A restaurant advertises the usage of the Paytm digital fee system in Mumbai, India, on Saturday, July 17, 2021.
Dhiraj Singh | Bloomberg | Getty Images
India’s know-how start-ups will proceed to draw capital from each personal and public markets subsequent yr as they develop and mature, investors instructed CNBC.
There was a notable shift within the nation’s start-up surroundings in 2021, with a number of high-profile firms making their inventory market debuts. These embody meals supply app Zomato, funds big Paytm and the parent company of online insurance aggregator Policybazaar. More start-ups are within the IPO pipeline, together with ride-hailing company Ola and Indian hotel chain Oyo.
Indian tech start-ups additionally raised a document quantity of capital from personal fairness and enterprise capital companies. Those investors pumped in $28.2 billion value of tech investments this yr throughout 779 offers, based on data supplied by Asia personal fairness and enterprise capital intelligence supplier, AVCJ. That marked a 200% leap in capital in contrast with the $9.4 billion invested final yr.
Rajan Anandan, managing director at Sequoia Capital India, instructed CNBC this month that the enterprise agency is “very bullish” on India’s know-how ecosystem and its capacity to generate long-term worth for stakeholders.
“The success of firms in each home and worldwide exchanges has undoubtedly led to elevated curiosity from investors internationally,” Anandan mentioned. Sequoia Capital India noticed eight portfolio firms make their inventory market debuts in 2021, he added.
“It has validated the truth that massive firms will be constructed from this area — and create important shareholder worth. And with a number of promising IPOs lined up for subsequent yr, we anticipate this development to proceed,” Anandan mentioned.
Investor urge for food for new tech IPOs
The reception of a few of India’s high tech IPOs has various amongst investors. While Zomato shares made a stellar debut and are up round 5.44% from their first day of buying and selling on July 23, Paytm is down greater than 13% from its Nov. 18 debut.
Another digital funds firm, Mobikwik, delayed its IPO following Paytm’s disappointing begin. As such, there was rising scrutiny into fintech firms and their capacity to generate income and finally income, native media reviews mentioned.
Still, there’ll doubtless be urge for food for future IPOs, based on Nikhil Kamath, co-founder of Indian brokerage platform Zerodha. The larger query, nonetheless, can be how these firms would fare in the long run, he instructed CNBC.
Kamath identified that lots of the tech start-ups, together with a few of those who have gone public, remain overvalued.
“Majority of those [companies] will not be worthwhile and so they do not seem like they are going to be within the subsequent 4 or 5 years, so, it’s kind of laborious to justify the valuation,” he mentioned.
When taking a look at a start-up, investors ought to separate the corporate’s valuation — which is set by the general public market — and its fundamentals, based on Sandeep Naik, head of India and Southeast Asia at international funding agency General Atlantic.
Speaking to CNBC’s “Street Signs Asia” earlier this month, Naik mentioned early-stage and growth-stage investors have made some huge cash in India over the past two years. That’s partly due to exits, he mentioned, which allowed them to pump extra capital into India’s tech ecosystem and assist start-ups develop.
An exit occurs when a founder both sells their start-up to an even bigger firm or takes it public via an IPO.
Zomato meals supply companions in Kolkata, India.
Debarchan Chatterjee | NurPhoto | Getty Images
“The final 18 to 24 months, you will have seen the variety of IPOs which are taking place, the businesses within the IPO pipeline, the way in which firms have traded and so they have come out, which provides you an ideal validation that the worldwide capital markets are taking a look at our area as one of the engaging areas to spend money on progress,” Naik mentioned.
What’s subsequent?
While start-ups are anticipated to proceed attracting capital in 2022, the tempo of fundraising and progress might decelerate comparatively.
That’s as a result of there was numerous pent-up demand this yr round funding rounds that had been scheduled to occur in 2020, however had been postponed due to the Covid-19 pandemic, based on Amit Anand, founding associate at Jungle Ventures.
“If I take all of the fundraisings which have occurred this yr and perhaps unfold that throughout 2020 and 2021, then the image seems completely different,” he instructed CNBC.
The image nonetheless reveals India as a rising market, however factors to regular, longer-term year-on-year progress as an alternative of a one-off spike, Anand defined. For worldwide investors like Singapore-based Jungle Ventures, he mentioned India is a strategic market and bets are usually made for the long term.
“This is all credit score to the native entrepreneurs and the native investor base that has constructed the ecosystem to some extent the place it is ready to appeal to that sort of international capital as a result of the expansion charges are there and the maturity of the companies [is] there,” Anand mentioned.
Sequoia’s Anandan added that unprecedented liquidity attributable to ultra-accommodative financial insurance policies from international central banks helped take fundraising ranges in 2021 to new heights.
India’s market can be getting deeper and the standard of expertise is bettering, he mentioned. The pandemic accelerated tech adoption, which has resulted in lots of start-ups rising a lot quicker than earlier than — and so long as they’re in a position to present scale, funds will proceed to move in, Anandan mentioned.
Still, there are some headwinds that start-ups should navigate, each when elevating funds and when getting into public markets. That contains navigating a sluggish financial restoration in India and inflation strain in addition to coverage normalization from international central banks like the U.S. Federal Reserve.