4 billion in local startups in the first six months of 2021. And judging from its peace of deal-making, the American VC’s investments in the second half of the year would add up to a similar amount of money, if not surpassing SoftBank’s mark.
While Tiger Global can write a check of USD 10 million, Natarajan feels it is hard for SoftBank to go below USD 50 million.
“To finalize an investment in India, they typically have to go through two or three stages, although they have a local office,” said Natarajan. “SoftBank is like a large ship that takes some time to turn. Now that they have elevated Sumer Juneja as a managing partner for India, he is likely to have autonomy in decision-making.”
With Tiger scooping up the most lucrative opportunities in India, it has become imperative for SoftBank to trim its ticket size to make a larger number of investments. This is especially crucial now because investors are still waiting for the situation to improve in China after the government’s crackdown on tech startups. More than likely, India will be an important market for SoftBank, in terms of new investments as well as exits.