VC money from everywhere is flowing into India. While e-commerce site Flipkart may be the company receiving the most publicity, it is the tip of a very deep iceberg, followed closely by online shopping site SnapDeal. Mainline VC firms like Sequoia Capital, which used to think of India as risky, are making their bets. VC investment in Indian companies is on track to hit nearly $7 billion this year, up 35 percent from last year, which was up more than three times from the previous year.
However, American VCs have to contend with two uncommon factors when they invest in India: first, there is still widespread corruption, built into the culture from centuries ago, and an overactive regulatory environment built to combat it.
Traditionally, VCS have only invested in India after the risk was largely accounted for — in the later stages. But in 2015, investments have shifted to early stage, according to PitchBook, a global private equity firm that compiled the data.
Some of the key investments this year:
- Zomato, a restaurant search engine, which raised $60 million last November at a post-money valuation of $660 million and another $50 million in April at a $1 billion valuation.
- Classified ad site Quikr India, similarly, raised $150 million at a pre-money valuation of $892 million in April, just seven months after raising $60 million at a $460 million valuation.
- CarDekho, an auto portal, which raised $50 million at a post-money valuation of $300 million in January.
- Flipkart raised $550 million in May
- Olacabs, India’s equivalent of Uber raised $610 million in two separate fundraisings since last October. Olacabs, whose app is on more phones in India than Uber’s app is on U.S. smartphones, recently acquired TaxiForSure.
Tiger Global Management and strategic acquirers like Softbank and Alibaba Group Holding are still the biggest investors in India, but in the past five years, Sequoia has invested in more deals than any other firm, with 97, while Accel is the number two and Tiger is number four behind Blume Ventures Advisors.
Also investing in India now are Intel Capital, Omidyar Network and Qualcomm Ventures. PitchBook ranks investors based on the number of deals in which they’ve participated, not on the amount they’ve invested.
Big investment dollars in India are based on the hope that access to the Internet is going to grow rapidly, creating an enormous online market, thanks in part to the spread of mobile 3G cellular services. However, an economy like India’s still emerging, is not without its growth problems. And even the biggest companies are not yet making money. Even Flipkart, valued at $15 billion after its most recent fundraising, says it will not turn a profit for two or three years.