The year 2021 stood out for . The VC made over 74 deals amounting to $4.35 billion, reveals data by YourStory Research.
Between 2015 and January 27, 2022, the fund has invested in a total of over 318 deals in the Indian startup ecosystem amounting to $11.40 billion, across sizes.
Breaking it down — in 2015, the fund had made a total of 49 deals with a total of $1.2 billion; 2016 saw 27 deals amounting to $488.3 million; 2017 hit 26 deals adding up to $774.9 billion; 2018 saw 31 deals with a total of $1.4 billion; 2019 had 54 deals amounting to $1.63 billion, and 2020 hit 55 deals amounting to $1.37 billion.
In comparison, 2021’s $4.35 billion is close to 38.14 percent of the cumulative $11.40 billion, and the year also saw the highest number of deals the fund has made in a year.
These do not include the investments by Surge, Sequoia’s early-stage accelerator programme. In addition, Sequoia Capital India saw stellar exits in 2021. Data indicates that the fund sold shares worth over $1 billion through secondaries, mergers and acquisitions (M&As), and initial public offerings (IPOs).
While exits and funding deals are closely linked to one another, exits were a farfetched idea for Indian startups until 2021 — a year that saw the emergence of 44 unicorns, and eight tech startups going public.
“Sequoia Capital India is one of the oldest funds to have bet and believed in the Indian startup ecosystem. And their increasing belief in the startup ecosystem is seen in the increasing investments the fund has made in the startups here,” says an analyst, on the condition of anonymity.
A continued push
But the question is — will this momentum continue in 2022? While a recent tweet by Sequoia Capital’s Shailendra Singh may have gotten many to wonder if the fund will slow down its investments in the country, GV Ravishankar, Managing Director, Sequoia Capital India tells YourStory,
“As a fund, we have been investing in India since 2006, and we have always bet on Indian startups and the Indian market, and will continue to do so. The market in India is significantly different that there is no comparison. We started when the world was different; internet access is higher [now], there is better payment infrastructure that allows people to consume online. It also is a different environment when it comes to capital availability. It is a significantly different market in terms of depth of talent, talent, density, and founder quality.”
He adds, “All these factors coming together — the deeper market, more capital availability, and better people, who have seen and built scale — is a magic recipe coming together to build a stronger environment.”
However, founders do not start up depending on whether it is a time for raising funds or not. Companies are founded based on a need to solve a problem.
“It isn’t about markets being great or not; it is a burning desire to startup. Good companies will continue to be built irrespective of market conditions. What will change are the valuations. Looking back at 2015, it was a mini bull market and several of our investments have come from that vintage. There are many companies like that who look to partner with investors like us, and this will happen in good or bad markets. We will remain consistent, if in a relatively high valuation environment the last 12-18 months we were active investors, we should logically be more active which allows you better quality investment,” explains Ravishankar.
A different market
According to Ravishankar, these factors alone do not determine investments. The environment is only an input to how you conduct yourself in that market and that is the context of the tweet.
“We are now entering a market where capital availability is not going to be as easy as it was in 2020 or 2021. And people should calibrate for that. When markets start turning, you are better off being a little more cautious. The idea is to build more sustainable ways to grow a business,” he adds.
But is the market shifting? Many analysts and investors predict that the continued interest will remain in some pockets but late-stage rounds will see a shift.
“The corrections that are happening in the public markets started affecting how late-stage investors think about financing. The change will start with the public markets, and will later start showing in the newer IPOs that will be priced more moderately than they were last year and then it will start showing up in late-stage growth rounds over a period of time, and if that sustains, it will show in the early stages. The early-stage market is probably usually the most resilient with enough capital,” says Ravishankar.
Many believe Sequoia will continue to press hard on the pedal in India. A startup founder added the kind of digital adoption and growth seen in the market today hasn’t been around for a decade. The number of consumers that most startups are seeing is north of double digits, making the market and the size all the more lucrative.
Speaking of their investments in 2021, Ravishankar notes,
“The year was exciting in many ways. Despite being affected by COVID-19, tech companies had significant benefits. There has been a focus on COVID-19-led technological and digital adoption like ecommerce, edtech, and there have been several beneficiaries. This just meant that more companies saw significant traction, and this led to investors putting in more capital in the market.”
The sunrise sectors
He says in terms of sectors, VCs are now chasing areas where technology can make a difference. For example, Software-as-a-Service (SaaS) is a proven model of India growing in the global software market. This was further illustrated by Freshworks’ successful IPO.
“Freshworks has shown the way that you can build global multiple valuation companies out of India. It also has shown several million dollars in terms of revenue building products out of India. We think more people will build global SaaS companies out of India,” says Ravishankar.
He adds that Sequoia is looking closely at fintech too as financial services is a big market with substantial profit pools, adding that the VC already has 40-50 companies in the space across India and Southeast Asia.
“We believe we will continue to see a lot of innovation in the space because of the sheer size of the problem. This will be across payments, lending, insurtech, and all aspects of financial services,” says Ravishankar.
Going forward, Sequoia plans to keep an eye on the electric vehicle (EVs) market and deeptech startups. Among the newer sectors, it is keen on agritech and Web 3.0. Agritech and foods have seen significant growth in market size, and in recent years, the number of entrepreneurs using technology to address these segments is also growing.
Additionally, Web 3.0 will allow for decentralisation and community building.
“A large number of problems need to be solved in a different way compared to Web 2.0. We have made over a dozen investments in the area, and intend to do more. Notwithstanding the market corrections on prices, as those come and go. The focus is on the fundamental technology that will transform the web as we know,” says Ravishankar.
While there may be a market turnaround, as expected, Sequoia Capital India as always will continue to be bullish in India.
Edited by Saheli Sen Gupta