More bang for the buck for startups as fund infusions jump in size

Big ticket funding have become the new normal with at least four companies across sectors such as transport, hospitality and e-commerce raising cheques worth $1 billion in the last year-and-a-half pointing towards the maturing internet market in India. The number shoots up to 37 if one takes into account deals in the $100-500 million bracket in 2017 and 2018 so far, according to data shared by Tracxn with Moneycontrol.

This happens even as more companies across food-technology and grocery businesses are likely to get large cheques in their coffers before the year ends.

“It is a sign of the gradual evolution of the Indian ecosystem. If you look at the impact of Reliance Jio on the internet ecosystem, the number of subscribers that are active today, the number of online shoppers... Indian market has actually come to a point where people believe that scaled start-ups can be created in this system,” said Alok Goyal, co-Founder of venture capital firm Stellaris Venture Partners.

“If you look globally, ultimately outside of the US and China, India is the only market of scale,” he added.

Hospitality firm Oyo is one of the most recent examples of big ticket funding. It raised $800 million in a round led by SoftBank Investment Advisers (SBIA) with participation from Lightspeed Venture Partners, Sequoia and Greenoaks Capital last month. The company has a commitment of another $200 million from the same set of investors taking the total amount to $1 billion. The round also gave Oyo a valuation of around $4 billion against $800 million during its previous round of funding.

Cab hailing firm Ola is in talks to raise $1 billion in a fresh round. In October 2017, it raised $1.1 billion at a valuation of around $3.5-4 billion from China’s Tencent Holdings and existing investor Softbank.

Online payments firm Paytm too raised $1.4 billion from SoftBank in May last year before raising another $300 million from Warren Buffett’s Berkshire Hathaway in September.

e-commerce firm Flipkart, which was acquired by US-based retailer Walmart, had raised two consecutive big ticket funding before its acquisition. In April last year, it raised $1.5 billion from Tencent, eBay and Microsoft. Four months later it raised $2.5 billion from Softbank Vision Fund for over 20 percent stake.

The common thread across all these big ticket funding is clearly Softbank.

According to Parag Dhol, Managing Director at venture capital firm Inventus India, an exit from Flipkart has also given some investors bountiful of liquidity which they are happily investing back into the ecosystem.

Grocery firm Grofers and food delivery start-up Swiggy are in talks to raise a fresh round of funding.

Softbank again is an existing investor in Grofers. The company announced a fund raise of $62 million in a round led by SoftBank and said it was in talks to raise more money this year. Reports also suggest that a potential merger with rival Big Bisket, which has Alibaba on its board, is also a possibility.

Similarly, Swiggy, which raised two simultaneous funding rounds this year, is again in talks to raise at least $500 million in a fresh round. In June, it announced a fundraising of $210 million led by existing investor Naspers and new investor DST Global. This round happened barely three months after the company raised $100 million from Naspers and Meituan-Dianping.

Is this the return of FOMO – fear of missing out, a phenomena that had gripped the investors in 2015? Investors disagree.

“The craziness is not across the board,” said Dhol, adding that of the thousands of tech companies that are founded every year, this euphoria is restricted only to top 100 companies.

Afraid of losing out on a potential unicorn, especially after missing out on the e-commerce bandwagon, investors such as Sequoia Capital and SAIF Partners had started 'spraying and praying' across hyperlocal delivery start-ups in 2015, which means building a diversified portfolio across companies.

Eventually the sector saw a huge bloodbath in the next couple of years, with start-ups falling like dead leaves due to lack of follow on funding rounds.

“We went through a period in 2016 where people were very cautious but ultimately people are seeing underlined growth. It was just a matter of time,” said Goyal.

“To a certain extent it is also the impact of some very large global funds with the likes of Softbank who have upped the ante on the capital side,” he added.

Also unlike 2015 when an average ticket size would be $10-30 million, now there’s more money at stake.

“This is more happening at the $100 million and above level. So, that is different,” said Dhol

The big ticket funding has also given rise to a new set of unicorns: start-ups who have a valuation of $1 billion. Companies such as Oyo, Udaan and PolicyBazaar became unicorns only after their recent rounds.

Oyo for instance was valued at $800 million. It’s valuation sky-rocketed to $4 billion after existing investor Softbank decided to pump in dollars.

Udaan’s valuation was barely $200 million during its $50 million round. It became a unicorn with a $1 billion valuation during its $225 million investment from Yuri Milner’s DST and Lightspeed.

Policybazaar which was last valued at $500 million got the unicorn tag after it raised $238 million in a round led by Softbank in June.

According to industry experts, even though investors know that the valuation of many companies on the table are disproportionate, they know it will pay off in the long run.

It is also an easy way to create an entry barrier for smaller rivals. These companies are indeed the last men standing in their respective ecosystem.