While immediate attention is on China’s latest crackdown of sectors, such as tech and education, and the ability for foreign investors to back them or even if they can make profits, there is greater optimism in another rising economic power: India.
India-based sports-focused Rhiti Group has collaborated with local cement maker Kanodia Group to launch venture capital firm Deep Pockets Capital Venture.
“India is on the cusp of a revolution in technology, including artificial intelligence (AI) and blockchain, which are set to revolutionise agriculture, finance and entertainment in coming years,” according to Rhiti Group Chairman Arun Pandey in the Economic Times of India.
Venture capital funding for Indian firms hit a six-year high of $12.1bn in the first six months of 2021, according to Venture Intelligence, many of them by foreign investors.
Tiger Global has struck almost 170 deals in India since 2006 with 29 so far this year, according to PitchBook data, under a strategy by key executives such as Lee Fixel, alongside other corporate investors, such as Naspers (now called Prosus), and Chinese peers, such as Xiaomi, Tencent and Alibaba.
In 2014, Tiger and Prosus helped lead a $1bn investment in Indian ecommerce group Flipkart, at a valuation that represented a three to four times multiple of the company’s sales, according to the Financial Times in its profile of Tiger.
And exits are starting to flow following the seminal $16bn acquisition of a majority of Flipkart by US peer Walmart three years ago. The successful listing of food delivery service Zomato and expected bumper initial public offerings of payments provider Paytm, insurance aggregator Policybazaar, bueaty retailer Nykaa and delivery company Delhivery. Even Flipkart could reportedly come to the public markets as soon as this year after its latest $3.6bn round.
But India’s regulators favour incumbents and the risks remain that a change in approach to international investment could collapse sentiment in the way the FT reported that SoftBank Vision Fund’s bet on China-based ride hailing service Didi Chuxing had fallen $4bn into the red after the past few weeks since its US listing was subsequently attacked by the authorities.
The Economist this week warned these investors might struggle. Local corporate investors, however, are waking up to the possibilities.
A week ago, US-based stock exchange Nasdaq said it would separate its existing marketplace for private company shares into a new unit. With Wall Street giants Goldman Sachs, Morgan Stanley and Citigroup alongside California ingenue Silicon Valley Bank (SVB) buying into the new division it “will prove exceptionally difficult to compete against”, according to the Financial Times.
There is already $30bn traded on private exchanges, such as Carta and EquityZen, the FT added. But the potential market is vast, and growing.
After raising an almost $6.7bn fund in March, hedge fund Tiger Global had invested the vast majority of the capital by June, according to a letter to investors seen by the FT. Its new $10bn fund will begin accepting capital as soon as October and, in marketing documents, Tiger Global said it had “consistently underestimated” the market for private tech companies. Six months earlier, data suggested a $3tn market opportunity. It was now closer to $5tn, the firm said, as it looked to purchase billions of dollars of shares in ByteDance, the owner of social media application TikTok, through secondary sales at prices valuing the company between $400bn and $450bn, according to the FT.
But with even more liquidity to venture potentially surging in from retail and other investors will come tighter bid-ask spreads and effectively little to choose for an entrepreneur whether the business has to sell or float at all.
Alex Lazovsky, managing partner and co-founder of venture capital firm Scale-Up VC, in an article for Forbes thinks this is the biggest change for VCs.
“Perhaps the biggest change is just now emerging on the horizon, and it could dissolve the entire concept of ‘exit’ from below. The secondary market looks set to go retail, which might largely erase the difference between the public and private equity markets.
“If anyone with some extra income and a smartphone can invest in startup equity, does that make everyone a VC? Will existing VCs be priced out of their own market? If startups have access to unlimited public finance while still in the garage, what would ‘exit’ mean? Where is the gap? Will Sequoia meet the same fate as the once-mighty record company EMI?”
Probably not. As the Economist noted in its obituary for Yang Huaiding – China’s “first shareholder”, known as “Yang Millions” – it is “no good treating the market like a casino. You had to study it constantly, the companies, the conditions, the mood, before you jumped.”
The winners, therefore, are rarely the Robinhood traders but those with an edge – inside information on the likely future performance of a business.
And here, SVB is likely to be far more disruptive to the traditional investment banks as a result of the Nasdaq spinout.
SVB has the financials for the main VC firms and hence which ones to support as well as many of the entrepreneurs.
Throw in SVB’s work with corporations to help them partner these entrepreneurs as a customer and the future revenues it can bring then this is an unprecedented edge.
The only surprise is the big banks have yet to buy SVB before it reached this stage.
Potential exciting news by the Wall Street Journal as US-based Form Energy recently initiated a $200m funding round, led by a strategic investment from Luxembourg-based steelmaking group ArcelorMittal, which is also one of the world’s leading iron-ore producers.
Form could use iron to store energy for days, which is helpful for utilities grappling with the intermittent supply of electricity from renewable power – check out the Global Energy Council’s latest report with a focus on the electricity grid.
The deal is also part of the so-called cleantech 2.0 movement. The first wave of cleantech startups before 2009 struggled for years with a number of high-profile flameouts, such as Solyndra.
Now, a wave of liquidity through special purpose acquisition companies (Spacs) is targeting many of the survivors and promising new companies with an eye on the disruption and opportunities to affect the business world as it tackles climate change and the move to net zero carbon emissions.
Paul Holland, managing director and VC-in-residence at Mach49, will discuss with Scott Gale, executive director at Halliburton Labs, and Grégoire Viasnoff, vice-president for incubation business at Schneider Electric, on how multinationals can tackle the world’s most pressing problems through venture building and investing in cleantech, energy transition, circular economy and mobility.
Halliburton Labs, the clean energy accelerator from one of the world’s largest providers to the energy industry, this month announced the second cohort of startups.
Schneider Electric, another Mach49 partner focused on sustainability and the circular economy, has been incubating new companies, such as eIQ Mobility, Clipsal Solar and Dash Energy, and investing in external startups through its $600m SE Ventures fund since 2018.
“Mach49 was founded on the belief that through venture building and venture investing, global businesses can solve the world’s most pressing problems, including climate change, water, poverty, health, and education,” said Linda Yates, founder and CEO of Mach49. “Embracing a Silicon Valley mindset is the first step. With a nimble, startup and VC mindset, large global corporations are leveraging their talent, assets, and innovation to create a growth engine fuelled by a pipeline and portfolio of new ventures.”
Reduce, reuse and recycle was a helpful way to think about limiting personal impact on the planet (along with the handy advice to take nothing but photos, leave nothing but footprints).
And it seems corporations are taking up the mantra as their venturing units increasingly focus on sustainable development goals.
Most recently, Germany-based consumer technology subscription platform Grover has raised $1bn in debt financing to add to April’s series B equity round from Samsung Next among others.
The company offers users consumers electronics, such as Samsung phones, to rent and then reuse saving about 1,400 tonnes of waste.
Meanwhile, Amazon Climate Pledge Fund has reinvested in the battery recycling services provider Redwood’s $700m round at a reported $3.7bn post-money valuation and UK-based all-inclusive electric vehicle (EV) subscription service Onto has raised $175m in a combined equity and debt series B round including from oil major TotalEnergies, industrial group Vlerick Group and Netherlands-based insurer Achmea’s Innovation Fund.
And more such deals are likely to come. Private equity firm TPG has raised $5.4bn for its TPG Rise Climate fund with a hard cap of $7bn and existing commitments from 20 or so corporations, including Alphabet, Bank of America, Dow, General Motors and Nike.
Earlier in the month, private market investor General Atlantic created a strategy focused on climate change that is reportedly looking to raise about $4bn.
According to Pitchbook, investors around the world have already closed as many climate-focused funds, such as $7bn for Brookfield Asset Management’s carbon neutrality fund, as were raised in the past five years.
These impact, environmental and sustainability strategies will be discussed around the COP26 meeting in November as part of the www.GCVsymposium.com