The unicorn club of start-ups in India have come a long way and have created history in the start-up world. After successfully filing for IPOs, they are now turning their attention to profitable investments within their community. By doing this, they want to create an independent investment wing for the industry they belong to. Thus, aspiring start-ups who are following in their footsteps can avail funding without the need to approach other investors or struggle to acquire funds. 

What is a Start-up Investment Wing?

Start-ups which have raised the benchmark for the community and have reached high valuations are setting up a Venture Capital arm with a fixed corpus. These VCs are then identifying budding start-ups that belong to the same or similar industry and are displaying disruptive business models and million-dollar potential. Such VCs are called Start-up Investment Wings which are giving back to the start-up community. 

Why are India’s unicorns turning VCs?

India’s unicorns are turning venture capital investors because the unicorn club in India is steadily growing with 16 more to be added to the pool in 2021 alone. By 2025, the total number of unicorns in India will cross the 100 mark. Existing unicorns in India like Paytm and Dream11 have developed an increased appetite for growth. They have also developed the need to tap into adjacencies which is pushing these unicorns to set up funds and turn investors. 

Investment arms of Dream Sports and Paytm

DreamCap – $250 Mn Corpus

Dream Sports, the parent company of Dream11 (fantasy sports start-up) has rolled out a $250 Mn corpus to fund sports start-ups in India. This investment wing of India’s first gaming unicorn Dream11 will fund start-ups operating in the sports, gaming, and fitness tech spaces. 

One97 Mobility Fund – $100 Mn Corpus

One97 Mobility Fund is Paytm’s investment wing with a $100 Mn corpus which is investing in mobile-first early-stage start-ups. They have invested in companies like Oorja Analytics, LeapSky Wireless, Ciqual, TenCube, and Singapore-based TheMobileGamer. 

Huawei Spark Ignite 2021, a Thailand-based global startup competition is a chance for tech-startups to enter into the Huawei spark accelerator program. Its aim is to ignite the startups with financial, go-to-market, mentoring, and networking support.

About Huawei Spark Ignite 2021

This competition is all about collaborating with disruptive startups and shaping the future technologies. Huawei, one of the largest telecom companies in the world, offers upcoming startups to surpass the ordinary and build a successful business ecosystem across the globe.

Huawei technologies in collaboration with DEPA, NIA, KBTG, TusPark WHA, and Zanroo Inc. have started this competition. This is a call for tech-startups globally, to get a chance to enter the Huawei Spark Accelerator Program, to build an ecosystem for businesses not only in Thailand but also in the entire Asia Pacific (APAC) region. 

This year it is offering this platform to eight tech-enabled areas:

Transportation
Media and Gaming
Financial services and Insurance
Education
Internet
Mobile
Sustainability
MICE (Meeting, Incentive, Conferences, Exhibition)

For the past few years, the agriculture space, most underserved with innovation and technology, is witnessing a 25 percent growth of agritech startups year-on-year, focussing on clearing age-old bottlenecks by developing better market linkages, improving productivity and yield, and building better farm infrastructure to the 150 million farmer community.

According to industry body FICCI ( Federation of Indian Chambers of Commerce and Industry), India is home to 450 agritech startups and has received venture capital funding of $545 million since 2014.

 The influx of startups in agritech can be attributed to India’s questionable food security as the traditional methods of farming are inadequate to feed India’s growing population that requires technology interference.

Realising the potential in the agritech space, the Indian agritech venture capital firm Omnivore is going to launch a US$150 million fund to aid entrepreneurs and startups focussed on everything from predictive crop insights to AI-powered precision farming. This funding launch is the third since Omnivore’s inception in 2010. 

What is Omnivore? 

In 2010, where online shopping startups were booming in India, the agriculture space contributing 16 percent to GDP was yet mired in its traditional farming practices. 

Startups in the agritech do come up with a promising start or idea but meet with a sad fate early due to lack of monetary support as the general VCs are reluctant to support them. 

This led Mark Kahn along with Jinesh Shah to form Omnivore in 2010 to become India’s first agritech-focussed venture capitalist company.

What are Private Equity (PE) funds?

Private Equity Funds are investment bodies which put capital into non public traded companies. PE money comes from private sources. PE firms specialise in specific industry sectors and are mostly located at Tier I Indian cities.

Private Equity’s interest in Consumer Technology

Private Equity Funds are interested in funding sprees for technology-based consumer brands with the potential to disrupt the market. Consumer Tech is on the hot list for PE funds this year alongside sectors like healthcare, IT, and ITES. Consumer Tech is showing ample growth opportunities making it a hotbed for investor play. The main reason for this is that PE funds’ strategic exposure to industries like Consumer Tech which have largely been resilient during Covid is working well for them.

The Consumer Technology sector has been seeing investments from PE funds right from 2019. So, this is not a new trend but one that’s been picking up pace. Among consumer tech companies which saw highest PE funding, the name that pops up is Jio Platforms. In fact, Jio Platforms bagged the highest PE funding in India amounting to $8.9 B. The second most well-known name is of course, Byju’s which recently received $500 M from PE fund Silverlake. PayTM is the next start-up from the Fintech world which has partial private equity ownership. Nykaa had in 2019 obtained INR 100 Cr in funding from private equity fund TPG capital. General Atlantic, a Private Equity firm has invested in Unacademy, India’s Unicorn ed-tech start-up.

Bueno Gig Growth Technologies Private Limited, commonly known as Bueno Finance, is a financial services platform that aims to improve the financial access and inclusion of Indian blue-collar (manual) workers. It mainly meets short-term cash flow needs and helps customers improve their creditworthiness to obtain official credit.

With the integration of financial technology and digital financial solutions, Bueno Finance positions itself as a “neobank”. A neobank, also known as an internet-only bank, or virtual bank, or digital bank, is a bank that is operated entirely online without a traditional physical branch network.

Start-ups have become the most valuable asset of the country. But what’s backing the unprecedented growth of some of the highest valued unicorn, IPO, and pre-IPO stage start-ups in India? Money, of course! A downpour of funding from private equity firms, M&As (Mergers & Acquisitions) and some good old VC deals. Money is thus the bloodline of the Indian start-up ecosystem but with all the funding pouring in, start-ups naturally have questions they need answered.

Giving up shares for deserving stakeholders.

When a number of investors come on board, it’s a tough call to decide about dilution of shares. But it’s important for start-ups to be in tune with the goals of the business to understand what’s best. If you’re a team of co-founders or if you plan to give up shares to your employees, make the decision based on who has the best interests of the company at heart. A number of start-ups are giving up small percentages of their company to employees via Stock Appreciation Rights (SARs). By giving stakes in your company to the core team, you know your company is in the right hands.

How to raise start-up funding without losing equity

The worry about having to give up full or partial ownership of your business to fulfil your operating capital needs shouldn’t keep you up at night. Funding often leads to loss of equity but there are ways to ensure that you have full ownership of your start-up. Bootstrapping is surely the best method to keep your equity. If you are a start-up with low capital expenditures, you are at an advantage because you can become a fully bootstrapped start-up (reliant purely on your existing revenue). The next best way to keep equity is to go for business loans. There are a ton of start-up and MSME loan options that you can avail now that the Government is actively supporting the start-up community.

How to get Funding

Getting start-up funding has become relatively easy. If your idea is based on a ground-breaking technological revolution, you can pitch to Angel Investors, Incubators/Accelerators or Venture Capitalists. You can also apply for the Start-up Seed Fund scheme, The Atal Innovation Mission, and look into other Governmental Grants and schemes to get funding for your start-up.

Which Funding option suits me?

The biggest Angel Investors are generally scouring for unicorns to add to their portfolio. On the other hand, Venture Capitalists rarely take a second look at pitches that don’t excite them right off the bat. So how will you know which funding option is best suited for your start-up? Irrespective of the industry you belong to, you can always choose to crowdfund your start-up, approach an incubator/accelerator as an early-stage start-up, or apply with a micro-VC (they usually pitch into pre-seed and seed funding rounds). You can always approach NBFCs (Non-Banking Financial Corporations) who are microfinanciers that are much more flexible than traditional banks. Bank loans are also an option but one that’s not highly recommended for start-ups that are scaling up. Unless you are confident of your ability for timely paybacks. There’s also always a degree of risk involved in bank loans.

The best funding option for all start-ups in India is to seek capital from Government programs. There are several new programmes launched like the 10,000 Crore Start-up Fund, the Bank of Ideas and Innovations Program (a program to share your innovation in exchange for capital). There is also the ‘Pradhan Mantri Micro Units Development and Refinance Agency Limited’ (MUDRA) which is funding SMEs. There are also several state level programs dedicated for small businesses. You can also approach SIDBI (Small Industries Development Bank of India) which is dedicated to offering loans for MSMEs.

State Bank of India (SBI) recently invested an undisclosed amount in a Bengaluru-based Fintech start-up making it India’s largest Public Sector lender to join investors like Apis Partners, SmileGate, and Y Combinator.

SBI is the newest entrant to the investors landscape and stands out among fellow start-up investors. SBI is India’s most trusted and a leading lender. Having them on board is a game changer for any start-up. SBI’s investment in Fintech start-up Cashfree is a strategic one which occurred at a post-money valuation.

Change in Start-up funding landscape in India

SBI’s investment was targeted at a growth strategy focused on customer experience and product innovation. The start-up funding landscape is changing thanks to the renewed interest from banks towards technological innovation.

Case in point is ‘PSB 59 minutes’, a fintech start-up where a number of public sector banks like SBI, Punjab National Bank, Bank of Baroda, among others have got into partnerships. The start-up disburses loans for SMBs in 59 minutes via the partnered Banks.

There is immense interest among banks towards the start-up community especially around fintech players who offer innovative technologies like AI chatbots. Also, these banks are now very open to explore new technologies like Blockchain to streamline traditional banking.

Potential for Accounts Aggregator Business in India

SBI’s Cashfree investment is not just about getting into the payment gateway business. The Reserve Bank of India (RBI) recently announced licenses for NBFCs (Non-Banking Financial Institutions) to venture into the account’s aggregator business. This move is set to transform financial services in India.

The accounts aggregator market is still growing but looks quite promising as a potential asset-light infrastructure business consideration. A number of NBFCs have already received RBI approval.

Soon, more public, and private sector banks will make their entry, empowered by regulations, innovation, and new-age technologies like Artificial Intelligence (AI) and Machine Learning (ML).

Venture Capitalists are seen as the bigwigs of any industry. With all the funding and investments rushing into start-ups, it’s no surprise that every new business aspires and dreams of being singled out by a VC. But does the start-up community truly understand the role of VCs or have we succumbed to a number of myths that prevent us from getting the best from them? The below myths about VCs will allow you to change your perspective and see Venture Capitalists in a new light:

Myth 1: VCs are the go-to funding source for all new businesses and start-ups.

VCs are not the be-all and end-all of start-up funding. In fact, most start-ups source their initial funds from a number of different sources like business loans, money lenders, angel investors, and even through crowdfunding initiatives. Even friends and family pitch in on several occasions. VCs invest in start-ups with a viable business idea after careful analysis of their professionally presented pitches.

Over the last couple of years, Chennai has quickly become a hub for start-ups and small businesses, making it a very attractive option for investors in what is essentially becoming a snowball effect for growth prospects and a significant number of funding deals.