Vehicles will pass an information technology park in the Electronic City area of Bengaluru, India on Friday, March 5, 2021.
Dhiraj Singh | Bloomberg | Getty Images
Sequoia Capital India has closed a $ 195 million seed fund to support promising entrepreneurs in India and Southeast Asia, the venture capital firm announced Thursday.
It’s the second fund – the first was in 2019 when the company raised about $ 200 million.
Seed capital funds are usually the first round of official money that entrepreneurs raise in exchange for equity.
As part of a program called Surge, Sequoia provides start-up capital of up to $ 2 million, as well as access to the community to help select start-ups build their businesses.
Start of a new era for Indian start-ups
A growing number of Indian startups are expected to launch major IPOs this year, said Rajan Anandan, a director at Sequoia Capital India responsible for the Surge program.
“2020 was really a two-halves story. The first half was very challenging,” he told CNBC’s “Street Signs Asia” Wednesday, a day before the funding announcement. He was referring to the months-long national lockdown in India caused by Covid-19, which pushed the economy into a technical recession.
“In the second half, we saw a very, very strong recovery – driven by both the accelerated adoption of digital technologies by consumers and businesses and by companies becoming much more cautious with their cost structures,” Anandan said.
Given India’s place in the world, we think the second gateway, which can build for the world from India, is going to be very, very interesting in the next five or ten years.
Rajan Anandan
general manager, Sequoia Capital India
The first three months of 2021 saw start-ups accelerate revenue growth, increase user adoption, and in the early stages, improved quality of entrepreneurs helping the businesses, he added.
“In many ways, 2021 will usher in a new era for the Indian start-up ecosystem, where we will see significant, significant IPOs in our ecosystem,” Anandan said.
Building for a billion and more
Although the start-ups in India went through difficult times last year, the industry has come out healthier, according to Anandan. There is more strict focus on cost structure and “extraordinary innovation” taking place in a wide variety of sectors, including education technology, financial technology and digital health, he added.
India currently has 39 startups worth $ 1 billion or more – commonly called unicorns, according to Venture Intelligence, which tracks the finances and valuations of private companies. Three of those companies achieved their status in 2021, the company said.
Due to the availability of venture capital, funds invested in risky projects for higher returns, the number of new start-ups has increased over the past decade. They currently account for about 10% of the new businesses established in India each year, according to a report on Indian start-ups by Swiss investment bank Credit Suisse this week.
“The increase in private equity flows for Indian companies is such that private market fundraising has outpaced public market transactions in every year of the past decade,” said Neelkanth Mishra, co-head of Asia Pacific Strategy and India equity strategist at Credit Suisse said in a presentation.
The rapid increase in smartphone ownership brought internet connectivity to the masses, and a sharp drop in data prices led to a dramatic increase in data usage in India, particularly for mobile data, Mishra said.
Unique opportunity for Indian start-ups
Sequoia’s Anandan explained that Indian startups will have two unique opportunities in the future: First, given the growing number of internet users in India, Sequoia expects domestic companies to have one billion connected users in the country by 2025.
“The other opportunity that Indian entrepreneurs have is to build for the world,” he said, adding the first wave of Indian start-ups doing that in the Software-as-a-Service space, where some of them have software. build and sell. to companies worldwide.
The next generation of businesses will move beyond enterprise software and into direct-to-consumer products, as well as financial services and fintech, where companies will launch from India to serve the rest of the world, Anandan said.
“Given India’s place in the world, we think the second entrance, which can build for the world from India, will be very, very interesting in the next five or ten years,” he added.
– CNBC’s Naman Tandon contributed to this story.