Global hedge funds and asset management companies, including several from Hong Kong, are making a cautious return to India’s resurgent startup ecosystem, some 18 months after they pulled back amid a churn in the domestic market.
A number of Hong Kong-based funds including Janchor Partners are in talks with Droom Technology, an online marketplace for used automobiles, for its next fundraising, estimated at about $50 million (Rs 325 crore), according to people aware of the discussions.
ETechAces Marketing and Consulting, which owns online financial services marketplaces PolicyBazaar and PaisaBazaar, recently secured funding from Boston, Massachusetts-based Wellington Management and other investors. In August, Treebo Hotels raised Rs 226 crore in funding led by Hong Kong-based hedge funds Ward Ferry Management and Karst Peak Capital.
“We have taken money from Steadview Capital and Tiger Global (as well). Look, it’s non-interfering capital, with its own pros and cons. But it’s mostly been pros,” said Yashish Dahiya, chief executive of PolicyBazaar.
“At every stage you need different things. If you want someone to just give you capital, and once in a while guidance, it’s great. But if you are looking for specific leverage, on-the-ground support, then maybe not.”
John Ho, chief investment officer at Janchor Partners, did not reply to an email seeking details on the firm’s talks with Droom, while Sandeep Aggarwal, CEO of Droom, declined to comment.
Apart from Steadview Capital, other Hong Kong-based funds including Myriad Asset Management and Tybourne Capital were among the earliest to come to India and scout for and close deals at a rapid pace, including in Snapdeal and FreeCharge.
“What we are seeing now is a very credible set of investors… Assets that have created scale and competitive moats are clearly the targets for these funds to make early investments,” said Nitin Bhatia, managing director at investment bank Signal Hill India. “The markets here now are much more in line with their global peers, and it is easier to justify valuations now.”
Several of the funds that are currently closing or negotiating deals had scouted for investment opportunities in India during the startup boom years of 2013-15, but had held back from closing transactions due to multiple reasons.
“We didn’t think it was the right time for us. A lot of the companies that we spoke to the last time around were still sorting out their fundamentals at the time. A lot of them have emerged stronger now, while some haven’t survived,” a manager at one such fund said on condition of anonymity.
Domestic internet companies attracted investments worth $7.4 billion in the first three quarters alone, show data from research platform Tracxn, positioning 2017 to emerge as a record year in terms of deal flow with more funding due from strategic investors, ET reported last week. Investments in internet companies had reached a peak in 2015 at $7.6 billion before dropping to $4.4 billion last year.
The return of global hedge funds comes after a fallow 18 months that saw India’s startup ecosystem struggle with slowing capital flow as investors tightened purses, rejigged portfolios, and sought to earn returns from their sizeable investments in the country.
In the period between 2013 and 2015, hedge funds had fuelled frenzied deal-making in Indian internet companies and stoked valuations to stratospheric levels. According to an industry report by iSpirt and Signal Hill, the funds invested about $3.9 billion in technology product companies from 2015 to the third quarter of 2016, with 96% of those going into consumer-technology ventures.
Hong Kong and Chinese mainland-based funds including Ravi Mehta-led Steadview Capital and Zhang Lei-founded Hillhouse Capital were among those that quickly racked up their portfolio count in India, having invested in domestic giants such as Flipkart and Ola.
However, virtually every hedge fund that was active in 2015 pulled back on India investments, with only 10 deals involving hedge funds struck in the first three quarters of 2016 as compared with 50 in the corresponding year-earlier period. Even now, there are concerns that the funds with their potential to abruptly pull out in a crisis, as they did during the economic downturn that began in 2008, may once again exercise that option.