Last year, Accel had unveiled their pre-seed funding program ‘Atoms to fund start-ups at the ideation stage, but not necessarily product/service-ready.’ The year that saw a record 25 start-ups become unicorns also drew a lot of money to those new-age companies who needed working finance before they could even start their operations.
Now Accel has announced the launch of its seventh India fund, which will invest $650M, as the famous venture investor wants to double down on its bet on the world’s second-largest internet market while also becoming more active in Southeast Asia.
New fund
The new fund’s first batch of checks is likely to be wired within weeks, less than two and a half years after Accel revealed its sixth fund in late 2019.
Accel India has chosen 14 firms for its first Atoms cohort, which was formed last year to provide pre-seed capital to startups.
The Atoms programme provides each firm with $250,000 in pre-seed money in the form of a ‘uncapped convertible note,’ which will convert to equity only in the following round.
One of the earliest investors in India, the Silicon Valley venture capital firm has a substantial portfolio of unicorn firms in the South Asian country. It has made notable investments in Flipkart, which sold a majority stake to Walmart in 2018, Freshworks, which went public last year, top food delivery startup Swiggy, institutional crypto trading and management platform FalconX, and business-to-business marketplaces Zetwerk, Infra.Market, and Moglix.
Accel is the first institutional investor in a startup in the vast majority of its backings, according to Shekhar Kirani, a partner at Accel. For example, it took part in the seed round of e-commerce firm Flipkart, which was then valued at $4M post-money. Walmart paid $16B for a controlling share in Flipkart. (As a result, Accel received more than $1B from Flipkart, which is currently valued at more than $36B.)
Some of the firm’s top-performing startups have a combined valuation of more than $100B, he claims.
Kirani, who has worked with the firm for a decade, attributed the success of the Indian startup in the last decade to the emergence of rails such as the payments infrastructure UPI and the taxes system GST. He predicted that the Indian economy would outperform the previous decade’s growth in a few years.
According to Barath Subramanian, another Accel partner, the firm intends to be more competitive in some industries such as Web 3 and business-to-business marketplaces. The firm, which began investing in Southeast Asia a few years ago, also wants to be more aggressive in the region with the new fund, according to the press release.
Accel now competes with – or rather, collaborates with — a number of peer American funds, including Sequoia Capital India and Lightspeed Venture Partners. Unlike many of its competitors, Accel has been notably more conservative, giving fewer cheques and turning down startups if they don’t believe they can work with the founders.
“We have to work with a startup for the next ten years.” “It’s critical for us to realise that we can all work together,” he remarked.
Interest in Indian startups
Since Accel’s first visit to India, a lot has changed in the Indian startup environment. Last year, local businesses raised a record $39B, up from a few million dollars a decade ago.
However, there are indicators that investors may have been overly bullish in their pricing of several businesses in recent quarters. Last year, Tiger Global, Alpha Wave Global, and SoftBank were particularly aggressive in India. Because of the valuation and amount of financing they gave to companies, the former two won many deals.
Some arrangements were also claimed by the firms because they did not battle for numerous future rights. As difficulties with this method have emerged in recent months, many investors have begun to become more conservative again, putting back future rights and lowering valuations.
“The public market usually sets the tone for the private market because all of these firms must eventually go public and list at the appropriate prices.” “The public market went through the roof in terms of multiples in 2019, 20, and 21, and you saw it reflected in the private market,” he continued.
“That valuation multiple was also beneficial to our startups.” But the one thing I’d say is that if you look at our firms, they’re all strong, long-term unit economics businesses, not fluffy no-revenue businesses. As a result, we have been extremely cautious and cautious, as we have a history of being extremely conservative. “We don’t like it when our founders get excited about valuations and keep raising money,” he said.
