PLAYING FOR CONSOLIDATION & DISRUPTIONS

PEs will do bigger deals and more buyouts while VCs will only back start-ups that look viable and disruptive, fund managers tell Ranju Sarkar

Rise in non-VC funding We have seen a steady number of seed/angel deals — 400 investments in 2016. This indicates the continuing attractiveness of startups as an asset class to non-VC entities and high networth individuals. These seed investments are critical in promotion of entrepreneurship. Tier-2 and tier-3 towns in India now have robust ecosystems, attributable to rise in early-stage funding in the smaller towns —Jaipur has emerged as a start-up hub!

Interestingly, corporate investments through balance sheets have also started to play a role. Mahindra’s acquisition of Baby Oye, Caratlane acquisition by Titan are some of the prominent examples. Foreign companies foraying into the Indian market to find the next acquisition target or simply investing in start-ups will continue the momentum in 2017; we saw a trickle of that in the 2016 acquisition of Tuple by Apple. Digital Bharat The Indian start-up growth story was largely limited to urban areas. But, increasingly, start-ups have started making inroads into the hinterlands. From e-commerce companies strengthening their distribution networks in small towns to entrepreneurs (and even large companies such as Google) tapping the vernacular speakers, rural India holds tremendous potential with 120 million connected users growing at 30 per cent a year, driven by lower smartphones costs, digital infrastructure, increasing in purchasing power and awareness. Bharat, or the hinterlands, in 2017 will see increasing adoption of tech, which is confirmed by emergence of start-ups such as Store King, Share chat, Culture Alley. Given the increasing depth of the Indian market, we expect more investment momentum in India.

As 2016 comes to an end, capital ready to deployed (dry-powder) for start-ups by funds already established in India is quite significant at $3.1 billion. Driven by strong discipline (sustainable business models), interest from angel investors and increased potential of the Indian market, funding environment is favour of the entrepreneurs. Venture capital in India, in its decade-anda-half history, will continue to back and grow strong entrepreneurs in 2017.

All this good news for entrepreneurs doesn’t mean building a company has gotten any easier. Entrepreneurship is still a hard row to hoe, and there are no shortcuts. The success rates are still single digits. But, if you have a disruptive idea and you are truly committed to building a great business, 2017 is a great time to take a plunge. May the force be with each of you who dare to venture forth to build the next generation companies putting India on the global map.