Non-VC investors rush in to script a new funding story

A diverse set of investors, including PE firms, sovereign wealth funds, hedge funds and family offices are stepping up investment activity in the country.

In fact, the share of investment by non-venture capital firms in privately-owned companies has more than doubled to 33% in the past three years, according to data sourced from venture capital firm Sequoia Capital.

The increased interest in India comes at a time when more people have access to the internet, the economy continues to grow amid a global slowdown, and largely remains underserved compared to the US and China, according to investors, founders and analysts. This, in turn, has increased total capital inflow into private firms. Private funding in India rose more than 45% in the first half of the year to $5.4 billion compared to a year earlier, as per data intelligence platform CB Insights.

"India and Southeast Asia are deeply underpenetrated markets on almost every metric. As the markets get deeper and given that companies are continuing to stay private for much longer, a larger fragmented set of investors are evaluating private market investment opportunities," said Piyush Gupta, managing director (strategic development) at Sequoia Capital on the sidelines of PitStop, an event where the fund's founders meet overseas investors to pitch business ideas.

In the past six months alone, several top startups have raised capital from this diverse set of investors. These include Meesho, which raised capital from Facebook; Udaan from Hillhouse; Byju's from Qatar Investment Authority; and Livspace from Ikea.

Private equity funds are also getting more active as they take bets on the new economy.

Westbridge Capital Partners backed Rapido, Vedantu and IndiQube, while ChrysCapital backed Awfis, and Kedaara Capital is in talks to invest in Lenskart, as reported first by ET in its September 2 edition. Others, like General Atlantic and crossover funds like Canada Pension Plan Investment Board, have also stepped up activity.

"There is increasing need to get into companies early or majority of the upside is always played out," said Akshant Goyal, head, Corporate Development, Zomato, which counts a set of investors including Alipay, Temasek, Sequoia Capital and InfoEdge as investors.

Even at an early stage, several companies are raising capital.

Tiger Global and Falcon Edge backed logistics software startup Locus, and Google backed Dunzo, while Tencent backed NiYo. Ride hailing app Ola, too, raised about $11 million from a clutch of family offices earlier this year.

"India is one of the last few growth markets left," said a hedge fund investor, adding, "an exposure to the market is also a very fundamental capital allocation call for a lot of these large funds and businesses."

Crossover investors like mutual funds and hedge funds normally focus on publicly-listed companies.

With the sudden increase in smartphone penetration in the country, corporates see multiple business models emerging, although they find local companies are best suited to solve for them.

"Twitter invested in Sharechat largely because catering to the next set of internet users is not their core expertise," said an investor requesting anonymity. Last month, Twitter invested Rs 356 crore in Sharechat for an 8.2% stake.

Companies, too, believe that there is value in a diversified board.

"Their presence helps the company scale quickly while focusing on what it takes to build a large company requiring analytical rigour and compliance ...and balancing high growth needs with attractive unit economics," said Anuj Srivastava, founder, Livspace.