Indian tech entrepreneurs need to secure growth capital
to grow, innovate and compete with other startups and corporations.
By Michael Megarit
Indian Tech Entrepreneurs Need to Secure Growth Capital
India’s tech industry is booming.
In the first three quarters of 2021, an impressive 24 Indian startups reached the coveted Unicorn status, most of them tech companies.
India now has 63 tech Unicorns, and this number is expected to reach 100 by 2023.
This sudden rise of Indian tech startups is not a coincidence.
In recent years, India has risen to prominence as an international investment hub thanks to its thriving economy and rapid digitization.
As a result, major financial institutions, such as Tiger Global and Softbank, are pumping billions into the nascent Indian tech industry, in the hopes of discovering the Indian Google, Facebook or Amazon.
However, for Indian tech entrepreneurs, this influx of capital is more than a reward for their innovative products and services: it is essential to thrive in the increasingly competitive Indian tech market.
Here are 3 reasons why Indian tech entrepreneurs need to secure growth capital.
1 – Investment Firms Are Injecting Billions Into Indian Tech
India is a thriving entrepreneurial and technological hub.
The nation boasts more than 650 million active internet users and a thriving startup environment.
However, many startups are still in early and middle-stage development. This means that they face numerous challenges. Indeed, they require a lot of capital to fund Research & Development (R&D), finance daily operations and pay their staff. In fact, as most startups in the world, they are usually unprofitable.
Thus, Indian tech entrepreneurs need to secure growth capital to survive financially, develop their products and reach profitability.
Thankfully for them, Venture Capital firms are eager to provide them with the necessary capital to grow and scale.
Since the start of the year, technology-centric investment firm Softbank Vision Fund invested $2 billion into Indian startups. A few of its notable investments and fundraisings include:
- $450 million investment in food delivery app Swiggy.
- $300 million fundraising round for social commerce venture Meesho.
- $250 million fundraising round for banking technology platform Zeta.
- $90 million fundraising round in Saas business Whatfix.
- $160 million fundraising round for B2B E-commerce platform OfBusiness.
As mentioned in the introduction, Softbank is not the only investment firm betting big on Indian tech.
Tiger Global is also investing massively in Indian tech companies: at writing, it has finalized and is in the process of concluding more than 25 deals, ranging from $10 million to well over $100 million.
The firm notably closed the following investments:
- $500 million raised for social network Sharechat.
- $500 million raised for Epharmacy firm PharmEasy.
- $240 million raised for business messaging platform Gupshup.
- $125 million in funding raised for Infra.Market, a startup that helps construction and real estate companies procure materials and handle logistics.
- $120 million raised for B2B marketplace Moglix
- $100 million raised for healthcare startup Innovaccer.
- $100 million raised for fintech firm ClearTax.
- $83 million raised for investment app Groww.
- $30 million raised for Koo, the “Indian Twitter”
- $26 million raised for social firm Kutumb.
This incredible level of financing has led startups from around the country frantically trying to get introduced to Tiger Global. Indeed, securing financing from one of these two behemoths means more public attention and greater chances of success.
Thus, Indian Entrepreneurs need to capitalize on this investment frenzy to secure the growth capital they need to take their startup to the next level.
2 – Indian Tech Entrepreneurs Need To Compete With International Corporations
The second reason why Indian entrepreneurs need to secure growth financing is because international competition is fierce.
All the major international players are present in India and actively expanding.
For example, American Big Tech has a long established presence in the country and is keen to capitalize on the nation’s internet boom.
For example, several leading corporations are capitalizing on their status to penetrate and expand their presence in the local markets:
- Since 2017, IBM has 29,000 employees in India, which is more than in the US, and recently announced its intention to establish a state-of-the-art product engineering, design and development center in Kochi to advance Hybrid Cloud and AI technologies.
- Microsoft is present in India since 1990, employs 8000 people, has offices in 11 cities, and recently opened an engineering hub in Noida .
- In 2020, Amazon announced its intention of investing up to $6 billion in India.
- Walmart owns 77% of Indian E-Commerce giant Flipkart, fashion and lifestyle E-commerce site Myntra (which belonged to Flipkart), and 10% of payment platform PhonePe.
- Skechers, which calls itself the “Comfort Technology Company”, is becoming one of the leading footwear brands in India.
In addition, despite their conflicts with the Indian government over privacy and content, US-based social networks are thriving:
- Facebook’s WhatsApp has nearly 460 million active users.
- Google’s YouTube has 425 million monthly active users.
- Facebook has 340 million users.
- Instagram has 180 million active users.
- Twitter has just 22 million users and is poised for massive growth.
Thus, Indian entrepreneurs need to secure growth capital in order to compete and avoid being crushed by the corporate giants that are already well established.
3 – Indian Tech Entrepreneurs Need Capital to Fund Acquisitions
Finally, Indian entrepreneurs need to secure growth capital to fund their own Mergers & Acquisitions (M&A).
Indeed, M&As are an excellent way for companies to access new technologies and expand their pipelines, develop competitive advantages, influence supply chains, acquire new customers, gain market share and increase their revenues.
In 2021, global M&A volumes are hitting new records, overtaking last year’s already impressive numbers. As of August 2021, Refinitiv data reveals that the total value of pending and completed deals touched $3.6 trillion, compared to $3.59 trillion for all of 2020. In total, global M&A activity has increased 24% from last year.
In India, M&A activity is also setting new benchmarks with 119 deals totaling $3.8 billion brokered so far this year.
One interesting phenomenon of the Indian dealmaking landscape if the fact that Indian startups are acquiring established businesses:
- Digital investment platform Groww acquired Indiabulls’ mutual fund business
- Fintech startup BharatPe took over PMC Bank
- Online pharmacy PharmEasy acquired a 66% share in diagnostic chain Thyrocare.
V Balakrishnan, Partner at Exfinity Venture, claims that “The increased inflow of capital has triggered M&A activity as startups are looking at leadership positions. Startups are willing to take a higher riskthrough M&A for market leadership or acquiring skillsets”.
Leading startups are acquiring companies to expand their reach. For example, InMobi acquired Shop1010, a social commerce startup, in order to create a live commerce business.
However, merging with and acquiring other companies is only possible if the entrepreneur has capital to deploy. Since funding day-to-day operations is expensive and time-consuming, they need to secure growth financing in order to generate cash surpluses that can be used to create synergies.
This is why securing growth capital is crucial.
The Bottom Line
India’s tech industry is booming and full of promise.
Entrepreneurs are actively developing product offerings that will satisfy the needs of a growing digital consumer base.
However, competition is fierce and capital is highly coveted.
Tech entrepreneurs need to focus on securing growth financing to compete with the emerging national Unicorns and international corporations entering the market.
About the Author
Michael Megarit is a partner with Cebron Group.
With over 25 years of domestic and international corporate finance experience,
he provides M&A and capital advisory to high-growth technology companies.