‘India to see next set of IPO-bound firms in niche sectors from tier-II markets’

   2024-07-07 18:07

Bengaluru: India, home to the third-largest startups ecosystem in the world, will see the next set of companies bound for initial public offerings (IPOs) come from tier-II markets and beyond in niche sub-sectors, Apoorva Ranjan Sharma, a venture capital (VC) investor, told Mint.

To capture the growing opportunities in pre-IPO and late-stage companies, Sharma is also evaluating a secondaries fund. “While it’s too early to comment on this, we are definitely looking at these options as there is a lot of demand for secondaries now,” he said.

Sharma, who has co-founded VC funds such as Venture Catalysts and 100Unicorns, believes that many startups from the smaller towns like Ambala and Silvassa often go unnoticed due to lack of awareness and resources to scale up. Through his funds, he aims to provide mentorship to these startups until they reach a valuation of $100 million.

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Since most of the known startups or unicorns—companies with a billion-dollar valuation—come from 15-odd cities, he emphasized the addressable opportunity beyond these geographies where founders require more assistance to scale up. He expects the next set of unicorns to come from varying sub-sectors which will drive India’s goal of becoming a $7 trillion economy by 2030.

In the pursuit of that goal, Sharma said this could pave the way for specialized funds in the market to accelerate that growth. “Some sectors like fintech, SaaS (software-as-a-service) and property tech may be a larger growth driver and require additional capital to disrupt the ecosystem.”

Sharma oversees sector-specific funds such as Spyre, a prop-tech fund, and Beams Fintech. He has also backed sector-agnostic funds like Elev8 Venture Partners that focus on growth-stage technology-driven companies.

Some of his portfolio companies such as DrinkPrime, a water purification startup, and Internet company Wiom, which he claims has more concentration than mainstream providers like Jio and Airtel, are some examples of those that have challenged the incumbents in the space, Sharma said. Wiom, for example, is used by labourers and village folks who use the Internet for just a day to, say, watch a cricket match. It is in these geographies that Wiom has more users than Jio or Airtel, he claimed.  “These are the kind of companies which will be the future of this country. They will be responsible for the next wave of innovation that comes from semi-urban and rural areas.”

In May, 100Unicorns, which is part of multi-stage investing platform Venture Catalysts, launched its second accelerator fund with a target corpus of $200 million to invest in early-stage startups. With cheque sizes ranging from $250,000 to $1 million, the fund plans to invest in about 200 startups in the country across sectors such as SaaS, fintech, electric vehicles and energy, defence, health, education, travel, direct-to-consumer (D2C) and agritech.

“These are largely the areas of focus. We are also expanding to the Middle East, North America and South Asia, and we expect our global investments to grow to 20% from the current 12%,” Sharma said.

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With exposure to startups across the seed to growth stages, he believes the next few years would be a deeply transformative phase for India as several startups that were built in the last decade have scaled up and matured to list in the public markets. New-age listed companies have rekindled faith in Indian markets and the ability to get exits.

Despite concerns about liquidity among investors, Sharma believes that “there is immense opportunity for good investments and returns,” with several exit options such as IPO and acquisitions in the market today.

Sectors such as consumer-tech and D2C that challenge traditional fast-moving consumer goods (FMCG) players are seeing a lot of acquisitive interest, which makes them even more appealing to investors. “India is one of the biggest consumer markets with many listed companies who are willing to acquire smaller players” to stay competitive, Sharma said.

Other industry experts, too, have alluded to this trend as incumbents are often unable to deal with the complexities of entering a new market, cater to the rising aspirations of a young consumer or adopt newer distribution channels like quick commerce.

This can be seen in the case of major consumer companies like Marico, which has acquired four startups in the last few years. These include men’s grooming company Beardo, health food startup True Elements, beauty brand Just Herbs and plant-based product company Plix.

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Exit routes have further improved in India as witnessed by the country’s growing opportunity for secondary transactions and as several new-age companies look to list in the public markets in the next two-three years.

Some examples of large secondary transactions include Temasek and Fidelity Management & ResearchCo.’s $200 million secondary transaction investment in eyewear retailer Lenskart, Mint reported in June. Omnichannel beauty retailer Purplle also raised 1,000 crore in a mix of primary and secondary transactions led by an arm of the Abu Dhabi Investment Authority, Mint reported earlier this month.

Bain’s India Venture Capital report also highlighted that secondary and strategic sales have increased in value, primarily driven by mega-exits in consumer tech companies such as Flipkart and Lenskart. As investors seek to provide liquidity to their limited partners in a high-interest-rate environment, exits surged by almost 1.7x to $6.6 billion in 2023, the report said.

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