Startup Street: Investors Found It Harder To Exit In 2019

This week on Startup Street, a look at the trends from private equity and venture capital ecosystem in the country in 2019. A Hero MotoCorp-backed startup expands to four more cities. And an analysis suggests India is now the world’s third-biggest fintech market. Here’s what went on...

2019: A Lukewarm Year For Exits

The slowing Indian and global economies had another fallout: private equity and venture capital firms found it much harder to exit their investments in 2019.

There was a 59 percent drop in exits compared to 2018, according to a report by EY and Indian Private Equity and Venture Capital Association. In 2019, total value of exits stood at $11.1 billion, much lower than $27 billion recorded last year.

While open-market exits saw a sharp rebound, private equity-backed initial public offerings declined significantly. The secondary and strategic exits — the ones that most startup investors use — fell the most. To be sure, the $16-billion buyout of Flipkart by Walmart Inc. in 2018 skews the year-on-year comparison.

Still, the decline in exits was mainly led by a fall in deal activity. “Macro headwinds like decline in growth rate, slippage in fiscal deficit and impact of global trade have dampened the investor sentiment and growth outlook of many companies,” the report said. “As a result, many PE/VC investors were unable to get desired valuations on their holdings, thus reducing the velocity of secondary transactions in the market.”

The largest exit in 2019 saw Oyo Hotels & Homes founder Ritesh Agarwal undertaking a partial buyback of shares worth about $1.5 billion from Sequoia Capital and Lightspeed Ventures. Other notable exits included IFC, TPG and PremjiInvest selling their Lenskart stake to Softbank and Tiger Global selling its PolicyBazaar stake to Tencent.

Financial services was the most lucrative sector for exits accounting for $2.9 billion worth of deals, followed by e-commerce and technology.

It, however, was a yet another record-breaking year for private equity and venture capital investments in India. Investments hit an all-time high of $48 billion in 2019, an increase of 28 percent over last year. Deal volumes, too, rose 35 percent to 1,037.

The growth was primarily driven by an increase in investments in the infrastructure sector that jumped more than three times over last year. Investments in startups rose to $7.9 billion from $6.5 billion in the previous year.

That’s a reason why EY and IVCA are optimistic about better PE/VC exits in the near term. “With large-scale investments in mid- and small-sized companies happening over the past five years, we expect to see a good pipeline of targets lining up for secondary and strategic exits in the coming year,” the report said.

Ather Energy Expands To Four More Cities

Hero MotoCorp-backed electric scooter startup Ather Energy entered into four more Indian cities: Ahmedabad, Kochi, Coimbatore, and Kolkata.

“The four new cities will see installation of fast charging infrastructure in the coming months, followed by delivery of scooters,” the startup said in a media statement. “Ather has also been receiving dealership requests from these cities which will make it easier for the company to rapidly expand.”

Ather is already operating in Delhi-NCR, Mumbai, Pune and Hyderabad. “The Ather Forum has been abuzz with requests for the company’s community engagement programs to begin in cities beyond the metros,” the statement said. “Consumers in the new cities can expect to see meet-ups and test rides being conducted in their neighbourhood in the coming months.”

Mehta expects that Ather will be present in 10 cities by the end of this year and will continue to scale up to more than 30 cities by 2023.

Earlier in January, the startup launched the Ather 450X, its second electric scooter priced at Rs 99,000 (ex-showroom Delhi). The pricing is comparable to Bajaj Chetak EV, launched at Rs 1 lakh for the base model and Rs 1.15 lakh for the premium variant.

The Ather 450X is a step up from the Ather 450. It comes with a 6-kilowatt motor, a new 2.9-kWh lithium-ion battery mated with four riding modes. The electric scooter can go from 0-40 km/h in just 3.3 seconds and has a real life range of 85 km in city conditions.

Accenture Sees India As Third-Largest Fintech Market

Investments in financial technology ventures in India nearly doubled to $3.7 billion in 2019, according to an analysis by Accenture. That made India the world’s third-largest fintech market.

It puts India’s fintech ecosystem just behind the U.S. and the U.K., Accenture said using data from CB Insights. The number of deals rose slightly to 198 last year from 193 in 2018, it said.

“There’s a lot brewing in India’s fintech ecosystem and this steady flow of funds shows investors’ confidence in the industry’s future growth potential,” Sonali Kulkarni, MD (financial services) at Accenture in India, said in a media statement. “The increase in deal value and the number of deals is a good indicator of what’s to come and bodes well for the future development of cutting-edge financial technology in the country.”

Investments in payments companies more than tripled to $2.1 billion from $660 million in 2018, while funding into insurtech rose 74 percent to $510 million. Majority of funds raised last year in India went into payments startups (58 percent), while insurtech raked in 13.7 percent of the investments, the data showed.

One97 Communications, the parent of Paytm, raised $1.66 billion in two separate transactions. While PhonePe tapped investors for about $210 million, Razorpay raised $75 million. Other large transactions included $282 million raised by PolicyBazaar and $120 million from credit card payments company CRED.

Investments in fintech companies rose in most major markets in 2019, led by gains in the U.S. and the U.K. and emerging economies such as India and Brazil, Accenture said. Despite those gains, total value of fintech deals globally dipped 3.7 percent to $53.3 billion in 2019.

(With inputs from PTI.)