Why investors are still optimistic about India’s entrepreneurial prospects in 2022

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A restaurant promoted the use of the Paytm digital payment system in Mumbai, India on Saturday, July 17, 2021.

Diraj Singh | Bloomberg | Getty Images

Investors told CNBC that Indian technology start-ups will continue to attract capital from private and public markets next year because of their growth and maturity.

In 2021, China’s entrepreneurial environment has undergone significant changes, with several well-known companies appearing on the stock market for the first time. These include the parent company of food delivery app Zomato, payment giant Paytm and online insurance aggregator Policybazaar. More start-ups are in preparation for IPO, including ride-hailing company Ola and Indian hotel chain Oyo.

Indian technology start-ups have also raised record funding from private equity and venture capital firms. According to information provided by Asian private equity and venture capital intelligence provider AVCJ, these investors invested US$28.2 billion in technology investments in 779 transactions this year. Compared with the US$9.4 billion invested last year, this represents a 200% increase in capital.

Rajan Anandan, managing director of Sequoia Capital India, told CNBC this month that the venture capital firm is “very optimistic” about India’s technology ecosystem and its ability to create long-term value for stakeholders.

“The company’s success on domestic and international exchanges has undoubtedly aroused the interest of investors from all over the world,” Anandan said. He added that Sequoia Capital India has seen eight portfolio companies debut in the stock market in 2021.

“It confirms the fact that large companies can be established in the region and create significant shareholder value. There will be several promising IPOs next year, and we expect this trend to continue,” Anandan said.

Investor interest in new technology IPOs

Investors’ acceptance of some of India’s top technology IPOs varies. Although Zomato’s stock debuted and was up about 5.44% from the first day of trading on July 23, Paytm fell more than 13% from its debut on November 18.

After Paytm’s disappointing start, another digital payment company Mobikwik postponed its IPO. Local media reported that, as a result, there has been an increasing scrutiny of fintech companies and their revenue generation and ultimate profitability.

Nevertheless, Nikhil Kamath, co-founder of Indian brokerage platform Zerodha, said that future IPOs may be of interest. However, the bigger question is how long-term these companies will perform, he told CNBC.

Kamath pointed out that many technology start-ups, including some that have gone public, are still overvalued.

“Most of them [companies] There is no profit, and it seems that it will not be profitable in the next four to five years, so it is difficult to justify the valuation,” he said.

Sandeep Naik, head of India and Southeast Asia at the global investment company General Atlantic, said that when looking at a startup, investors should separate the company’s valuation (determined by the open market) from its fundamentals.

Earlier this month, Nike said in an interview with CNBC’s “Asian Signpost” that early and growth investors have made a lot of money in India in the past two years. He said that part of the reason was the exit, which allowed them to inject additional funds into India’s technology ecosystem to help start-ups grow.

Exits occur when founders sell their startups to a larger company or go public through an IPO.

Zomato food delivery partner is in Kolkata, India.

Debarchan Chatterjee | NurPhoto | Getty Images

“In the past 18 to 24 months, you have seen the number of IPOs, the companies in the IPO channel, how companies trade and go public, which makes you very sure that the global capital market is paying attention to our region is the most attractive One of the regions where investment is growing,” Naik said.

What’s next?

Although it is expected that start-ups will continue to attract capital in 2022, the pace of financing and growth may slow down relatively.

Amit Anand, the founding partner of Jungle Ventures, said that this is because there is a lot of pent-up demand for the financing round originally scheduled for 2020 this year, but it has been delayed due to the Covid-19 pandemic.

He told CNBC: “If I put all the fundraising activities that happened this year in 2020 and 2021, then things will look different.”

Anand explained that this picture still shows that India is a growing market, but it shows that India is a stable, long-term year-on-year growth, rather than a one-off surge. For international investors such as Singapore-based Jungle Ventures, he said that India is a strategic market and usually bets on the long-term.

“This is entirely due to the local entrepreneurs and local investor base who built the ecosystem to the point where it can attract this kind of global capital because the growth rate and the maturity of the business are there. [is] There,” Anand said.

Anandan of Sequoia Capital added that due to the ultra-loose monetary policy of global central banks, unprecedented liquidity will help raise the level of funding in 2021 to a new level.

He said that India’s market is getting deeper and deeper, and the quality of talents is improving. Anandan said that the pandemic has accelerated the adoption of technology, which has caused many start-ups to grow much faster than before-as long as they can show scale, capital will continue to flow in.

Nevertheless, start-ups must overcome some disadvantages when raising capital and entering the open market. This includes responding to India’s slow economic recovery and inflationary pressures, as well as the normalization of policies by global central banks such as the Federal Reserve.

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