W3ONE4 CAPITAL Innovating to create new value

Siddarth Pai & Pranav Pai, Founding Partners, 3ONE4 CAPITAL

With over 49,000 start-ups launched in the country between 2008 and 2018, India now has the world’s third-largest start-up ecosystem. Between 2014 and 2019, more than $50 billion was invested in start-ups, indicating a remarkable acceleration in capital deployment. In any ecosystem, venture capital is one of several vectors that work together to launch new value creation through innovation.

The country offers a large market, a diverse set of problems to solve, and a highly specialised and large talent pool from which to build world-class solutions. We are, however, still a capital-starved country. When applied contextually for India, venture capital is a necessary component for building and scaling these solutions.

We believe that the operational expertise that VCs bring to startups is critical in any startup ecosystem, and that they will continue to add real value to innovation and new value creation in this ecosystem. 3ONE4 CAPITAL has been in India for over two decades and can date the birth of VC to the 2010-2012 period. The early funding rounds of PayTM, Flipkart, Ola, and Byju are watershed moments in the history of venture capital in India.

Over $50 billion in funding has flowed into Indian startups since 2014. These start-ups have already generated over $130 billion in value, ranging from e-commerce and fintech to logistics and consumer services. India now has 33 “unicorns,” or startups worth $1 billion or more, with a combined value of more than $73 billion and a total funding of $24 billion.

This trend shows no signs of abating: there are 35 “Soonicorns” ­ companies on the path to becoming unicorns by 2020 that have already raised $4+ billion, with many more on the way.

The Maturing of VC market

As the startup ecosystem grows and the company achieves greater success, more operational expertise will enter the VC domain. As more VCs establish an exit track record, they will have greater confidence in this subasset class, and capital should become more readily available for Indian VC funds raising new funds.

The feedback loops that are formed between operators and investors are indicative of a maturing ecosystem. This will also be the evolution of the Indian VC ecosystem.

3ONE4 CAPITAL believes that as we enter the 2020s, more Indian Rupee capital will enter VC in India. With the SIDBI fund serving as a model for a government-led initiative, more Indian PSUs and corporations will allocate capital to this asset class.

Corporate venture capital and balance-sheet investment strategies will take larger positions and acquire Indian companies, such as Reliance Jio, Times Group, and Tech Mahindra. Finally, there will be an increase in India-first funds, in which Indian fund managers raise the majority of their funds from Indian investors in order to capture the Indian market.

Bangalore, Delhi, and Mumbai are already the three most active startup creation and funding hubs, with Bangalore clearly leading the pack. The company expects to see increased distribution in the next set of cities, including Hyderabad, Pune, and Chennai, as well as acceleration in other states. Every year, between $11Bn and $14Bn in VC funding enters startups in India. With more Indian Rupee participation, annual volumes could reach $15-$18Bn over the next 5-7 years.

Investment Portfolio

3one4 Capital manages $110 million in early stage investments in India. The firm works in specific market categories and at the crossroads of adjacencies that are large, growing, and ready for novel products and services. Machine-driven actionable intelligence services for the enterprise, enterprise automation, ambient intelligence technologies, consumer products, fintech, media and multilingual content generation, and health are among the fund’s focus areas.

Licious, Betterplace, Open, DarwinBox, Faircent, Bugworks, YourStoryPocket Aces, and Tracxn are among 3one4’s investments. One of the most valuable lessons we’ve learned from working with more than 50 start-ups is the process of building trust and confidence with the founding teams.

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