case study on venture capital in india

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VC Funded Start-Ups in India: Innovation, Social Impact, and the Way Forward

• Perspective
• Published: 22 May 2022
• Volume 17 , pages 104–113, ( 2022 )

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• Kshitija Joshi   ORCID: orcid.org/0000-0003-2588-065X 1 ,
• Deepak Chandrashekar   ORCID: orcid.org/0000-0002-9128-3418 2 ,
• Krishna Satyanarayana   ORCID: orcid.org/0000-0001-9577-0558 2 &
• Apoorva Srinivas   ORCID: orcid.org/0000-0002-8937-0862 2  

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Venture Capital (VC) is regarded as one of the most powerful financial innovations of the twentieth century. Although in the initial years, the VC-funded start-ups in India faced challenges of scaling up, off-late, both Initial Public Offerings and Mergers and Acquisitions have emerged as viable options for growth and international expansion. Given this context, this paper tries to understand the overall impact of the valuations and VC funding on the components of the entrepreneurial ecosystem—and its repercussions on the overall economic situation in the country. Specifically, the paper examines the recent state of start-up valuations, losses being carried forward, and proposes some long-term implications emanating out of the current practices. It further contemplates on the influence of current business models followed by the VC-funded start-ups on the society and labor market, as well as examines the impact of VC funding on wealth creation at the Bottom of the Pyramid and on innovation. Based on the review of the above critical issues, it proposes pragmatic next steps to be taken by the policy-makers and practitioners to ensure a much more inclusive and equitable growth of the sector and economy.

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Acknowledgements

The authors gratefully acknowledge and thank all the anonymous reviewers and the editors in particular for their valuable and detailed feedback which has enabled the authors to significantly improve the quality of the paper.

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Kshitija Joshi

Indian Institute of Management Bangalore, Bangalore, India

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KJ and DC conceptualized the study. KJ prepared the draft of the article. While DC and KS revised the article, AS assisted DC and KS with material facts and review inputs. All the authors have read the article, and concurred on the content in the article.

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Correspondence to Krishna Satyanarayana .

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Joshi, K., Chandrashekar, D., Satyanarayana, K. et al. VC Funded Start-Ups in India: Innovation, Social Impact, and the Way Forward. JGBC 17 , 104–113 (2022). https://doi.org/10.1007/s42943-022-00055-x

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Received : 18 December 2021

Accepted : 28 April 2022

Published : 22 May 2022

Issue Date : June 2022

DOI : https://doi.org/10.1007/s42943-022-00055-x

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The Evolution of the Venture Capital Market in India

The case examines the early-stage venture capital industry in India, in 2004. The study is focused on technology-based early-stage venture capital, as opposed to private equity type investments. Using the past success of Draper International Fund as background, the case briefly visits the history and evolution of venture capital in India and current market opportunities. Next, it presents a basic framework for examining a venture capital ecosystem, and analyzes the promise of the Indian venture capital market in its context. The emergence of a strong Indo-US corridor is also highlighted, and comparisons are made with Silicon Valley, California, and Israel. This case can be used to illustrate the entry strategy options for foreign venture capitalists into the Indian market, evolving trends and investible opportunities in India, and for a basic framework of the ecosystem of a venture capital market.

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Key Emerging Trends Shaping India’s Venture Capital Scenario

By Karan Verma

As we reach the midst of 2023, the venture capital (VC) landscape in India is experiencing significant changes. This transformation is driven by technology and the need to support innovative startups with unconventional, high-risk financing which is reshaping how investments are made in the country.

The Growth of venture capital in India

Venture capital investment in India has seen a remarkable surge, with the figures growing from $3.1 billion in 2012 to an impressive $38.5 billion in 2021, marking a remarkable 13-fold increase. This surge can be attributed to the flourishing startup ecosystem, as India now ranks as the third-largest global hub for startups, boasting over 99,000 DPIIT-recognized startups across 670 districts as of May 31, 2023. The current generation of Indian entrepreneurs, equipped with foreign education and a willingness to take risks, is actively seeking and utilizing global venture capital partnerships to their advantage. This growth underscores the vibrancy of India’s startup ecosystem and the potential for mutually beneficial partnerships with venture capital investors on a global scale.

The rise in unicorns

Over the past three years, India has witnessed a rise in the creation of unicorns, with 44, 11, and 7 unicorns emerging in each respective year. Interestingly, this surge occurred during the challenging backdrop of the COVID-19 pandemic, reflecting the resilience of Indian entrepreneurs who not only contributed to the economy but also played a crucial role in COVID-19 relief efforts. In 2020 alone, more than 10 unicorns were born. This trend underscores the dynamism and adaptability of India’s entrepreneurial landscape, even in the face of global challenges.

Key investment sectors

In 2021, India’s venture capital landscape saw certain sectors take the lead. B2C and B2B commerce, technology, consumer tech, fintech, and SaaS stood out, drawing over 75% of VC investments. SaaS and fintech, in particular, gained momentum, growing from 25% to 35% of total funding in 2022. These sectors not only attracted the most investment deals but also secured the highest deal values, highlighting their vital role in India’s dynamic startup scene.

Emerging key trends in India’s VC landscape:

• Focus on Early-Stage Ventures:

Investors are increasingly directing their attention and resources toward early-stage startups. They are enthusiastic about discovering and nurturing promising opportunities among these budding businesses. This shift in focus highlights a growing realization of the tremendous potential that lies within these young companies, where fresh and innovative ideas are born.

• Rise of Advanced Technologies:

Cutting-edge technologies like Artificial Intelligence (AI), Machine Learning (ML), blockchain, and quantum computing have taken center stage in the VC arena. These technologies are capturing the imagination of investors due to their potential to disrupt various industries. Investors are eager to back startups that leverage these transformative technologies, foreseeing a future profoundly influenced by their capabilities.

• Corporate Venture Capital (CVC):

Established corporations are rewriting their strategies by engaging with startups to foster growth and innovation. The surge in Corporate Venture Capital (CVC) represents a strategic shift, as large companies increasingly recognize the advantages of external innovation. This trend offers exciting prospects for startups seeking partnerships that can fuel their growth while providing established companies with fresh perspectives and increased agility.

• Global Investment:

India’s vibrant tech ecosystem has garnered the attention of international investors. They are drawn to India’s burgeoning startup landscape, enticed by the promise of diverse investment opportunities. This influx of global capital not only widens the pool of funding sources but also elevates competition and industry standards.

• Focus on Sustainability :

With growing global concerns about climate change and environmental sustainability, investors are showing a strong preference for startups dedicated to addressing these critical challenges. Ventures with innovative solutions to environmental problems are receiving increased attention and financial support.

In 2023, these emerging innovation trends are creating the threads for the Indian venture capital landscape, reshaping the future of investments. Navigating this dynamic terrain provides fertile ground for opportunities and challenges, including the ever-growing world of corporate venture capital and intensified competition on a global scale. For founders, the key continues to be a unique value proposition, a committed founding team, and conviction — in an evolving landscape of Indian VC, where innovation converges with an opportunity to build the future of business and tech in India.

(The author is Karan Verma, Co-Founder & Director, FAAD Network, and the views expressed in this article are his own)

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Regulation of VC funding in India: A critical analysis

• Post author By Mr. Blogger B
• Post date November 27, 2023

This blog post has been authored by Ms. Prerna Kashyap

INTRODUCTION

The venture capital industry evolved in the late 1980s in India. Back in 1973, a committee on Development of Small and Medium Enterprises highlighted the need to foster venture capital as a source of funding new entrepreneurs and technology. The Government of India took a policy initiative and announced guidelines for venture capital funds (VCFs) in 1988 on the basis of a study undertaken by the World Bank. Slowly and gradually various rules and regulations were made to deal with the venture capital funding in India. [1]

VENTURE CAPITAL  

Venture capital (VC) funds start-ups and early-stage emerging companies having significant potential for growth [2] but involves high risk.

Section 2(z) and 2(za) of the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012 (“AIF Regulations”) defines “ venture capital fund” as an “ Alternative Investment Fund which invests primarily in unlisted securities of start-ups, emerging or early-stage venture capital undertakings mainly involved in new products, new services, technology or intellectual property right based activities or a new business model and shall include an angel fund as defined under Chapter III-A ” and “ venture capital undertaking ” as “a domestic company which is not listed on a recognised stock exchange at the time of making investments” respectively .

REGULATORY FRAMEWORK

Securities and Exchange Board of India (SEBI) is the nodal regulator for VCFs to provide a uniform, hassle free, single window regulatory framework. Various regulations such as the SEBI (Venture Capital Funds) Regulations, 1996 (“VCF Regulations”) and the SEBI (Foreign Venture Capital Investor) Regulations, 2000 have been issued on the recommendation of the Chandrasekhar committee fostering growth in the industry. As per the SEBI report relating to activities of VCFs until June this year, a total of Rs. 22,563.88 crores VCF has been raised. [3]

THE SECURITIES AND EXCHANGE BOARD OF INDIA (VENTURE CAPITAL FUNDS) REGULATIONS, 1996 AND SECURITIES AND EXCHANGE BOARD OF INDIA (ALTERNATIVE INVESTMENT FUNDS) REGULATIONS, 2012

AIF Regulations has been brought in order to replace the VCF Regulations and has been notified vide PR no. 62/2012 [4] dated May 12, 2012. As per the AIF regulations, the funds registered as VCF under VCF Regulations shall continue to be regulated by the same till the existing fund or scheme managed by the fund is wound up and such funds shall not launch any new scheme after notification of these regulations. VCF may seek re-registration, subject to approval of their investors. [5]

Registration of Venture Capital Fund

VCFs are included in “Category I Alternative Investment Fund” [6] . No entity or person shall act as a VCF unless it has obtained a certificate of registration from the SEBI. Form ‘A’ lays down the instructions for the application for the grant of the certificate. Eligibility criteria are prescribed for the purpose of the grant of certificate to an applicant. Vide Explanation [7] of sub- clause (a) of sub- regulation (4) of regulation 3 of the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012 , states that a VCF can be organized in the form of a trust or a company .

Investment Conditions and Restrictions

The AIF Regulations specify that VCFs shall state investment strategy and any material alteration to the fund strategy shall be made with the consent of unit holders; they shall raise funds through private placement by issue of placement memorandum and may launch schemes subject to filing of placement memorandum. The minimum tenure is prescribed as 3 years. Units of close- ended VCFs may be listed on the stock exchange. [8]

VCFs may invest in securities of companies incorporated outside India subject to conditions issued by the Reserve Bank of India and the SEBI. They shall invest not more than 25% of investable funds in an investee company whereas a large value fund for an accredited investor may invest up to 50% of investable funds in an investee company. They shall not offer their units to other VCFs if they are investing in units of other VCFs.

If a VCF is investing in associates/ units of VCFs managed by manager/ sponsor/by associates, approval of 75% of investors by value for investment is required. The terms of co-investment by a manager/ sponsor/ co-investor, shall not be more favourable than the terms of investment of the VCF. Un-invested portion of investable funds and divestment proceeds pending for distribution to investors shall be invested as prescribed in regulations.

Investment by VCFs in the shares of entities listed on institutional trading platforms shall be deemed to be investment in ‘unlisted securities’ for the purpose of these regulations. They shall invest in investee companies, venture capital undertaking (VCUs), special purpose vehicles, limited liability partnerships (LLPs) in units of other Category I AIFs of the same sub category or in units of Category II AIFs as specified in this regulation. They shall not borrow funds & shall not engage in leverage except for meeting temporary requirements. They shall invest at least 75% of the investable funds in unlisted equity shares or equity linked instruments of VCU or in companies listed or proposed to be listed on SME exchange and this shall be achieved by the VCFs by the end of its life cycle. For the purpose of market making, the VCF is required to enter an agreement with a merchant banker. [9]

Angel fund is a sub-category of VCF that raises funds from angel investors and invests in accordance with the prescribed provisions [10] .

VCFs are exempted from certain provisions of Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015 in respect of companies listed or proposed to be listed on SME exchange. [11]

SECURITIES AND EXCHANGE BOARD OF INDIA (FOREIGN VENTURE CAPITAL INVESTORS) REGULATIONS, 2000

Registration of foreign venture capital investors.

The applicant shall make an application to the Board in Form A along with the application fee. [12] The applicant should be granted the necessary permission by the RBI to make investments in India. Eligibility criteria are prescribed for the purpose of the grant of certificate to an applicant. [13]

Investment Conditions and Restrictions for a Foreign Venture Capital Investor

Investor shall disclose his investment strategy and it can invest all his funds in one VCF.

A Foreign Venture Capital Investor (FVCI) shall make investment in at least 66.67% of the investible funds in unlisted equity shares or equity linked instruments of VCUs or make an investment in not more than 33.33% of the investible funds by way of:

• subscription to initial public offer of a VCU proposed to be listed;
• debt instrument of a VCU in which the FVCI already has equity investment;
• preferential allotment of equity shares of a listed company subject to 1 year lock-in period. [14]

Obligations of a Foreign Venture Capital Investor

FVCI shall maintain books of account and records for a period of 8 years. It shall appoint a custodian for custody of the securities who shall monitor the investment. It shall furnish periodic reports to the SEBI and information as required/ called for by the SEBI.  It shall appoint a branch of a bank approved as designated bank by the RBI for opening of the foreign currency denominated account. [15]

SEBI MASTER CIRCULAR AND CIRCULARS

The SEBI master circular and circulars ensure an effective regulatory framework for VCFs and the SEBI. The SEBI specified guidelines stating that AIFs may invest in securities of companies incorporated outside India subject to the condition that they may invest in equity and equity linked instruments only of off-shore VCUs, subject to overall limit of USD 1500 million and mandating benchmarking of the performance of the VCFs which will help investors in assessing the performance of the VCF industry. [16]

In regard to the validity period of approval granted by the SEBI to VCFs for overseas investment, on recommendation of the Alternative Investments Policy Advisory Committee, it has been decided to reduce the time limit from 6 months to 4 months. [17]

VCFs are required to file an application to SEBI for allocation of overseas investment limit. In relation to an overseas investee company a VCF shall: [18]

• Invest in such a company, which is incorporated in a country whose securities market regulator is a signatory to the International Organization of Securities Commission’s Multilateral Memorandum of Understanding (MoU) or a signatory to the bilateral MoU with the SEBI.
• Not invest in a company, which is incorporated in a country identified in the public statement of the Financial Action Task Force.

VCFs shall furnish the sale/divestment details of the overseas investments to the SEBI in the format prescribed and an undertaking for the proposed investment shall be submitted to the SEBI by the trustee/board/designated partners of the VCFs. [19]

SECURITIES AND EXCHANGE BOARD OF INDIA (ISSUE OF CAPITAL AND DISCLOSURE REQUIREMENTS) REGULATIONS 2018

The regulations provide that FVCIs may contribute to meet the shortfall in promoters’ minimum contribution, subject to a maximum of 10% of the post-issue capital without being identified as promoter(s) [20] and contributions made by FVCIs in specified securities shall be locked-in for a period of 18 months from the date of allotment of the further public offer. [21]

SECURITIES AND EXCHANGE BOARD OF INDIA (SUBSTANTIAL ACQUISITION OF SHARES AND TAKEOVERS) REGULATIONS, 2011

Exemption in case of substantial acquisition of shares or voting rights.

A VCF or a FVCI registered with the SEBI, by promoters of the target company pursuant to an agreement between such VCF or FVCI and such promoters, who has acquired and holds shares or voting rights(VRs) and exercises 25% or more of the VRs in the target company but less than the maximum permissible non-public shareholding [22] , shall be exempt from the obligation to make an open offer [23] to acquire within any financial year additional shares or VRs in the company and exercise more than 5% of the VRs.

A VCF established in the form of a trust/ company/ body corporate and registered under the VCF Regulations is not considered as an investment vehicle for the purpose of the Foreign Exchange Management (Non-debt Instruments) Rules, 2019. [24]

INCOME-TAX ACT, 1961

Applicability of angel tax.

Recently, the Central Board of Direct Taxes has issued an amended Rule 11UA (2) of the Income Tax Rules and it provides that for Section 56(2)(viib) of the IT Act , where a taxpayer is a VCU who has received consideration from the issue of unquoted equity shares to a VCF, the price of such equity shares corresponding to such consideration be taken as the fair market value (FMV) of the equity shares for resident and non-resident investors provided that:

• the consideration from such FMV does not exceed the aggregate consideration received from a VCF; and
• the consideration received by the undertaking from a VCF, within 90 days before or after the date of share issuance. [25]

WINDING UP OF A VENTURE CAPITAL FUND

Intimation of the winding up of the VCF should be given to the SEBI. VCF can be wound up in the following circumstances: [26]

If the VCF is set up as a trust, it shall be wound up:

• When the tenure of the VCF or the scheme launched by the VCF, as mentioned in the placement memorandum is over; or
• If in the opinion of the trustees and in the interest of the investors the VCF should be wound up; or
• If 75% of the investors in the VCF pass a resolution at a meeting that the VCF should be wound up.

If the VCF is set up as a LLP, it shall be wound up as per the Limited Liability Partnership Act, 2008. If the VCF is set up as a company, it shall be wound up in accordance with the provisions of the Companies Act, 1956. If the VCF is set up as a body corporate, it shall be wound up as per the statute under which it is constituted.

India has come a long way in the journey of venture capital. With the increase in the number of start-ups, more and more investment opportunities are coming up in the sectors such as biopharmaceuticals, software, financial institutions and investors and so on. This shows the significance of flexible and up-to-date regulations incorporating latest developments. The Securities and Exchange Board of India issues various circulars and directions supplementing the current regulations and this helps in regulating and facilitating the influx of venture capital investments made by residents and non- residents in India.

[1] Report of Advisory Committee on Venture Capital.PDF (sebi.gov.in)

[2] Rebecca Baldridge, Understanding Venture Capital, dated 8 June, 2023 https://www.forbes.com/advisor/investing/venture-capital/ ; accessed on 17 October, 2023.

[3] SEBI | Data relating to activities of Alternative Investment Funds (AIFs) , accessed on 14 October, 2023.

[4] SEBI | SEBI notifies SEBI (Alternative Investment Funds) Regulations 2012 , accessed on 14 October, 2023.

[5] Sub- regulation (2) of regulation 3 of the SEBI (Alternative Investment Funds) Regulations, 2012.

[6] Clause (a) of sub- regulation (4) of regulation 3 of the SEBI (Alternative Investment Funds) Regulations, 2012.

[7] Explanation .─” For the purpose of this clause, Alternative Investment Funds which are generally perceived to have positive spillover effects on economy and for which the Board or Government of India or other regulators in India might consider providing incentives or concessions shall be included and such funds which are formed as trusts or companies shall be construed as “venture capital company” or “venture capital fund” as specified under sub-section (23FB) of Section 10 of the Income Tax Act, 1961.”

[8] Chapter II, Registration of Alternative Investment Funds of the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012.

[10] Sub- regulation (1) of Regulation 19A of the SEBI (Alternative Investment Funds) Regulations, 2012.

[11] Sub- clause (c) of sub- regulation (3) of regulation 16 of the SEBI (Alternative Investment Funds) Regulations, 2012.

[12] Regulation 3 of the SEBI (Foreign Venture Capital Investors) Regulations, 2000.

[13] Regulation 4 of the SEBI (Foreign Venture Capital Investors) Regulations, 2000.

[14] Regulation 11 of the SEBI (Foreign Venture Capital Investors) Regulations, 2000.

[15] Chapter IV of the General Obligations and Responsibilities of the SEBI (Foreign Venture Capital Investors) Regulations, 2000.

[16] SEBI Master Circular No. SEBI/HO/AFD/PoD1/P/CIR/2023/130 dated July 31, 2023, available at: https://www.sebi.gov.in/legal/master-circulars/jul-2023/master-circular-for-alternative-investment-funds-aifs-_74796.html , accessed on 13 October, 2023.

[17] SEBI Circular No. SEBI/HO/AFD/PoD/CIR/P/2023/137 dated August 04, 2023, available at: https://www.sebi.gov.in/legal/circulars/aug-2023/validity-period-of-approval-granted-by-sebi-to-alternative-investment-funds-aifs-and-venture-capital-funds-vcfs-for-overseas-investment_74979.html , accessed on 17 October, 2023.

[18] SEBI Circular No. SEBI/HO/AFD-1/PoD/CIR/P/2022/108 dated August 17, 2023, available at: SEBI | Guidelines for overseas investment by Alternative Investment Funds (AIFs) / Venture Capital Funds (VCFs) , accessed on 14 October, 2023.

[20] Sub-regulation (1) of regulation 14 of the SEBI (Issue of Capital and Disclosure Requirements) Regulations 2018.

[21] Clause (a) of regulation 115 of the SEBI (Issue of Capital and Disclosure Requirements) Regulations 2018.

[22] Sub- regulation (2) of regulation 3 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.

[23] Sub- clause (f) of sub- regulation (4) of regulation 10 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.

[24] Reserve Bank of India – Master Directions (rbi.org.in)

[25] Alerts: Direct Tax Alert – CBDT notifies amended Valuation Rules in respect of Angel tax, available on Direct Tax Alert – CBDT notifies amended Valuation Rules in respect of Angel tax – BDO , accessed on 18 October, 2023.

[26] Regulation 29 of the SEBI (Alternative Investment Funds) Regulations, 2012.

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Top 10 Venture Capital Firms in India | Best VC Firms of 2023

Souvik Dey , Anga Mahatara , Apoorva Bajj

Startup companies need a certain amount of investment for growth. Wealthy investors like to invest their capital in businesses with long-term growth in view. This capital is known as venture capital and the investors are called venture capitalists. The venture capital investment is made when a venture capitalist buys shares of companies and becomes a financial partner of their business.

The data recorded at the end of Q3 2019 states that the top 10 most active Venture Capital firms in India alone contribute to 32% of the total deal count in the startup ecosystem. The Venture Capital investment is often termed as risk capital or patient capital. This is because most VC investing capitals or rather a majority of them harbor tremendous risks of parting from the money invested if the venture doesn't succeed. Besides, the capital coming from venture capital firms or VC funds usually needs a medium to long-term period for the investments to fructify.

The Indian startups secured over $12.1 billion from the venture capital funds in the first 6 months of 2021, which is $1 billion more than the overall funding that they received last year. Venture Capital (VC) investment in India more than doubled from its previous quarterly high of $6.7 billion in Q2 2021 to $14.4 billion during Q3 2021 , according to a recent report by KPMG.

In the year 2021, the Indian startups have successfully managed to mop up $36 bn worth of funds and most of them came from the VC funding for startups and private equity investments, which increased by 3X from the earlier year. These funds are not only helping the startups find it easier to raise funds but are also adding gear to the Indian startup ecosystem, thereby making it a prominent and growing entity in the global landscape.

Citing information from Venture Intelligence, the total investments in the first half of 2023 stood at $3.8 billion , which is divergent from the substantial figure of $18.4 billion seen previously.

Top VC Firms in India -

• Peak XV Partners
• Blume Ventures

Elevation Capital

• Tiger Global Management
• Kalaari Capital
• Matrix Partners
• Nexus Venture Partners

Indian Angel Network

Omidyar indian network.

Features of Venture Capital Investments Methods of Venture Capital Financing

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StartupTalky is where founders, entrepreneurs, startups and businesses hang out and look up to for inspiration. If you have the means, we have the medium! Inviting founders and startups who are building sustainable solutions from ground zero! Startups who run the show, StartupTalky will let the world know!

Sequoia India & Southeast Asia has undergone a rebranding process and emerged as Peak XV Partners. Sequoia Capital the parent organization of Peak XV Partners is an American venture capital firm, headquartered in Menlo Park, California. Sequoia invests in both public and private companies. Sequoia Capital has invested in over 1000 companies since 1972, the list of which includes big names like Apple , Google , Oracle , Nvidia , Github , and more. It is mainly focused on the technology industry. Peak XV Partners has invested in companies such as JustDial, Knowlarity, Practo, iYogi, and bankbazaar.com. It has assets worth $5.4 billion under management in India and it is spread across seven funds.

Every six months, Sequoia shortlists 15 to 20 startups for each cohort and provides a capital investment of $1 Million to $2 Million with participation from other investors.

About Venture Capital

Accel, formerly known as Accel Partners, is an American venture capital firm based out of Palo Alto, California, US. The company has its offices in Palo Alto and San Francisco along with operating funds in India, China , and London . Some of the major companies that Accel has funded over the years are Facebook , Flipkart , Atlassian, Slack , Spotify , Etsy , and more.

Accel currently has assets of more than $1.6 billion under management. It has closed nearly six funds in India. The company's portfolio of funding Indian businesses includes names like Flipkart , Swiggy , Blackbuck, Cure.fit , and more. The firm’s growth capital investments focus on more developed companies that require a larger amount of capital to expand their business.

Accel secured a substantial sum of $650 million in 2022 for its seventh fund, known as Accel India VII. This fund supported early-stage startups in both India and Southeast Asia.

During the first quarter of 2023, the VC firm actively engaged in 12 investment deals with promising startups. Among the recipients of their investments were Zypp Electric, Kratos Studios, Rigi, and Brick&Bolt. Notably, Accel took part in a total of 48 investment deals over the course of 2022.

Accel is a venture capital firm that concentrates on the following technology sectors: Consumer, Infrastructure, Media , Mobile , SaaS , Security, Customer care services, Enterprise software, and E-commerce .

Blume Ventures is an early-stage and seed-stage venture fund that has its headquarters in Mumbai, Maharashtra , India. The company was founded in 2010 as a venture capitalist firm that aims to improve startup financing in India. Blume Ventures primarily focuses on tech companies. The company launched its first micro-VC fund in 2011, becoming the first institutionalized early-stage investor at that time.

Blume Ventures raised a $41 Million opportunity fund in 2020 , which was one of the largest domestic opportunity funds among the Indian venture capital funds designed to invest in best-performing portfolio companies. From this fund, Blume has invested in Series B to D rounds in firms like Unacademy and Servify . The company had nearly three other funds the last one was $102 Million before the COVID-19 pandemic in India. The VC firm has nearly $225 Million in total capital under management. Blume Ventures boasts of managing capital amounting to more than $280 million and has backed 150+ startups.

During the year 2022, the venture capital fund successfully concluded a funding round, securing a total of $250 million for its operations. This enabled them to support 31 Indian startups, notable among them being Lambdatest, Pixxel, and Jai Kishan, an agritech startup.

During the first quarter of 2023, Blume Ventures engaged in funding rounds for 20 startups, providing investments to notable companies including ApnaKlub, Virohan, ElectricPe, and Aerem.

SAIF Partners rebranded as Elevation Capital on October 20, 2020, is a stage and sector-agnostic private equity firm in Asia. The firm is headquartered in Gurugram, Haryana, India, and aims to make minor investments in seed-stage, early-stage, and later-stage companies. Elevation Capital (formerly known as SAIF Partners) was started as Softbank Asia Infrastructure Fund (SAIF) in 2001 with a $400 Million fund where Cisco Systems and Softbank Group were the sole limited partner.

When Elevation Capital started as SAIF Partners, it was headquartered in Hong Kong and was focused on China, India, Hong Kong, and Taiwan. In India, the venture capital firm has offices in Bengaluru and Gurugram . Elevation Capital had already invested in the early stages of companies like FirstCry , Just Dial , MakeMyTrip , Meesho , Paytm , ShareChat , Swiggy, and more. The firm has doubled its investment in Indian firms in 2020 into new segments like edtech, health tech enterprise software-as-a-service (SaaS), entertainment, and direct-to-consumer startups .

Tiger Global Management LLC operates as an investment firm that is focused on public and private companies in the global Internet, software, consumer, and financial technology industries. The mission is to generate world-class investment returns over the long term. It builds a unique, global investment platform. They invest in high-quality companies that benefit from powerful secular growth trends and are led by excellent management teams.

Tiger Global Management was founded in 2001 and is headquartered in New York, US, and is one of the most global investors in Indian startups that has started investments of around $300 Million . It has backed more than 13 companies, including a $90 Million round in agri-tech startup Ninjacart and a $60 Million infusion in B2B industrial goods marketplace Moglix in the first half of FY19 .

The company is said to have invested in more than 442 companies across the globe with 7 designated funds. It has also witnessed 64 exits since its inception in 2001. In India, this VC firm has invested in more than 97 startups. Tiger Global is reported to have raised the highest amount of capital amongst venture capital firms between 2007 and 2017. In 2020, Tiger Global helped its investors earn around $10.4 billion, which is more than any other hedge fund on the annual list of London fund-of-funds firm LCH Investments' top 20 managers.

Razorpay had been among the companies, which includes Urban Company, Flipkart, Moglix, and more that Tiger Global Management had invested. In the first half of 2019, Tiger Global Management made its founder, Coleman, the top-earning US hedge fund manager in 2020 where the company had mopped in around $3 billion in fees and gains on investments.

In mid-2022, Fund 15 concluded its fundraising with an impressive total of $12.7 billion, showcasing a significant growth of 2 times compared to the 16th equity fund announced in October.

In June 2023, Tiger Global successfully secured $2.7 billion for its new fund, though it fell below its initial target of $6 billion.

Kalaari Capital, founded in 2006 in Bengaluru by Vani Kola . It focuses on technology-related companies in India. Till now it has made more than 92 investments across 3 funds and witnessed more than 15 exits from companies like Myntra and Snapdeal . It has also made a partial exit from Zivame .

Kalaari Capital manages $650 Million in assets under management. It boasts of a strong advisory team in Bangalore investing in the early stage. Kalaari is passionate about investing in entrepreneurs who are poised to be tomorrow's global leaders. This firm had funded $290 Million in 2015, which was the largest fund by an Indian VC at that time.

Matrix Partners is a US-based private equity investment firm focused on venture capital investments. The firm invests in seed and early-stage companies in the United States and India. It mainly concentrates on the software, communications, semiconductors , data storage, Internet, or wireless sectors. Matrix has invested in Apple Computer, Alteon WebSystems, and Office Club. It is said to have nearly $1 Bn as assets under management (AUM) . The company has invested in more than 549 companies throughout the world with its second fund. Online gaming platform Zupee raised $10 Million in a funding round led by US-based growth equity firm WestCap Group and existing investor Matrix Partners India .

The firm has also noted 120 successful exits from companies like HubSpot and Oculus. The firm entered India back in 2006 under the leadership of general partners Avnish Bajaj and Rishi Navani .

Nexus Venture Partners was founded in 2006. Silicon Valley and Mumbai-based venture capital firm, Nexus Venture Partners is the first India-US venture fund. The company has grown to be a popular venture capitalist firm that has helped a list of companies to raise funds like WhiteHat Jr. , Rapido , Delhivery , Zomato , and more.

The firm makes investments in early-growth stage companies with an average ticket size of $500K-$10 Million . The firm had raised $100 Million in its first fund . It is said to have more than $1.4 Billion in assets under management as of FY 19. The firm has invested in over 100 startups such as Zomato, Snapdeal, Delhivery, Goodera, etc. Its successful exits include Gluster, Gitter, ElasticBox, and MapMyIndia among others.

By March 2023, Nexus Venture Partners had successfully raised a total of $2.6 billion in funding in a span of seven funds.

Founded in 2006, in New Delhi, India , Indian Angel Network (IAN) is a group of primarily Indian angel investors funding early-stage startups. The group had 450 members from 11 countries in 2017. Indian Angel Network, India's first and Asia's largest angel network brings together successful entrepreneurs and CEOs. The group has invested in companies, such as PregBuddy and SuperProfs . In 2018, one of its founders Padmaja Ruparel was ranked amongst Fortune (magazine) 's list of The Most Powerful Women in India.

On Nov 8th, 2020, the Indian Angel Network (IAN) announced the joint with Bangladesh Angels Network (BAN) . The aim is to work together to source, cross-refer, and promote linkages in technology-enabled startups in India and Bangladesh to create an enabling environment for venture investing in both ecosystems. IAN is a SEBI-registered early-stage fund with more than 470 investors from around 11 countries. It aims at investing up to $1 Million , with an average ticket size of about $400K-$600K .

By October 2022, Indian Angel Network had successfully raised a total of ₹20.5B billion in funding in a span of four funds.

Omidyar Network India was founded in 2004. Omidyar Network India is an investment firm focused on social impact . The company looks to invest in startups that are helping to build more inclusive and equitable societies for the benefit of many. It provides grants to nonprofits in the areas of digital identity, education, emerging technologies , financial services, and more. The company started ReSolve Initiative, which is designed to invest in building solutions for two long-standing themes – MSMEs and migrant workers . The initiative will look to entrepreneurs, thought leaders, and policymakers to come together to reframe and resolve the issues plaguing these areas.

It has invested over $300 Million into the Indian startup ecosystem . The company has also decided to invest an additional $350 Million (INR 2486 Cr) in the upcoming five years. By this investment, the social impact investment firm also wants to target 500 Million individuals , who have just started using smartphones.

Features of Venture Capital Investments

• High-risk investment
• High Tech projects
• Participation in Management
• Length of Investment
• Illiquid Investment

Methods of Venture Capital Financing

• Equity financing - Equity financing is the raising of funds by selling the shares of the company. Sometimes companies need money for short-term or long-term investments and the sale of shares proves beneficial in the way that they simply sell their shares or the ownership of the company in return for cash
• Participating debentures - This is the form of raising capital from venture capitalists and other companies in different phases with varying interest rates. Here, the initial seed round comes without any interest, however, the successive rounds, as the startup grows, are chargeable at increasing interest rates.
• Conditional loan - Conditional loans are another way of raising funds that do not carry interest. These loans can be availed by startups and other companies to meet their funding needs but they need to be repaid to the lender in the form of royalty once the company starts making revenue. The rate of royalty varies from (2-15)% based on several factors like the gestational period, external risk, and more.
• Income note - Income notes can be categorized under hybrid financing that is similar to traditional and conditional loans in characteristics when combined. In this form of a fund raised the company for which they have to have both royalty and interest but at comparatively lower rates.
• Convertible loans - Going by the term, "conditional" loans are the loans that are provided to startups and other business ventures on the condition that if the loan amount is not paid within a stipulated time they can then convert the same into equity.

The venture capitalist provides the funding knowing that there’s a significant risk associated with the company’s future profits and cash flow. Capital is invested in exchange for an equity stake in the business rather than given as a loan.

What is a Venture Capital investment company?

A venture capital investment company is an investment firm that invests in startups and mentors them for their growth. Venture capital firms are generally made up of well-off investors, investment banks, and other financial institutions.

How many Venture Capital firms are there in India?

There are over 800+ venture capital firms in India, as of 2022.

What are the top Venture Capital firms in India?

Some of the top Venture Capital firms in India are:

• SAIF Partners
• India Angel Network
• Omidyar Network India

What are Corporate Venture Capital funds?

Corporate Venture Capital funds can be defined as the corporate funds that the Corporate Venture Capital firms invest directly in the external startup companies.

To list some of the top corporate venture capital firms:

• Brand Capital
• Amazon and Amazon Alexa Fund
• Google and Google Ventures
• Unilever Ventures
• Samsung Ventures
• Intel Capital
• Bain Capital Ventures
• Reliance Capital
• Mahindra Partners
• Experian Ventures
• Lodha Ventures

How to raise venture capital for a tech startup?

If you are looking to raise venture capital for a tech startup that is on your mind, then here are some decent ideas that you can go for to raise some venture capital:

• Set out with a powerful business idea
• Make a unique and foolproof business and revenue model
• Make a list of the criteria for getting funds from a specific list of venture capitals
• Know your venture capital firms
• Prepare your pitch
• Reach out to prominent venture capital firms politely and confidently
• Speak well and support your statements with research data
• Communicate your ideas clearly
• Establish your value propositions well
• Wait for the results

What are early stage VC firms?

The early stage VC firms are the venture capital firms that are typically known to support startup businesses in their earlier stages of growth. These stages also include the beginning phase when the projects are still in the market research and development stage.

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The Venture Capital Case Study: What to Expect and How to Survive

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There’s plenty of information online about case studies in finance interviews (IB, PE, etc.), but the venture capital case study remains a bit mysterious.

Depending on your source, a VC case study might consist of a “ cap table ” exercise where you calculate the company’s ownership over many investment rounds and the proceeds to each group upon exit…

…but it could also be a qualitative discussion of a market, an evaluation of a specific startup, or even a simple 3-statement model .

But if you’re interviewing at an early-stage VC fund (i.e., Seed and Series A investments), the most common type is the “Evaluate a startup and recommend investing or not investing” one.

The VC firm might give you a short investment memo or slide deck for the company, ask you to read it, and then say “yes” or “no” based on your analysis and interpretation.

We’ll go through a short example for a fictional startup called PitchBookGPT , which comes directly from our new Venture Capital & Growth Equity Modeling course .

This is a summary version, but it should be enough to give you some practice:

The Video Tutorial and the Files

If you prefer to watch or listen to this tutorial, you can get the 14-minute video walkthrough below:

If you prefer to read, you can continue with this article.

You can get the files, including the company’s pitch deck, here:

• PitchBookGPT – Seed Round Pitch Deck (PDF)
• Venture Capital Case Study Prompt (PDF)
• Venture Capital Case Study Solutions and Investment Recommendation (PDF)
• Case Study Walkthrough and Explanation – Slides (PDF)
• SaaS Valuation Multiples and Historical Data (PDF)

Video Table of Contents:

• 0:00: Introduction
• 1:58: Part 1: What to Expect in VC Case Studies
• 3:10: Part 2: What Do VCs Want in Early-Stage Investments?
• 4:51: Part 3: “The Numbers” for PitchBookGPT
• 8:16: Part 4: The Market, Product, and Team
• 11:45: Part 5: Recommendation and Counter-Factual
• 13:04: Recap and Summary

This Venture Capital Case Study Example: PitchBookGPT

In short, this startup is riding the AI hype train and plans to offer a subscription service that will automate parts of the pitch book creation process at investment banks.

It won’t replace Analysts or Associates because it can’t create entire presentations with all the correct details.

But it speeds up the process by generating slide templates based on your queries, presentation data, and free examples on the sec.gov site .

For example, if you type in “ SPAC vs. IPO ” or “Market overview slide with monetary and fiscal factors,” the software will generate sample slide images, and you can click the one you want to get an editable PowerPoint version:

The “artificial intelligence” part comes in because simple keyword searches do not work well when searching for specific slides; a slide’s purpose often differs from its text .

Also, machine learning could work well for a problem such as converting slide images into editable PowerPoint templates.

This is much trickier than it sounds for moderately complex slides, and a rules-based system is less efficient than using huge data sets for the image-to-slide translation.

This startup claims that its service can boost Analyst productivity by 30% and generate millions in extra fees for the average bank, and it plans to sell it to boutique banks for $2,000 per month.

They want a $2 million seed investment at a $20 million post-money valuation, meaning that we (the VCs) will own 10% if we invest.

So, should we do the deal?

What Do Venture Capitalists Look for in an Early-Stage Investment?

To answer this question, you need to think about what early-stage VCs look for in deals.

Most early-stage companies do not have revenue, but they do have markets and teams .

Since early-stage investing is so risky, VCs seek opportunities with the potential for very high cash-on-cash multiples , such as 10x in Series A rounds or 100x in Seed rounds.

To be clear, these are the targeted multiples.

Most startups fail, and even the ones that succeed do not come close to a 100x multiple in most cases.

Since this failure rate is so high, early-stage VCs need to aim high by finding companies with the potential to serve huge markets.

Here’s a summary of the different stages:

Since the asking valuation is $20 million, we can reframe this case study as:

“Could this company potentially reach 100x that valuation, or $2 billion? If not, what about something like 10 – 20x, for a $200 – $400 million valuation?”

You can answer this question by doing some quick math and qualitatively evaluating the market, product, and team.

Venture Capital Case Study, Part 1: The Numbers

In its slide deck, this company claims that there are ~4,000 boutique banks worldwide with 1 – 20 employees and that these banks alone can support a $100 million market size (since 4,000 * $2,000 / month * 12 months = $96 million).

They plan to target these smaller and mid-sized banks because they’re easier to reach and they have fewer resources for pitch book creation.

But this company makes a common mistake with this claim: it assumes it will capture 100% of this market.

That never happens in real life, even in a narrow niche like this one – because there are competitors and many firms that don’t need the product.

In large markets (tens or hundreds of billions of dollars), capturing even a tiny percentage might be a good result.

In a narrower market like this one, something like 10 – 20% might be plausible if the company executes well.

That means a more realistic revenue estimate is $10 – $20 million.

Startup / SaaS Valuation

Subscription software companies are usually valued based on a multiple of annual recurring revenue (ARR) , and this multiple is typically between 5x and 10x for public companies (more on SaaS accounting ):

If we apply these multiples to the company’s revenue estimates, we get a valuation range of $50 million (5x * $10 million) to $200 million (10x * $20 million).

This is a great result for the company, but it’s far below what most seed-stage VCs want.

A $50 million exit value would be a 2.5x multiple, while a $200 million exit value would be a 10.0x multiple.

And these numbers represent the potential outcomes and assume that everything goes well.

Also, these numbers do not account for the dilution in future funding rounds.

This 10% ownership will likely fall to 7%, 5%, or even 3% as the startup raises money in the Series A, B, and C rounds, which means even lower returns multiples.

You might say, “OK, but couldn’t this company’s revenue go much higher? They should charge per user , not per firm, for this service” (so the Average Revenue per User would be higher).

And that leads us to the next point about the qualitative evaluation of the market, product, and team.

Venture Capital Case Study, Part 2: The Market, Product, and Team

I wouldn’t say this company’s product is “terrible” – I’ve seen much worse startup ideas.

But it faces a “no man’s land problem” because the ideal customers differ from the reachable customers .

Boutique banks tend to be much more cost-conscious than large firms and don’t necessarily want to add a $2,000 monthly expense for multiple employees.

If a boutique bank needed this service for 5 Analysts, $2,000 per user per month would mean $120K per year , which is about the cost of hiring a full-time Analyst.

Many small banks would look at this and say, “OK, it speeds up presentations… but for that price, we could hire another Analyst and get client support, Excel work, and more.”

Also, small banks depend far less on long and detailed pitch books than large banks.

Most new deals come from longstanding relationships, not inbound inquiries or bake-offs / beauty pageants .

PitchBookGPT could target large banks ( the bulge brackets ) instead, as they are more willing to pay for training and productivity tools.

This service would be more useful for large firms because they tend to produce the 100+ slide pitch books where automation tools could save time.

However , it’s also much more difficult to close deals in this market, and compliance concerns mean these banks are less willing to share their data with external parties.

Could you imagine Goldman Sachs or Morgan Stanley uploading all their pitch books and slides to a VC-funded startup that may not even exist in a year?

Here’s my summary of the product/market fit problem:

Other Points in This Venture Capital Case Study

We don’t have time to analyze the team or the expected use of funds for this $2 million investment, but you would consider both in real life.

In short, they’re “fine but not amazing” – some of the budget numbers seem a bit too low (e.g., for the engineers), while others are on the high side (sales & marketing), but nothing seems completely crazy.

Similarly, the team (all fake names and bios) has relevant experience but looks a bit “junior,” so we’re neutral on them.

Our Final Decision

In short, we’d say no to this deal because we think a 100x multiple in any reasonable time frame – such as 5 or even 10 years – is implausible.

A 5 – 10x multiple might be feasible, but that’s not a great “stretch goal” for a seed-stage deal.

To reach a $1 – 2 billion valuation, the company would need hundreds of millions in annual revenue, and we don’t think that’s realistic for its business model and market.

The company could develop a different product or offer higher-end services to larger firms, but it doesn’t even have a “Version 1.0” yet, so that would be putting the cart before the horse.

You can view the full recommendation here .

What Would Change Our Mind?

If a few factors were different, we might be more inclined to recommend this deal:

• Per-Seat Pricing – Maybe they can’t charge $2,000 / user / month, but even something like $1,000 / user / month could increase potential revenue at many firms.
• Lower Asking Price – While a $2 million seed investment at a $20 million post-money valuation is not unheard of, it is aggressive. If the asking valuation were only $5 – 10 million, the deal math would be more feasible (maybe not for a 100x multiple, but something like 20 – 30x).
• Higher-End Product – For example, banks might be willing to pay more if this product could replace employees rather than just boost their productivity. But that would require far more capital to develop and might require technology that doesn’t exist.

The Venture Capital Case Study: Final Thoughts

In short, unlike many startups, this PitchBookGPT idea isn’t necessarily “bad.”

There are proven markets for productivity tools, slide templates, and reference models in both PowerPoint and Excel.

But the problem is that this isn’t a great early-stage VC idea – at least not for the deal terms the company wants.

That’s not great news for this fictional company, but it is reassuring if you’re a junior banker worried about getting replaced by AI anytime soon.

It probably won’t happen – and in the near term, these new tools might even improve your life.

If you liked this article, you might be interested in:

• The Growth Equity Case Study: Real-Life Example and Tutorial
• The Full Guide to Healthcare Private Equity, from Careers to Contradictions
• Healthcare Investment Banking: The Best Group to Check Into When Human Civilization is Collapsing?

About the Author

Brian DeChesare is the Founder of Mergers & Inquisitions and Breaking Into Wall Street . In his spare time, he enjoys lifting weights, running, traveling, obsessively watching TV shows, and defeating Sauron.

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2 thoughts on “ The Venture Capital Case Study: What to Expect and How to Survive ”

This was a good read!

I noticed that you have a typo under the “slide dick”, right after the header of part 1 case study – or was that meant to be intentional ?

Thanks for pointing that out (fixed now). Nope, not intentional, somehow both spelling and grammar check missed it, and so did I (one issue when you stare at these documents all day…).

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