Venture Capital Funding and Indian Economy

India-focused Venture Capital (VC) funds raised approximately $2.1 billion in year 2019, which was slightly lower than year 2018. Venture Capital fund raising outlook for year 2020 was largely positive among both limited partners and general partners, but it got a big hit due to corona pandemic. Even in the face of worldwide economic uncertainty, year 2019 was the second-most active year globally for venture capital investments. Simultaneously, it was a milestone year for the Indian VC industry too, with $10 billion in capital deployed, the highest ever and about 54% higher than year 2018. Additionally, India witnessed a 29.5% increase in VC volume over year 2018 as well as larger average deal sizes across all sectors.

In the era of evolving new businesses, the start-up ecosystem in India remains robust and is rapidly growing. Between year 2012 and 2019, the number of start-ups in India increased by 18% each year, while funded start-ups compound annual growth rate increased faster at 20% during the same period. Currently, of almost 79,000 start-ups in India, only about 7% are funded, it is indicating bigger room available for investments in India. More than two decades of experience by Birla WP Management team, hereunder summarizing major factors considered by VC team, before investing in a Venture:

• An innovative project is essential but within realistic and logical area, venture capitalists seek any project which promises immense growth potential and competitive ability to succeed and sustain in the market.

• Entrepreneurial personality, experience and his management team contribute towards the execution and success of the project, since they utilize the VC’s fund the venture capitalist make sure of their major role with managing, working, guiding, and co-coordinating the team towards the right path.

• Good team work, the mantra for modern success stories in the market, holds good for venture capital funding too.

• Market characteristics cover the marketability for the product and the competition it faces from other competitors. Returns in the short period depend on the market characteristics of the project hence it is criterion in decision making for capital funding.

About 75% of VC investments in India, during year 2019 were concentrated in four sectors: Fintech, Consumer Tech, Software, SaaS companies and B2B business models. Consumer tech continues to be the largest sector, accounting for approximately 35% of total investments, with several scale deals exceeding $150 million. Within consumer tech, verticalized e-commerce companies continued to be the largest subsegment, but in addition, there were increased investments in healthcare tech, food tech and education tech. Both SaaS and fintech attracted significant investor interest and activity throughout 2019, with several early-stage and increasingly late-stage deals.

In conclusion, it must be mentioned; even though obtaining finance from Venture Capital route is rigid, but the kind of experts and resources available with the Venture Capitalist team; success of the VC invested business is better than entrepreneur’s independent business management. Get geared up for better structuring of your business in emerging Indian economy.

Written by :

CA Yogesh Birla

Director
Birla WP Management
visit us at : www.YogeshBirlaCA.Blogspot.com