India startup funding slides 68% after Tiger and SoftBank make virtually no deals

Indian startups experienced a significant contraction in funding in the first half of 2023, revealing the knock-on effect of broader public market instability on young ventures in emerging regions.

The first six months of 2023 saw Indian startups raise a mere $5.46 billion, a substantial 68% decline from the $17.1 billion during the same timeframe in 2022, and a drop from $13.4 billion in H1 2021, as per data from market intelligence agency Tracxn shared with TechCrunch.

This year has thus far failed to yield any fresh unicorns in the Indian startup ecosystem, a stark contrast to the 18 new entrants to the billion-dollar club in H1 2022 and 16 minted during the corresponding period the previous year.

The funding drought is permeating startups across different stages. A total of 325 seed funding deals were struck in H1 2023, a dramatic fall from the 936 in the same period in 2022 and 921 in H1 2021, according to Tracxn’s data.

Other early-stage funding rounds, chiefly Series A and Series B, dwindled to 108, compared to 296 and 211 in the equivalent periods in 2022 and 2021, respectively. Late-stage funding also suffered, slumping to 36 deals from 137 and 114 during similar periods the prior years.

The slowdown comes as many late-stage investors, previously prolific backers of Indian startups, have taken a step back. Tiger Global has done just one deal in India this year, according to Tracxn and Crunchbase, whereas SoftBank, which deployed over $3 billion in India in 2021, and Insight Partners that backed several late-stage startups last year and in 2021, wrote virtually no checks.

Instead SoftBank has been bulking up liquidity. For the last several weeks, SoftBank has been selling portion of its Paytm stake each day, according to a market source familiar with the matter. Chief executive Masayoshi Son said at the company’s annual general meeting last week that SoftBank, which has invested just $650 million through its Vision Funds across the globe in the past two reported quarters, plans to go on the “counteroffensive” soon by resuming AI investments.

Tiger Global is highly unlikely to forge investments in new startups in India for a few months, a partner at the firm told a founder recently. Sovereign funds, especially from the Middle East region, have financed the vast majority of late-stage deals in India in recent quarters.

Rahul Chandra, a seasoned investor and co-founder of Arkam Ventures, said he doesn’t anticipate the return of some prolific late-stage investors to their customary investment activity for at least another two years in India.

The lack of participation from late-stage backers and virtually no IPO have also hurt the appetite of many mid-stage investors, who are struggling to devise new underwriting models that reflect the current public market view. Several high-flying Indian startups, including Byju’s, Swiggy and PharmEasy, have experienced a dramatic downward adjustment in their valuations – by a staggering 50% or even more.

Despite this setback, there remains a ray of hope for Indian startups in the form of considerable ‘dry powder’ – untapped capital reserves held by venture capitalists. Almost every active VC firm in India, including the likes of Peak XV Partners, Lightspeed, Accel, Elevation Capital, Matrix India Partners, 3One4 Capital and Blume Ventures, have secured new and larger funds in the past 18 months.

Chandra said that it’s likely that the pace of investments will pick up in the coming months.

“What we are contained by is mostly locally available capital, which I expect will be behaving in a rational manner because there’s no irrational exuberance coming in to drive valuation up. It’ll still mean that people are chasing each other for termsheets for the good founders because the next two years there will be more capital that will get deployed,” he told TechCrunch in an interview.

Indeed, Peak XV, Lightspeed, and Accel have escalated their deal deliberations and are on track to closing nearly 50 early-stage deals since mid-March, according to people familiar with the matter.

India startup funding slides 68% after Tiger and SoftBank make virtually no deals by Manish Singh originally published on TechCrunch

Sequoia heats up early-stage startup investments in India and Southeast Asia

On a recent winter morning in New Delhi, Rajan Anandan and Pieter Kemps were pacing on the floor of a five-star hotel, quizzing a group of over two dozen young startup founders about their goals. One founder set eyes on getting the most downloads in the mobile gaming category. Another pledged to reach an annual recurring revenue of $100 million in a few years.

“When you think about how big you want to get, don’t think about $100 million or $200 million in revenue,” Anandan told the gathering, now fully silent.

“Doesn’t matter what company you’re building; that’s not thinking big enough at all. There’s no enduring company on the planet that is a $100 million revenue company. An enduring company is one that generates $100 million in free cash flow a week,” he said.

The Sequoia partners spent the next two hours walking founders through over a dozen slides, emphasizing that consistent growth over a long period of time — even if not skyrocketing quarter over quarter — can conjure trillion-dollar companies.

Undergirding their strong conviction is a bet that India and Indonesia and other markets in South Asia will double and triple their GDPs in the next 10 to 15 years, and the public markets and tech companies stand to take a significantly broader role in that surge.

The combined market cap of top-five tech companies in the U.S. is over $7 trillion, contributing to over a quarter of the nation’s GDP. The top five tech firms in China, with a market cap of over $1 trillion, contribute 7% to the nation’s GDP. But top five tech companies in India and Southeast Asia have a market cap of just $140 billion, accounting for only 2% of their GDPs.

The 12 startups gathered in the presentation hall had been hand-picked from about 3,600 applicants for the latest cohort of Sequoia’s four-year-old early-stage-focused Surge program. Surge launches two cohorts every year, featuring between 10 and 20 startups each.

The new cohort features startups operating in a wide-ranging space: Calyx Global is helping businesses choose better carbon credits and reimagining the ratings system; Arintra is an AI-powered autonomous medical coding platform to help U.S. hospitals get paid better and faster by automating their insurance claims submission; Meragi is making it easier for couples to access wedding-related services; Vaaree is a curated marketplace for high-quality home products; AltWorld is building a metaverse gaming platform to help Gen Z gamers create custom 3D worlds; and Bitfrost is building virtual worlds and synthetic datasets that AI teams can use to train their models for applications.

Diri Care offers on-demand, affordable products and services for a range of health and beauty needs; Masterchow wants to help people prepare Asian meals at home; Metastable Materials is attempting to pioneer a low-cost, clean and highly scalable method of recycling lithium-ion batteries; RedBrick AI is a SaaS platform to help companies build medical imaging AI; Requestly wants to help developers and quality-assurance engineers test and debug web applications in real time; and Tentang Anak is building a parenting ecosystem in Indonesia.

The sessions on a Thursday morning, attended by TechCrunch, were among a few dozen that these founders will take part in over the coming months as Sequoia partners walk them through different aspects of building a startup. Workshops will teach founders about how to think about the total addressable market. They will be given guidance on piecing together their tech architecture. Another will help them build mental models for when to switch from chasing growth to improving unit economics. And there is also a session to help founders pencil the vision and tagline for their firms. (In a few words, explain the problem you’re solving and how you’re solving it, and don’t make things sound boring, off-brand or long.)

Sequoia has “codified” its learning from over 50 years to assess the areas where a founder needs help in their journey and the roadblocks they will likely encounter, said Anandan in an interview. The storied firm’s vast resources — there are about 30 people who work diligently with these founders for months, offering them help in scores of areas — set it apart from its rivals in India even in the early-stage of venture. There are very few venture firms operating in India that have such a large team at all, let alone for one of the focus areas.

Sequoia doesn’t have to put in this amount of effort to win early-stage deals: It began investing in India over a decade ago and has minted 38 unicorns (of 102 in total) in the nation and 11 in Southeast Asia. So what’s with the change of heart?

In the past eight years or so, many firms have attempted to tackle the early-stage investments scene in India. Y Combinator gained momentum in the South Asian market after a handful of successful early pickings such as Meesho, Razorpay and Clear, even as its ever-growing casting net in recent years has caught fewer hits. Blume Ventures and Arkam Ventures have earned a reputation for being founder-friendly and have raised larger funds, backing many of the startups that larger funds missed. Tanglin Venture Partners, Antler, and Good Capital have also earned their spots in the market.

“Sequoia was seen as a Series A and B investor back in the day,” said a high-profile investor, who in his previous stint competed with Sequoia. “Seed was not a major focus for them, but they clearly wanted to get in early as deals started to become pricier in the market.” In Anandan, they found someone who had made over 100 investments in India in his personal capacity and had the Google credentials to supercharge their efforts, said another investor.

An angel investor, who also requested anonymity to speak candidly, said Sequoia’s Surge is the Indian and SEA vehicle’s answer to Y Combinator, undercutting the American accelerator in a number of ways.

Since last year, YC has been offering startups $500,000, where $125,000 gets them 7% equity in the startup and the rest is invested on a SAFE note that converts to equity in the startup’s next round. Sequoia, in comparison, is offering up to $3 million.

“Sequoia’s boutique of offerings is also far greater with resources, support and unlike YC, Sequoia is consistent with not picking multiple startups doing the same thing in the same batch, and it’s keeping the cohort size fairly small and diverse. So you’ve a different vibe when you’re picked in Surge vs if YC picks you,” said the investor.

To be sure, even as Surge appears to have a much higher strike rate than YC in India — Surge portfolio firms Doubtnut, Scaler, Khatabook, ShopUp, Bijak, Classplus, Hevo Data, InVideo, Juno, BukuKas, Atlan, LambdaTest, Plum, Absolute, ApnaKlub are among those that have raised multiple rounds — it is yet to mint a unicorn. (The firm said its portfolio startups have raised over $2 billion in follow-on financing rounds.)

But over the years, as many investors have conceded, Surge has outpaced its rivals.

“They have built a great brand. Sequoia and Surge are the first choice for startups to raise capital from. They have high-quality programs, they promise networking with the best of the best and have a huge support team in general,” said the first investor who, like others, requested anonymity to speak candidly.

Anandan — and in fact, many other Sequoia partners over the years — has always discounted the idea that his firm is trying to compete with YC on seed deals. “We have a huge respect for them,” he said in the interview.

Lightspeed and Accel, two venture funds that are closer rivals of Sequoia in India than most others, have also attempted to build their own Surge rivals but have not been able to make similar inroads.

What made Surge get the mileage it has? After several attempts, here’s the best I could get out of Anandan: “You have to have the commitment of very high-caliber resources. We have invested more than most venture firms just through Surge. And execution is the easiest thing to talk about, but the hardest thing to do in life and in business.”

Sequoia heats up early-stage startup investments in India and Southeast Asia by Manish Singh originally published on TechCrunch

Lightspeed raises $500 million for its new India and Southeast Asia fund

Lightspeed has raised $500 million for its newest India and Southeast Asia fund, its largest for the regions, as it looks to make deeper investments in the South Asian market that is increasingly attracting global investors.

The fund, fourth for Lightspeed India, was hard-capped at $500 million, meaning the firm didn’t want to raise additional capital, said the firm, which unveiled its $275 million third India fund in 2020.

The Tuesday announcement confirms TechCrunch’s April report, which said Lightspeed had initiated fundraising deliberations for the new India and Southeast Asia fund and was aiming to raise about $500 million.

Lightspeed additionally said Tuesday that it has raised over $7 billion across several funds, including India and Southeast’s.

Lightspeed began investing in India over 10 years ago and has amassed an impressive portfolio of several fast-growing startups including Byju’s, India’s most valuable startup, SaaS firm Innovaccer, e-commerce giant Udaan, social media giant ShareChat and payments giant Razorpay.

It began investing in the Southeast Asian market in the past decade and has backed several startups including Ula, which has since been backed by Jeff Bezos, and ride-hailing giant Grab.

The firm, which has a team of nine partners in India and Southeast Asia, is nearly doubling the size of its fund because it’s seeing more opportunities in the regions as a young crop of startups attempt to solve deeper and newer problems, said Rahul Taneja, a partner at Lightspeed, in an interview with TechCrunch.

“If you dial back 15 years when India internet 1.0 started, we saw the emergence of business-to-commerce marketplaces of digital goods such as MakeMyTrip and BookMyShow. Now the Indian internet economy is much broader with so many new sectors and within those sectors, there is a ton of depth,” he said.

“Another interesting factor that we increasingly see now is the quality of entrepreneurs who are choosing to launch their ventures. Our belief is that today we have the opportunity to play much wider,” he added.

Like most funds, Lightspeed hit the brakes during the initial months after the pandemic broke. What makes Lightspeed’s strategy interesting is that it largely refused to participate in the record frenzy funding cycle of last year.

“Lightspeed has been highly selective about the startups we back,” said Hemant Mohapatra, a partner at Lightspeed, in an interview with TechCrunch. “We never want to be on the lists of funds that do the most number of deals.”

“Last year, we were seeing very high-momentum weekend deals with very, very high valuations. I will say for the most part, those deals did not meet our bar and we ended up passing on those companies. Our deployment pace compared to the market during the last year and a half was slower,” he said.

Lightspeed has remained consistent with its approach and speed of deal activities and is still investing at the same pace as last year — which compared to the market conditions now — is faster, said Mohapatra, who previously worked at AMD, Google and Andreessen Horowitz.

“It’s an area of deliberate choice for us. Repeatedly over the last few years, we have had discussions about whether we should make any changes to our strategy around the pace of investments and the kind of companies we are supporting,” said Taneja. “I think we have been fairly level-headed and in hindsight that looks great.”

“If we are excited about 10 companies, we will invest in all ten of those. If we are not excited about any of them, we will not make any investment,” he added.

Lightspeed will continue to focus on areas such as consumer internet, SaaS, fintech and edtech, the two partners said, adding that the firm is also increasingly evaluating newer opportunities in additional sectors such as climate-tech, cross-border payments and web3. Lightspeed India has invested in nine web3 startups in the last one year.

It’s also stage-agnostic about investment opportunities. Taneja said Lightspeed India works closely with other arms of the firm and whenever needed, the global fund delivers the big checks as we have seen in the cases of Udaan and Razorpay.

The world’s second most populous nation has attracted scores of high-profile investors in the past 12 years. Sequoia and Accel, both of which have also been investing in the South Asian market for over 10 years, announced new funds recently.

SoftBank, Alpha Wave Global and Tiger Global have also increased the pace of their investments in India in recent years. SoftBank invested over $3 billion in India last year alone. Tiger Global has invested $6.5 billion in the country to date, TechCrunch reported Monday.

Virtual events platform Airmeet raises $12M

Airmeet, a startup that offers a platform to host virtual events, said on Tuesday it has raised $12 million in a new financing round as the Bangalore-headquartered firm demonstrates accelerating growth in its user base.

Sequoia Capital India led the $12 million Series A financing round in one-year-old Airmeet. Redpoint Ventures and existing investors Accel India, Venture Highway, Global Founders Capital (GFC), and Gokul Rajaram (Caviar Lead at Doordash) also participated in the round.

Airmeet allows users and businesses to host interactive virtual events. Its platform intuitively replicates aspects of a physical event, offering a backstage, clubbing people to a table, allowing participants to network with each other, and even enable event organizers to work with sponsors.

In an interview with TechCrunch, Lalit Mangal, co-founder of Airmeet, said the startup’s today hosts more than 1,000 events a day. The platform’s usage has grown 2,000% over the last quarter without any investment in advertisement, he said.

In recent months, Airmeet has worked to expand the use cases of the platform. In addition to hosting large conferences, Airmeet is now also being used for professional meetups at large film festivals, he said. Recently it held university resource fairs and technical industry summits.

“Covid-19 has accelerated a permanent behavioral shift across many industries. With digitization of largely traditional spaces leapfrogging by years, the $800+ billion global offline events space is up for grabs. There is massive potential for players who drive the industry’s transition towards online-events,” said Abhishek Mohan, VP at Sequoia Capital India, in a statement.

Airmeet is built on top of WebRTC, a standard that most modern browsers follow. This has enabled Airmeet to be fully accessible through Chrome and Firefox. All the sessions are also end-to-end encrypted, said Mangal. It does not have a mobile app. Mangal said people tend to use their laptop or desktop or their iPads for professional events. (Users can consume a session through their mobile browser, however.)

The startup, which is in the same space as Hopin and Andreessen Horowitz-backed Run the World, will use the fresh capital to add new features to Airmeet and also scale globally, said Mangal.

“Airmeet’s mission is to create a global platform to enable millions of community managers and event organizers across the world to engage with and expand their audience. And with Lalit and team’s focus, execution and innovative thinking, they are strongly placed to achieve their goal,” said Mohan.