Sequoia Capital India announces second seed fund at $195 million

A couple takes their selfie on a mobile phone in front of a mural in Hyderabad on January 29, 2021.

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Sequoia Capital India has closed a seed fund of $195 million to back promising entrepreneurs across India and Southeast Asia, the venture capital firm announced Thursday.

It is the second such fund — the first was in 2019, when the company raised about $200 million.

Seed funds are typically the first round of official money that entrepreneurs raise in exchange for equity.

As part of a program called Surge, Sequoia provides seed capital of up to $2 million as well as community access to help selected start-ups build their business.

Start of a new era for Indian start-ups

A growing number of Indian start-ups are expected to launch large initial public offerings this year, according to Rajan Anandan, a managing director at Sequoia Capital India who looks after the Surge program.

“2020 was really a tale of two halves. The first half was very challenging,” he told CNBC’s “Street Signs Asia” Wednesday, a day before the funding announcement. He was referring to the months-long national lockdown in India due to Covid-19, which pushed the economy into a technical recession.

“In the second half, we saw very, very strong recovery — driven by both the acceleration of consumer and business adoption of digital technologies as well as companies getting much more prudent with their cost structures,” Anandan said.

Given India’s place in the world, we think that second access, which is being able to build for the world from India, is going to become very, very interesting over the next five or 10 years.

Rajan Anandan

managing director, Sequoia Capital India

The first three months of 2021 saw start-ups accelerating revenue growth, increased user adoption and in the early stages, an improved quality of entrepreneurs helming the companies, he added.

“In many ways, 2021 is going to herald the beginning of a new era for the Indian start-up ecosystem, where we are going to begin to see sizeable, significant IPOs in our ecosystem,” Anandan said.

Building for a billion and more

Though India’s start-ups went through tough times last year, the industry has emerged healthier, according to Anandan. There is more rigorous focus on cost structure and “extraordinary innovation” taking place across a wide variety of sectors including education technology, financial technology and digital health, he added.

India currently has 39 start-ups that are valued at $1 billion or more — commonly referred to as unicorns, according to Venture Intelligence, which tracks private company financials and valuations. Three of those firms achieved their status in 2021, the company said.

The availability of risk capital, which are funds invested in high-risk projects for higher returns, has seen the number of new start-ups rise over the last decade. They currently account for about 10% of new companies created in India every year, according to a report on Indian start-ups by Swiss investment bank Credit Suisse this week.

“The surge in private equity flows for Indian firms has been such that private market fund-raising has exceeded public market transactions in each year of the last decade,” Neelkanth Mishra, co-head of Asia Pacific strategy and India equity strategist at Credit Suisse, said in a presentation.

The rapid rise in smartphone ownership brought internet connectivity to the masses and a sharp drop in data prices led to a dramatic jump in data usage in India — particularly for mobile data, according to Mishra.

Unique opportunity for Indian start-ups

Sequoia’s Anandan explained that going forward, Indian start-ups will have two unique opportunities: First, given India’s growing number of internet users, Sequoia expects domestic firms to be making for a billion connected users in the country by 2025.

“The other opportunity that Indian entrepreneurs have is building for the world,” he said, adding the first wave of Indian start-ups doing that are in the Software-as-a-Service space, where some of them are building and selling software to businesses globally.

The next generation of companies will be moving beyond business software and into direct-to-consumer products as well as financial services and fintech, where companies will launch from India to cater to the rest of the world, according to Anandan.

“Given India’s place in the world, we think that second access, which is being able to build for the world from India, is going to become very, very interesting over the next five or 10 years,” he added.

— CNBC’s Naman Tandon contributed to this story.