Accel India has closed its fifth fund with $450 million, roughly two years after closing its fourth fund with $325 million. Whether it’s another sign of froth in the country or underscores a very real opportunity remains open to argument. In the meantime, Shekhar Kirani, a Bangalore-based partner who joined Accel in 2011, answered some of our related questions via email last night.
TC: You began actively investing in India in 2005, and you’ve assembled a portfolio of some of the country’s most renowned startups, including stakes in the real estate platform CommonFloor, the online shopping company Flipkart, the customer support service Freshdesk, and the fashion and lifestyle e-commerce company Myntra. Is it safe to say this is the fastest close you’ve had on a fund to date? Typically, Accel raises a new fund every three to four years.
SK: The fund came together pretty quick, which is a testament to the long-term market opportunity in India, the support of our LPs, the quality of companies within our portfolio, and our targeted, dedicated India-focused investment strategy and team.
TC: How has the team changed over time?
SK: Accel [acquired in 2008] Erasmic Venture Fund, a firm co-founded by Prashanth Prakash, Subrata Mitra, Mahendran Balachandran, and the team has steadily grown in the years since, with strong leadership from Anand Daniel, Dinesh Katiyar, Subrata Mitra, [and myself]. In addition, we’ve set up a strong portfolio services team in India for helping our invested companies with product management, recruitment, data sciences, technology and digital marketing.
TC: How closely connected are you to the Bay Area team of Accel Partners. Is it the case that you share some/many of the same investors and talk with the team here about deals when it makes sense, but that your firm is run independently otherwise, as with Accel London team?
SK: Each of Accel’s offices closely partner with one another, sharing global networks, insights, best-practices and also to help our companies leverage the global network better. The goal is to find the best entrepreneurs in the world and support our portfolio through all stages of development, regardless of where a company was founded.
TC: What size checks are you writing, and what stage companies are you pursuing?
SK: We’re an early-stage investor and we typically like to be the first institutional investor in a company. Our first checks are typically below $2 million.
TC: India has been heating up for years. How have valuations reflected the faster pace of startup funding? How do the different stages compare with, say, two years ago?
SK: When excessive capital came to country in 2015, valuations got heated at growth-stage companies. However, in seed and early-stage investing, there wasn’t much of an impact. We continue to see early-stage opportunities at right valuations, even through 2015.
We focus less on valuation and more on building strong, disciplined businesses with healthy fundamentals. Over the last few years, we’ve realized that several categories are going online faster than ever before (e.g. e-commerce, movie tickets, cab bookings, groceries, food deliveries, local services and marketplaces). Categories that used to take up to five years to scale are now doing it in two to three years. We’ve continued to back these companies and are supportive of their growth plans.
TC: Do you have concerns that too much money has flooded into india? Recently, U.S. investor Chamath Palihapitiya explained why his firm, Social Capital, has only invested in one India-based company to date, telling the Times of India that the “Indian startup ecosystem is largely in a worse shape compared to Silicon Valley with respect to hiring, talent and support infrastructure” and the India-based startups have “bumbled around without proper talent, governance and mentoring.” He sees a “day of reckoning” or some of kind of valuation crash happening in the next 12 to 18 months. Do you agree at all with his statements?
SK: Yes, there was an excessive flow of money in 2015. It doesn’t mean that startups in India are in bad shape. Entrepreneurs understand the interplay between scale, growth and profitability. The startup ecosystem is much stronger than ever before. If you look at the fundamentals, India’s macro picture is very strong. Digitization and formalization of economy is happening with a business-friendly government, and the economy is growing at a good pace (meaning more than 7 percent GDP); our currency has been very stable. Third, there’s significant mobile penetration in the market, [so] new startups are growing much faster than what we use to see before.
Regardless of where we stand in the cycle, fundamentals must remain strong. We are seeing mass adoption of mobile technology by consumers, enterprises and small and medium enterprises. With more than 870 million mobile subscribers, more than 200 million smartphone users, more than 150 million social media users, and more than 60 million users transacting across different online segments, the market is ready for tech-led startups to build and scale their companies.
TC: Are you investing any portion of your fund on “rural india,” where most people in india still live? For example, I recall Mayfield India investing in construction companies and other low-tech businesses not so long ago, saying it could realize venture-style returns without taking venture-style risk. Does that opportunity still exist and are you chasing it? If so, how much time are you spending on the demands of urbanites versus this more rural population and why?
SK: As an investor in technology-led companies, we always look at a few aspects, including accessibility, usage and affordability.
Rural India in recent years has starting to use mobiles. In all three aspects, Rural India, consisting of more than 100 million people, will be a great market to address in the coming years. One of our theses is around the “next 100 million” for emerging India in the new fund. We’ve learned from many of our companies that emerging India is growing.
Flipkart, for example, built much of the infrastructure that has propelled the startup ecosystem in recent years. They were largely responsible for building the first online and mobile payment solutions, delivery infrastructure and other e-commerce/commerce necessities that we take for granted in the U.S.