Indian Enterprise Tech’s coming of age
What early signs in the Indian VC eco-system seem to be telling us
2020 is already off to a great start.
Another Indian startup, High Radius, achieved Unicorn status.
Based in Hyderabad and Houston, the FinTech firm was recently valued at $1 billion. In the past two to three years, 3-4 more Indian Enterprise Tech startups have hit the same landmark.
Investments in this sector are growing stealthily.
In 2019, investors invested $1.15 billion across 114 deals in the Enterprise tech segment in India. While enterprise tech only contributed to about 9% of the overall VC investments in India, it crept up to be the second most funded sector in terms of deal count. (2019 DataLabs Funding Report).
The VC ecosystem is waking up to the possibilities, as shown in this tweet below
We know it hasn’t always been this way.
Only five years ago, Enterprise Tech investments were a mere 5% of the overall VC capital in India (Inc42 Data Lab report). Contrast this to a mature VC ecosystem like the US, where since 1995, for every dollar invested in consumer tech, at least $1.2 was in enterprise tech
This lack of VC funding for enterprise tech startups in India didn’t make sense to us.
We also realized that this lack of funding was really acute when it came to seed-stage capital. Capital largely to build the product, establish product-market fit and set up the platform for early scaling.
We firmly believed (and still do) that Indian entrepreneurs can develop and offer valuable solutions for the global market; with the right resources and support from the very start.
This was the genesis for us to start Arali Ventures in 2018.
Now, having built a portfolio of 6 Indian Enterprise Tech startups in 6 quarters, we believe that we have barely scratched the surface of what this segment can offer.
Our confidence that enterprise tech is the sunrise sector in India VC stems from multiple factors, apart from the global metrics highlighted in Hemant’s tweet
Entrepreneurs are looking to build less sexy enterprise focussed or B2B businesses. We see this consistently in our deal flow; from the trickle we saw in 2015 and 2016, to the flood we see now.
A study by Netapp and Zinnov revealed that the number of B2B tech startups tripled from 900 to 3,200 between 2014 and 2018 in India.
The big factor is the talent available in India.
- Budding enterprise tech entrepreneurs typically cut their teeth on India-based product development functions in multi-national companies. In other words, they are used to building in India for the world.
We are a great example — All of 15 founders of our 7 startups have worked with large tech-focused corporations, tech startups and built products for the global stage. - The enormous IT services industry in India provides entrepreneurs with a ring-side view of shortcomings of current enterprise technologies
- Success begets Success. The large successful unicorns are spewing ambitious entrepreneurs, Chennai boasts of a SaaS Mafia akin the Paypal mafia
Capital efficiency. The average money raised by Indian enterprise-tech startups is $97M, showcasing that tech, engineering skills are super competitive compared to other startup hubs
Role models. Move over Bansals’ and Bhavesh’s, we have Freshworks’ Girish and High Radius’ Sashi who have scaled enterprise tech businesses from India.
Last, but not the least, exits are starting to happen. A significant portion of exits in enterprise tech will be in Mergers and Acquisitions (M&A) and we can see early signs of that happening. Just in the last 12 months,
22% of Mergers and Acquisitions (M&A) deals in India in 2019 were in Enterprise Tech
And we will see a lot more.
With all of these, will global investors be far behind? Surely not, and as expected, Large investors and their B2B investments have given a fillip to the enterprise tech sector.
Therefore we do believe this is the coming of age for enterprise-tech from India.
We believe seed-stage funds aka Arali Ventures perform a vital role in this eco-system, working in the trenches with budding entrepreneurs and shaping their journeys to product-market-fit and beyond, helping the flow of capital and scaling the portfolio’s to greater heights.
Keep circling back to read our perspectives on enterprise-tech, our portfolio, seed stage investing in India.
