IDG Ventures raises Rs 1,000 crore from investors for its largest India fund
The venture capital firm expects to raise the entire money for its $200-million third fund, called IDG Ventures India Fund III, by the end of this year.
The venture capital firm expects to raise the entire money for its $200-million third fund, called IDG Ventures India Fund III, by the end of this year, one of them said. Its first two funds were of $100 million each.
With this larger fund, IDG Ventures India, in addition to investing in young startups, will consider writing bigger cheques for maturing companies seeking money to fuel growth (series-B investments and beyond), the second person said. “Around one-fourth of the fund will be allocated to later-stage investments,” this person said.
This is crucial because while VC firms including Sequoia Capital and Accel India, too, are raising funds to invest in Indian companies, capital flow into early- and growth-stage firms has tapered because of the continuing wariness among investors about startup valuations and unit economics.
IDG Ventures, an early investor in Lenskart and Myntra, will continue to focus on the consumer technology, healthcare technology and software sectors, as well as on emerging areas such as financial technology, the sources said, both declining to be identified.
IDG declined to comment on its latest fund.
The VC firm has started deploying capital from the new fund, leading a round of investments into mobile health and fitness startup HealthifyMe and participating in a Rs-400 crore funding into Lenskart.
IDG Ventures raised most of the capital for its latest fund “from domestic investors like family offices besides existing limited partners,” the first source mentioned above said. IDG is among only a few large venture capital firms that actively tap domestic capital, unlike other big VCs that largely raise funds from overseas investors. For its latest fund, IDG is also working with Mumbai-based Edelweiss Wealth Management, which is expected to mobilise around Rs 100 crore from its clients.
The firm’s latest fundraise comes at a time when the pace VC investments in Indian firms have dropped significantly, after reaching a record high in 2015.
VC firms struck 90 deals in the January-March quarter, compared with 138 deals in the same year-ago period, according to VCCEdge. The total value of VC dollars dropped by about 80% to $337 million in the first quarter of 2016 from $1.79 billion a year ago. Early-stage and series A deals dropped to a six-year low in April to four transactions, as compared to 23 deals in the same month last year.
But investors remain bullish on the long-term prospects of Indian startups, and seven VC firms have raised nearly $2.6 billion in new funds since 2015. Sequoia Capital recently closed its $920-million fund and Accel India is expected to hit the road for a new fund that will be larger than its previous $305-million corpus.
Much of the money, though, is being reserved for portfolio companies seeking growth capital.
“The amount of money that companies need to scale in a competitive environment (is more) than what they had estimated in the past,” said Sumir Verma, managing director at investment bank Merisis Advisors. “And (VC firms) need to invest more to maintain their shareholding in the companies. A large amount of capital is now being reserved for follow-on investments as the percentage (of funds) reserved for fresh investments has come down.”
VC firms, indeed, are taking longer to close investments, spending more time on due diligence and asking companies to demonstrate how they can improve growth and achieve profitability, unmindful of valuations.
“While there has been moderation in valuation trends, investors could take a wait-and-watch approach in looking at deals… VCs should be closely looking at profitability and cash flows of potential investable companies,” said Raja Lahiri, partner at Grant Thornton India, adding, however, that the “long-term investment and deal opportunity for both tech and non-tech startups remains robust.