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More than 150 investorsincluding Singapore’s sovereign wealth fund Temasek and Malaysia’s Khazanah, gathered last Friday at the five-star Trident Oberoi Hotel in Mumbai for venture capital firm Lightspeed India Partners’ ‘Lift Off’ summit.
The two-day event aims to spark partnerships by allowing “in a short window, many perspectives, ideas and investments to be shared across nC2 connections (every permutation and combination),” described Karthik Reddy, co -founder of Blume Ventures.
The event builds on the success of last year’s inaugural Lift Off, which helped drive deals and networking, including paving the way for Singapore sovereign wealth fund GIC’s investment in the VeGrow plus business-to-business marketplace. late in the year.
This year’s upbeat mood reflects the rebound in startup funding in India over the past three to four months. But the lavish setting couldn’t mask the pressing questions the industry still faces.
Byju’s, once India’s most valuable startup with a valuation of $22 billion, is seeking new capital through a rights issue that reduce its valuation by a whopping 99%. Paytm, once the poster child of Indian startup dreams that went public at a $20 billion valuation in 2021, has seen its market cap falls below $3 billion amid tech market carnage and regulatory upheaval.
There are still many late-stage startups faithful to their maximum valuations of 2021. And many hot startup deals in 2021 fail without follow-on funding. At the same time, Indian venture capital firms are currently sitting on a record 20 billion dollars of dry powdercausing skepticism among many investors regarding excessive fundraising.
On the size of the venture capital fund
“Sitting here at the start of 2024, with the benefit of observing 2023 investment activity levels as well as the pace of start-up creation, I think the answer is yes,” replied Bejul Somaia, partner at Lightspeed, when asked if Indian venture capital firms had over-raised. , raising more funds than they responsibly can.
“The current generation of funds was raised in 2021/2022, when activity levels and investment dollars were significantly higher than 2023. In 2021, $33 billion in venture capital (early and late stage) were invested in India. By 2023, that figure was $9 billion. We must therefore keep in mind that the funds raised in 2021/2022 were sized for an opportunity that reflected those times,” he explained.
“If you look at the number of investments, the number was 2,200 in 2021 and about half in 2023. That doesn’t mean the market won’t accelerate again in two or three years… market cycles occur. So, 2023 also does not necessarily reflect the opportunities in the venture capital market in India,” he added.
Lightspeed Venture Partners India — which had returned over $1 billion to LPs in the middle of last year — was unusually restrained during the hyper-exuberance period of 2021, when deals were completed in a matter of days with inflated valuations and unreasonably founder-friendly terms — a frenzy that Somaia hopes the market never returns.
“Environments like 2021 make me quite anxious. Investment opportunities are moving fast and at high prices…and growth, hype, and sales acumen are starting to matter more than building sustainable businesses. Even though our mark-to-market performance seemed incredible, it was perhaps one of the few years at Lightspeed where I was the most anxious. On the one hand, these valuations were determined by the market, on the other hand, they did not correspond to our valuation of the company,” he said.
“So how do we know who’s right? Does the market know something that we don’t? Fortunately, we have stuck to our beliefs for most of this time.
Anshoo Sharma, founder of Magicpin, Gagan Maini, founder of One Assist, with Bejul Somaia of Lightspeed (Image: Lightspeed)
Over the past three years, many India-focused venture capital firms have raised substantial new funds that dwarf their previous vehicles – Peak XV has raised $2.5 billion for the region in recent closes, while Nexus Venture Partners raised $700 million, Elevation raised $670 million and Accel raised $650 million. Lightspeed, which began investing in India more than 15 years ago and subsequently set up funds dedicated to the country, unveiled a $500 million fundhis fourth for India, in 2022.
“As for Lightspeed India’s newest fund, I think it is smaller in size than our peers. This sizing is a deliberate choice,” said Somaia. “That said, maybe our peers see an opportunity that we don’t, or they have a broader investment strategy – and we’re always curious to learn. But we want to protect ourselves against the risk that excess capital leads to strategic drift.”
Somaia said he expects many companies, including Lightspeed, to take three to four years to deploy their funds instead of the usual two-and-a-half to three-year cycle. “We need to deliver top-notch returns to our LPs, who have become accustomed to a certain type of return from a company like Lightspeed. We will never compromise on this to make money work,” he said.
India in the global AI race
With the rise of AI in the Western poles, India is behind in fundamental research because very few of its startups attempt to create large language models.
Lightspeed sees parallels with the company’s early investments in Indian Energy Exchange – building a power trading platform the equivalent of which did not exist in Western markets. “My view is that right now we are in a phase with AI where a lot of the infrastructure and some of the tools are being built. This mainly happens in Silicon Valley. It actually reminds us that the concentration of technical talent in Silicon Valley is unprecedented,” Somaia said.
“Since investing in India, we have seen limited innovation in basic technical infrastructure. Most opportunities tend to be at the application layer – for individuals and businesses. There are many reasons for this, including market dynamics and the investment community, where we have few technically sound investors… so it’s a bit of a chicken and egg situation,” he added. .
Lightspeed partner Hemant Mohapatra focuses on deeptech and has backed startups like Rephrase, one of the first generative AI startups, and Sarvam, large language model AI startup.
Mohapatra acknowledged that access to top AI talent is limited globally. But like the cloud computing disruption, he predicts consolidation around a few AI technologies and business paradigms once the current hype subsides. Given India’s engineering capabilities, targeted AI opportunities could still emerge locally, even if Silicon Valley retains its overall innovator dominance, he said.
Patient capital
Anuj Bhargava and Rahul Taneja of Lightspeed with Jayant Paleti, founder of Darwinbox. (Image: Speed of Light)
Many investors in India are concerned that several late-stage startups continue to push for takeovers, exhausting their leads before accepting post-recession realities.
Anuj Bhargava, Lightspeed’s managing director and head of the company’s India development, told TechCrunch that he sees progress toward aligning with public markets. “I think this is the year where the financing that will take place will be more synchronized with the public markets. For growing companies, private markets have been slow. But for names that have really improved their PnLs, reduced burn and are on sustainable unit economics, I think the public markets offer a big opportunity,” he said.
India has also seen growing interest from sovereign wealth funds over the past three years, on a scale never seen before, he said, adding that he was optimistic about their investment in many late-stage startups. advanced stage. “We had many funds that were not based in India, but were investing in India because of the opportunities the country offered them outside of their own. Many companies ended up raising funds that didn’t justify their size or progress. Over the past few years, some aggressive investors have not invested as much in India, creating a vacuum,” he said.
“This void has been filled by patient capital: sovereign funds have been very calm in 2020 and 2021; pension funds that were either discreet and probably had not invested much in India before; and growth arms of private equity funds, many of which did not invest heavily in technology before. So these three pockets of capital are mature, long term and patient and I anticipate we will see more activity from them in the future.
Even though late-stage funding remains significantly constrained, some investors see bright spots in India’s early-stage ecosystem. Peak XV, Lightspeed, Elevation, Accel and Nexus signed more than a dozen startup deals in January alone, according to a person familiar with the matter.
“While many in the ecosystem are busy guessing when winter will be over, we however believe there is no better time to build (and invest) than now,” said Rahul Taneja , partner of Lightspeed.
Qualified talent and eager capital remain accessible at early stages, he said. “The quality of founders is much better: people leaving their jobs really believe in their ideas and are ready to take the plunge in what most would call a “slow year.” Access to high-quality talent is much better and capital allocators have been waiting to make bolder bets. Every day we meet exceptional founders in the early stages of building a business – and we realize how lucky we are to be able to support the digital growth of India and Asia from the South-East.
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